Principles of Corporate Finance Richard Brealey 13th Edition – Test Bank

Principles of Corporate Finance Richard Brealey 13th Edition – Test Bank

Chapter 5

Principles of Corporate Finance, 13e (Brealey)

Chapter 5   Net Present Value and Other Investment Criteria

1) Which of the following investment rules does not use the time value of money concept?

A) Net present value

B) Internal rate of return

C) The payback period

D) Profitability index

Answer:  C

Difficulty: 1 Easy

Topic:  Project Evaluation

Learning Objective:  05-02 Book Rate of Return and Payback

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

2) Suppose a firm has $100 million in excess cash. It could

A) invest the funds in projects with positive NPVs.

B) pay high dividends to the shareholders.

C) buy another firm.

D) do all of the options.

Answer:  D

Difficulty: 1 Easy

Topic:  Project Evaluation

Learning Objective:  05-02 Book Rate of Return and Payback

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

3) The following are measures used by firms when making capital budgeting decisions except

A) payback period.

B) internal rate of return.

C) P/E ratio.

D) net present value.

Answer:  C

Difficulty: 1 Easy

Topic:  Project Evaluation

Learning Objective:  05-02 Book Rate of Return and Payback

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

4) The survey of CFOs indicates that the NPV method is always, or almost always, used for evaluating investment projects by approximately

A) 12 percent of firms.

B) 20 percent of firms.

C) 57 percent of firms.

D) 75 percent of firms.

Answer:  D

Difficulty: 1 Easy

Topic:  Project Evaluation

Learning Objective:  05-02 Book Rate of Return and Payback

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

5) The survey of CFOs indicates that the IRR method is used for evaluating investment projects by approximately

A) 12 percent of firms.

B) 20 percent of firms.

C) 76 percent of firms.

D) 57 percent of firms.

Answer:  C

Difficulty: 1 Easy

Topic:  Project Evaluation

Learning Objective:  05-02 Book Rate of Return and Payback

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

6) Which of the following investment rules has the value additivity property?

A) The payback period method

B) The net present value method

C) The book rate of return method

D) The internal rate of return method

Answer:  B

Difficulty: 1 Easy

Topic:  Project Evaluation

Learning Objective:  05-02 Book Rate of Return and Payback

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation