Chapter 3 & 4 Corporate Finance

20 Questions | Total Attempts: 21

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Chapter 3 & 4 Corporate Finance

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Questions and Answers
  • 1. 
    Stock price appreciation and dividends paid are the two primary sources of stockholder returns. Select one:
    • A. 

      True

    • B. 

      False

  • 2. 
    A major tenet of finance is to match short-term assets with short-term borrowings and long-term assets with long-term borrowings. Select one:
    • A. 

      True

    • B. 

      False

  • 3. 
    Lily Jones places $10,000 in a savings account that compounds interest at 4%. How much money will she have in 5 years? Select one:
    • A. 

      A. $12,010

    • B. 

      B. $11,984

    • C. 

      C. $12,167

    • D. 

      D. $13,005

  • 4. 
    The present value equation is a rearrangement of the future value equation. Select one:
    • A. 

      True

    • B. 

      False

  • 5. 
    In every case, with total returns being equal, the investment which provides cash flow sooner is the superior choice. Select one:
    • A. 

      True

    • B. 

      False

  • 6. 
    Compounding is the opposite of discounting. Select one:
    • A. 

      True

    • B. 

      False

  • 7. 
    To assess the present value of a future cash flow, you would Select one:
    • A. 

      A. discount the cash flow back to the present.

    • B. 

      B. compound the cash flow to the future.

    • C. 

      C. discount the cash flow one year into the future.

    • D. 

      D. A and C.

  • 8. 
    Bruce Sterling places $5,000 in a savings account that compounds interest at 8%. How much money will Bruce have in 10 years? Select one:
    • A. 

      A. $10,795

    • B. 

      B. $11,410

    • C. 

      C. $13,680

    • D. 

      D. $9,430

  • 9. 
    Management has two methods by which it can add value to the firm through components on either side of the accounting equality. Select one:
    • A. 

      True

    • B. 

      False

  • 10. 
    John Ross places $4,000 in a savings account that compounds interest at 6%. How much money will he have in 15 years? Select one or more:
    • A. 

      A. $9,005

    • B. 

      B. $8,940

    • C. 

      C. $9,010

    • D. 

      D. $9,586

  • 11. 
    Which of the following items is a cost in a capital budgeting incremental analysis? Select one:
    • A. 

      A. Major overhaul

    • B. 

      B. Cost savings from old asset

    • C. 

      C. Salvage value of new asset

    • D. 

      D. None of the above

  • 12. 
    To determine cash flow depreciation is Select one:
    • A. 

      A. subtracted from net income

    • B. 

      B. added to net income

    • C. 

      C. neither added nor subtracted from net income

  • 13. 
    The ITC in capital budgeting analysis is Select one:
    • A. 

      A. A Cost

    • B. 

      B. A benefit

    • C. 

      C. Neither A nor B

  • 14. 
    In theory, the residual value is the present value of future cash flows beyond the time horizon. Select one:
    • A. 

      True

    • B. 

      False

  • 15. 
    In a capital budgeting analysis, taxes may be Select one:
    • A. 

      A. a cost

    • B. 

      B. a benefit

    • C. 

      C. both A and B

    • D. 

      D. neither A nor B

  • 16. 
    A technique that is widely used to identify incremental benefits and costs is Select one:
    • A. 

      A. reference point analysis

    • B. 

      B. differential analysis

    • C. 

      C. compounding analysis

    • D. 

      D. none of the above

  • 17. 
    The present value index accounts for the present value of annual cash flows and the initial investment. Select one:
    • A. 

      A. TRUE

    • B. 

      B. FALSE

  • 18. 
    Which of the following items is not included in the cash flows of a capital budget? Select one:
    • A. 

      A. budget depreciation

    • B. 

      B. initial cash outlay

    • C. 

      C. foregone depreciation if asset is sold

    • D. 

      D. time horizon

  • 19. 
    NPV reports in present dollar terms how much value will be added to a company as a result of making a particular investment. Select one:
    • A. 

      A. TRUE

    • B. 

      B. FALSE

  • 20. 
    Which of the following discounted cash flow techniques matches the present value with the future value so that the net result is zero ? Select one:
    • A. 

      A. NPV

    • B. 

      B. IRR

    • C. 

      C. discounted payback

    • D. 

      D. present value index

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