Financial Management Theory And Practice 15th Edition By Brigham – Test Bank

1. Because of improvements in forecasting techniques, estimating the cash flows associated with a project has become the easiest step in the capital budgeting process.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
United States – AK – Tier 2: Financial statements, an – Tier 2: Financial statements, analysis, forecasting, and cash flows
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Cash flow estimation
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OO3T
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMJT-GR4D-YCB1-G71D-EPJ3-CWSU-NCMD-8YSS-KCJO-GOSS-KQMB-8RSU-1A5G-GC5U-YCBI-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

2. Estimating project cash flows is generally the most important, but also the most difficult, step in the capital budgeting process. Methodology, such as the use of NPV versus IRR, is important, but less so than obtaining a reasonably accurate estimate of projects’ cash flows.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
United States – AK – Tier 2: Financial statements, an – Tier 2: Financial statements, analysis, forecasting, and cash flows
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Cash flow estimation
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OO3O
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMJI-GIUD-13UB-GFTG-KPBU-GWSU-GAJA-CRSU-GCBS-GOSU-QCTZ-GCSU-EP3T-GO5U-C3UN-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

3. Although it is extremely difficult to make accurate forecasts of the revenues that a project will generate, projects’ initial outlays and subsequent costs can be forecasted with great accuracy. This is especially true for large product development projects.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
United States – AK – Tier 2: Financial statements, an – Tier 2: Financial statements, analysis, forecasting, and cash flows
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Cash flow estimation
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OO3Z
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMJO-CCHD-N3JZ-CJ1D-Y3JW-8RSS-EAJ1-CESU-K3JO-GOSS-E3TA-GOSU-1QJW-GHHD-OA3W-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

4. Since the focus of capital budgeting is on cash flows rather than on net income, changes in noncash balance sheet accounts such as inventory are not included in a capital budgeting analysis.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
United States – AK – Tier 2: Financial statements, an – Tier 2: Financial statements, analysis, forecasting, and cash flows
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Relevant cash flows
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OO3S
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMMG-8F1G-RCB3-GJOU-YQJZ-8YSU-YP5D-8RSU-OA3A-GOSU-YCJA-GOSS-N3UF-CITU-YPDN-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

5. If an investment project would make use of land which the firm currently owns, the project should be charged with the opportunity cost of the land.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
United States – AK – Tier 2: Financial statements, an – Tier 2: Financial statements, analysis, forecasting, and cash flows
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Relevant cash flows
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OO3I
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMJT-CC4U-GPTI-CJOU-RC3O-GWSS-GCMG-CRSS-C3MF-GOSS-NCT3-CASU-GPTT-GRHD-CPUR-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

6. If debt is to be used to finance a project, then when cash flows for a project are estimated, interest payments should be included in the analysis.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
United States – AK – Tier 2: Financial statements, an – Tier 2: Financial statements, analysis, forecasting, and cash flows
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Relevant cash flows
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OO3W
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMJI-GH4D-QA3I-GW5G-GCDB-GESS-C3BU-8YSU-13T3-GOSU-QQMG-GRSU-Q3JI-GH5U-C3TS-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

7. Any cash flows that can be classified as incremental to a particular project⎯i.e., results directly from the decision to undertake the project⎯should be reflected in the capital budgeting analysis.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
United States – AK – Tier 2: Financial statements, an – Tier 2: Financial statements, analysis, forecasting, and cash flows
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Relevant cash flows
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OTNN
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMJI-GEAD-EPMB-GE5G-KQMF-CASU-13DF-8YSU-YA5N-GOSU-CQBO-CASS-RCJ1-8Y3U-C3JS-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

8. We can identify the cash costs and cash inflows to a company that will result from a project. These could be called “direct inflows and outflows,” and the net difference is the direct net cash flow. If there are other costs and benefits that do not flow from or to the firm, but to other parties, these are called externalities, and they need not be considered as a part of the capital budgeting analysis.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Externalities
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OTNB
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMJT-GI1U-1QJU-COHU-O3JA-CWSU-NATU-CRSU-EP5D-GOSS-K3JO-8RSS-CCTI-GR4S-RAT3-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

9. In cash flow estimation, the existence of externalities should be taken into account if those externalities have any effects on the firm’s long-run cash flows.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Externalities
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OTB3
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMJT-GH3D-YAJO-GI1U-ECBZ-COSS-E3DF-CESU-GPJO-GOSS-K3UD-8RSS-GCB1-CE4S-NCBA-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE

10. Suppose a firm’s CFO thinks that an externality is present in a project, but that it cannot be quantified with any precision⎯estimates of its effect would really just be guesses. In this case, the externality should be ignored⎯i.e., not considered at all⎯because if it were considered it would make the analysis appear more precise than it really is.
a. True
b. False
ANSWER: False
RATIONALE: If the externality is potentially important, it should not be ignored, because then a large error might be made. At the very least, it should be discussed, and possibly the analysis should be done using several scenarios of the possible effects of the externality.
POINTS: 1
DIFFICULTY: Difficulty: Easy
QUESTION TYPE: True / False
HAS VARIABLES: False
LEARNING OBJECTIVES: FMTP.EHRH.17.11.01 – LO: 11-1
NATIONAL STANDARDS: United States – BUSPROG: Reflective Thinking
STATE STANDARDS: United States – AK – DISC: Capital budgeting and cost – DISC: Capital budgeting and cost of capital
LOCAL STANDARDS: United States – OH – Default City – TBA
TOPICS: Externalities
KEYWORDS: Bloom’s: Knowledge
DATE CREATED: 8/26/2015 10:46 AM
DATE MODIFIED: 8/26/2015 10:46 AM
QUESTION ID: JFND-GO4G-EO4D-OTBA
QUESTION GLOBAL ID: GCID-E7BW-1TBP-CTOU-GAMN-8R3U-YPB3-GE31-4QBU-GBTN-4C5G-CE4N-4CTI-8Y41-4CDD-GJOU-QQJT-GTDI-GWN8-EPRW-EMJS-GR5D-1C5N-GF1U-E3B3-CASU-KCBZ-CESU-RQJO-GOSU-GAMG-CESU-YC5N-CEAU-QAJA-E7JI-YT4D-JFNN-4OTI-GO4W-NQNBEE