Financial Management

241. Regardless of the type of asset being acquired, the appropriate discount rate is:

1. the aftertax cost of debt
2. the required rate of return
3. the weighted average cost of capital
4. the cost of equity capital

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242. The biggest problem facing a manager is:

1. the cost of financing
2. competitive pressures
3. the farther out the time horizon moves, the greater the uncertainty
4. changing economic conditions

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243. One of the main advantages of the payback period is:

1. it is easy to use and places a premium on liquidity
2. it ignores the time value of money
3. all inflows related to the decision are considered
4. outflows are equated with inflows using the rate of return

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244. The internal rate of return method:

1. does not consider inflows after the cutoff period
2. calculates the interest rate that equates outflows with subsequent inflows
3. determines the time required to recoup the initial investment
4. determines whether future benefits justify current expenditures

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245. With mutually exclusive projects:

1. both projects can be accepted
2. the project with the higher NPV is accepted
3. both projects are rejected
4. only one project is accepted

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246. All of the following are true of the coefficient of variation except:

1. it eliminates the size difficulty resulting from standard deviation
2. it is computed by dividing the standard deviation by the expected value
3. it measures the volatility of returns relative to the market
4. the larger the coefficient of variation, the greater the risk

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247. Projects that increase the overall risk level of the firm:

1. should not be undertaken
2. should be discounted at the firm's cost of capital
3. should be discounted at a rate higher than the cost of capital
4. will have a low standard deviation

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248. The extent of correlation among projects is represented by:

1. the coefficient of correlation
2. the coefficient of variation
3. the standard correlation coefficient
4. the variance

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249. One of the main purposes of the capital markets is:

1. to provide access to short-term funds
2. to provide access to long term funds
3. to allocate capital to the most efficient user
4. to set various interest rates

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250. Which of the following characteristics of financial intermediaries is incorrect:

1. they are the interface between suppliers and demanders of funds
2. they increase the cost of funds to corporation and governments
3. they help make the flow of funds efficient and competitive
4. they include banks, mutual funds, and credit unions

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