In relation to the financial management of a company, which of the following providesthe best definition of a firm’s primary financial objective? A To achieve longterm growth in earnings B To maximise the level of annual dividends C To maximise the wealth of its ordinary shareholder D To maximise the level of annual profits

Two machines, A and B, which perform the same functions, have the following costs and lives: PV Value of costs - Machine A=6.000 Machine B=8.000 and Life for machine A is 8 years, for machine B is 12 years. Which machine would you choose? The two machines are mutually exclusive and the cost of capital is 10%

If the depreciation amount is $100,000 and the marginal tax rate is 30%, then the tax shield due to depreciation is:

For project A in year 2, inventories increase by $10,000 and accounts payable by $4,000. Calculate the increase or decrease in net working capital for year 2

Capital equipment costing $200,000 today has salvage value of $50,000 at the end of 5 years. If straight line depreciation is used, what is the book value of the equipment at the end of year 2?

Suppose a real cash flow occurring in year 2 is 50,000. If the inflation rate is 10% per year, calculate nominal cash flow for year 2.

The real rate of interest is 3% and the inflation is 4%. What is the nominal rate of interest?

A firm owns a building with a book value of $100,000 and a market value of $250,000. If the building is utilized for a project, then the opportunity cost ignoring taxes is:

Money that a firm has already spent or committed to spend regardless of whether a project is taken is called:

The following cash flows should be treated as incremental flows when deciding whether to go ahead with an electric car except:

A project requires an investment of $10 million and has an NPV of $16 million. What is its profitability index?

What is the payback period for a project with the following cash flows: Year 0 −5000, Year 1 +3000, Year 2 +4000?

What is the IRR for a project with the following cash flows: Year 0 −5000, Year 1 +3000, Year 2 +4000?

Company B is evaluating two investment projects. Project X requires an initial investment of $200,000 and will generate cash flows of $60,000 annually. Project Y requires an initial investment of $250,000 and will generate cash flows of $80,000 annually. Which project has a shorter payback period?

a) Project X

b) Project Y

c) Both projects have the same payback period

d) Payback period cannot be determined from the given information

A project requires an initial investment of $150,000 and is expected to generate cash flows of $50,000 annually. What is the payback period for this project? a) 2.0 years b) 3.0 years c) 4.0 years d) 5.0 years

Company A is considering an investment of $100,000 in a new project. The expected annual cash flows from the project are $30,000. What is the payback period for this investment? a) 2.5 years b) 3.0 years c) 3.5 years d) 4.0 years

Company XYZ has a Profit Before Interest and Taxes (PBIT) of $50,000. If its average investment during the period is $200,000, what is the Return on Capital Employed (ROCE)? a) 25% b) 20% c) 30% d) 15%

Four projects, P, Q, R and S, are available to a company that is facing shortages of capitalover the next year but expects capital to be freely available thereafter. P Q R S $000 $000 $000 $000 Total capital required over life of project 20 30 40 50 Capital required in next year 20 10 30 40 NPV of project at company’s cost of capital 60 40 80 80 In what sequence should the projects be selected if the company wishes to maximise net present values?

A) P, R, S, Q

B) Q, P, R, S

C) Q, R, P, S

D )R, S, P, Q

A company undertakes a project that involves purchasing machinery at a cost of $65,000. The machinery is used on the project for four years, generating operating cash inflows of $20,000 per year. It is sold at the end of the project for $10,000. Taxation is charged at a rate of 30%. Calculate the initial return on capital employed (ROCE) for the project, to the nearest whole percentage.

A)10%

B)31%

C)53%

D)17%

Peach Co’s latest results are as follows: $000 Profit before interest and taxation 2,500 Profit before taxation 2,250 Profit after tax 1,400 In addition, extracts from its latest statement of financial position are as follows: $000 Equity 10,000 Noncurrent liabilities 2,500 What is Peach Co’s return on capital employed (ROCE)?

