1. Which of the following is true regarding the evaluation of projects? (Points: 4)
sunk costs should be included
erosion effects should not be considered
financing costs are not included
opportunity costs are irrelevant

2.Which of the following investment ranking methods does not consider the time value of money? (Points: 4)
net present value method
payback method
internal rate of return method
all of these are time-adjusted methods

3. You can ensure that an investment is expected to create value for (Points: 4)
have a PI equal to zero.
produce negative rates of return.
have positive AARs.
have positive IRRs.
have positive NPVs.

4. What is the net present value of a project with the following cash flows, if the discount rate is 15 percent?   (Points: 4)
-$2,989.48
-$2,599.55
$1,153.37
$2,880.08
$3,312.09

5. Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? (Points: 4)
5.81 years
6.05 years
6.96 years
7.90 years
This project never pays back

6. Ignoring the option to expand: (Points: 4)
overestimates the internal rate of return on a project.
ignores the possibility that a negative net present value project might be positive, given changes over time.
ignores the possibility that one variable is the primary source of the forecasting risk associated with a project.
underestimates the net present value of a project.

7. ____________, refers to the situation a firm faces when it has positive net present value projects, but cannot obtain financing for those projects. (Points: 4)
capital planning.
soft rationing.
capital rationing.
hard rationing.
a sunk cause.

8. ABC Cameras is considering an investment that will have a cost of $12,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10 percent, which of the following is true regarding this investment? Select all that apply: (Points: 4)
the net present value of the project is approximately $1,000
this project should not be accepted because it has a negative net present value
this project’s payback period is 2 years
none of the above is true

9. Assume Company X plans to invest $60,000 in new computers. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the second year depreciation amount under MACRS? (Points: 4)
$12,000
$19,200
$19,800
None of the above

10. Assume a project has earnings before depreciation and taxes of $120,000, depreciation of $40,000, and that the firm has a 30 percent tax bracket. What are the after-tax cash flows for the project? (Points: 4)
$56,000
$96,000
a loss of $21,000
none of these

11. Which of the following statements is true regarding systematic risk? Select all that apply: (Points: 4)
is diversifiable
is the total risk associated with surprise events
it is not project or firm specific
is measured by beta
is measured by standard deviation

12. Which statement is not true regarding risk? (Points: 4)
the expected return is usually not the same as the actual return
a key to assess risk is determining how much risk an investment adds to a portfolio
some risks can not be decreased or mitigated by the financial manager.
the higher the risk, the higher the return investors require for the investment
all of the above are true statements

13. The stock of Hobby Town has an expected return of 8.8 percent. Given the information below, what is the expected return on this stock if the economy is normal? (Points: 4)
3.86 percent
4.42 percent
6.43 percent
7.28 percent
8.21 percent

14. You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock D? (Points: 4)
17.68 percent
17.91 percent
18.42 percent
19.07 percent
19.46 percent

15. You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. The one stock has a beta of .80. What does the beta of the second stock have to be if you want the portfolio risk to equal that of the overall market? (Points: 4)
1.4
1.6
1.8
2.0
2.2