Final Exam Finance

Which of the following is the technique for reducing collection float by having funds sent to several geographically situated regional banks and then transferring to a main concentration account in another bank?

Concentration banking

Which of these is used as a measure of the total amount of available cash flow from a project?

Free cash flow

Which of the following is a capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return, IRR, decision rule?

Modified internal rate of return

Which of these describe groups or pairs of projects where you can accept one but not all?

Mutually exclusive

Which of these are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive?

Normal cash flows

Which of the following is a technique for evaluating capital projects that is particularly useful when firms face time constraints in repaying investors?

Payback

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project?

Payback

Which of these is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements?

Pro forma analysis

Which of the following is a technique for evaluating capital projects that tells how long it will take a firm to earn back the money invested in a project plus interest at market rates?

Discounted payback

Which of these is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based upon the implicit expected geometric average of a project's rate of return?

Internal rate of return

Rate-based statistics represent summary cash flows, and these summaries tend to lose which two important details?

The investment size and cash inflows that occur after the rather arbitrary testing period

Which of the following is a true statement?

To estimate the before-tax cost of debt, we need to solve for the Yield to Maturity (YTM) on the firm's existing debt.

Which of the following is NOT a reason for holding cash?

Transaction opportunities

Which of the following is a checking account that the firm sets up so that the bank agrees to automatically transfer funds from an interest-bearing account to pay off any checks presented?

Zero-balance account

When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as:

a weighted average of the capital components costs

When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as

a weighted average of the capital components costs.

One way to account for flotation costs of raising capital is to:

adjust the project's initial cash flow so that it will reflect the flotation costs.

Neither payback period nor discounted payback period techniques for evaluating capital projects account for:

cash flows that occur after payback.

A decrease in net working capital (NWC) is treated as a:

cash inflow.

When calculating the weighted average cost of capital, weights are based on

market values.

When we adjust the WACC to reflect flotation costs, this approach:

raises each capital source's effective cost.

If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether a particular project is undertaken, that expense is a:

sunk cost.

When choosing between two mutually exclusive projects using the payback period method for evaluating capital projects, one would choose:

the project that pays back the soonest if it is equal to or less than managers' maximum payback period.