FINC600 Week 5 Practice Quiz
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Corporate Finance
Week 5 Practice Quiz
Part 1 of 1 - Week 4 REQUIRED Quiz 93.5/ 100.0 Points
Question 1 of 25 4.0/
4.0 Points
The concept of compound interest is most
appropriately described as:
A.Interest
earned on an investment
B.The
total amount of interest earned over the life of an investment
C.Interest earned on interest
D.None
of the above
Question 2 of 25 4.0/
4.0 Points
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 3 of 25 4.0/
4.0 Points
The unique risk is also called the:
A.Unsystematic
risk
B.Diversifiable
risk
C.Firm
specific risk
D.All of the above
Question 4 of 25 2.0/
4.0 Points
What are some of the important points to
remember while estimating the cash flows of a project?
The most important points are
1) They are estimates. So there can be deviations
2) Some huge loss may completely change the
return from product.
3) Other risks like market risks, reinvestment
risk etc. may affect the cash flow pattern
Question 5 of 25 4.0/
4.0 Points
A bond with duration of 10 years has yield to
maturity of 10%. This bond's volatility is:
A.9.09%
B.6.8%
C.14.6%
D.6.0%
Question 6 of 25 4.0/
4.0 Points
Major disadvantages of the Sarbanes-Oxley Act of
2002 (SOX) are the following except:
A.good investor protection
B.increase
in compliance costs
C.that
it constrains managers' ability to run the firm
D.that
it may discourage development of human capital in the firm
Question 7 of 25 4.0/
4.0 Points
According to the net present value rule, an investment
in a project should be made if the:
A.Net
present value is greater than the cost of investment
B.Net
present value is greater than the present value of cash flows
C.Net present value is positive
D.Net
present value is negative
Question 8 of 25 0.0/
4.0 Points
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.
Question 9 of 25 4.0/
4.0 Points
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
C.Tax savings resulting from the
depreciation charges
D.Dividend
payments
Question 10 of 25 4.0/ 4.0 Points
The following are some of the actions
shareholders can take if the corporation is not performing well:
A.Replace
the board of directors in an election.
B.Force
the board of directors to change the management team.
C.Sell
their shares of stock in the corporation.
D.Any of the above
Question 11 of 25 4.0/ 4.0 Points
The mixture of debt and equity, used to finance
a corporation is also known as:
A.Capital
budgeting
B.Capital structure
C.Investing
D.Treasury
Question 12 of 25 3.5/ 4.0 Points
Discuss the general principle in the valuation
of a common stock.
The value of a common stock is the present value
of all the dividends received by owning the stock discounted at the market
capitalization rate. This is called the discounted cash flow (DCF) method.
Feedback: The value of a common stock is the
present value of all the dividends received by owning the stock discounted at
the market capitalization rate or the cost of equity. This is called the
discounted cash flow (DCF) method.
Comment: reference required
Question 13 of 25 4.0/ 4.0 Points
The managers of a firm can maximize stockholder
wealth by:
A.Taking all projects with positive
NPVs
B.Taking
all projects with NPVs greater than the cost of investment
C.Taking
all projects with NPVs greater than present value of cash flow
D.All
of the above
Question 14 of 25 4.0/ 4.0 Points
Florida Company (FC) and Minnesota Company (MC)
are both service companies. Their historical return for the past three years
are: FC: - 5%,15%, 20%; MC: 8%, 8%, 20%. If FC and MC are combined in a
portfolio with 50% of the funds invested in each, calculate the expected return
on the portfolio.
A.12%
B.10%
C.11%
D.None
of the above.
Question 15 of 25 4.0/ 4.0 Points
The market value of XYZ Corporation's common
stock is 40 million and the market value of the risk-free debt is 60 million.
The beta of the company's common stock is 0.8, and the expected market risk
premium is 10%. If the Treasury bill rate is 6%, what is the firm's cost of
capital? (Assume no taxes.)
A.9.2%
B.14%
C.8.1%
D.None
of the above
Question 16 of 25 4.0/ 4.0 Points
The following are important functions of
financial markets: I) Source of financing; II) Provide liquidity; III) Reduce
risk; IV) Source of information
A.I
only
B.I
and II only
C.I, II, III, and IV
D.IV
only
Question 17 of 25 4.0/ 4.0 Points
Which of the following portfolios have the least
risk?
A.A portfolio of Treasury bills
B.A
portfolio of long-term United States Government bonds
C.Portfolio
of U.S. common stocks of small firms
D.None
of the above
Question 18 of 25 4.0/ 4.0 Points
Present Value of $100,000 that is, expected, to
be received at the end of one year at a discount rate of 25% per year is:
A.$80,000
B.$125,000
C.$100,000
D.None
of the above
Question 19 of 25 4.0/ 4.0 Points
Discuss some of the disadvantages of the payback
rule.
The disadvantages are that it does not take the
time value of money into account and also does not use all the cash flow. It
has limited applications such as small projects
Feedback: The disadvantages are that it does not
take the time value of money into account and also does not use all the cash
flow. It has limited applications such as small projects.
Question 20 of 25 4.0/ 4.0 Points
What is the relationship between interest rates
and bond prices?
It's important to understand that bonds and
interest rates have an inverse relationship, meaning that when interest rates
go up, existing bond prices go down, and when interest rates are low, bond
prices are high. To demonstrate the reason behind the inverse relationship,
you'll need to understand the concept of yield.
Feedback: Interest rates and bond prices are
inversely related. High interest rates cause bond prices to fall and
vice-versa. For a given change in interest rates, prices of long-term bonds
fluctuate more than for short-term bonds. Similarly, for a given change in
interest rates low coupon bond prices fluctuate more than for high coupon
bonds.
Question 21 of 25 4.0/ 4.0 Points
Spill Oil Company's stocks had -8%, 11% and 24%
rates of return during the last three years respectively; calculate the average
rate of return for the stock.
A.8%
per year
B.9% per year
C.11%
per year
D.None
of the above
Question 22 of 25 4.0/ 4.0 Points
Which of the following statements regarding the
discounted payback period rule is true?
A.The discounted payback rule uses
the time value of money concept.
B.The
discounted payback rule is better than the NPV rule.
C.The
discounted payback rule considers all cash flows.
D.The
discounted payback rule exhibits the value additive property.
Question 23 of 25 4.0/ 4.0 Points
The NPV value obtained by discounting nominal
cash flows using the nominal discount rate is the: I) same as the NPV value
obtained by discounting real cash flows using the real discount rate II) same
as the NPV value obtained by discounting real cash flows using the nominal
discount rate III) same as the NPV value obtained by discounting nominal cash
flows using the real discount rate
A.I only
B.II
only
C.III
only
D.II
and III only
Question 24 of 25 4.0/ 4.0 Points
Market risk is also called: I) systematic risk,
II) undiversifiable risk, III) firm specific risk.
A.I
only
B.II
only
C.III
only
D.I and II only
Question 25 of 25 4.0/ 4.0 Points
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
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