FINANCE

The average annual return of long-term government bonds has been:

5.9%

The efficient market hypothesis can best be defined by one of the following statements:

All securities in an efficient market are zero net present value investment

Changes in the net working capital requirements:

Can affect the cash flows of a project every year of the project's life.

Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows?

Discounted Cash Flow Valuation

Which one of the following methods of a project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows?

Discounted cash flow valuation

An ordinary annuity is defined by which one of the following?

Equal payments paid at regular intervals over a stated period of time.

An ordinary annuity is best defined by which one of the following?

Equal payments paid at regular intervals over a stated time period.

From Financial Intelligence. Public companies must file annual and quarterly reports to the SEC. Which of the following statements must accurately reflects this activity?

Every year they submit one 10-K annual report and three 10-Q quarterly reports.

An investment in a new plant is an example of a capital budgeting decision, but entering a new market is not a capital budgeting decision.

False

Capital spending in net working capital and fixed assets are fully recovered at the end of the project's life.

False

In the chapter, in all models to value stock, ending stock price ( price at which the stock is sold) is a variable.

False

In the long run not all business costs are varaible

False

The OTC market has the most stringent requirements of the exchanges in the United States

False

The asset side of the balance sheet is compromised of current assets and net fixed assets. The liability side is comprised of current liabilities and net fixed liabilities

False

The beta coefficient measures the risk that can be diversified.

False

The goal of financial management is to maximize the book value of the stock

False

There is only one way to quote interest rates.

False

To calculate a future value using a present value we use a discount rate.

False

An investment in a new plant is an example of a capital budgeting decision, but entering a new market is not a capital budgeting decision.

False.

By looking at table 12.1 we can conclude that long-term government bonds return have been lower than large company stocks returns and U.S. Treasury Bills return.

False.

Common planning horizons are 5 to 10 years.

False.

Fixed assets and working capital are fully recovered at the end of the project's life.

False.

From Financial Intelligence . Market-to- market rules have been modified to protect consumers, not banks.

False.

From Financial Intelligence. Mark-to-market rules have been modified to protect consumers, not banks.

False.

From Financial Intelligence. The longer the DSO the better.

False.

From the supplementary reading, you would conclude that Warren Buffet doesn't like investing in Internet related companies.

False.

If we have information on PF and FV, but don't have information on the number of periods, we can still estimate the discount rate.

False.

If you make monthly deposits, you will get less interest with annuities due than with ordinary annuities.

False.

In calculating operating cash flow, the top-down approach will give different results than the bottom-up approach.

False.

In the chapter, in all models to value stock, ending stock price (price at which the stock is sold) is a variable.

False.

In working PV and FV problems is it implicitly assumed that the cash flows occur at the beginning of each period.

False.

Stocks are easier to value than bonds.

False.

Stocks of small companies have lower average returns than those or larger companies and they also show more volatility than large company stocks.

False.

The Price-Earnings ratio can be calculated even if the company is not publicly traded.

False.

The ROE decomposes the DuPont equality into its components parts

False.

The authors of Financial Intelligence state that, in practice, accountants do not have a good deal of discretion as to exactly how a piece of equipment is depreciated.

False.

The g in the dividend growth model is the growth rate of earnings.

False.

The systematic risk of stock is measured by the standard deviation of its returns.

False.

There is a very well established theory to define benchmarks in financial ration analysis

False.

There is only one way to quote interest rates.

False.

To calculate a future value given a present value we use a discount rate.

False.

When calculating depreciation, the expected economic life of an asset is considered.

False.

You got a loan, when you pay interest you are amortizing the loan.

False.

You got a loan. When you pay interest, you are amortizing the loan.

False.

You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now?

Future Value

You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now

Future Value.

The dividend growth model: I. assumes that dividends increase at a constant rate forever. II. can be used to compute a stock price at any point in time. III. can be used to value zero-growth stocks. IV. requires the growth rate to be less than the required return.

I, II, III, and IV

The dividend growth model: I. Assumes that dividends increase at a constant rate forever. II. can be used to compute a stock price at any point in time. III. can be used to value-zero growth stocks. IV. requires the growth rate to be less than the required return.

I., II, II and IV

Which of the following defines a note? I. secured II. unsecured III. maturity less than 10 years IV. maturity in excess of 10 years

II and III only

Which one of the following defines a note? I. secured II. unsecured. III. maturity less than 10 years. IV. maturity in excess of 10 years.

II and III only

There is a difference between a firm's future cash flows if it accepts a project and the firm's future cash flows if it does not accept the project. This difference is referred to as the project's:

Incremental Cash Flows

Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment.

Interest only loan

Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment?

Interest only loan

According to the authors, the NPV method

Is the best method of analyzing mutually exclusive projects.

Why is payback often used as the sole method of analyzing a proposed small project

It is the only method where the benefits of the analysis outweigh the costs of that analysis.

Why is payback often used as the sole method of analyzing a proposed small project?

It is the only method where the benefits of the analysis outweigh the costs of that analysis.

Of the following possible financial management goals, which is the most common cited.

Maximize profits

An ECN is best described as

None of the above

An ECN is best described as:

None of the above

Which one of the following accurately defines a perpetuity?

None of the above.

If T-bills return 3% and large company stock return 7%, select the term that refers to the 4% difference.

Risk Premium

According to the authors, the NPV method:

The best method of analyzing mutually exclusive projects.

Select the correct statement.

The greater the volatility of returns, the greater the risk premium

Which one of the following statements is always true?

Total Assets Turnover can be increased if sales are increased and inventory holding is decreased.

For a company its marginal tax rate can be the same as its average tax rate

True

I can be said that the interest rate is the rate at which money grows.

True

In the accounting definition of operating cash flows, interest is an operating expense

True

Excess capacity lowers EFN.

True.

From Financial Intelligence. When using information from the balance sheet to calculate ratios it is better to use rolling averages.

True.

From the supplementary reading, you would conclude that Warren Buffett doesn't like investing in internet related companies.

True.

If a company doesn't pay dividends and we want to do stock valuation using multiples, we may be able to use the Price/ EPS and / or the Price/Sales ratios.

True.

If a company doesn't pay dividends and we want to do stock valuation using multiples, we may be able to use the Price/EPS and/or the Price/Sales ratios.

True.

In practice, not all firms use NPV as a capital budgeting technique.

True.

In theory ROA can e the same as ROE

True.

It can be said that discounting is the reverse of compounding.

True.

It can be said that the interest rate is the rate at which money grows.

True.

One of the three components of cash flows from assets is changes in net working capital.

True.

TVM refers to the fact that one dollar promised some time in the future is worth more than one dollar in hand today.

True.

The authors state that the payback period and the discounted payback period are both flawed criteria.

True.

The impact of compounding is small over short periods of time.

True.

The textbook authors state that the Excel NPV function actually calculates present values, not net present values.

True.

When the cash flows of a project are conventional and the project is independent, the IRR and NPV rules lead to the same decision (about the acceptability of the project).

True.