Exercise Financial Management

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Financial Management: Principles and Applications, 11e (Titman) Chapter 11 Investment Decision Criteria 11.1 An Overview of Capital Budgeting 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. 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. 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 4) Which of the following would NOT be considered a capital budgeting decision? A) Walmart purchases inventory for resale to customers. B) Morgan Stanley installs elevators to comply with the Americans With Disabilities Act. C) Caterpillar replaces manufacturing equipment with more efficient new equipment. D) Pfizer develops a new therapy and brings it to market. 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 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

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