A)18%

B)20%

C)25%

D)14%

A company is considering a capital expenditure proposals. The following information is available. Profit/(loss) Proposal B $ Initial investment: 46,000 Year 1: 4,500 Year 2: 2,500 Year 3: 4,500 Year 4: 14,500 Estimated scrap value at the end of year 4 4,000 Depreciation is charged on the straight line basis. What is the payback period for Proposal B? (in years, to 1 decimal place) A)3.1 years

B)2.9 years

C)4 years

D)4.2 years

A company is considering a capital expenditure proposals. The following information is available. Profit/(loss) Proposal B $ Initial investment 46,000 Year 1 4,500 Year 2 2,500 Year 3 4,500 Year 4 14,500 Estimated scrap value at the end of year 4 4,000 Depreciation is charged on the straight line basis. What is the annual cash flow for year 4 for Proposal B?

A)29000

B)21000.

C)25000

D)14500

In decision-making, costs which need to be considered are said to be relevant costs. Which TWO of the following are relevant costs? A)Future costs B)Unavoidable costs C)Incremental costs D)Sunk costs

1)B, D

2)C,D

3)B,C

4)A,C

Which of the following should NOT be included in a cash flow forecast?

A) Payment of a one off dividend

B) Receipt from an insurance company to cover the value of stolen inventory

C) Tax allowable depreciation allowed in relation to a new asset purchase

D) Buy back of shares

Which TWO of the following statements are correct? A) Tax allowable depreciation is a relevant cash flow when evaluating borrowing to buy compared to leasing as a financing choice B) Asset replacement decisions require relevant cash flows to be discounted by the aftertax cost of debt C) If capital is rationed, divisible investment projects can be ranked by the profitability index when determining the optimum investment schedule D) Government restrictions on bank lending are associated with hard capital rationing

A)B,C

B)C,D

C)B,D

D)A,D

The following information relates to an investment project, which is being evaluated by the directors of Fence Co, a listed company. The initial investment, payable at the start of the first year of operation, is $3.9 million. Net operating CF ($000) Year 1: 1,200 Year 2: 1,500 Year 3: 1,600 Year 3: 1,580 Scrap value ($000) 100 Based on the average investment method, what is the percentage return on capital employed of the investment project, to one decimal place?

A)20%

B)26%

C)30%

D)15%

The following information relates to an investment project, which is being evaluated by the directors of Fence Co, a listed company. The initial investment, payable at the start of the first year of operation, is $3.9 million. Net operating CF ($000) Year 1: 1,200 Year 2: 1,500 Year 3: 1,600 Year 3: 1,580 Scrap value ($000) 100 What is the payback period of the investment project, in years to 2 decimal places?

A)2.75

B)3

C)2.5

D)3.25

A company is considering investing in a new equipment costing $200,000. The expected cash flows from the equipment are $60,000 in year 1, $80,000 in year 2, and $100,000 in year 3. What is the Internal Rate of Return (IRR) for this investment?

a) 15%

b) 20%

c) 25%

d) 30%

An investor is evaluating two investment opportunities. Project X requires an initial investment of $100,000 and is expected to generate cash flows of $30,000 per year for 5 years. Project Y requires an initial investment of $150,000 and is expected to generate cash flows of $50,000 per year for 4 years. Which project has a higher Internal Rate of Return (IRR)?

a) Project X

b) Project Y

c) Both projects have the same IRR

d) IRR cannot be determined from the given information

Company A is considering an investment in a project that requires an initial outlay of $50,000. The project is expected to generate cash flows of $20,000 in year 1, $25,000 in year 2, and $30,000 in year 3. What is the Internal Rate of Return (IRR) for this project? a) 10%

b) 15%

c) 20%

d) 25%

Which THREE of the following are advantages of the IRR? A Considers the whole life of the project B Uses cash flows not profits C It is a measure of absolute return D It is an accurate calculation E It is useful when liquidity is poor F It considers the time value of money

1)A, B, D

2)B, D, C

3)A, B, F

4)D, E, F

Sudan Co wishes to undertake a project requiring an investment of $732,000 which will generate equal annual inflows of $146,400 in perpetuity. If the first inflow from the investment is a year after the initial investment, what is the IRR of the project?

A 20%

B 25%

C 400%

D 500%

A company is considering a project that has an initial outflow followed by several years of cash inflows, with a cash outflow in the final year. How many internal rates of return could there be for this project?

