管理经济学第七版英文教辅chapter_10.pdf

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1、1 Managerial Economics,7e(Keat)Chapter 12 Capital Budgeting and Risk(Appendix 12A)Multiple-Choice Questions 1)The term capital budgeting refers to decisions A)which are made in the short run.B)which concern the spreading of expenditures over a period lasting less than one year.C)where expenditures a

2、nd receipts for a particular undertaking will continue over a relatively long period of time.D)where a receipt of cash will occur simultaneously with an outflow of cash.Answer:C Diff:2 2)Capital budgeting projects include all of the following except A)the purchase of a six-month treasury bill.B)the

3、expansion of a plant.C)the development of a new product.D)the replacement of a piece of equipment.Answer:A Diff:2 3)If$1,000 is placed in an account earning 8%annually,the balance at the end of seven years will be A)$1,080.B)$1,560.C)$2,000.D)$1,714.Answer:D Diff:3 4)The payback period for a project

4、,requiring an initial outlay of$10,000 and producing ten uniform annual cash inflows of$1,500,is A)six years.B)six years and eight months.C)six years and six months.D)seven years.Answer:B Diff:3 5)The net present value of a project is calculated as A)the future value of all cash inflows minus the pr

5、esent value of all outflows.B)the sum of all cash inflows minus the sum of all cash outflows.C)the present value of all cash inflows minus the present value of all cash outflows.D)None of the above Answer:C Diff:2 2 6)A proposed project should be accepted if the net present value is A)positive.B)neg

6、ative.C)larger than the internal rate of return.D)smaller than the internal rate of return.Answer:A Diff:2 7)When future events cannot be assigned probabilities,we are talking about A)risk.B)uncertainty.C)a clouded future.D)financial risk.Answer:B Diff:1 8)Probabilities,which can be obtained by repe

7、tition or are based on general mathematical principles,are called A)statistical.B)empirical.C)a priori.D)subjective.Answer:C Diff:2 9)Other things being equal,the higher the cost of capital A)the higher the NPV of a project.B)the higher the IRR of the project.C)the lower the NPV of the project.D)The

8、 cost of capital has no effect on the NPV of the project.Answer:C Diff:3 10)The internal rate of return of a project can be found by A)discounting all cash flows at the cost of capital.B)averaging all cash inflows,and calculating the interest rate,which will make them equal to the average investment

9、.C)calculating the interest rate,which will equate the present value of all cash inflows to the present value of all cash outflows.D)None of the above Answer:C Diff:3 3 11)In finance,risk is most commonly measured by A)the probability distribution.B)the standard deviation.C)the average deviation.D)t

10、he square root of the standard deviation.Answer:B Diff:2 12)A project whose acceptance eliminates another project from consideration is called A)independent.B)mutually exclusive.C)replacement.D)complementary.Answer:B Diff:1 13)The internal rate of return equals the cost of capital when A)NPV=0.B)NPV

11、 0.C)NPV 0.D)None of the above Answer:A Diff:2 14)When two mutually exclusive projects are considered,the NPV calculations and the IRR calculations may,under certain circumstances,give conflicting recommendations as to which project to accept.The reason for this result is that in the NPV calculation

12、,cash inflows are assumed to be reinvested at the cost of capital,while in the IRR solution,reinvestment takes place at A)the hurdle rate.B)the accounting rate of return.C)the prime rate.D)the projects internal rate of return.Answer:D Diff:3 15)When analyzing a capital budgeting project,the analyst

13、must include in his calculation all of the following except A)all revenues and costs in terms of cash flows.B)only those cash flows that will change if the proposal is accepted(i.e.,incremental cash flows).C)interest payments on debt financing connected with the project.D)any effect(impact)the accep

14、tance of the project under consideration will have on other projects now in operation.Answer:C Diff:3 4 16)The use of the same cost of capital(risk adjusted discount rate)for all capital projects in a corporation A)is usually the correct procedure.B)is incorrect since different divisions of the corp

15、oration may be faced with different levels of risk.C)is incorrect since different capital projects,even in the same division,may be faced with different levels of risk.D)Both B and C Answer:D Diff:3 17)If a risky cash flow of$10,000 is equivalent to a riskless cash flow of$9,300,the certainty equiva

16、lent factor is A)0.93.B)0.07.C)1.07.D)1.93.Answer:A Diff:2 18)If,at the end of the project life,a piece of equipment having a book value of$4,000 is expected to bring$3,000 upon resale,and the income tax rate is 40%,how much will be the cash flow?A)$2,800 B)$3,000 C)$3,400 D)$4,000 Answer:C Diff:3 1

