481.Which of the following should be included at the start of the project?
A. Research costs.
B. Historical costs.
C. Investment in fixed and working capital.
D. Continuation value.
482. Which of the following would not be counted after the end of a project?
A. Scrap value.
B. Continuation value.
C. Release of working capital.
D. Change in working capital.
483. How can we compare projects in the case where they have different life-spans?
A. Use the annuity equivalent approach.
B. Use the perpetuity equivalent approach.
C. Use both the perpetuity and annuity equivalent approach.
D. Select the project with the shorter payback period.
484. What is the tax shield?
A. The tax shield is a benefit which accrues to companies which are able to channel their funds through tax havens.
B. The tax shield is the benefit which accrues to firms which are located in special enterprise areas.
C. The tax shield is the phenomenon whereby allowable expenses such as interest and depreciation reduce taxable profit.
D. The tax shield allows initial capital expenditure to be offset against tax, when calculating taxable profit.
485. When is a profitability index used?
A. When capital is rationed.
B. When IRR cannot be used.
C. When IRR and NPV conflict.
D. When payback is deemed to have insufficiently taken into account the time value of money.
486. Which of the following is not a real option?
487. Which type of real option would best describe the Keelman example?
D. All three.
488. In terms of relative risk, which of the following is true?
A. Debt is risky for investors while equity is risky for the firm.
B. Both are equally risky for investors.
C. Both are equally risky for the firm.
D. Debt is risky for the firm while equity is risky for the investor.
489. What is the general phenomenon known as gearing?
A. Gearing represents the effect whereby greater fixed cost leads to greater variability of business outcome.
B. Gearing represents the effect whereby greater variable cost leads to greater variability of business outcome.
C. Gearing represents the effect whereby greater fixed cost leads to less variability of business outcome.
D. Gearing represents the effect whereby greater variable cost leads to less variability of business outcome.
490. If the weighting of equity in total capital is 1/3, that of debt is 2/3, the return on equity is 15% that of debt is 10% and the corporate tax rate is 32%, what is the Weighted Average Cost of Capital (WACC)?
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