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    Investment Rejection, Cost of Capital & After-tax Effects

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    Question 1
    The automatic rejection of one investment upon the acceptance of another investment is the definition of:
    b)differential analysis
    c)unequal time periods
    d)mutually exclusive investments

    Question 2
    The cost of capital is sometimes referred to as:
    a)the discount rate
    b)the hurdle rate
    c)the required rate of return
    d)All of these answers are correct.

    Question 3
    If the appropriate tax rate is 30%, the after-tax effect of an $100,000 savings in labor cost is:
    a)$30,000 net after-tax cash outflow
    b)$30,000 net after-tax cash inflow
    c)$70,000 net after-tax cash outflow
    d)$70,000 net after-tax cash inflow

    Question 4
    ________ is not a common way to recognize risk.
    a)Increasing the minimum desired rate of return for riskier projects
    b)Reducing individual expected cash inflows by an amount that depends on their risk
    c)Increasing expected cash outflows by an amount that depends on their risk
    d)Increasing the expected life of riskier projects

    Question 5
    Long-term planning for making and financing investments that affect financial results for more than the current year is called:
    a)operational budgeting
    b)capital budgeting decisions
    c)strategic analysis
    d)sensitivity analysis

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    Solution Preview

    1. d)mutually exclusive investments
    Mutually exclusive investments are those which cannot be accepted together, only one of them can be accepted

    2. d)All of these answers ...

    Solution Summary

    3 multiple choice questions on cost of capital, after-tax effect on savings and auto-rejection of investments are answered with explanation.