文档介绍：Capital Budgeting Test ID: 7694293
Question #1 of 57 Question ID: 414743
Polington Aircraft Co. just announced a sale of 30 aircraft to Cuba, a project with present value of $10 million. Investors did
not anticipate the sale because government approval to sell to Cuba had never before been granted. The share price of
Polington should:
✗ A) increase by the NPV × (1 - corporate tax rate) divided by the number mon shares
outstanding.
✗ B) not necessarily change because new contract announcements are made all the time.
✓ C) increase by the project NPV divided by the number mon shares outstanding.
Explanation
Since the sale was not anticipated by the market, the share price should rise by the NPV of the project mon share. NPV
is already calculated using after-tax cash flows.
Question #2 of 57 Question ID: 414699
One of the basic principles of capital budgeting is that:
✓ A) decisions are based on cash flows, not accounting e.
✗ B) opportunity costs should be excluded from the analysis of a project.
✗ C) cash flows should be analyzed on a pre-tax basis.
Explanation
The five key principles of the capital budgeting process are:
1. Decisions are based on cash flows, not accounting e.
2. Cash flows are based on opportunity costs.
3. The timing of cash flows is important.
4. Cash flows are analyzed on an after-tax basis.
5. Financing costs are reflected in the project's required rate of return.
Question #3 of 57 Question ID: 414742
The effect of pany announcement that they have begun a project with a current cost of $10 million that will generate future
cash flows with a present value of $20 million is most likely to:
✗ A) increase value of the firm'mon shares by $10 million.
✗ B) increase the value of the firm'mon shares by $20 million.
✓ C) only affect value of the firm'mon shares if the project was unexpected.
Explanation
Stock prices reflect investor expectations for future investment and growth. A new positive-NPV project wil