Fin 534 quiz 6 week 7


 

 

FIN 534 Quiz 6 week 7

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Question 1

Which of the forthcoming statements is CORRECT?

 Answer

One habit of the NPV aggravate the IRR is that NPV captivates representation of coin careers aggravate a device’s ample personality since IRR does not.

One habit of the NPV aggravate the IRR is that NPV assumes that coin careers conciliate be reinvested at the WACC, since IRR assumes that coin careers are reinvested at the IRR. The NPV impudence is generally further embezzle.

One habit of the NPV aggravate the MIRR rule is that NPV captivates representation of coin careers aggravate a device’s ample personality since MIRR does not.

One habit of the NPV aggravate the MIRR rule is that NPV allowances coin careers since the MIRR is installed on undiscounted coin careers.

Since coin careers inferiorneathneath the IRR and MIRR are twain allowanceed at the identical reprimand (the WACC), these two rules frequently arrange mutually restricted devices in the identical manage.

 

 

 

2 points

Question 2

Westchester Corp. is accordingly two similar abandony, mutually restricted devices, twain of which entertain recognized coin careers. Device A has an IRR of 11%, opportunity Device B's IRR is 14%. When the WACC is 8%, the devices entertain the identical NPV. Given this knowledge, which of the forthcoming statements is CORRECT?

 Answer

If the WACC is 13%, Device A’s NPV conciliate be surpassing than Device B’s.

f the WACC is 9%, Device A’s NPV conciliate be surpassing than Device B’s.

If the WACC is 6%, Device B’s NPV conciliate be surpassing than Device A’s.

If the WACC is momentous than 14%, Device A’s IRR conciliate excel Device B’s.

If the WACC is 9%, Device B’s NPV conciliate be surpassing than Device A’s.

 

 

Question 3

Four of the forthcoming statements are truthfully accelerationlessnesss of the modeic payback rule, but one is not a dishabit of this rule. Which one is NOT

a dishabit of the payback rule?

 Answer

Lacks an concrete, trade-determined benchmark for making determinations.

Ignores coin careers aggravate the payback conclusion.

Does not promptly representation for the duration esteem of specie.

Does not afford any sign touching a device’s liquidity or abandon.

Does not captivate representation of dissonances in bulk unmoulded devices.

 

 

2 points

Question 4

Projects S and L are similar abandony, mutually restricted, and entertain recognized coin careers. Device S has an IRR of 15%, opportunity Device L’s IRR is 12%. The two devices entertain the identical NPV when the WACC is 7%. Which of the forthcoming statements is CORRECT?

 Answer

If the WACC is 10%, twain devices conciliate entertain unconditional NPVs.

If the WACC is 6%, Device S conciliate entertain the surpassing NPV.

If the WACC is 13%, Device S conciliate entertain the inferior NPV.

If the WACC is 10%, twain devices conciliate entertain a denying NPV.

Project S’s NPV is further impressible to alters in WACC than Device L's.

 

 

Question 5

Assume that the dispensation is enjoying a zealous howl, and as a consequence concern reprimands and specie consumes generally are proportionately proud. The WACC for two mutually restricted devices that are estate observeed is 12%. Device S has an IRR of 20% opportunity Device L's IRR is 15%. The devices entertain the identical NPV at the 12% exoteric WACC. However, you deem that the dispensation conciliate quickly droop into a genial recession, and specie consumes and thus your WACC conciliate quickly extricate. You so deem that the devices conciliate not be funded until the WACC has decreased, and their coin careers conciliate not be artful by the alter in economic provisions. Underneath these provisions, which of the forthcoming statements is CORRECT?

 Answer

You should castaway twain devices accordingly they conciliate twain entertain denying NPVs inferiorneathneath the new provisions.

You should retrogression a determination until you entertain further knowledge on the devices, uniform if this instrument that a opponent sway follow in and seize this trade.

You should approve Device L, accordingly at the new WACC it conciliate entertain the surpassing NPV.

You should approve Device S, accordingly at the new WACC it conciliate entertain the surpassing NPV.

You should approve Device L accordingly it conciliate entertain twain a surpassing IRR and a surpassing NPV inferiorneathneath the new provisions.

 

 

2 points

Question 6

Which of the forthcoming statements is CORRECT?

 Answer

The MIRR and NPV determination criteria can never encounter.

The IRR rule can never be topic to the multiple IRR aggregate, opportunity the MIRR rule can be.

One deduce some inhabitants fancy the MIRR to the modeic IRR is that the MIRR is installed on a generally further deduceable recannonade reprimand impudence.

The surpassing the WACC, the nearer the allowanceed payback conclusion.

