Corporate Finance Corporate finance quiz. Questions from Griffith University mid semester exam. Kaikai published on March 29, 2013 Stacked 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 000Year 2 $20 000Year 3 $50 000Year 4 -$5 000The 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
