Question

. Assuming zero Liquidity Risk Premium and Constant Inflation Risk Premium, the
difference in yield between two Treasury securities results primarily from differences in Maturity Premium

True or false
15. The NPV and IRR methods will always agree as to whether a project enhances or harms shareholder wealth.

TF
16. The Profitability Index is an easier method than Net Present Value because it does not involve discounting future cash flows.

TF
17. A manager should always choose the project with the highest Internal Rate of Return even if it has a lower Net Present Value than an alternative project.

TF
18. If a firm’s cost of equity is 15% and its cost of debt is 5%, it should always accept a project with an Internal Rate of Return greater than 5% if it can finance the project entirely with debt.
TF
19. A “fiat currency” bases its value on the price of gold.

TF

20. Political risk can affect the value of a country’s currency. TF

21. Delaying payment of Accounts Payable will tend to decrease Working Capital TF

22. A firm can finance its operations on the backs of its suppliers by taking longer to pay its bills.

TF
23. NPV, IRR, MIRR, and PI will always agree on whether a project should be accepted or rejected,

TF
24. Low interest rates might induce companies to hold more debt in their Capital Structure

TF
25. Savings and Investment are different words for the same thing.

TF

Answer 1

15. The NPV and IRR methods will always agree as to whether a project enhances or harms shareholder wealth.

True

16. The Profitability Index is an easier method than Net Present Value because it does not involve discounting future cash flows.

False

17. A manager should always choose the project with the highest Internal Rate of Return even if it has a lower Net Present Value than an alternative project.

False

18. If a firm’s cost of equity is 15% and its cost of debt is 5%, it should always accept a project with an Internal Rate of Return greater than 5% if it can finance the project entirely with debt.
True