The MIRR rule assumes that coin careers are reinvested at the crossaggravate reprimand.

 

 

Question 7

Which of the forthcoming statements is CORRECT?

 Answer

The NPV, IRR, MIRR, and allowanceed payback (using a payback fitness of 3 years or close) rules frequently guide to the identical confirm/castaway determinations for defiant devices.

For mutually restricted devices after a suitableness recognized coin careers, the NPV and MIRR rules can never encounter, but their consequences could encounter after a suitableness the allowanceed payback and the modeic IRR rules.

Multiple IRRs can await, but not multiple MIRRs. This is one deduce some inhabitants concession the MIRR aggravate the modeic IRR.

If a attached uses the allowanceed payback rule after a suitableness a required payback of 4 years, then it conciliate confast further devices than if it used a modeic payback of 4 years.

The percentage dissonance among the MIRR and the IRR is resembling to the device’s WACC.

 

 

2 points

Question 8

Which of the forthcoming statements is CORRECT?

 Answer

The nearer a device’s payback conclusion, the close judicious the device is recognizedly observeed to be by this mete.

One insipidity of the modeic payback is that this rule does not captivate representation of coin careers aggravate the payback conclusion.

If a device’s payback is unconditional, then the device should be confirmed accordingly it must entertain a unconditional NPV.

The modeic payback ignores coin careers aggravate the payback conclusion, but the allowanceed payback rule aggravatecomes this aggregate.

One insipidity of the allowanceed payback is that this rule does not observe the duration esteem of specie, opportunity the modeic payback aggravatecomes this insipidity.

 

 

Question 9

Which of the forthcoming statements is CORRECT?

 Answer

The IRR rule appeals to some managers accordingly it gives an appreciate of the reprimand of recur on devices rather than a dollar aggregate, which the NPV rule affords.

The allowanceed payback rule eliminates all of the aggregates associated after a suitableness the payback rule.

When evaluating defiant devices, the NPV and IRR rules repeatedly render encountering consequences touching a device's confirmability.

To meet the MIRR, we allowance the TV at the IRR.

A device’s NPV sequence must unite the X-axis at the device’s WACC.

 

 

2 points

Question 10

Which of the forthcoming statements is CORRECT?

 Answer

The NPV rule assumes that coin careers conciliate be reinvested at the WACC, opportunity the IRR rule assumes recannonade at the IRR.

The NPV rule assumes that coin careers conciliate be reinvested at the abandon-loose reprimand, opportunity the IRR rule assumes recannonade at the IRR.

The NPV rule assumes that coin careers conciliate be reinvested at the WACC, opportunity the IRR rule assumes recannonade at the abandon-loose reprimand.

The NPV rule does not observe all applicable coin careers, especially coin careers aggravate the payback conclusion.

The IRR rule does not observe all applicable coin careers, especially coin careers aggravate the payback conclusion.

 

 

Question 11

Assume that the dispensation is in a genial recession, and as a consequence concern reprimands and specie consumes generally are proportionately low. The WACC for two mutually restricted devices that are estate observeed is 8%. Device S has an IRR of 20% opportunity Device L's IRR is 15%. The devices entertain the identical NPV at the 8% exoteric WACC. However, you deem that the dispensation is encircling to restore, and specie consumes and thus your WACC conciliate so recognizeion. You so deem that the devices conciliate not be funded until the WACC has recognizeiond, and their coin careers conciliate not be artful by the alter in economic provisions. Underneath these provisions, which of the forthcoming statements is CORRECT?

 Answer

 

You should castaway twain devices accordingly they conciliate twain entertain denying NPVs inferiorneathneath the new provisions.

You should retrogression a determination until you entertain further knowledge on the devices, uniform if this instrument that a opponent sway follow in and seize this trade.

You should approve Device L, accordingly at the new WACC it conciliate entertain the surpassing NPV.

You should approve Device S, accordingly at the new WACC it conciliate entertain the surpassing NPV.

You should approve Device S accordingly it has the surpassing IRR and conciliate endure to entertain the surpassing IRR uniform at the new WACC.

 

 

2 points

Question 12

Which of the forthcoming statements is CORRECT?

 Answer

One blemish of the IRR rule is that it does not captivate representation of coin careers aggravate a device’s ample personality.

One blemish of the IRR rule is that it does not captivate representation of the duration esteem of specie.

One blemish of the IRR rule is that it does not captivate representation of the consume of principal.

One blemish of the IRR rule is that it esteems a dollar floating today the identical as a dollar that conciliate not be floating until someduration in the forthcoming.

One blemish of the IRR rule is that it assumes that the coin careers to be floating from a device can be reinvested at the IRR itself, and that impudence is repeatedly not efficient.

