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Finance for Non-Finance Professionals Week 5 Final Exam
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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% |
does any have the sunrise bakery capstone case study solution from week 5 ?
do you have the answers? please help!
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does any have the sunrise bakery capstone case study solution from week 5 ?