Busıness Fınance II (ENG) — Ünite Sınavı

...refers to a firm’s attribute that may allow the firm to generate economic profits.

Which one of the following completes the sentence?

The greater the risk of an investment project, the ........ will be the requried rate of return from the project and accordingly the ....... will be discount rate since there is a ..... relationship between risk and return. 

1. Investment refers to all kinds of spendings made to acquire, sustain, and increase production factors.
2. Capital expenditure refers to outlay of funds by the firm that is expected to produce benefits over a period of time longer than one year.
3. Capital budgeting refers to the process of evaluating and selecting long-term investments which are consistent with the firm’s main objective of maximizing shareholders’ wealth.
4. Capital budgeting activity is a process consisting of a number of stages.

Which of the definitions above are correct?

Which one of the following is the first step of calculating the Net Present Value?

1. Capital budgeting includes long-term decisions about non-current assets of a company.
2. Decisions about non-current assets need extra attention from managers because they are more expensive than the current assets.
3. The outcome of capital budgeting is either approval or rejection of the investment project.
4. In order to come to approval or rejection point, a financial manager needs analytical tools to make analysis.
5. There are a number of simple and sophisticated analytical tools that managers use for project analysis.
6. Main consideration is “return and risk” and “benefit and cost” of each project proposal.
7. In the end, if a financial manager approves an investment project, we can assume that he/she thinks that returns/benefits from the project will be greater than the associated risks/costs.

Which of the statements above related to capital budgeting are correct?