02 Jan All else equal,

Question 1

2 / 2 pts

Payments made by a corporation to its shareholders, in the form of either cash, stock or payments in kind, are called:

retained earnings.

net income.

redistributions.

infused equity.

dividends.

IncorrectQuestion 2

0 / 2 pts

The constant dividend growth model is:

based on the assumption Dow 30 represents a good estimate of the market index.

generally used in practice because most stocks have a constant growth rate.

generally not used in practice because the constant growth rate is usually higher than the required rate of return.

generally not used in practice because most stocks grow at a non constant rate.

generally used in practice because the historical growth rate of most stocks is constant.

Question 3

2 / 2 pts

The rate at which a stock’s price is expected to appreciate (or depreciate) is called the _____ yield.

total

current

dividend

earnings

capital gains

Question 4

2 / 2 pts

The Scott Co. has a general dividend policy whereby it pays a constant annual dividend of $1 per share of common stock. The firm has 1,000 shares of stock outstanding. The company:

must still declare each dividend before it becomes an actual company liability.

is obligated to continue paying $1 per share per year.

must always show a current liability of $1,000 for dividends payable.

has a liability which must be paid at a later date should the company miss paying an annual dividend payment.

will be declared in default and can face bankruptcy if it does not pay $1 per year to each shareholder on a timely basis.

Question 5

2 / 2 pts

Assume that you are using the dividend growth model to value stocks. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect the:

dividend growth rates to increase to offset this change.

market values of all stocks to remain constant as the dividend growth will offset the increase in the market rate.

stocks that do not pay dividends to decrease in price while the dividend-paying stocks maintain a constant price.

market values of all stocks to increase, all else constant.

market values of all stocks to decrease, all else constant.

Question 6

2 / 2 pts

The value of common stock today depends on:

the expected future dividends, capital gains and the discount rate.

the expected future holding period and capital gains.

None of these.

the expected future holding period and the discount rate.

the expected future dividends and the capital gains.

Question 7

2 / 2 pts

The net present value of a growth opportunity, NPVGO, can be defined as:

None of these.

the initial investment necessary for a new project.

the net present value per share of an investment in a new project.

a single period investment when r > g.

