Question

QUESTION 2

1. Depreciation must be considered when evaluating the incremental operating cash flows associated with a capital budgeting project because:

	A.	it represents a tax-deductible cash expense.
	B.	the firm has a cash outflow equal to the depreciation expense each year.
	C.	depreciation is a cash flow that doesn't change.
	D.	depreciation has an impact on the taxes paid by the firm, which is a cash flow.
	E.	depreciation is a sunk cost.

QUESTION 3

1. Diversifiable risk includes _____.​

	A.	liquidity risk
	B.	business risk
	C.	maturity risk
	D.	political risk
	E.	interest rate risk

5 points   

QUESTION 4

1. Which of the following statements is correct?​

	A.	A relatively risky future cash outflow should be evaluated using a relatively high discount rate.
	B.	Project risk estimation is independent of the beta coefficient.
	C.	If a firm's managers want to maximize the value of the stock, they should concentrate exclusively on the projects' market, or beta, risk.
	D.	If a firm has a beta that is less than 1.0, say 0.9, this would suggest that its assets' returns are negatively correlated with the returns of most other firms' assets.
	E.	If a firm evaluates all projects using the same required rate of return to determine NPVs, then the riskiness of the firm as measured by its beta will probably decline over time.

Answer 1

2)

Ans: D) depreciation has an impact on the taxes paid by the firm, which is a cash flow

Depreciation is a non cash expense, means there is no actual cash flow in the form of depreciation. But it will have impact on taxes paid by the firm

3)

Maturity risk can be diversified by investing in different securities with different maturities

4)

A) Correct. expected return increases as risk increases and so discount rate should be high

B) Wrong. beta represents the systematic risk and it should be considered

C) Wrong. as said beta represents the systematic part of risk and there is unsystematic risk also to be considered

D) Wrong, beta less than 1 represents, asset return is less volatile than marke