Question : 83.Which of the following statements true? a.Using the same WACC to : 1325722

 

 

83.Which of the following statements is true?

a.Using the same WACC to discount all a firm’s potential investments is a sound financial practice.

b.When a firm has debt in its capital structure, the cost of equity is the appropriate discount rate to use in NPV calculations.

c.If an investment being evaluated has higher risk than the firm’s current set of projects, the firm’s WACC is the appropriate discount rate to use.

d.Statements (a) and (b) are true

e.All of the above statements are false.

 

 

 

84.Taxes impact the WACC calculation because:

a.Dividends paid on common stock are tax deductible.

b.Dividends paid on preferred stock are tax deductible.

c.Interest paid on debt is tax deductible.

d.Both (a) and (c) are true.

e.All of the above

 

 

 

85.Which of the following statements is true?

a.When conducting sensitivity analysis all variables except one are held constant.

b.When conducting sensitivity analysis a ‘base-case’ set of assumptions must be established.

c.Scenario analysis is a more complex form of sensitivity analysis.

d.both (a) and (b) are true

e.all of the above are true

 

 

 

86.Which of the following describes a visual representation of the sequential choices that managers face over time with regard to a particular investment?

a.Sensitivity analysis

b.Monte Carlo simulation

c.Decision tree

d.Scenario analysis

e.Breakeven analysis

 

 

 

87.One major flaw in decision trees is that:

a.the risk of many investments changes as one moves from one point in the decision tree to another.

b.Establishing the base case scenario requires many iterations.

c.The necessary computing power to run a decision tree is expensive.

d.all of the above

e.none of the above

 

 

 

88.The right to invest additional resources in investments that enjoy early success is known as a(n):

a.expansion option

b.abandonment option

c.follow-on investment option

d.flexibility option

 

 

 

89.The option to withdraw resources from projects that fail to live up to short-run expectations is know as a(n):

a.expansion option

b.abandonment option

c.follow-on investment option

d.flexibility option

 

 

 

90.The option to make additional investments should earlier investments prove to be successful is known as a(n):

a.expansion option

b.abandonment option

c.follow-on investment option

d.flexibility option

 

 

 

91.Options that offer a firm the ability to adapt to changes in inputs, outputs and maintaining excess production capacity are known as:

a.expansion options

b.abandonment options

c.follow-on investment options

d.flexibility options

 

 

 

92.Which of the following statements is true?

a.More risk leads to higher option values.

b.More risk leads to lower option values.

c.Options are characterized by equal payoffs.

d.All of the above statements are true.

e.None of the above statements is true.

 

 

 

 

93.If any project is to have a positive NPV, advocates of that project:

a.need only crunch the numbers to determine if it will be successful.

b.should be able to articulate a project’s competitive advantage prior to crunching the numbers.

c.should insert their own personal optimistic biases into the cash flow estimates.

d.should show that the present value of the outflows must exceed the present value of the inflows.