finance test

One Advantage of the NPV method for capital budgeting rather than the discounted payback period meothod is that the NPV method ________. Choose the best answer from the option below

considers all cash flows

considers the time value of money

does not require a computer or calculator to calculate

does not require knowing the cost of capital

is more intuitive

If a firm's return on equity is less than the discount rate, then an increase in retention of earnings will ________ firm value since reinvested capital earns __________ than the cost of capital

increase, less

decrease, more

decrease, less

increase, more

Consider both Statements: Statement 1. If the IRR of a project is equal to the firm's cost of capital the NPV of the project will be zero. Statement 2. A mix of future positive and negative cash flows may result in multiple NPVs

Only Statement 1 is true

Only Statement 2 is True

Both Statements are True

Both Statements are False

When the inflation rate is increasing, the spread between nominal rates and real rates will increases

True

False

For an investor in US companies which of the following risks can be mitigated through portfolio diversification?

An unexpected entry of a competitor

An unexpected increase in long-term interest rates

Changes in monetary or fiscal policy

An unexpected decline in value of the US dollar

a natural disaster

Compared to Junk Bonds (CCC), Investment Grade Bonds (AAA) typically offer _____ yields because they are _______ risky.

higher, more

higher, less

lower, more

lower, less

Assuming the Market Risk Premium is constant, if the Federal Reserve increases the Risk-Free Rate, which of the following will be true regarding the Cost of Equity according to CAPM: CAPM = Capital Asset Pricing Model which is the model used to calculate the cost of equity

Cost of equity will decrease for all companies

Cost of Equity will increase for all companies

Cost of Equity will increase for some companies, but decrease for others depending on their Betas

Cost of Equity will not change as a result of monetary policies

A firm with a Beta of 1.2 is

More likely to be impacted by a new competitor to their industry

Less sensitive to economy wide risk factors such as long-term interest rates

Expected to return 1/2 times the overall market return over the next year

More sensitive to economy-wide risk factors such as long-term interest rates

Which firm valuation method uses a discount for liquidity to arrive at a market value for a private firm

Which one of these applies to the dividend growth model of stock valuation

The dividend must be for the same time period as the stock price

The growth rate must be less than the discount rate

The rate of growth must be positive

the rate of growth must be positive

qthe model cannot be applied if the growth rate is zero

the dividend amount must be constant over time

Consider both Statements. Statement 1. Discounting an investment's annual economic value added cash flow stream is equivalent to calculating the investment's NPV. Statement 2. There is a positive correlation between Economic profits (EVA) and stock prices.

Only Statement 1 is True

Only Statement 2 is True

Both Statements are True

Both Statements are false