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The length of time a firm must wait to recoup the money it has
invested in a project is called the:
A. internal return period.
B. valuation period.
C. profitability period.
D. discounted cash period.
E. payback period
payback period
The IRR for the following set of cash flows is what percent?
0 $9,868
1 3,400
2 5,300
3 6,900
23.64%
A. unsystematic
B. asset-specific
C. diversifiable
D. total
E. systematic
Systematic
Unsystematic risk:
A. is compensated for by the risk premium.
B. is related to the overall economy.
C. can be effectively eliminated by portfolio diversification.
D. is measured by beta.
E. is measured by standard deviation.
Can be effectively eliminated by portfolio diversification
C. beta
D. price-earnings ratio
E. risk ratio
Beta
A. Break-even
B. Simulation
C. Scenario
D. Sensitivity
Sensitivity
All else constant, a bond will sell at _____ when the coupon
rate is _____ the yield to maturity.
A. a discount; less than
B. a discount; higher than
C. par; less than
D. a premium; less than
E. a premium; equal to
a discount; less than
Which term relates to the cash flow which results from a firm's
ongoing, normal business activities?
A. cash flow from assets
B. operating cash flow
C. net working capital
D. capital spending
E. cash flow to creditors
Operating cash flow
A bond has a market price that exceeds its face value. Which of
the following features currently apply to this bond?
I. discounted price
II. premium price
III. yield-to-maturity that exceeds the coupon rate
IV. yield-to-maturity that is less than the coupon rate
A. III only
B. I and III only
C. I and IV only
D. II and III only
E. II and IV only
II and IV
For a given time period, the higher the interest rate, the smaller
the _________
present value
For a given interest rate, the higher the ______, the lower the
present value
future value
Advantages of payback
liquidity basis, ease of use, adjusts for uncertainty of later cash
flows
Disadvantages of payback
requires cut off point, biased against long term projects, and
ignores time value money
No, because equity should have a higher return and debt since, it
carries more risk to the holder.
As the firms risk increases, the cost of capital _______ and the
NPV of projects __________
cost of capital INCREASES and the NPV of projects DECREASE
If you were calculating a worst case scenario would you use high
or low costs?
In calculating the worst case scenario you would use high costs
and low revenue and vise versa for best case scenario.
The discount rate that causes the net present value of a project
to equal zero is called the:
a. average accounting return.
b. market rate.
C. internal rate of return.
d. yield to maturity.
e. required return.
Internal rate of return
b. beta measuring.
c. the systematic risk principle.
d. the principle of elimination.
e. split investing.
The principle of diversification
Which of the following decision rules has the advantage that the
information needed for the computation is readily available?
A. Net present value
B. Internal rate of return
C. Payback period
D. Average accounting return
E. Discounted payback
Average Accounting Return
The CAPM shows that the expected return for a particular asset
depends on:
Which of the following does NOT describe the risk that exists in
a well-diversified portfolio?
A. Asset-specific risk
B. Market risk
C. Non-diversifiable risk
D. Systematic risk
Asset-specific risk
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