Corporate Finance

Corporate Finance

Corporate finance quiz. Questions from Griffith University mid semester exam.

published on March 29, 2013
1/40

For a project with conventional cash flows, if Present Value Index is greater than 1, then the...

IRR is equal to the firm’s cost of capital
IRR is equal to the firm’s required rate of return
NPV is greater than zero
Accounting rate of return exceeds the IRR
NPV is negative
2/40

A invests in a property that pays him 14% annually. If A invests $325, calculate A's simple interest component at the end of 24 months?

$119
$109
$91
$90
$93
3/40

All other things being equal, the lower the coupon rate:

the longer the time to maturity
the higher the price
the lower the price
the greater the interest rate risk
none of the above
4/40

Question 4: Calculate the NPV if the outflow is $50 000 and the inflows are:
Year 1 $10 000
Year 2 $20 000
Year 3 $50 000
Year 4 -$5 000
The appropriate discount rate is 18%.

$961
$691
$1 961
$1 691
$1 196
5/40

The current value of future cash flows discounted at the discount rate is:

future value
future value interest factor
present value interest factor
compounding value
present value
6/40

There is an inverse relationship between interest rates and:

coupon
bond prices
term to maturity
face value
both A and D
7/40

An increase in an asset account:

is a source of cash
is a use of cash
does not affect cash
is an increase in the liability account
none of the above
8/40

Assume that a project generates cash flows of $2 000 in years 1 and 2,
$4 000 in the next two years, and $5 000 in the last year. The initial investment is
$10 000. The discount rate is 10%. What is the NPV?

$12 313
$10 000
$2 313
$2 133
$22 313
9/40

Question 9: You are interested in buying a property that will cost you $10 million. You have $2.3 million. If you earn interest at 5% per year, how long will you have to wait before you buy this property?

30.21 years
30.10 years
30.12 years
30.00 years
29.12 years
10/40

The primary goal of financial management is to:

maximise current sales
maximise the value of shares
minimise costs
avoid bankruptcy
all of the above
11/40

A Limited has just paid a dividend of $0.30 per share. The dividend grows at a steady raate of 8% per year. Based on this information what will be the dividend in five years?

$0.144
$0.141
$0.444
$0.441
$0.044
12/40

The next dividend for A Limited will be $0.40 per share. Investors require a 16% return on companies such as A Limited. A’s dividend increases by 6% every year. Based on the dividend growth model what is the value of A Limited’s shares today?

$2.50
$0.40
$5.05
$4.00
cannot be calculated
13/40

The discount rate that makes the NPV of an investment zero is known as the:

discounted rate of return
average rate of return
required rate of return
internal rate of return
target rate of return
14/40

The difference between a firm’s current assets and current liabilities is called:

accounting profits
excess profits
net working capital
both A and C
all of the above
15/40

A Limited has just issued a bond with a $100 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons and the YTM is 7.5%, what will the bond sell for?

$102
$105.10
$108.70
$116.20
$101.50
16/40

Price/earnings ratio is defined as:

price per share/book value per share
price per share/market value per share
price per share/earnings per share
earnings per share/price per share
17/40

You are interested in buying a property that will cost you $10 million. You have $2.3 million. If you earn interest at the raate of 16% per year, how long will you have to wait before you buy this property?

12 years
11 years
10 years
8.96 years
9.10 years
18/40

A conventional cash flow is a cash flow where the first cash flow:

is positive and all other cash flows are negative
is negative and all other cash flows are also negative
is negative and all other cash flows are positive
is positive and all other cash flows are also positive
there is no such thing as a conventional cash flow
19/40

A Limited has just issued a bond with a $100 face value and a coupon rate of 8%. If the bond has a life of 20 years, pays annual coupons and the YTM is 7.5% what is the present value of the bond’s face value?