17、9)If the risk adjusted discount rate method and the certainty equivalent methods are to give the same results,then the certainty equivalent factor(at)must equal(where rf is the risk-free interest rate,and k is the risk adjusted cost of capital)A)(1+rf)t times(1+k)t.B)(1+k)t divided by(1+rf)t.C)(1+rf

18、)t divided by(1+k)t.D)(1+k)t minus(1+rf)t.Answer:C Diff:3 5 20)Two projects have the following NPVs and standard deviations:Project A Project B NPV 200 200 Standard deviation 75 100 A person who selects project A over project B is A)risk seeking.B)risk indifferent.C)risk averse.D)None of the above A

19、nswer:C Diff:2 21)An increase in net working capital required at the beginning of an expansion project must be considered to be A)a cash inflow.B)a reallocation of assets.C)a cash outflow.D)None of the above Answer:C Diff:2 22)Usually,the cost of capital for newly issued stock is _ the cost of retai

20、ned earnings.A)lower than B)higher than C)same as D)either higher or lower than Answer:B Diff:2 23)A stock whose rate of return fluctuates less than the rate of return of a market portfolio will have a beta that equals A)1.B)less than 1.C)more than 1.D)Either A or C above Answer:B Diff:2 6 24)A comp

21、anys capital structure is made up of 40%debt and 60%common equity(both at market values).The interest rate on bonds similar to those issued by the company is 8%.The cost of equity is estimated to be 15%.The income tax rate is 40%.The companys weighted cost of capital is A)11.5%.B)12.2%.C)10.9%.D)8.9

22、%.Answer:C Diff:3 25)Capital rationing A)exists when a company sets an arbitrary limit on the amount of investment it is willing to undertake,so that not all projects with an NPV higher than the cost of capital will be accepted.B)generally does not permit a company to achieve maximum value.C)seems t

23、o occur quite frequently among corporations.D)All of the above Answer:D Diff:3 26)The time value of money can be best described as A)a dollar today is worth more than a dollar tomorrow.B)the basis on which net present values are calculated.C)the basis on which internal rates of return are calculated

24、.D)All of the above Answer:D Diff:2 27)Net present value and internal rate of return capital budgeting decisions can differ because A)the initial costs of the capital outlays differ.B)the cash flow streams differ.C)the discount rates differ for different time periods.D)All of the above Answer:D Diff

25、:2 28)Simulation analysis A)permits the calculation of expected value and standard deviation.B)does not permit the calculation of expected value and standard deviation.C)is too complex to ever be used in actual business situations.D)does not consider probabilities.Answer:A Diff:2 7 29)The expected v

26、alue is A)the total of all possible outcomes.B)the arithmetic average of all possible outcomes.C)the average of all possible outcomes weighted by their respective probabilities.D)the total of all possible outcomes divided by the number of different possible outcomes.Answer:C Diff:2 30)An advantage o

27、f the decision tree is that A)it eliminates the need for calculating the cost of capital.B)it eliminates the need for calculating probabilities.C)it causes the analyst to consider important events that may occur in the course of the project,and decisions and actions that may have to be undertaken.D)

28、All of the above Answer:C Diff:3 31)A real option can present management with the opportunity to A)vary output.B)abandon a project.C)postpone a project.D)All of the above Answer:D Diff:2 32)A source of business risk is a change in A)technology.B)consumer preferences.C)input prices.D)All of the above

29、 Answer:D Diff:1 33)The certainty equivalent approach to accounting for risk in capital budgeting involves A)adjusting the discount rate used to calculate net present values.B)adjusting the expected cash flows.C)estimating the coefficient of variation.D)estimating the standard deviation of the net p

30、resent values.Answer:B Diff:2 8 34)Which of the following is an example of risk in capital budgeting on a global basis?A)exchange rate changes B)tariff changes C)expropriation D)All of the above Answer:D Diff:2 35)The risk adjusted discount rate A)is the sum of the risk-free rate and the risk premiu

31、m.B)includes risk in the denominator of the present value calculation.C)includes risk in the numerator of the present value calculation.D)All of the above Answer:D Diff:3 36)A drawback in using the payback approach to capital budgeting decisions is A)it doesnt account for the time value of money.B)i

32、t ignores cash flows beyond the payback period.C)it doesnt adjust for differences in the stream of cash flows.D)All of the above Answer:D Diff:2 37)The cost of capital is best described as the A)opportunity cost of financing a capital outlay.B)funds that must be acquired to finance a capital outlay.

