Question

______  16.  Each of the following is a typical source of long-term capital for a firm EXCEPT

                                                A.  Accounts Receivable.

                                                B. long-term debt.

                                                C.  preferred stock.

                                                D.  common stock.

______  17.  ____________________________ is the process of evaluating and selecting long-term

                                                investments that are consistent with the firm’s goal of maximizing owners’ wealth.

A. Compounding

B. Capital budgeting

C. Normalizing

D. Underwriting

______  18.  ________________________ are projects whose cash flows in a capital budgeting analysis are

                                                unrelated to one another.  I.e., accepting one project does not prevent the firm from doing the

                                     other project, also.

A. Mutually exclusive projects

B. Null projects

C. Independent projects

D. Diversified projects

______  19.  A firm that needs increased production capacity could obtain it by

A. expanding its plant.

B. acquiring another company.

C. contracting with another company for production.

D. A and B.

E. A and B and C.

______  20.  Typically, firms operate under __________________________, as they have only a fixed

                                                amount available for capital expenditures.

A. capital rationing

B. free will funding

C. last-in, first-out standards

D. the “investment first” principle

______  21.  The _____________________ method measures how long (in years and/or months) it takes

                                                to recover the initial project investment, based on the project’s cash inflows.

A. “Net Present Value” (NPV)

B. “Internal Rate of Return” (IRR)

C. payback period

D. Profitability Index (PI)

______  22.  Each of the following is considered to be an advantage of the payback period capital budgeting

                                                methodEXCEPT

A. it uses discounted cash flows in its analysis.

B. it is simple and intuitive to use.

C. it considers cash flows, rather than accounting profits.

D. it can be used as a supplement to other capital budgeting methods.

______  23.  With the “Net Present Value” (NPV) method of capital budgeting, a firm would undertake a

                                                project only if

A. the project’s payback period is less than 3 years.

B. the present value of the cash flows that the project generates is greater than the cost of

making the investment.

C. the present value of the cash flows that the project generates is less than the cost of

making the investment.

D. the project cost is less than $1,000,000.

______  24.  When using the “Net Present Value” (NPV) method for capital budgeting analysis,

A. if NPV > $0, then the project will be accepted.

B. if NPV < $0, then the project will be rejected.

C. A and B.

D. None of the above.

______  25.  When companies evaluate investment opportunities using the “Profitability Index” (PI)

                                                analysis method, the firm will

A. invest in the project when the Profitability Index is less than 1.0.

B. invest in the project when the Profitability Index is greater than 1.0.

C. invest in the project only when the prime interest rate on the market exceeds 5%.

D. invest in the project only when the project’s Profitability Index has exceeded 1.0 for

three consecutive years.

______  26.  The firm’s “operating breakeven point” (OBP) is

A. the level of operations at which the dividend payment to shareholders is maximized.

B. the level of sales necessary to cover all operating expenses.

C. the level of operations at which the firm’s sales revenue exactly equal the firm’s

“Total Assets.”

D. the level of profits at which the firm’s Price/Earnings (P/E) ratio is maximized.

______  27.  Each of the following is an example of a fixed cost for a manufacturing firm EXCEPT

A. Rent Expense on the production facility.

B. insurance premium costs to insure the production facility.

C. property taxes owing on the production facility.

D. cost of the electricity expense to run the line production equipment.

______  28.  Generally, if ____________________ increase, then a firm’s operating breakeven points will

                                                also increase.

A. fixed operating costs (FC)

B. variable operating cost per unit (VC)

C. dividend payments per share

D. A and B and C

E. A and B

______  29.  Effective capital structure decisions for a firm can

A. lower the firm’s cost of capital.

B. result in higher “Net Present Value” (NPV) outcomes for capital budgeting projects the

firm undertakes.

C. result in more capital budgeting projects being accepted.

D. A and B and C.

______  30.  Each of the following is a possible source ofequitycapital for a firm EXCEPT

                                                A.  long-term bonds.

                                                B.  preferred stock.

                                                C.  common stock.

                                                D.  retained earnings.