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QUESTION 1

1.

If the one-year discount factor is 0.844, what is the discount rate/interest rate per year? 18.48percent 18.41percent 18.42percent 18.43percent 18.44percent 1 points

Q UEST I O N 2

1.

The present value of a perpetuity can be calculated by dividing the cash flow received in perpetuity by the discount rate dividing the discount rate by the cash flow received in perpetuity multiplying the discounted cash flow received in perpetuity with the discount rate multiplying the discount rate with the undiscounted cash flow multiplying the discount rate with the discounted cash flow dividing the cash flow received in perpetuity by the discount factor 3 points

Q UEST I O N 3 1. The following table gives the available projects for a firm. Each project can be chosen once. The NPV of project B is 76. If the firm has a limit of 210 to invest, what is the maximum NPV the company can obtain? Projec t A B C D E F G

Initial investment 90 20 60 50 150 40 20

NPV 140 65 -10 30 32 10

313

2. 3 points

1.

Q UEST I O N 4 Match the concept with its meaning D.

B.

Spot rate Forward rate

A The internal rate of return on an intest . bearing instruments

The interest rate, fixed today, on a loan or

B fixed-income security made in the future at a .

fixed time

A.

Yield to maturity

C.

Term structure D of interest The actual interest rate today . rates

C The relationship between interest rates or . bond yields and different maturities.

3 points

Q UEST I O N 5 1. The cost of a building today is EUR 2.8 million and you expect to sell it in one year at EUR 4.5 million. Equally risky investments in the capital market offer a return of 4 percent. What is the NPV of buying the building, in million EUR? 1.53

3 points

Q UEST I O N 6

1.

If the one-year discount factor is 0.844, what is the discount rate/interest rate per year? 18.48percent 18.41percent 18.42percent 18.43percent 18.44percent 3 points

1.

Q UEST I O N 7 Given the following data for Project AAA: Initial investment = 200 Real cash flow year 1 = 150 Real cash flow year 2 = 100 Real discount rate = 5% Nominal discount rate = 10%

    

Calculate the NPV of the project 30.23 1 33.56 0 53.23 1 10.01 2 50.21 4 40.23 1 3 points

Q UEST I O N 8 1.

Consider the NPV function of the investment project shown below. Which statements are correct? Select all that apply.

NPV is exactly zero at a discount rate of 0.28 NPV decreases with increasing discount rates. NPV is positive for discount rates below 0.28 The project's IRR cannot be calculated. The project has negative NPV. NPV is negative for discount rates above 0.28 NPV will reach infinity as the discount rate approaches zero. 3 points

1.

Q UEST I O N 9 A project has the following cash flows: C0= +2,000, C1= -1,300 and C2= -1,500. If the IRR of the project is 25% and if the cost of capital is 18%, you would: Accept the project because it is an investment and IRR should be higher than cost of capital Accept the project because it is a loan and IRR should be higher than cost of capital Reject the project because it is an investment and IRR should be lower than cost of capital Reject the project because it is a loan and IRR should be lower than cost of capital 3 points

Q U E S T I O N 10 1. Assume you are drafting cash flow projections for a project. Which of the following statements are correct? Select all that apply. The method of depreciation you use can and usually will have an impact on the NPV you obtain for the project. If the project has negative NPV, you should implement it. You can safely ignore any salvage value at the end of the project. Taxes are a cash flow and depend on depreciation, although depreciation itself is not a cash flow.

Cost of capital for this project is identical to all other projects. A higher cost of capital can turn the project into a negative NPV project. You cannot ignore inflation. Instead, you have to obtain real cash flows first, and then discount them at nominal rates. 3 points

Q U E S T I O N 11 1.

Money that a firm has already spent or committed to spend regardless of whether a project is taken is called: Costs of goods sold Sunk cost Idiosyncratic cost Variable cost Opportunity cost Operational cost...