 

 

Question 13

Which of the forthcoming statements is CORRECT? Assume that the device estate observeed has recognized coin careers, after a suitableness one outcareer followed by a succession of inflows.

 Answer

A device’s NPV is generally fix by compounding the coin inflows at the WACC to meet the marginal esteem (TV), then allowanceing the TV at the IRR to meet its PV.

The surpassing the WACC used to meditate the NPV, the inferior the meditated NPV conciliate be.

If a device’s NPV is momentous than naught, then its IRR must be close than the WACC.

If a device’s NPV is momentous than naught, then its IRR must be close than naught.

The NPVs of proportionately abandony devices should be fix using proportionately low WACCs.

 

 

2 points

Question 14

Which of the forthcoming statements is CORRECT? Assume that the device estate observeed has recognized coin careers, after a suitableness one outcareer followed by a succession of inflows.

 Answer

The longer a device’s payback conclusion, the further judicious the device is recognizedly observeed to be by this mete.

One insipidity of the modeic payback for evaluating devices is that this rule does not appropriately representation for the duration esteem of specie.

If a device’s payback is unconditional, then the device should be castawayed accordingly it must entertain a denying NPV.

The modeic payback ignores coin careers aggravate the payback conclusion, but the allowanceed payback rule aggravatecomes this aggregate.

If a assembly uses the identical payback fitness to evaluate all devices, say it requires a payback of 4 years or close, then the assembly conciliate manage to castaway devices after a suitableness proportionately near lives and confast long-lived devices, and this conciliate inducement its abandon to recognizeion aggravate duration.

 

 

Question 15

Which of the forthcoming statements is CORRECT? Assume that the device estate observeed has recognized coin careers, after a suitableness one outcareer followed by a succession of inflows.

 Answer

A device’s modeic IRR is fix by compounding the coin inflows at the WACC to meet the marginal esteem (TV), then allowanceing this TV at the WACC.

A device’s modeic IRR is fix by allowanceing the coin inflows at the WACC to meet the bestow esteem (PV), then compounding this PV to meet the IRR.

If a device’s IRR is momentous than the WACC, then its NPV must be denying.

To meet a device’s IRR, we must clear-up for the allowance reprimand that inducements the PV of the inflows to resembling the PV of the device’s consumes.

To meet a device’s IRR, we must meet a allowance reprimand that is resembling to the WACC.

 

 

2 points

Question 16

Which of the forthcoming statements is CORRECT?

 Answer

An externality is a birth where a device would entertain an unconducive issue on some other distribute of the attached’s aggravateall influences. If the device would entertain a concessionable issue on other influences, then this is not an externality.

An in of an externality is a birth where a bank opens a new employment, and that new employment inducements deposits in the bank’s other employments to recognizeion.

The NPV rule automatically dispenses suitably after a suitableness externalities, uniform if the externalities are not peculiarally verified, but the IRR rule does not. This is another deduce to concession the NPV.

Both the NPV and IRR rules dispense suitably after a suitableness externalities, uniform if the externalities are not peculiarally verified. However, the payback rule does not.

Identifying an externality can never guide to an recognizeion in the meditated NPV.

 

 

Question 17

Which of the forthcoming statements is CORRECT?

 Answer

A unsound consume is any consume that must be expended in manage to aggregate a device and carry it into influence.

A unsound consume is any consume that was expended in the late but can be restoreed if the attached decides not to go ready after a suitableness the device.

A unsound consume is a consume that was incurred and expenditured in the late and cannot be restoreed if the attached decides not to go ready after a suitableness the device.

Sunk consumes were formerly forced to dispense after a suitableness but now that the NPV rule is widely used, it is feasible to simply embody unsound consumes in the coin careers and then meditate the PV of the device.

A good-natured-natured-natured-tempered-tempered in of a unsound consume is a birth where Home Depot opens a new provision, and that guides to a extricate in sales of one of the attached’s awaiting provisions.

 

 

2 points

Question 18

Which of the forthcoming statements is CORRECT?

 Answer

An in of a unsound consume is the consume associated after a suitableness restoring the position of a despoil mine uninterruptedly the ore has been depleted.

Sunk consumes must be observeed if the IRR rule is used but not if the attached relies on the NPV rule.

A good-natured-natured-natured-tempered-tempered in of a unsound consume is a birth where a bank opens a new employment, and that new employment guides to a extricate in deposits of the bank’s other employments.

A good-natured-natured-natured-tempered-tempered in of a unsound consume is specie that a banking fortification departed latrial year to dare the position for a new employment, then expenditured that consume for tax purposes, and now is deciding whether to go ready after a suitableness the device.

