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Financial Management Final Exam 100- SURE ANSWERS_.pdf
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8/29/24, 5:29 PMFinancial Management Final Exam
Jeremiah
Terms in this set (172)
Which of the following would be considered Pfizer develops a new therapy and brings it to market.
a capital budgeting decision?
Which of the following is a typical capital Replacement of manufacturing equipment with more modern and efficient equipment
budgeting decision?
Project Sigma requires an investment of $1 Both projects should be accepted because they have positive NPV's.
million and has a NPV of $10. Project Delta
requires an investment of$500,000 and has a
NPV of $150,000. The projects involve
unrelated new product lines. The firm can
raise unlimited amounts of capital.
Project H requires an initial investment of H will always be preferable to T.
$100,000 and the produces annual cash
flows of $50,000, $40,000, and$30,000.
Project T requires an initial investment of
$100,000 and the produces annual cash
flows of $30,000, $40,000, and $50,000. If
the required rate of return is greater than 0%
and the projects are mutually exclusive
All of the above:
A.If they are mutually exclusive, this project should be preferred to one that has an NPV
of $850,000.
Suppose you determine that the NPV of a
project is $1,525,855. What does that mean? B.The project would add value to the firm.
C.The present value of positive cash flows exceeds the present value of negative cash
flows.
1/11
, 8/29/24, 5:29 PM
NPV =
Which of the following is a correct equation minus−
to solve for the NPV of the project that has $30,000 +
an initial outlay of $30,000, followed by $15,000/(1.10)1
incremental cash inflows in the next 3 years +
of $15,000, $20,000, and $30,000? Assume a $20,000/(1.10)2
discount rate of10%. +
$30,000/(1.10)3
all of the above:
A. the irr will be higher than the required rate of return.
If a project has a profitability index greater
than 1,
B. the present value of future cash flows will exceed the amount invested in the project.
C. the npv will also be positive.
A new forklift under consideration by Home The internal rate of return.
Warehouse requires an initial investment of
$100,000 and produces annual cash flows of
$50,000, $40,000, and $30,000. Which of the
following will not change if the required rate
of return is increased from 10% to 12%.
Aroma Candles, Inc. is evaluating a project NPV and IRR
with the following cash flows. The project
involves a new product that will not affect
the sales of any other project. Which two
methods would always lead to the same
accept/reject decision for this project,
regardless of the discount rate?
Year Cash Flows
0 ($120,000)
1 $30,000
2 $70,000
3 $90,000
We compute the profitability index of a dividing the present value of the annual
capital−budgeting after−tax
proposal by cash flows by the cost of the project.
T or F: The payback method focuses True
primarily on the length of time required to
recover the cost of the investment rather
than estimating the total value the project
will add to the firm.
T or F: One advantage of the payback True
method is that it can be readily understood
by people with no special training in finance.
T or F: The profitability index provides the True
same accept/reject decision result as the net
present value (NPV) method but would not
necessarily rank mutually exclusive projects
the same way.
T or F: If the NPV of a project is zero, then True
the profitability index should equal one.
Financial Management Final Exam
2/11
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