This document contains a 10 question practice quiz on capital budgeting concepts. The questions cover topics such as using a firm's cost of capital to evaluate project riskiness, calculating a firm's weighted average cost of capital, and defining operating cash flow. The quiz also addresses sensitivity analysis, post-audits, and calculating break-even points. Feedback is provided for some questions to explain the reasoning behind the answer.
This document contains a 10 question practice quiz on capital budgeting concepts. The questions cover topics such as using a firm's cost of capital to evaluate project riskiness, calculating a firm's weighted average cost of capital, and defining operating cash flow. The quiz also addresses sensitivity analysis, post-audits, and calculating break-even points. Feedback is provided for some questions to explain the reasoning behind the answer.
This document contains a 10 question practice quiz on capital budgeting concepts. The questions cover topics such as using a firm's cost of capital to evaluate project riskiness, calculating a firm's weighted average cost of capital, and defining operating cash flow. The quiz also addresses sensitivity analysis, post-audits, and calculating break-even points. Feedback is provided for some questions to explain the reasoning behind the answer.
Question 1 of 10 0.0/ 1.0 Points Using the company cost of capital to evaluate a project is: I) Always correct II) Always incorrect III) Correct for projects that are about as risky as the average of the firm's other assets
A.I only
B.II only
C.III only
D.I and III only
Answer Key: C
Question 2 of 10 0.0/ 1.0 Points Which of the following type of projects has average risk? A.Speculation ventures
B.New products
C.Expansion of existing business
D.Cost improvement
Answer Key: C
Question 3 of 10 1.0/ 1.0 Points The market value of Cable Company's equity is $60 million, and the market value of its risk-free debt is $40 million. If the required rate of return on the equity is 15% and that on the debt is 5%, calculate the company's cost of capital. (Assume no taxes.)
A.15%
B.10%
C.11%
D.None of the above
Answer Key: C Feedback: Company cost of capital = (40/100)(5) + (60/100)(15) = 11%
Question 4 of 10 1.0/ 1.0 Points The hurdle rate for capital budgeting decisions is:
A.The cost of capital
B.The cost of debt
C.The cost of equity
D.All of the above
Answer Key: A
Question 5 of 10 1.0/ 1.0 Points The market value of XYZ Corporation's common stock is 40 million and the market value of the risk-free debt is 60 million. The beta of the company's common stock is 0.8, and the expected market risk premium is 10%. If the Treasury bill rate is 6%, what is the firm's cost of capital? (Assume no taxes.)
A.9.2%
B.14%
C.8.1%
D.None of the above
Answer Key: A Feedback: rE = 6 + 0.8(10) = 14%; rD = 5%; Cost of capital = (0.6)(6) + (0.4) (14) = 9.2%
Question 6 of 10 1.0/ 1.0 Points On a graph with common stock returns on the Y- axis and market returns on the X-axis, the slope of the regression line represents the:
A.Alpha
B.Beta
C.R-squared
D.Adjusted beta
Answer Key: B
Question 7 of 10 0.0/ 1.0 Points Generally, postaudits are conducted for large projects: A.shortly after the completion of the project
B.after several years after the completion of the project
C.shortly after the project has begun to operate
D.well before the start of the project
Answer Key: C
Question 8 of 10 1.0/ 1.0 Points You are given the following data for year-1. Revenue = $43; Total costs = $30; Depreciation = $3; Tax rate = 30%.
Calculate the operating cash flow for the project for year-1.
Matheson Electronics has just developed a new electronic device that it believes will have broad market appeal. The company has performed marketing and cost studies that revealed the following inform... - HomeworkLib