a potential investment by calculating the sum of the present | Information Science and Technology

a potential investment by calculating the sum of the present
values of its expected cash flows. Which of the following would increase the calculated value
of the investment?
A. The cash flows are in the form of annuity and lasts for 10 years rather than 5 years.
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B. The discount rate decreases.
C. The riskiness of the investment‟s cash flows increases.
D. The total amount of cash flows remains the same, but more of the cash flows are received
in the later years and less are received in the earlier years.
10. Mr. „x‟ now has $800. How much would he have after 7 years if he leaves it invested at 9%
with annual compounding?
A. $4910.9 B. $622.20 C. $1462.43 D. None
11. Which one of the following will produce the highest present value interest factor?
A. 8 percent interest for five years C. 8 percent interest for eight years
B. 12 percent interest for ten years D. 10 percent interest for ten years
12. The return that shareholders require on their investment in the firm is called the:
A. Coupon payment. C. Cost of equity.
B. Capital gains. D. cost of capital.
13. The costs incurred by the firm when new issues of stocks or bonds are sold are called:
A. Required rates of return. C. Costs of capital.
B. Flotation costs. D. Costs of equity and debt.
14. Which of the following must be adjusted for the firm's tax rate when estimating the weighted
average cost of capital WACC?
A. Cost of common equity C. Cost of preferred stock
B. Cost of debt D. All of the above
15. In calculating the cost of capital for an average firm, which of the following statements is
true?
A. The cost of a firm's bonds is greater than the cost of its common stock.
B. The cost of a firm's preferred stock is greater than the cost of its common stock.
C. The cost of a firm's retained earnings is less than the cost of its bonds.
D. The cost of a firm's common stock is greater than the cost of its bonds.
16. The approach to capital budgeting which divides an accounting measure of income by an
accounting measure of investment is
A. Accounting rate of return. C. Internal rate of return.
B. Payback method. D. Net present value.
17. The capital budgeting method which calculates the expected monetary gain or loss from a
project by discounting all expected future cash inflows and outflows to the present point in
time using the required rate of return is the
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A. payback method. C. Accounting rate-of-return method.
B. Benefit cost ratio methods. D. Net present value method.
18. The method that measures the time it will take to recoup, in the form of future cash inflows,
the total dollars invested in a project is called
A. Accounting rate-of-return method. C. Payback method.
B. Internal rate-of-return method. D. Net present value method.
19. Which of the following is an appropriate term for the required rate of return?
A. Discount rate B. Hurdle rate C. Cost of capital D. All of the above
20. In capital budgeting, a project is accepted only if the internal rate of return
A. Equals or exceeds the required rate of return.
B. Equals or is less than the required rate of return.
C. Equals or exceeds the net present value.
D. Equals or exceeds the accrual accounting rate of return.
21. The focal point of financial management in a firm is:
A. the number and types of products or services provided by the firm.
B. the minimization of the amount of taxes paid by the firm.
C. the creation of value for shareholders.
D. the dollars profits earned by the firm
22. A would be an example of a principal, while a would be an example
of an agent.
A. shareholder; manager B. manager; owner
C. accountant; bondholder D. shareholder; bondholder
23. _____and ___ are the two versions of goals of the financial management of the firm.
A. Profit maximization, Wealth maximization
B. Production maximization, Sales maximization
C. Sales maximization, Profit maximization
D. Value maximization, Wealth maximization
24. Which of the following would NOT improve the current ratio?
A. Borrow short term to finance ad