MGT 8803 Exam II Study Set
(detailed & elaborated)
QUESTIONS AND VERIFIED
CORRECT ANSWERS
GRADED A+ LATEST 100%
GUARANTEED PASS
Payback Period - CORRECT ANSWER-the number of periods (usually measured in years) required
for the sum of the project's expected cash flows to equal its initial cash outlay. In other words,
the payback period is the time it takes for a firm to recover its initial investment.
Internal Rate of Return - CORRECT ANSWER-the discount rate that makes the NPV of an
investment zero
Profitability Index - CORRECT ANSWER-The present value of an investment's future cash flows
divided by its initial cost. Also called benefit/cost ratio.
What are problems with multiple IRRs? - CORRECT ANSWER-multiple IRRs can exist; scaling
(decisions differ in scale) and timing
Crossover Rate - CORRECT ANSWER-the cost of capital at which the net present values of two
projects are equal
When will NPV and IRR not give the same decision? - CORRECT ANSWER-when cash flow signs
change more than once and when projects are mutually exclusive
, Nominal return - CORRECT ANSWER-the percentage change in the amount of money you have.
Real return - CORRECT ANSWER-the percentage change in the amount of stuff you can actually
buy.
Fisher Effect equation - CORRECT ANSWER-nominal interest rate = inflation rate + real interest
rate
What are the three types of stock growth? - CORRECT ANSWER-Zero, constant, and differential
Zero Growth Stock Equation - CORRECT ANSWER-P0= Div0/R
Constant Stock Growth Equation - CORRECT ANSWER-P0 = Div1/R-g
Retention Ratio - CORRECT ANSWER-1 -(Dividend per share/Earnings per share)
An increase in the retention rate will... - CORRECT ANSWER--reduce the dividend paid to
shareholders
-increase the firm's growth rate
P/E Ratio - CORRECT ANSWER-Price per share/EPS
Enterprise value - CORRECT ANSWER-market value of equity + market value of debt - cash
Enterprise Value Ratio - CORRECT ANSWER-EV / EBITDA
(detailed & elaborated)
QUESTIONS AND VERIFIED
CORRECT ANSWERS
GRADED A+ LATEST 100%
GUARANTEED PASS
Payback Period - CORRECT ANSWER-the number of periods (usually measured in years) required
for the sum of the project's expected cash flows to equal its initial cash outlay. In other words,
the payback period is the time it takes for a firm to recover its initial investment.
Internal Rate of Return - CORRECT ANSWER-the discount rate that makes the NPV of an
investment zero
Profitability Index - CORRECT ANSWER-The present value of an investment's future cash flows
divided by its initial cost. Also called benefit/cost ratio.
What are problems with multiple IRRs? - CORRECT ANSWER-multiple IRRs can exist; scaling
(decisions differ in scale) and timing
Crossover Rate - CORRECT ANSWER-the cost of capital at which the net present values of two
projects are equal
When will NPV and IRR not give the same decision? - CORRECT ANSWER-when cash flow signs
change more than once and when projects are mutually exclusive
, Nominal return - CORRECT ANSWER-the percentage change in the amount of money you have.
Real return - CORRECT ANSWER-the percentage change in the amount of stuff you can actually
buy.
Fisher Effect equation - CORRECT ANSWER-nominal interest rate = inflation rate + real interest
rate
What are the three types of stock growth? - CORRECT ANSWER-Zero, constant, and differential
Zero Growth Stock Equation - CORRECT ANSWER-P0= Div0/R
Constant Stock Growth Equation - CORRECT ANSWER-P0 = Div1/R-g
Retention Ratio - CORRECT ANSWER-1 -(Dividend per share/Earnings per share)
An increase in the retention rate will... - CORRECT ANSWER--reduce the dividend paid to
shareholders
-increase the firm's growth rate
P/E Ratio - CORRECT ANSWER-Price per share/EPS
Enterprise value - CORRECT ANSWER-market value of equity + market value of debt - cash
Enterprise Value Ratio - CORRECT ANSWER-EV / EBITDA
