FINC600
Week 2 Practice Quiz
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Corporate
Finance
Week
2 Practice Quiz
Question 1 of 15
If the Wall Street
Journal Quotation for a company has the following values close: 55.14; Net chg:
= + 1.04; then the closing price for the stock for the previous trading day
was?
A. $56.18
B. $54.10
C. $55.66
D. None of the above.
Feedback: Previous closing = today's closing
net chg. = 55.14 - 1.04 = $54.10
Question 2 of 15
The value of a common
stock today depends on:
A. Number of shares outstanding and the
number of shareholders
B. The expected future dividends and the
discount rate
C. the Wall Street analysts
Question 3 of 15
Company X has a P/E
ratio of 10 and a stock price of $50 per share. Calculate earnings per share of
the company.
A. $6 per share
B. $10 per share
C. $0.20 per share
D. $5 per share
Question 4 of 15
Which of the
following stocks is/are a growth stock(s)?
A. Unilever
B. Cummins, Inc
C. Starbucks
D. All of the above are growth stocks
Question 5 of 15
Universal Air is a no
growth firm and has two million shares outstanding. It is expected to earn a
constant 20 million per year on its assets. If all earnings are paid out as
dividends and the cost of capital is 10%, calculate the current price per share
for the stock.
A. $200
B. $150
C. $100
D. $50
Question 6 of 15
Which of the
following investment rules does not use the time value of the money concept?
A. Net present value
B. Internal rate of return
C. The payback period
D. All of the above use the time value
concept
Question 7 of 15
The following are
measures used by firms when making capital budgeting decisions except:
A. Payback period
B. Internal rate of return
C. P/E ratio
D. Net present value
Question 8 of 15
Which of the
following investment rules has value adding-up property?
A. The payback period method
B.Net present value method
C. The book rate of return method
D. The internal rate of return method
Question 9 of 15
Internal rate of
return (IRR) method is also called:
A. Discounted payback period method
B. Discounted cash-flow (DCF) rate of return
method
C. Modified internal rate of return (MIRR)
method
D. None of the above
Question 10 of 15
Profitability index
is the ratio of:
A. Future value of cash flows to
investment
B. Net present value of cash flows to
investment
C. Net present value of cash flows to
IRR
D. Present value of cash flows to IRR
Question 11 of 15
When a firm has the
opportunity to add a project that will utilize excess factory capacity (that is
currently not being used), which costs should be used to determine if the added
project should be undertaken?
A. Opportunity cost
B. Sunk cost
C. Incremental costs
D. None of the above
Question 12 of 15
The cost of a
resource that may be relevant to an investment decision even when no cash
changes hand is called a (an):
A. Sunk cost
B. Opportunity cost
C. Working capital
D. None of the above
Question 13 of 15
Net Working Capital
should be considered in project cash flows because:
A. Firms must invest cash in short-term
assets to produce finished goods
B. They are sunk costs
C. Firms need positive NPV projects for
investment
D. None of the above
Question 14 of 15
If the discount rate
is stated in nominal terms, then in order to calculate the NPV in a consistent
manner requires that project:
I) cash flows be estimated in nominal terms
II) cash flows be estimated in real terms
III) accounting income be used
Correct A.I only
B. II only
C. III only
D. None of the above
Question 15 of 15
For example, in the
case of an electric car project, which of the following cash flows should be
treated as incremental flows when deciding whether to go ahead with the
project?
A.The cost of research and development
undertaken for developing the electric car in the past three years
B.The annual depreciation charge
Correct C.Tax savings resulting from the
depreciation charges
D.Dividend payments
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