Week 3 - quiz

H

The IRR of project E is _______

About 9

About 13

About 16

About 20

If the two projects are mutually exclusive , which project would you accept using NPV , assuming cost of capital of 18

Project E

Project H

Both

Neither

Chapter 13 (Block and Hirt

Risk-averse managers will generally require _____ return from risky investments

Lower

Zero

Higher

Negative

The concept of risk can be incorporated into the capital budgeting process by using higher discount rates for riskier

investments

True

False

If risk is to be analyzed in a qualitative way , which is the least risky

New equipment

New market

Repair of old machinery

New product in a foreign market

16-17

Best Technology Corp . is evaluating the introduction of a new product The possible levels of unit sales and the probabilities of their occurrence are given Possible

Market Reaction Sales

in Units

Probabilities

Low response 20 .10

Moderate response 40 .20

High response 65 .40

Very high response

80 .30 What is the expected value of unit sales for new product

20

30

45

60

What is the standard deviation of unit sales

370

160

19 .2

5 .8

Project A has an expected return of 1 ,000 and a standard deviation of 590 . Project B has expected return of 3 ,000 and a standard deviation of 750 . Using coefficient of variation , which has a lower risk

Project A , because coefficient of variation is higher

Project A , because coefficient of variation is lower

Project B , because coefficient of variation is higher

Project B , because coefficient of variation is lower

A company with a beta of 1 .50 is considered to have lower level of risk than the stock market in general

True

False

A company is considering the purchase one of two companies . Both of these companies have...