Finance for Non-Finance Professionals Week 5 Final Exam

quiz6.txt

1.
Question 1
 In 5 years you are going to get $2,000.
If interest rates unexpectedly rise, the present value of that future amount to
you would

1 point

### Fall


Rise


Remain unchanged


Cannot be determined

2.
Question 2
Assume that the interest rate is greater than zero. Which of the following cash-inflow streams should you prefer?

Year 1	Year 2	Year 3
Row A	$500	$300	$100
Row B	$100	$300	$500
Row C	$300	$300	$300
1 point

### Row A


Row B


Row C


They are all equal because they all add up to $900

3.
Question 3
If you wanted to increase the
present value of a future cash flow, how would you adjust the discount rate? 

1 point

Increase it


### Decrease it


Leave it alone


The answer cannot be determined
without knowing the cash flow

4.
Question 4
In following the best practices for capital
budgeting analysis we always try to evaluate incremental:

1 point

Earnings per share


### Cash flow


Net operation profits


Sales growth potential

5.
Question 5
When we forecast the benefits and
costs of a potential projects, we focus on cash flow instead of income because:

1 point

This is a requirement of the Securities
and Exchange Commission


Cash flows are easier to compute


### Cash creation is a better measure of firm value


Income can be negative for tax
reasons

6.
Question 6
Our measure of free cash flow (FCF)
accounts for working capital by:

1 point

Increasing FCF by the amount of
working capital


### Decreasing FCF by any increase in the level of working
capital


Lowering working capital by
subtracting the level of working capital


This adjustment is already made in
the income statement

7.
Question 7
Depreciation expense is added back
to net income in our measure of free cash flow (FCF) because:

1 point

Depreciation expense is a real cash
outflow


### Depreciation is a non-cash expense


Lowering working capital by
subtracting the level of working capital


This adjustment is already made in
the income statement

8.
Question 8
The terminal (or salvage) value of a
project represents:

1 point

How much cash is left in working
capital at the end of the project


### The amount of value left in the project at the end of the forecast 


How much it would cost to shut down
the project


 The last period earnings per share

9.
Question 9
 Why are capital expenditures
subtracted to compute free cash flow (FCF)?

1 point

They have not been reflected in the
income statement


The represent a real cash drain on
the firm


Their timing may not perfectly match
an offsetting depreciation expense


### All the above

10.
Question 10
If you sell a share of stock for $45
today that you purchased for $26 three years ago, what was your annual return
over the three years?

1 point

73%


### 24% = (45-26)/26 / 3


20%


36%

11.
Question 11
Which of the following is not
usually a determinant of interest rates?

1 point

Inflation


Economic uncertainty


### Stock market dividends 


Investors' willingness to be patient

12.
Question 12
 Suppose you put $5,000 into a bank
account with an interest rate of 4%. What will be the account balance at the
end of 8 years if the interest is compounded annually?

1 point

$6,584


$5,117 


$6,600


### $6,843 = 5000*((1+0.04)^8)

13.
Question 13
The process of capital budgeting involves:

1 point

Identifying good and bad potential investments


Choosing among a set of potential opportunities 


Identifying projects that may create
shareholder value


### All of the above

14.
Question 14
What are some potential drawback of
using accounting rates of return for capital budgeting decisions?

1 point

The correct hurdle rate to use is
arbitrary


Depreciation expense may have a
large impact on the accounting rate of return


The method has no implicit risk
adjustment 


### All of the above

15.
Question 15
Consider an investment with an
immediate outflow of $5,000 followed by annual inflows of $1,500 for the next
four years.  What is the project’s IRR? 

1 point

15.3%


20%


### 7.71%


2.57%

16.
Question 16
Consider an investment with an
immediate outflow of $5,000 followed by annual inflows of $1,500 for the next
four years.  If the firm has a 10% cost
of capital, what is the project’s NPV and should they accept the project? 

1 point

NPV = $1,000; accept the project


NPV = $-245; accept the project


NPV = $1,000; reject the project


### NPV = $-245; reject the project

17.
Question 17
You have to know the firm’s discount
rate to compute a project...

1 point

NPV, IRR, and payback
period    


NPV, Return on assets, and payback
period


NPV and IRR


### NPV

18.
Question 18
Which of the following is NOT a
potential pitfall of using the payback period as a tool for making capital
budgeting decisions?

1 point

### The payback period depends on an
arbitrary length of time


The payback period does not
explicitly account for risk


The payback period does not incorporate the time value of
money


The payback period does not include
the value of cash flows after the initial investment is returned.

19.
Question 19
Good capital
budgeting practices should...

1 point

 Account for the tradeoff between
risk and return


Incorporate the time value of money


Maximize shareholder value when
applied


### All the above

20.
Question 20
The cost of equity is all of the
following EXCEPT:

1 point

The minimum rate firms should earn on the equity-financed
part of an investment


A return on the equity-financed
portion of an investment that, at worst, leaves the market price of the stock
unchanged.


By far the most difficult component
cost to estimate.


### Generally lower than the before-tax
cost of debt.

21.
Question 21
The capital-asset pricing model
(CAPM) suggests that a stock’s expected return is equal to the risk-free rate
plus a risk premium:

1 point

That reflects the stocks total
variance


Equal to the market beta


### Based on the market beta and the equity risk
premium


Equal to the equity premium

22.
Question 22
An investment with a
greater market beta has:

1 point

More risk that cannot be avoided


Less risk that cannot be avoided


More idiosyncratic risk 


### Higher volatility 

23.
Question 23
Which of the following is NOT needed
to compute the required rate of return for equity using the CAPM? 

1 point

The risk-free rate.


The market beta for the firm


### The earning per share for the next time period.


The Market return expected for the time period.

24.
Question 24
The common stock of a company must
provide a higher expected return that the company’s debt because:

1 point

There is usually less demand for the debt


The stock is publicly traded


A company's debt always carries a risk premium


### There is more systematic risk involved for the common stock

25.
Question 25
A company has a 60/40 debt/equity
split, 8% cost of debt, 15% cost of equity, and a 35% tax rate.  What is the WACC for this company?

1 point

7.02%


### 9.12% = (Debt *(1-TaxRate)*CostDebt) + (Equity*CostEquity)


10.80%


13.80%

What is the answer for question no 16?

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Finance for Non-Finance Professionals

does any have the sunrise bakery capstone case study solution from week 5 ?

does any have the sunrise bakery capstone case study solution from week 5 ?

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