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9 Cards in this Set
- Front
- Back
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Most preferred stock is...
a. cumulative and nonparticipating. b. noncumulative and nonparticipating. c. cumulative and participating. d. noncumulative and participating. |
a. cumulative and nonparticipating. |
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Which of the following would reduce a firm’s weighted average cost of capital (WACC)?
a. The firm expands into a risky new area. b. The Federal Reserve tightens credit. c. Investors become more risk averse. d. The firm merges with another firm whose earnings are countercyclical to those of the first firm and to the stock market. |
d. The firm merges with another firm whose earnings are countercyclical to those of the first firm and to the stock market. |
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A company may not want to use more debt in its capital structure since.. a. The cost of debt is always higher than the cost of common equity for any given form b. Doing so could cause costs of debt and equity to rise. |
b. Doing so could cause costs of debt and equity to rise. |
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Projects with _______ cash flow streams _______ have multiple internal rates of return (IRRs). a. Non-normal ... alwaysb. Normal ... sometimesc. Normal ... alwaysd. Non-normal ... sometimes |
d. Non-normal ... sometimes |
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Which of the following is most correct?
a. The graph of an NPV profile intersects the vertical axis at the IRR. b. It is possible for a project with a given set of cash flows and a given cost of capital to have multiple NPVs. c. For independent projects with normal cash flows, the NPV and IRR methods always give the same accept/reject decision. d. When a project’s IRR exceeds WACC, its NPV is negative |
c. For independent projects with normal cash flows, the NPV and IRR methods always give the same accept/reject decision. |
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What is the main advantage of the discounted payback period method over the regular payback period method?
a. The discounted method accounts for the time value of money. b. The discounted method accounts for the cash flows after payback occurs. c. The discounted method always agrees with the NPV method, whereas the regular method does not. d. The discounted method provides a measure of a project’s liquidity and risk, whereas the regular method does not. |
a. The discounted method accounts for the time value of money. |
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The internal rate of return (IRR) method assumes that cash inflows from a project are reinvested at…
a. the IRR. b. the risk-free rate. c. 0%. d. the WACC. |
a. the IRR. |
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Based on all the info presented in lecture l, which capital budgeting decision rule has the fewest inherent flaws and is generally regarded as the "best" method ? a. NPV b. Payback Period |
a. NPV |
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The net present value method assumes that cash inflows from a project are reinvested at.. a.The IRR b. The WACC c. The NPV |
b. The WACC |
