Midterm exam 2018, questions et réponses PDF

Preview

Summary

Download Midterm exam 2018, questions et réponses PDF

Description

Corporate Finance M1 Mid-term exam 201810 (only one possible answer per question) Corrected

1. Which of the following is a real asset? A. a share of stock B. a corporate bond C. a factory D. a derivative contract E. None of the above Answer C

2. Which term applies to the mixture of debt and equity maintained by a firm? A. net working capital B. capital structure C. capital budget D. cash management E. None of the above Answer B

3. A corporation must write _________ that set(s) out the purpose of the business and how it is to be governed A. an indenture agreement B. articles of incorporation C. a legal will D. a partnership agreement E. None of the above

Answer B

4. _________ budgeting is the process of making and managing expenditures on long-term assets. A. conventional B. optional C. capital D. performance-based E. None of the above Answer C

5. The present value of $500 expected 8 years from today at a discount rate of 5.5 percent is A. $40.00 B. $296.81 C. $325.80 D. $413.65 E. None of the above Answer C

6. The relationship between stockholders and management can best be described as a(n) _________ relationship. A. mentoring B. agency C. contradictory D. irrelevant E. None of the above Answer B

7. An initial investment of €100,000 is expected to produce an end-of-year cash flow of €200,000. What is the NPV of the project at a discount rate of 10 percent?

A. €176,235 B. €100,000 C. €143,712 D. $81,818 E. None of the above Answer D

8. A fixed stream of cash flows that ends after a specified number of years is called a(n): A. perpetuity B. net present value C. consol D. annuity E. None of the above Answer D

9. What is the present value of €10000 per year in perpetuity at an annual interest rate of 5 percent? Assume the perpetuity starts in one year. A. €50,000 B. €100,000 C. €150,000 D. €200,000 E. None of the above Answer D

10. Pauline Romer has taken a $100000 mortgage loan on her house at an interest rate of 3 percent per year. If the mortgage calls for 20 equal annual payments, what is the amount of each payment? A. $1,796.14 B. $5,565.09 C. $6,721.57 D. $8,327.18

E. None of the above Answer C

11. If the cash flows for Project “Green Energy” are C0 = -1500; C1 = +250; C2 = +480; C3 = +480, and C4 = + 500, calculate the IRR for the project (round to the nearest percentage point). A. 3 percent B. 5 percent C. 8 percent D. 10 percent E. None of the above Answer B

12. Wind System Company is considering investing in a new project. The project will require an initial investment of €3,000,000 and will generate €400,000 (after-tax) cash flows forever. Calculate the NPV for the project if the cost of capital is 10 percent. A. €100,000 B. €3,400,000 C. €4,000,000 D. €1,000,000 E. None of the above Answer D

13. Which of the following are annuities A. yearly lease payment B. monthly grocery bill C. tips to a waiter D. all of the above. E. None of the above Answer A

14. Money that a firm has already spent, or committed to spend regardless of whether a project is taken, is called a(n) A. incremental cost. B. opportunity cost. C. fixed cost. D. sunk cost. E. None of the above Answer D

15. The internal rate of return is a function of _______ A. The market interest rate B. a project’s cash flows C. the cost of debt incurred by a project D. a project’s opportunity cost E. None of the above Answer B

16. The discount rate assigned to a project reflects the ____ A. sunk cost incurred by the investor B. operating cost to the firm C. current interest rate set by the bank D. risk of the project E. None of the above Answer D

17. Two mutually exclusive projects can be evaluated by: A. comparing the incremental IRR to the discount rate B. comparing the IRR of the two projects C. comparing the NPVs of the two projects

D. answers A and C E. None of the above Answer D

18. If the risk-free rate of interest (rf) is 4%, then you should be indifferent between receiving $1000 in one-year or A. $961.54 today. B. $966.18 today. C. $1000.00 today. D. $1040.00 today. E. None of the above Answer: A

19. A firm has $200 million in current liabilities, $400 million in long-term debt, $600 million in stockholders' equity, and total assets of $1200 million. Calculate the firm's ratio of long-term debt to long-term debt plus equity. A. 35 percent B. 40 percent C. 50 percent D. 55 percent E. None of the above Answer B

20. What does value additivity mean for a firm? A. a new project will always add value to a firm B. The value of the firm is simply the combined value of the firm’s projects, divisions, and entities owned by the firm C. All projects with positive NPVs will add an equal amount of value to a firm D. cash flows generated by a project at different times can be added E. None of the above

Answer B...