33、C)decrease in stockholder equity due to a capital outlay.D)All of the above Answer:A Diff:2 38)Capital rationing refers to A)setting a minimum acceptable rate of return for a capital outlay.B)selecting among profitable capital outlays when there are constraints on the funds available.C)determining t

34、he maximum price to pay for a capital product.D)None of the above Answer:B Diff:2 9 39)In evaluating the required rate of return for equity financing of a capital project,the Beta value is A)the expected rate of growth in a firms profits.B)the expected future value of a firms stock.C)the volatility

35、in the rate of return on a firms stock compared with the volatility in the rate of return on a market portfolio of stocks.D)None of the above Answer:C Diff:3 40)Probabilities,which are based on past data or experience,are called A)a priori.B)objective.C)uncertain.D)statistical.Answer:D Diff:2 41)The

36、 use of real options in capital budgeting A)may raise the NPV of a capital project.B)makes the analysis of the project considerably easier.C)allows management to make decisions more quickly.D)eliminates the need for calculating the projects risk adjusted discount rate.Answer:A 42)The use of sensitiv

37、ity analysis will generally result in A)the calculation of a certainty equivalent NPV.B)the calculation of a best case,a base case and a worst case.C)the calculation of the coefficient of variation.D)the calculation of the probability of the maximum profit.Answer:B Diff:3 43)A drawback in the use of

38、 sensitivity analysis in capital budgeting decisions is that it doesnt A)permit evaluating alternative outcomes.B)provide estimates of net present values.C)assign probability values to outcomes.D)consider different possible rates of discount.Answer:C Diff:3 10 44)The difference between sensitivity a

39、nalysis and scenario analysis is A)sensitivity analysis is a method for evaluating risk while scenario analysis is not.B)sensitivity analysis is based on regression analysis while scenario analysis is not.C)sensitivity analysis examines the impact on the overall results of a change in one variable w

40、hile scenario analysis examines the impacts on overall results of changes in several variables at the same time.D)None of the above Answer:C Diff:3 Analytical Questions 1)You deposit$10,000 in a savings account today.If the interest rate is 3%,what is the value in 20 years?Answer:FV=PV(1+i)n=10,000(

41、1.03)20=$18,061 2)You start working at age 20 and you plan to deposit$5,000 in a savings account every year for the next 45 years.a.At the end of this time,how much money will you have if the interest rate is 5%?b.You decide thats not enough money.How much will you have to save every year if you wis

42、h to have$1,000,000 when you retire?Answer:a.FV=5,000(1+i)n-1)/i =$798,500 b.You will have to save$6,261 per year.3)An aircraft company has signed a contract to deliver a plane 3 years from now.The price they will receive at the end of 3 years is$20 million.If the firms cost of capital is 6%,what is

43、 the present value of this payment?Answer:PV=20/(1.06)3=$16.79 million 4)An aircraft company has signed a contract to sell a plane for$20 million.The firm buying the plane will pay for it in 5 annual payments(at year end)of$4 million.If the firms cost of capital is 6%,what is the net present value o

44、f this payment?Answer:PV=$16.85 million 5)A firm must spend$10 million today on a project that is expected to bring in annual revenues of$1.5 million for the next 10 years(beginning at the end of year 1).a.If the firms cost of capital is 5%,what is the NPV of this project?b.If the firms cost of capi

45、tal is 10%,what is the NPV of this project?c.What is the internal rate of return?Answer:a.Present value of the revenues=$11.58 million,so NPV=$1.58 million.b.Present value of the revenues=$9.22 million,so NPV=-$0.78 million.c.8.15%11 6)If an expansion proposal is accepted,allowing an otherwise idle(

46、and useless)machine with a market value and book value of$2,000 to be utilized,should it be recorded as a cash outflow,and if so,how much?Answer:Yes,$2,000 7)You win the$20 million state lottery,and you have a choice of taking an amount of money per year for the next 20 years or a flat payment now.T

47、he flat payment that the state offers you is$9.82 million.a.What discount rate is the state using?b.Should you take the money or the annuity?Answer:a.8%(This is essentially the internal rate of return on the project.)b.In general,it depends on what return you think you can get on the money.If you th

48、ink you can do better than 8%,youre better off with the cash.8)If the interest rate is 7%and the tax rate is 15%,what is the after-tax cost of capital for the firm?Answer:.07(1-.15)=5.95%9)Inc.s stock is currently$50.The last dividend that they paid was$1.If dividends are expected to increase at a 1

49、0%annual rate,what is the firms equity cost of capital?Answer:ke=D1/P0+g=1.10/50+.10=12.2%10)If a companys stock is perceived to be more risky than average,what will happen to their equity cost of capital?Explain using the capital asset pricing model.Answer:A stock that is more volatile(riskier)than

50、 the market average will have a beta of greater than 1.This means that the return that stockholders will require will be greater than average kj=Rf+(km-Rf).In other words,the company will have to pay stockholders more since they must take a greater risk,and the equity cost of capital will rise.11)Ex