A Either zero or two

B Either one or two

C Zero, one or two

D Only two

The IRR of the above project has been correctly calculated as 26%. Which of the following statements are true? (1) The IRR is not a measure of absolute profitability and linear interpolation provides only an estimate of the IRR. (2) If the IRR of the project is higher than its cost of capital then the project is always acceptable regardless of the pattern of the cash flows.

A Both statements are true

B Both statements are false

C Statement (1) only

D Statement (2) only

Calculate the present value of the following, assuming a discount rate of 10%. $3,000 received in one year's time, then growing by 2% per year in perpetuity.

A)30000

B)37500

C)27270

D)29412

Quadrant is a highly geared company that wishes to expand its operations. Six possible capital investments have been identified, but the company only has access to a total of $620,000. The projects may not be postponed until a future period. After the projects end, it is unlikely that similar investment opportunities will occur. Expected investment and net present values are as follows: Project Investment NPV A (246.000) 6.350 B (180.000) 1.882 C (175.000) (2.596) D (180.000) 8.356 E (180.000) 5.490 F (150.000) 4.993 Rank the projects based on their NPV.

A)D, A, E, F, B, C

B)D, A, F, E, B, C

C)C, B, F, E, A, D

D)A, D. E, F. B, C

Using a discount rate of 10% per year the net present value (NPV) of a project has been correctly calculated as $50. If the discount rate is increased by 1% the NPV of the project falls by $20. What is the internal rate of return (IRR) of the project? (give your answer to 1 decimal place)

A)10%

B)11%

C)12.5%

D)0

A project A with an NPV of $3.75m and a duration of 6 years, given a discount rate of 12%, will have an equivalent annual annuity of 0.91. An alternative project B with an NPV of $4.45m and a duration of 7 years will have an equivalent annual annuity of 0.98. Which project should be chosen:

A)Project A

B)Project B

C)Both projects

Value for money is an important objective for notforprofit organisations. Which of the following actions is consistent with increasing value for money?

A Using a cheaper source of goods and thereby decreasing the quality of notforprofit organisation services

B Searching for ways to diversify the finances of the notforprofit organisation

C Decreasing waste in the provision of a service by the notforprofit organisation

D Focusing on meeting the financial objectives of the notforprofit organization

When shareholders appoint financial managers to run firms and make investment decisions, this is called:

The choice between debt and equity in financing is called the:

A firm's investment decision is also called the:

Generally, a corporation is owned by its

If the depreciable investment is $500,000 and the MACRS 5-year class schedule is: year 1: 20%; year 2: 32%; year 3: 19.2%; year 4: 11.5%; year 5: 11.5%; and year 6: 5.8%. Calculate the depreciation tax shield for year 2 using a tax rate of 30%.

In the first year of a project inventories decrease by $50,000, accounts payables decrease by $20,000 and accounts receivables increase by $30,000. What is the change in working capital?

A new manufacturing project uses land which could otherwise be sold. This land is an example of

Which of the following is not included in working capital?

For NPV calculations

Preferably, cash flows for a project are estimated as

Ace Co is considering a new project. Ace currently installs burglar alarms, putting contact points on access portals and movement sensors in general areas of a property. The new project is in the fire alarm business, a business considered to be similar in many ways to what Ace currently does. A junior member of the finance team has estimated the cash flows for the project as follows: Time Description Cash flow $ 0 Loose tools (6,000) 1–4 Contribution 25,000 1–4 Allocated overheads (8,000) 2–5 Tax @ 25% of profit (4,250) No taxallowable depreciation is available for loose tools. Ace is entirely equity financed with a cost of equity correctly calculated as 12%. What is the NPV of the above project to the nearest $100?

A $28,700

B $53,000

C $58,400

D $34,100

A project has the following cash flows before allowing for inflation, i.e. they are stated at their T0 values. The company’s money discount rate is 15.5%. The general rate of inflation is expected to remain constant at 5%. Timing Cash Flow $ 0 (750) 1 330 2 242 3 532 Evaluate the project in terms of real cash flows and real discount rates (to whole number).

A)NPV 150 and rate 10%

B)NPV 70 and rate 15%

C)NPV 12 and rate 21%

D)ANP 70 and rate 10%