Financial Management Principles And Applications, 13th Edition By Titman, keown & Martin – Test Bank

Financial Management: Principles & Applications, 13e (Titman)
Chapter 11 Investment Decision Criteria

1) Which of the following are typical consequences of good capital budgeting decisions?
A) The firm increases in value.
B) The firm gains knowledge and experience that may be useful in future decisions.
C) Good capital budgeting decisions help a company define its core competencies.
D) All of the above.
Answer: D
Diff: 1
AACSB: 6. Reflective thinking
Question Status: Previous edition
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value

2) Errors in capital budgeting decisions
A) tend to average out over time.
B) decrease the firm’s value.
C) are diminished because the time value of money makes future cash flows less important.
D) are easily reversed.
Answer: B
Diff: 1
AACSB: 6. Reflective thinking
Question Status: Previous edition
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value

3) Which of the following factors is least important to capital budgeting decisions?
A) The time value of money
B) The risk-return tradeoff
C) Net income based on accrual accounting principles
D) Cash flows directly resulting from the decision
Answer: C
Diff: 1
AACSB: 6. Reflective thinking
Question Status: Previous edition
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value

4) Which of the following would be considered a capital budgeting decision?
A) Walmart purchases inventory for resale to customers.
B) Apple sells bonds and uses the proceeds to repurchase stock.
C) Goldman Sachs obtains short-term loans to finance day to day operations.
D) Pfizer develops a new therapy and brings it to market.
Answer: D
Diff: 1
AACSB: 6. Reflective thinking
Question Status: Previous edition
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value
5) Which of the following is a typical capital budgeting decision?
A) Purchase of office supplies
B) Granting credit to a new customer
C) Replacement of manufacturing equipment with more modern and efficient equipment
D) Financing the firm with more long-term debt and less equity
Answer: C
Diff: 1
AACSB: 6. Reflective thinking
Question Status: Previous edition
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value

6) Good capital investment opportunities are most likely to exist when
A) many firms compete to sell similar products.
B) interest rates are high and rising.
C) goods and services can be produced cheaply using readily available tools and technologies.
D) a line of business is expensive to enter and uses proprietary technology.
Answer: D
Diff: 1
AACSB: 6. Reflective thinking
Question Status: Previous edition
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value

7) Which of the following would be an example of a mandated capital budgeting decision?
A) a powerful political figure wants a manufacturing facility to be located in his district.
B) a solar array installs landscaping to reduce objections from near-by residents.
C) a company must install elevators to comply with the Americans With Disabilities Act (ADA)
D) all of the above.
Answer: C
Diff: 1
AACSB: 6. Reflective thinking
Question Status: New question
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value

8) Errors resulting from a capital budgeting decision are not considered major since the consequences of such errors average out over the life of the investment.
Answer: FALSE
Diff: 1
AACSB: 6. Reflective thinking
Question Status: Previous edition
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value
9) Competitive market forces make it imperative for a firm to have a systematic strategy for generating capital-budgeting projects.
Answer: TRUE
Diff: 1
AACSB: 6. Reflective thinking
Question Status: Previous edition
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value

10) The size of capital investments and the difficulty in reversing them once they are made make capital-budgeting decisions very important to the firm.
Answer: TRUE
Diff: 1
AACSB: 6. Reflective thinking
Question Status: Previous edition
Objective: 11.1 Understand how to identify the sources and types of profitable investment opportunities.
Keywords: capital budgeting
Principles: Principle 3: Cash flows are the source of value