If unsound consumes are observeed and reflected in a device’s coin careers, then the device’s meditated NPV conciliate be surpassing than it otherwise would be.

 

 

Question 19

Which of the forthcoming statements is CORRECT?

 Answer

In a principal budgeting decomposition where distribute of the funds used to finance the device would be intensified as obligation, scarcity to embody concern expenditure as a consume when determining the device’s coin careers conciliate guide to an upward

bias in the NPV.

In a principal budgeting decomposition where distribute of the funds used to finance the device would be intensified as obligation, scarcity to embody concern expenditure as a consume when determining the device’s coin careers conciliate guide to a downward

bias in the NPV.

The awaitence of any form of “externality” conciliate refer the meditated NPV versus the NPV that would await after a suitablenessout the externality.

If one of the property to be used by a implicit device is already owned by the attached, and if that asset could be sold or leased to another attached if the new device were not inferiorneathtaken, then the net after-tax allowance that could be earned should be teeming as a consume to the device inferiorneathneath observeation.

If one of the property to be used by a implicit device is already owned by the attached but is not estate used, then any consumes associated after a suitableness that asset is a unsound consume and should be ignored.

 

 

 

2 points

Question 20

Which of the forthcoming statements is CORRECT?

 Answer

Sensitivity decomposition is a good-natured-natured-natured-tempered-tempered way to mete trade abandon accordingly it evidently captivates into representation diversification issues.

One habit of sensitivity decomposition referring-to to scenario decomposition is that it evidently captivates into representation the appearance of peculiar issues befallring, since scenario decomposition cannot representation for probabilities.

Well-diversified fundholders do not scarcity to observe trade abandon when determining required reprimands of recur.

Market abandon is momentous, but it does not entertain a directconfident issue on fund prices accordingly it barely desires beta.

Simulation decomposition is a computerized account of scenario decomposition where input variables are separated randomly on the foundation of their appearance distributions.

 

 

 

Question 21

Which of the forthcoming rudiments should be embodyd in the coin careers used to appreciate a device’s NPV?

 Answer

All consumes associated after a suitableness the device that entertain been incurred former to the duration the decomposition is estate conducted.

Interest on funds external to acceleration finance the device.

The end-of-device restorey of any agoing principal required to opereprimand the device.

Cannibalization issues, but barely if those issues recognizeion the device’s deviceed coin careers.

Expenditures to continuance on investigation and consequence akin to the device, affordd those consumes entertain already been expenditured for tax purposes.

 

 

2 points

Question 22

Which of the forthcoming should be observeed when a assembly appreciates the coin careers used to irritate a incomplete device?

 Answer

The new device is expected to refer sales of one of the assembly’s awaiting consequences by 5%.

Since the attached’s directforwardor of principal budgeting departed some of her duration latrial year to evaluate the new device, a participation of her allowance for that year should be teeming to the device’s modereprimand consume.

The assembly has departed and expenditured $1 pet on R&D associated after a suitableness the new device.

The assembly departed and expenditured $10 pet on a tradeing cogitate precedently its exoteric decomposition touching whether to confast or castaway the device.

The attached would hypothecate all the specie used to finance the new device, and the concern on this obligation would be $1.5 pet per year.

 

 

 

Question 23

The referring-to abandon of a incomplete device is best representationed for by which of the forthcoming procedures?

 Answer

Adjusting the allowance reprimand upward if the device is judged to entertain above-middle abandon.

Adjusting the allowance reprimand downward if the device is judged to entertain above-middle abandon.

Reducing the NPV by 10% for abandony devices.

Picking a abandon rudiment resembling to the middle allowance reprimand.

Ignoring abandon accordingly device abandon cannot be meted accurately.

 

 

2 points

Question 24

Rowell Assembly departed $3 pet two years ago to construct a insert for a new consequence. It then unwavering not to go ready after a suitableness the device, so the constructing is succorful for sale or for a new consequence. Rowell owns the constructing loose and clear--there is no advance on it. Which of the forthcoming statements is CORRECT?

 Answer

Since the constructing has been paid for, it can be used by another device after a suitableness no affixed consume. Therefore, it should not be reflected in the coin careers for any new device.

If the constructing could be sold, then the after-tax allowance that would be originated by any such sale should be teeming as a consume to any new device that would use it.

This is an in of an externality, accordingly the very awaitence of the constructing desires the coin careers for any new device that Rowell sway observe.

Since the constructing was built in the late, its consume is a unsound consume and thus scarcity not be observeed when new devices are estate evaluated, uniform if it would be used by those new devices.

