İŞLETME FİNANSI II

Investment refers to all kinds of spendings made to acquire, sustain and increase production factors. The correct answer is A.

Capital expenditure refers to the outlay of funds by the firm that is expected to produce benefits over a period of time longer than one year. The correct answer is B.

Capital budgeting activity is explained as a process, consisting of a number of stages. The three basic steps of this process are:

The correct answer is D.

Relative state of the investments regarding dependence on each other may be one of the following:

The correct answer is E.

Commonly applied capital investment project analysis techniques are payback period, discounted payback period, net present value, internal rate of return, modified internal rate of return, and profitability index. Decision trees are, however, tools to associate probabilities to each possible outcome for an event and map out the possible outcomes and the value of the investment opportunity associated with these different outcomes. The correct answer is C.

Same as payback period, discounted payback period tells the length of time it takes to get the initial cash outflow back, that is the period from the initial cash outflow to the time when the investment project’s cash inflows add up to the initial cash outflow. The only difference is cumulative present values of cash inflows (rather than numerical sum values) will be equal to the initial cash outflow. The correct answer is B.

Tthere are three steps of calculating NPV:

The correct answer is C.

According to internal rate of return technique, if a project is mutually exclusive, the project that provides the highest IRR (that is greater than the expected rate of return (discount rate used in NPV technique)) is approved. The correct answer is A.

Most of the time, because of the nature of risk, making adjustments to cash flows or discount rates is not enough for financial managers. They want to know the sources and possible effects of certain risks of a project. They want to measure a project’s risks coming from various sources rather than in general manner. Sensitivity analysis, scenario and simulation analysis, and decision trees are used for this purpose. However, one or more of these analyses sometimes lead(s) financial managers to consider real options available in a capital investment project because in reality there are various types of uncertainties that exist about these projects. The correct answer is E.

Abandonment options are options to withdraw resources from a project that fails to live up to short-run expectations. These withdrawals might be the entire commitment to a project. With an abandonment option, company obtains an opportunity to withdraw part or all of its commitment to a project. The correct answer is D.

Investment refers to all kinds of spendings made to acquire, sustain, and increase production factors

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.

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.

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

Economic profit refers to the risk-adjusted present value of revenue minus all costs, including the opportunity cost of capital.

A project’s cash flow = Net income of project + Depreciation

Discounted payback period technique tells the length of time it takes cumulative present values of cash inflows will be equal to the initial cash outflow.

Estimating cash flows is the first step of calculating the Net Present Value.

Profitability index technique tells the ratio of the present value of a project’s cash inflows to the present value of all cash outflows or initial cash outflow.

Real options refer to the options of managers about capital investment projects which can be priced by using stock option-pricing methodologies.