Question

A construction company is preparing a capital budget and considering four long-term investments

. The profitability index of each project is as follows

Project A: 0.34

Project B: 1.12

Project C: 1.26

Project D: 0.93

In theory, which two projects should the company pursue?

a) Projects B and C

b) Projects B and D

c) Projects A and D

d) Projects A and C

Which of the following is true of venture capital?

• a) Venture capital is comparable to a bank loan, which must be repaid over time.

• b) Venture capitalists reserve the right to sell their portion of company shares before an IPO.

• c) average, venture capital investors seek a return on their investment in about five years.

• d) One way venture capitalists evaluate potential investments is by analyzing a company's share price.

Place the following steps for developing a credit policy in the correct order of process:

• A: The company hopes that few customers will miss payments, so it decides to take no action to collect bad debts.
• B: The company decides that payments must be made within 45 days.
• C: The company decides that it's willing to lose sales in exchange for less bad debt risk.

• a) C, A, B

• b) B, A, C

• c) B, C, A

• d) C, B, A

Which of the following describes the securities underwriting process?

• a) An investment bank helps to connect a private company with sources of capital.

• b) An investment bank determines if a company can afford to go public.

• c) An investment bank responsible for market liquidity quotes a bid price and an ask price for a security.

• d) A company sells its securities to an investment bank, who then sells the securities to market participants.

Answer 1

Ans 1) To accept the project using profitability index its value should be greater than thus only project B and C fulfil that condition so the comapny should pursue only project B & C. Correct annswer is option a) Project B & C.

Ans 2) Correct answer is option B that is Venture capitalists reserve the right to sell their portion of company shares before an IPO.

Ans 3) Correct answer is option D.

Ans 4) Correct answer is option D that is A company sells its securities to an investment bank, who then sells the securities to market participants.