MGT 8803 – Finance UPDATED ACTUAL
Exam Questions and CORRECT Answers
Future Value Formula - CORRECT ANSWER - FV = PV(1 + r)^t
Future Value Excel Formula - CORRECT ANSWER - =FV(rate, periods, -payment, -pv)
note that present value should be negative
Present Value Formula - CORRECT ANSWER - FV/(1+r)^t
Present Value Excel Formula - CORRECT ANSWER - =PV(rate, periods, -payment, -pv)
The Value Creation Process - CORRECT ANSWER - Focused on producing or delivering
an organization's primary goods or services, such as filling and shipping a customer's order,
assembling a dishwasher, or providing a home mortgage.
Focus on the customer, who ultimately drives profits.
Role of Finance in Corporate Strategy - CORRECT ANSWER - Operating Decisions -
Internal Resource Allocation, Acquisitions, Divestitures
Financing Decisions - Capital Structure, Risk Management, Payout Policy
Increase Expected Cash Flows - Performance Evaluation
Decrease Cost of Capital - Performance Evaluation
Page 5 on Week 1 Lesson 1
Shareholders - CORRECT ANSWER - Owners of the corporation
Primary financial goal of any public corporation is to create economic value for its shareholders.
,They receive money only after suppliers have been paid, workers' wages have been paid, interest
to bondholders have been paid, and taxes have been paid.
If shareholders are happy, so are the other stakeholders.
The Firm and Financial Markets - CORRECT ANSWER - Companies have to pay
financial markets constantly
Firm MUST be a cash-generating activity -- need to pay dividends and debt payments, plus keep
some cash flow (RE) for future reinvestment - plus, pay taxes
Cash flows from the firm must > cash flows from financial markets
Capital Budgeting - CORRECT ANSWER - The process of determining exactly which
assets to invest in and how much to invest
Also called capital budgeting decision, capital expenditure decision, capital investment decision
Capital Budgeting Process - CORRECT ANSWER - 1. identification
2. evaluation
3. selection
4. implementation & follow-up
Identification - CORRECT ANSWER - Finding out opportunities and generating
investment proposals
Identification - type of investment - CORRECT ANSWER - -Required investment
-Replacement investment
-Expansion investment
Diversification investment
, Evaluation - CORRECT ANSWER - Estimating the project's relevant cash flows and
appropriate discount rate
Evaluation - type of investment - CORRECT ANSWER - -Expected cash-flow stream
-Discount rate
Selection - CORRECT ANSWER - Choosing a decision making rule (accept/reject
criterion)
Selection - type of investment - CORRECT ANSWER - -Net present value
-Profitability index
-Internal rate of return
-Payback period
Implementation - CORRECT ANSWER - Establishing an audit and a follow-up procedure
Implementation - type of investment - CORRECT ANSWER - -Monitor the magnitude
and timing of cash flows
-Check if the project still meets the selection criterion
-Decide on a continuation or abandonment
-Review previous steps if failure rate is high
Evaluating Long-Term Investment Projects - CORRECT ANSWER - Future Values
Present Values
Present Value of an Annuity
Net Present Value*
Payback Period
Internal Rate of Return
Exam Questions and CORRECT Answers
Future Value Formula - CORRECT ANSWER - FV = PV(1 + r)^t
Future Value Excel Formula - CORRECT ANSWER - =FV(rate, periods, -payment, -pv)
note that present value should be negative
Present Value Formula - CORRECT ANSWER - FV/(1+r)^t
Present Value Excel Formula - CORRECT ANSWER - =PV(rate, periods, -payment, -pv)
The Value Creation Process - CORRECT ANSWER - Focused on producing or delivering
an organization's primary goods or services, such as filling and shipping a customer's order,
assembling a dishwasher, or providing a home mortgage.
Focus on the customer, who ultimately drives profits.
Role of Finance in Corporate Strategy - CORRECT ANSWER - Operating Decisions -
Internal Resource Allocation, Acquisitions, Divestitures
Financing Decisions - Capital Structure, Risk Management, Payout Policy
Increase Expected Cash Flows - Performance Evaluation
Decrease Cost of Capital - Performance Evaluation
Page 5 on Week 1 Lesson 1
Shareholders - CORRECT ANSWER - Owners of the corporation
Primary financial goal of any public corporation is to create economic value for its shareholders.
,They receive money only after suppliers have been paid, workers' wages have been paid, interest
to bondholders have been paid, and taxes have been paid.
If shareholders are happy, so are the other stakeholders.
The Firm and Financial Markets - CORRECT ANSWER - Companies have to pay
financial markets constantly
Firm MUST be a cash-generating activity -- need to pay dividends and debt payments, plus keep
some cash flow (RE) for future reinvestment - plus, pay taxes
Cash flows from the firm must > cash flows from financial markets
Capital Budgeting - CORRECT ANSWER - The process of determining exactly which
assets to invest in and how much to invest
Also called capital budgeting decision, capital expenditure decision, capital investment decision
Capital Budgeting Process - CORRECT ANSWER - 1. identification
2. evaluation
3. selection
4. implementation & follow-up
Identification - CORRECT ANSWER - Finding out opportunities and generating
investment proposals
Identification - type of investment - CORRECT ANSWER - -Required investment
-Replacement investment
-Expansion investment
Diversification investment
, Evaluation - CORRECT ANSWER - Estimating the project's relevant cash flows and
appropriate discount rate
Evaluation - type of investment - CORRECT ANSWER - -Expected cash-flow stream
-Discount rate
Selection - CORRECT ANSWER - Choosing a decision making rule (accept/reject
criterion)
Selection - type of investment - CORRECT ANSWER - -Net present value
-Profitability index
-Internal rate of return
-Payback period
Implementation - CORRECT ANSWER - Establishing an audit and a follow-up procedure
Implementation - type of investment - CORRECT ANSWER - -Monitor the magnitude
and timing of cash flows
-Check if the project still meets the selection criterion
-Decide on a continuation or abandonment
-Review previous steps if failure rate is high
Evaluating Long-Term Investment Projects - CORRECT ANSWER - Future Values
Present Values
Present Value of an Annuity
Net Present Value*
Payback Period
Internal Rate of Return
