Question

IL. True or False (20 points, 2 point each) No. Answer 1. Marginal cost is based on the principle that an additional unit of production will only entail an increase in the fixed costs and that the variable costs will not be affected. 2. The greater the balance you have in your account, the slower your savings will grow 3. In case of capital rationing, we should accept project with the highest positive NPV 4. Interest Rate measures the coupon payment as a percentage of the bond's face value. The interest rate is fixed when the bond is issued. 5. As long as investors agree about a firm's prospects, they will also agree on the value of the stock. 6. If investors believe a company will have the opportunity to make every profitable investment in the future, they will pay more for the company's stock today. current share price, the growth rate must exceed the discount rate. today and earn interest on it. 7. When we use the Constant-Growth Dividend Discount Model to calculate the 8. Money today is worth more than money in the future because you can invest money 9. In order to have a permission to go ahead with your investing project, you need to draw up a detailed proposal setting out particulars of the project, cash-flow forecasts, and present value calculation, all these are about Capital Budget. 10. The decisions rule for investment timing is to choose the investment date that produces the highest net present value today

Answer 1

Answer

1. False

Reason - fixed cost remain constant and variable cost increases with each unit of additional production in marginal costing

2. False

Reason- Your savings will grow fast if you are having more balance in your account because you can earn more interest on remaining balance.

3.True

Reason- Positive NPV means you can earn more by investing in that project. because your inflows will be more than your investments.

4. True

Reason - the above statement is fully true .

5. True

Reason - it is partly true because stock is traded in market it has both systematic and unsystematic risk so investor may go with company and stock prospects similarly.

6. true

reason- future is growing it is a good news so investor will agree to pay more today.

7. false

reason- discount rate to be less than growth in constant growth model

8 true

reason - Because of time value of money money value decreases in future.

9- true

Reason- capital budgeting is require more analysis for project success and we have to check required data.

10. partly true

Reason - it may depend upon risk of project