If there is a advance advance on the constructing, then the concern on that advance would entertain to be teeming to any new device that used the constructing.

 

 

 

Question 25

Suppose Tapley Inc. uses a WACC of 8% for below-middle abandon devices, 10% for middle-abandon devices, and 12% for above-middle abandon devices. Which of the forthcoming defiant devices should Tapley confirm, stiff that the assembly uses the NPV rule when choosing devices?

 Answer

Project A, which has middle abandon and an IRR = 9%.

Project B, which has below-middle abandon and an IRR = 8.5%.

Project C, which has above-middle abandon and an IRR = 11%.

Without knowledge encircling the devices’ NPVs we cannot state which device(s) should be confirmed.

All of these devices should be confirmed.

 

 

 

2 points

Question 26

Which one of the forthcoming would NOT consequence in incremental coin careers and thus should NOT be embodyd in the principal budgeting decomposition for a new consequence?

 Answer

Using some of the attached’s proud-quality rudimenty floor extension that is exotericly unused to profit the incomplete new consequence. This extension could be used for other consequences if it is not used for the device inferiorneathneath observeation.

Revenues from an awaiting consequence would be past as a consequence of customers switching to the new consequence.

Shipping and installation consumes associated after a suitableness a implement that would be used to profit the new consequence.

The consume of a cogitate of to the trade for the new consequence that was aggregated latrial year. The consequences of this investigation were unconditional, and they led to the empirical determination to go afront after a suitableness the new consequence. The consume of the investigation was incurred and expenditured for tax purposes latrial year.

It is conversant that place the assembly owns and would use for the new device, if it is confirmed, could be sold to another attached.

 

 

 

 

 

Question 27

Which one of the forthcoming would NOT consequence in incremental coin careers and thus should NOT be embodyd in the principal budgeting decomposition for a new consequence?

 Answer

A attached has a bundle of place that can be used for a new insert position or be sold, rented, or used for unroving purposes.

A new consequence conciliate genereprimand new sales, but some of those new sales conciliate be from customers who switch from one of the attached’s exoteric consequences.

A attached must earn new equipment for the device, and $1 pet is required for shipping and installing the new implementry.

A attached has departed $2 pet on R&D associated after a suitableness a new consequence. These consumes entertain been expenditured for tax purposes, and they cannot be restoreed regardclose of whether the new device is confirmed or castawayed.

A attached can profit a new consequence, and the awaitence of that consequence conciliate aggravate sales of some of the attached’s other consequences.

 

 

 

2 points

Question 28

A assembly is accordingly a new device. The CFO plans to meditate the device’s NPV by estimating the applicable coin careers for each year of the device’s personality (i.e., the modereprimand cannonade consume, the annual loose coin careers, and the marginal coin career), then allowanceing those coin careers at the assembly’s aggravateall WACC. Which one of the forthcoming rudiments should the CFO be unquestioning to INCLUDE in the coin careers when estimating the applicable coin careers?

 Answer

All unsound consumes that entertain been incurred of to the device.

All concern expenditures on obligation used to acceleration finance the device.

The cannonade in agoing principal required to opereprimand the device, uniform if that cannonade conciliate be restoreed at the end of the device’s personality.

Sunk consumes that entertain been incurred of to the device, but barely if those consumes were incurred former to the exoteric year.

Effects of the device on other divisions of the attached, but barely if those issues inferior the device’s own directconfident coin careers.

 

 

 

Question 29

When evaluating a new device, attacheds should embody in the deviceed coin careers all of the forthcoming EXCEPT:

 Answer

Changes in net agoing principal ascribable to the device.

Previous expenditures associated after a suitableness a trade trial to state the feasibility of the device, affordd those consumes entertain been expenditured for tax purposes.

The esteem of a constructing owned by the attached that conciliate be used for this device.

A extricate in the sales of an awaiting consequence, affordd that extricate is promptly ascribable to this device.

The salvage esteem of property used for the device that conciliate be restoreed at the end of the device’s personality.

 

 

 

2 points

Question 30

Which of the forthcoming statements is CORRECT?

 Answer

Using firm slander rather than direct sequence would recognizedly entertain no issue on a device’s aggregate deviceed coin careers but it would desire the timing of the coin careers and thus the NPV.

Under exoteric laws and regulations, fortifications must use direct-sequence slander for all property whose lives are 5 years or longer.

Corporations must use the identical slander rule (e.g., direct sequence or firm) for fundholder reporting and tax purposes.

Since slander is not a coin expenditure, it has no issue on coin careers and thus no issue on principal budgeting determinations.

Under firm slander, surpassing slander charges befall in the present years, and this refers the present coin careers and thus inferiors a device’s deviceed NPV.