a continual reinvestment of earnings when r < g. Question 8 2 / 2 pts The total rate of return earned on a stock is comprised of which two of the following? I. current yield II. yield to maturity III. dividend yield IV. capital gains yield III and IV only I and II only I and IV only II and III only II and IV only Question 9 2 / 2 pts Next year's annual dividend divided by the current stock price is called the: earnings yield. capital gains yield. yield to maturity. total yield. dividend yield. Question 10 2 / 2 pts The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model. zero growth dividend growth capital pricing earnings capitalization differential growth Question 11 2 / 2 pts All else constant, the net present value of a typical investment project increases when: the discount rate increases. each cash inflow is delayed by one year. all cash inflows occur during the last year of a project's life instead of periodically throughout the life of the project. the initial cost of a project increases. the rate of return decreases. Question 12 2 / 2 pts Accepting positive NPV projects benefits the stockholders because: the present value of the expected cash flows are greater than the cost. it is the most easily understood valuation process. it is the most easily calculated. None of these. the present value of the expected cash flows are equal to the cost. IncorrectQuestion 13 0 / 2 pts In actual practice, managers may use the: I. IRR because the results are easy to communicate and understand. II. payback because of its simplicity. III. net present value because it is considered by many to be the best method of analysis. I and III only None of these I, II, and III II and III only I and II only Question 14 2 / 2 pts The discounted payback period of a project will decrease whenever the: amount of each project cash inflow is increased. time period of the project is increased. costs of the fixed assets utilized in the project increase. initial cash outlay of the project is increased. discount rate applied to the project is increased. IncorrectQuestion 15 0 / 2 pts The internal rate of return tends to be: used primarily to differentiate between mutually exclusive projects. easier for managers to comprehend than the net present value. ignored by most financial analysts. utilized in project analysis only when multiple net present values apply. extremely accurate even when cash flow estimates are faulty. Question 16 2 / 2 pts The payback period rule is a convenient and useful tool because: All of these. it provides a quick estimate of how rapidly the initial investment will be recouped. it does not have to take into account time value of money. results of a short payback rule decision will be quickly seen. None of these. Question 17 2 / 2 pts Which one of the following statements concerning net present value (NPV) is correct? An investment should be accepted only if the NPV is equal to the initial cash flow. Any project that has positive cash flows for every time period after the initial investment should be accepted. An investment with greater cash inflows than cash outflows, regardless of when the cash flows occur, will always have a positive NPV and therefore should always be accepted. An investment should be accepted if the NPV is positive and rejected if it is negative. An investment should be accepted if, and only if, the NPV is exactly equal to zero. IncorrectQuestion 18 0 / 2 pts The discounted payback rule may cause: the most liquid projects to be rejected in favor of less liquid projects. Both some positive net present value projects to be rejected; and some projects with negative net present values to be accepted. projects to be incorrectly accepted due to ignoring the time value of money. some projects with negative net present values to be accepted. some positive net present value projects to be rejected. Question 19 2 / 2 pts Using internal rate of return, a conventional project should be accepted if the internal rate of return is: negative. positive. less than the discount rate. equal to the discount rate. greater than the discount rate. Question 20 2 / 2 pts The discounted payback rule states that you should accept projects: only if the discounted payback period is equal to zero. which have a discounted payback period that is greater than some pre-specified period of time. if the discounted payback is positive and rejected if it is negative. only if the discounted payback period equals some pre-specified period of time. if the discounted payback period is less than some pre-specified period of time. Question 21 2 / 2 pts The discount rate that makes the net present value of an investment exactly equal to zero is called the: internal rate of return. equalizer. external rate of return. profitability index. average accounting return. Question 22 2 / 2 pts Which of the following methods of project analysis are biased towards short-term projects? I. Internal rate of return II. Net present value III. Payback IV. Discounted payback I and II only II and III only I and IV only II and IV only III and IV only Question 23 2 / 2 pts The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the: discounted cash period. profitability index. net present value. internal rate of return. payback period. Question 24 2 / 2 pts Net present value: is not an as widely used tool as payback and discounted payback. cannot be used when deciding between two mutually exclusive projects. is more useful to decision makers than the internal rate of return when comparing different sized projects. is easy to explain to non-financial managers and thus is the primary method of analysis used by the lowest levels of management. is very similar in its methodology to the average accounting return. IncorrectQuestion 25 0 / 2 pts The payback period rule: determines a cutoff point so that all projects accepted by the NPV rule will be accepted by the payback period rule. determines a cutoff point so that depreciation is just equal to positive cash flows in the payback year. requires an arbitrary choice of a cutoff point. Both determines a cutoff point so that all projects accepted by the NPV rule will be accepted by the payback period rule; and varies the cutoff point with the interest rate. varies the cutoff point with the interest rate. IncorrectQuestion 26 0 / 2 pts Analysis using the profitability index: is useful as a decision tool when investment funds are limited. utilizes the same basic variables as those used in the average accounting return. frequently conflicts with the accept and reject decisions generated by the application of the net present value rule. produces results which typically are difficult to comprehend or apply. cannot be used to aid capital rationing. IncorrectQuestion 27 0 / 2 pts Graham and Harvey (2001) found that _____ and _____ were the two most popular capital budgeting methods. Internal Rate of Return; Net Present Value Modified Internal Rate of Return; Internal Rate of Return Net Present Value; Payback Period Modified Internal Rate of Return; Net Present Value Internal Rate of Return; Payback Period IncorrectQuestion 28 0 / 2 pts A situation in which accepting one investment prevents the acceptance of another investment is called the: issues of scale problem. operational ambiguity decision. multiple choices of operations decision. net present value profile. mutually exclusive investment decision. UnansweredQuestion 29 0 / 2 pts You are trying to determine whether to accept project A or project B. These projects are mutually exclusive. As part of your analysis, you should compute the incremental IRR by determining: the internal rate of return for the differences in the cash flows of the two projects. the internal rate of return for the cash flows of each project. the discount rate that makes the net present value of each project equal to 1. the net present value of each project using the internal rate of return as the discount rate. the discount rate that equates the discounted payback periods for each project. UnansweredQuestion 30 0 / 2 pts All else equal, the payback period for a project will decrease whenever the: cash inflows are moved earlier in time. assigned discount rate decreases. required return for a project increases. duration of a project is lengthened. initial cost increases.