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Multiple Choice Quiz
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1
The major criteria used by managers for capital budgeting decisions are
A)NPV
B)IRR
C)Payback period
D)Return measures such as ROIC, ROOPA or RONABIT
E)All of the above
2
NPV is not always used by managers because
A)It is not intuitive
B)Alternative measures such as the payback period are equally accurate
C)Managers rarely think of NPV as incremental value for investors
D)Both a and c
E)All of the above
3
A project with a zero NPV
A)Earns a competitive rate of return
B)Is not worth undertaking
C)Is a mediocre project.
D)Is just breaking even profit-wise
E)None of the above.
4
Managers who avoid discounted cash flow analysis tend to be
A)Overconfident
B)Less sophisticated, older and longer-tenure managers
C)Managers of highly-levered firms
D)Managers of firms with agency conflicts
E)None of the above.
5
Managers who do not base their decisions on NPV are prone to
A)Over-confidence.
B)Excess optimism.
C)The representativeness bias.
D)Being averse to a sure loss.
E)Preference reversals.
6
Managers who continually ask themselves whether they would support or terminate a project if they took it over for the first time today
A)Are wasting time that could be better used in implementing the project
B)Are undermining the decisions of their predecessors
C)Are avoiding excessive reluctance to terminate failing projects
D)Are second-guessing themselves
E)None of the above
7
The difference between behavioral biases and agency conflicts is that
A)Dealing with agency conflicts involves the alignment of incentives while behavioral biases need to be addressed by debiasing.
B)Behavioral biases actually arise from agency conflicts. Without agency conflicts, there will be no behavioral biases.
C)Agency conflicts actually arise from behavioral biases. By addressing behavioral biases, agency conflicts will automatically be eliminated.
D)There is no difference between the two. They are alternative names for the same phenomenon.
E)None of the above
8
Managers are often reluctant to terminate losing projects because
A)They are averse to sure losses
B)The losing projects are highly visible
C)They do not want to experience regret that they made a mistake with the project
D)All of the above
E)None of the above
9
Managers are excessively optimistic in projects where
A)They believe they have a high degree of perceived control
B)They believe that they are familiar with the situation at hand
C)The outcome is much more desirable
D)The early stages of the project have been successful
E)All of the above





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