WorksheetsFinance Quiz
Total questions: 27
Worksheet time: 16mins
The management of a firm's short-term assets and liabilities is called:
working capital management.
debt management.
capital budgeting.
capital structure.
equity management.
The process of planning and managing a firm's long-term investments is called:
working capital management.
capital budgeting.
agency cost analysis.
financial depreciation.
capital structure
The mixture of debt and equity used by a firm to finance its operations is called:
capital structure.
financial depreciation.
cost analysis.
capital budgeting.
working capital management.
The original sale of securities by governments and corporations to the general public occurs in the:
private placement market.
proprietary market.
secondary market.
primary market.
liquidation market.
When one shareholder sells equity directly to another the transaction is said to occur in the:
OTC market.
dealer market.
NASDAQ market.
primary market.
secondary market.
Which one of the following statements concerning the annual percentage rate is correct?
The stated interest rate considers interest on interest.
The annual percentage rate is lower than the annual percentage rate when an interest rate is compounded quarterly.
When firms advertise the stated interest rate they are violating European truth-in-lending laws.
The rate of interest you actually pay on a loan is called the stated interest rate.
The stated interest rate equals the annual percentage rate when the rate on an account is designated as simple interest.
A perpetuity differs from an annuity because:
annuity payments never cease.
perpetuity payments never cease.
perpetuity payments are variable while annuity payments are constant.
perpetuity payments vary with the market rate of interest.
perpetuity payments vary with the rate of inflation.
The discount rate that makes the net present value of an investment exactly equal to zero is called the:
equalizer.
average accounting return.
profitability index.
external rate of return.
internal rate of return.
The most valuable investment given up if an alternative investment is chosen is a(n):
sunk cost.
erosion cost.
opportunity cost.
net working capital expense.
salvage value expense.
You are trying to determine whether to accept project A or project B. These projects are mutually exclusive. As part of your analysis, you should compute the incremental IRR by determining:
the discount rate that makes the net present value of each project equal to 1.
the internal rate of return for the cash flows of each project.
the discount rate that equates the discounted payback periods for each project.
the net present value of each project using the internal rate of return as the discount rate.
the internal rate of return for the differences in the cash flows of the two projects.
Beatrice invests €1,000 in an account that pays 4% simple interest. How much more could she have earned over a five-year period if the interest had compounded annually?
€21.67
€15.97
€16.65
€15.45
€17.09
A zero coupon bond that will pay Euros 1,000 in 10 years is selling today at Euros 422.41. What is the continuously compounded annual interest rate on the bond?
r= 21.4%
r = 8.62%
r= 10.5%
r= 5.09%
r= 25.09%
You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with £20,000 of income. Option A pays five annual payments starting with £8,000 the first year followed by four annual payments of £3,000 each. Option B pays five annual payments of £4,000 each. Which one of the following statements is correct given these two investment options?
Option B has a higher present value than option A given a positive rate of return.
Both options are of equal value given that they both provide £20,000 of income.
Option A is the better choice of the two given any positive rate of return.
Option A is preferable because it is an annuity due.
Option B has a lower future value at year 5 than option A given a zero rate of return.
What is the net present value of a project that has an initial cash outflow of £12,670 and the following cash inflows? The required return is 11.5%.
Year
1
2
3
4
Cash Inflows
£4,375
£0
£8,750
£4,100
£370.16
£218.68
£768.20
£1,371.02
£1,249.65
What is the maximum that should be invested in a project at time zero if the inflows are estimated at $40,000 annually for three years and the cost of capital is 9%?
$130,800.00
$140,432.27
$117,871.97
$109,200.00
$101,251.79
If you had a choice to earn simple interest on £10,000 for three years at 8% or annually compound interest at 7.5% for three years which one will pay more and by how much?
Simple interest by £50.00
Compound interest by £150.75
Compound interest by £150.00
None of the above.
Compound interest by £22.97
Capital structure decisions include consideration of the:
I. amount of long-term debt to assume.
II. cost of acquiring funds
III. current assets and liabilities.
IV. net working capital.
I and II only.
II and III only.
III and IV only.
I, II, and IV only.
The decision of debt or equity financing for a project is part of:
A. working capital management.
B. the net working capital decision.
C. capital budgeting.
D. a controller's duties.
E. the capital structure decision.
The primary market is defined as the:
A. market for insured securities.
B. market for new issues.
C. market for securities of the largest firms.
D. over-the-counter market.
E. None of the above.
An annuity stream of cash flow payments is a set of:
A. level cash flows occurring each time period for a fixed length of time.
B. level cash flows occurring each time period forever.
C. increasing cash flows occurring each time period for a fixed length of time.
D. increasing cash flows occurring each time period forever.
E. arbitrary cash flows occurring each time period for no more than 10 years.
You have just won a competition paying £50,000 a year for 20 years. You are to receive your first payment a year from now. If the interest rate is 8%, what is the true value of the prize?
A. £1,000,000
B. £950,138
C. £490,905
D. £356,191
E. £116,916
An investment is acceptable if its IRR:
A. is exactly equal to its net present value (NPV).
B. is exactly equal to zero.
C. is less than the required return.
D. exceeds the required return.
E. is exactly equal to 100%.
Given that the net present value (NPV) is generally considered to be the best method of analysis, why should you still use the other methods?
A. The other methods help validate whether or not the results from the net present value analysis are reliable.
B. You need to use the other methods since conventional practice dictates that you only accept projects after you have generated three accept indicators.
C. You need to use other methods because the net present value method is unreliable when a project has unconventional cash flows.
D. The average accounting return must always indicate acceptance since this is the best method from a financial perspective.
E. The discounted payback method must always be computed to determine if a project returns a positive cash flow since NPV does not measure this aspect of a project.
What is the net present value of a project with the following cash flows and a required return of 12%?
Year
0
1
2
3
Cash Flow
-£28,900
£12,450
£19,630
£2,750
A. -£28,900
B. -£177.62
C. £177.62
D. £204.36
E. £287.22
A project will produce cash inflows of €1,750 a year for four years. The project initially costs €10,600 to get started. In year five, the project will be closed and as a result should produce a cash inflow of €8,500. What is the net present value of this project if the required rate of return is 13.75%?
A. -€5,474.76
B. -€1,011.40
C. -€935.56
D. €1,011.40
E. €5,474.76
When one shareholder sells equity directly to another the transaction is said to occur in the:
A. dealer market.
B. primary market.
C. secondary market.
D. OTC market.
E. NASDAQ market.
Consider the following cash flows on two mutually exclusive projects for Ismail. Both projects require an annual return of 12%. Year Project A (£) Project B (£) 0 -500,000 -1,500,000 1 320,000 750,000 2 450,000 951,000 3 250,000 900,000 Required a. Calculate the Net Present Value (NPV) for each project. Based on the NPV method, which project would you choose? b. As can be seen there is a big difference in the scale of the cashflows of the projects. Calculate the incremental NPV of the projects. Based on the incremental NPV which project would you choose? c. In a statement several top managers of Ismail said: "Companies are about making money for their shareholders, Environmental, Social and Governance (ESG) strategies should be avoided, these are just another cost." Discuss the above statement indicating whether you agree or disagree with it.
