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Business
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CFIN
Quiz 10: Project Cash Flows and Risk
Path 4
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Question 1
Multiple Choice
Which of the following statements is true regarding a replacement decision?
Question 2
Multiple Choice
Which of the following statements is true about relevant cash flows?
Question 3
True/False
Quantification of risk is difficult, and there are different types of risks like stand-alone risk, market risk and political risk. Sensitivity analysis is a good technique to measure market risk.
Question 4
True/False
A sunk cost is a cash outlay that has already been incurred and that cannot be recovered regardless of whether the project is accepted or rejected. These sunk costs are extremely important in capital budgeting decisions.
Question 5
Multiple Choice
Which of the following rules is essential for successful cash flow estimates, and ultimately, to successful capital budgeting?
Question 6
True/False
Capital budgeting decisions must be based on the accounting income the project generates since stockholders are concerned with the reported net income the firm generates.
Question 7
Multiple Choice
According to the text, the financial staff's role in the forecasting process is to:
Question 8
True/False
One problem with Monte Carlo simulation analysis is that while the simulation may provide some insights into the riskiness of a project, the analysis does not lead to a clear-cut accept versus reject decision.
Question 9
Multiple Choice
When evaluating a new project, a firm should consider _____, as an incremental cash flow occurs only at the start of a project's life.
Question 10
Multiple Choice
Which of the following is an incremental cash flow?
Question 11
Multiple Choice
Hill Top Lumber Company is considering building a sawmill in the state of Washington because the company doesn't have such a facility to service its growing customer base that is located on the west coast. Hill Top's executives believe that future growth in west coast customers will make the sawmill project a good investment. When evaluating the acceptability of the project, which of the following would be considered a relevant cash flow that should be included when determining its initial investment outlay?
Question 12
True/False
A key difference between a replacement project analysis and an expansion project analysis is that only the expansion project uses the net present value (NPV) method for project evaluation.
Question 13
True/False
If a firm is considering purchasing an asset whose beta is greater than the current beta of the firm, it should use a discount rate greater than the firm's average required rate of return to evaluate the possible investment.