Reference no: EM132596996

Question 1: If a firm has a degree of operating leverage (DOL) of 1.8, it means:

A. If sales increase by 1.8%, the EBIT will increase by 1%.

B. If sales increase by 1%, EBIT will increase by 1.8%.

C. If EBIT increase by 1.8%, the EPS will increase by 1 %.

D. If sales rise by 1%, EBIT will fall by 1.8 %.

Question 2: Which of the following capital budgeting evaluation method considers all cash inflows?

A. Accounts Rate of Return

B. Net Present Value

C. Payback period

D. Discounted payback period.

Question 3: Which of the following is disadvantage of the payback period method?

A. It does consider all cash inflows

B. It is easy to compute and interpret.

C. It does not consider the time value of money.

D. It deals with accounting profits.

Question 4: Which of the following statement is correct?

A. If two projects are mutually exclusive & have positive NPV, both can be accepted.

B. If two projects are independent & have positive NPV, both can be accepted.

C. A firm should accept a project if the estimated NPV exceeds the project's cost.

D. A firm should accept a project if the estimated NPV is negative.

Question 5: Profitability index (PI) of 1 implies that an investment's:

A. Total Present value of cash inflows & the initial investment are equal.

B. NPV of the project equals to zero.

C. IRR equals the firm's required rate of return.

D. A and B are correct