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Question 1.1. Capital budgeting is the process of decision making with respect to investments made in ________. (Points : 1)

fixed assets
manipulated assets
variable assets
controlled assets

Question 2.2. Without question, it is easier to ________ profitable projects or investments in fixed assets, a process referred to as capital budgeting, than it is to ________ them. (Points : 1)

find, evaluate
plan, complete
evaluate, find
complete, plan

Question 3.3. A firm is considering developing a new product, which will cost $60,000. The free cash flows resulting from the project are provided in the table below:

The required rate of return is 6%. What is the net present value? (Points : 1)

($53,700.31)
$24,767.96
$134,787.58
$10,554.32

Question 4.4. A firm’s maximum desired payback period for a project costing $11,000 is two years. Based on this criterion, which project should be chosen?
(Points : 1)

Project A
Project B
Both projects meet the criterion.
Neither project meets the criterion.

Question 5.5. A firm’s maximum desired discounted payback period for a project costing $11,000 is 2 years. Based on this criterion, which project should be selected?
(Points : 1)

Project A
Project B
Both projects meet the criterion.
Neither project meets the criterion.

Question 6.6. A firm expects to spend $15,000 on Project C. In year 1, it forecasts a cash flow of $8,000; in year 2, $5,000, in year 3, $3,000; and in year 4, $3,000. What is the internal rate of return for this project? (Points : 1)

12.66%
17.33%
5.14%
d 3.31%

Question 7.7. Use the table below to calculate the internal rate of return (IRR) for projects A, B, and C. A firm wants at least a 14% return. Which project meets that criterion?

(Points : 1)

Project A
Project B
Project C
Projects A and C are too close to make a choice evident.

Question 8.8. A company considers Project B and C, which are presented in the table below. Which of the following statements is TRUE?
(Points : 1)

Project B’s advantage over Project C is that it lasts an additional year, which is relevant to the unequal lives problem.
Project C’s advantage over Project B reflects the time-disparity problem in that it more quickly results in high cash flows.
The profitability index clearly indicates that Project B is the better choice.
Net profit value clearly indicates that Project C is the better choice.

Question 9.9. Which of the following is not used to rank proposed projects? (Points : 1)

dividend growth model
profitability index
net present value
discounted payback period

Question 10.10. ________ is when a firm has a maximum amount of money it is willing to spend on new investments. (Points : 1)

Equity
Budget cap
Capital rationing
Capital budgeting

Question 11.11. A company is considering a $12,000 investment in a project with the following predicted cash flows in the subsequent four years: $5,300; $4,000; $3,800, and $3,000. It requires a 15% return. What is the profitability index for this investment, and what does it suggest? (Points : 1)

Because the profitability index is 1.04, the company should accept the opportunity.
Because the profitability index is 1.04, the company should reject the opportunity.
Because the profitability index is 0.987, the company should accept the opportunity.
Because the profitability index is 0.987, the company should reject the opportunity.

Question 12.12. Variable cost varies directly with ________ and is primarily composed of raw materials, direct labor, utilities, and selling costs. (Points : 1)

quantity sold
fixed costs
output
input

Question 13.13. ________ costs are not correlated in any way with the firm’s sales, including executive salaries, depreciation, insurance, property taxes, and the like. (Points : 1)

Variable
Direct
Fixed
Flotation

Question 14.14. Assume we have total fixed costs of $18,000 and a product that we sell for $45 a unit. If variable costs are $28 a unit, what is our break-even level of units and our sales revenue? (Points : 1)

1126 units, $50,670
1059 units, $47,655
1024 units, $46,080
1102 units, $49,590

Question 15.15. Break-even analysis tells us ________ we need to produce to break even. (Points : 1)

which units
how many units
what size units
what color units

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