Corporate Finance Exam with Answers
Posted on May 10, 2012 by Sam
Corporate Finance, Chapters 8, 9 & 10. Exam Questions:
1. A project’s opportunity cost of capital is: A. The forgone return from investing in the project. 2. Which of the following statements is correct for a project with a positive NPV? A. The IRR must be greater than 1. 3. What is the NPV of a project that costs $100,000 and returns $50,000 annually for 3 years if the opportunity cost of capital is 14%? C. $16,085 4. The decision rule for net present value is to: C. Accept all projects with positive net present values 5. What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for 3 years, and the cost of capital is 9%? C. $126,565 6. What is the NPV for the following project cash flows at a discount rate of 15%? [C0= ($1,000), C1= $700, C3= $700.] C. $138 7. Which mutually exclusive project would you select, if both are priced at $1,000 and your discount rate is 15%: Project A with three annual cash flows of $1,000; or project B, with 3 years of zero cash flow followed by 3 years of $1,500 annually? A. Project A 8. What is the approximate IRR for a project that costs $100,000 and provides cash inflows of $30,000 for 6 years? A. 19.9% 9. What is the IRR of a project that costs $100,000 and provides cash inflows of $17,000 annually for 6 years? A. 0.57% 10. Firms that make investment decisions based on the payback rule may be biased toward reject projects: B. With long lives 11. Projects that are calculated as having negative NPVs should be: D. Rejected or abandoned 12. If the adoption of a new product will reduce the sales of an existing product, then the: C. Incremental benefits of the new product may be overestimated. 13. The value of a proposed capital budgeting project depends on the: B. Incremental cash flows produced. 14. The rational e for not including sunk costs in capital...
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