$100
$105.09
$80.05
$25.34
$23.54
20/40

Total return has two components: one of them is the dividend yield and the other is:

required return
current price
capital gains yield
cash dividend rate
future dividend
21/40

The present value index is defined as:

initial outlay/net cash flows
value of net cash flows/initial outlay
present value of net cash flows/initial outlay
present value of cash flows/initial outlay
none of the above
22/40

You are considering a one-year investment. If you invest $1250 you will get back $1350. What raate is this investment paying?

7.5%
6.5%
8.5%
8.0%
9.0%
23/40

Alternative investment projects are known as:

independent projects
mutually exclusive projects
positively correlated projects
negatively correlated projects
higher opportunity cost project
24/40

A bank is offering 12% compounded quarterly. If you put $100 in an account, how much will you have at the end of one year?

$115.12
$112.15
$112.50
$112.55
$126.68
25/40

The --- method ignores the time value of money and cash flows beyond a specified point in time, and is largely useful only in evaluating short-term projects.

NPV
IRR
ARR
pay back
present value index
26/40

Return on assets is defined as:

net profit/total current assets
net profit/total non-current assets
net profit/total assets
net profit/total equity
none of the above
27/40

Calculate the NPV if the outflow is $100 000 and the inflows are $40 000 for the next three years. Assuming the appropriate discount rate to be 15%, what is the NPV?

-$8 671
-$4 032
$8 064
$9 075
$15 000
28/40

Your grandmother placed $10,000 in a fund for you so that you can withdraw $25,000 in 10 years. What is the rate of return?

6.9%
9.6%
9.5%
8.9%
9.4%
29/40

Which of the following cannot be calculated?

the present value of a perpetuity
the interest rate on a perpetuity given the present value and payment
amount
the present value of an annuity due
the future value of an annuity due
the future value of a perpetuity
30/40

The possibility of conflict between shareholders and management of the firm is called:

corporate breakdown
an agency problem
management breakdown
legal liability
financial distress
31/40

Interest earned on only the original principal amount invested is:

present value interest
simple interest
time value of money
beginning interest
none of the above
32/40

Assume that A contributes $2000 every year into a retirement account paying 8%. If A retires in 30 years, how much will he have?

$212,576
$262,576
$226,576
$262,567
$226,567
33/40

A Limited currently pays a cash dividend of $0.50 per share. You believe that the dividend will be increased by 4% each year indefinitely. How big will the dividend be in eight years?

$0.86
$0.66
$0.65
$0.68
not enough information available
34/40

Suppose you need $400 to buy textbooks next year. You can earn 7% on your money. How much do you have to invest today?

$337.85
$367.83
$337.83
$373.83
cannot be calculated
35/40

Profit is often expressed on a per share basis and called:

price to earnings ratio
earnings per share
retained earnings per share
none of the above
dividends per share
36/40

Peggy Grey's Cookies has net income of $360. The firm pays out 40 percent of the net income to its shareholders as dividends. During the year, the company raised $80 worth of new equity. What is the cash flow to stockholders?

$64
$136
$144
$224
$296
37/40

Bill Bailey and Sons pays no dividend at the present time. The company plans to start paying an annual dividend in the amount of $.30 a share for two years commencing two years from today. After that time, the company plans on paying a constant $1 a share dividend indefinitely. How much are you willing to pay to buy a share of this stock if your required return is 14 percent?

$4.82
$5.25
$5.39
$5.46
$5.58
38/40

Tool Makers, Inc. uses tool and die machines to produce equipment for other firms. The initial cost of one customized tool and die machine is $850,000. This machine costs $10,000 a year to operaate. Each machine has a life of 3 years before it is replaced. What is the equivalent annual cost of this machine if the required return is 9 percent? (Round your answer to whole dollars)

$325,794
$340,002
$345,797
$347,648
$351,619
39/40

Jupiter Explorers has $6,400 in sales. The profit margin is 4 percent. There are 6,400 shares of stock outstanding. The market price per share is $1.20. What is the price-earnings ratio?

13
14
21
30
48
40/40

Patti's has net income of $1,800, a price-earnings ratio of 12, and earnings per share of $1.20. How many shares of stock are outstanding?

$1,200
$1,400
$1,500
$1,600
$1,800