BFIN 300 final Exam - 94 Questions with Correct
Verified Answers
You purchase a run-down home in Albany for $25,000 and spend another $25,000 to repair
it. Your total in-cost is $50,000. When the work is done, you place the home back on the
market and find that it's worth $60,000. What is your NPV? (Market Value - Total Cost)
10000
What is the difference between an investment's market value and cost?
Net Present Value (NPV)
As a financial manager, what will you do with an investment if its Net Present Value (NPV)
is negative?
Reject the investment
Which investment technique yields the same result as Net Present Value (NPV)?
Internal Rate of Return
Which statement is true regarding the Internal Rate of Return (IRR)?
IRR is a popular alternative to NPV
It summarizes a project's return
It's the rate at which NPV = 0
Projects with IRR > required return are accepted
All of the Above
All of the Above
,What is the best definition of an opportunity cost?
The most valuable investment alternative given up if a particular investment is undertaken
What is considered a relevant cash flow for a project?
A cash flow for project evaluation consists of any and all changes in the firm's future cash flows
with a project that are a direct consequence of taking on the project
What are some common pitfalls when looking at incremental cash flows?
Including opportunity costs
An example of erosion when taking on a new project would be?
Disney adding a new park in Shanghai which would erode or cannibalize Hong Kong Disney and
Tokyo Disney revenues
What are pro forma financial statements?
Financial statement projecting future years operations
If a company in in violation of a financial covenant, and is precluded from accessing
funding to undertake a positive
NPV project, what type of situation what kind of capital rationing would this be
considered?
Hard rationing
Which type of company analysis only allows for one variable to change?
Sensitivity Analysis
, Which type of company analysis considers the inter-relationships between different cash
flow components?
Simulation Analysis
Which of the following is a true statement about "operating leverage"?
A) The greater the degree of operating leverage, the greater the potential for forecasting
risk
b) Suggests that a business is capital intensive
c) The degree to which a business relies on fixed costs
d) Small errors in operating leverage can magnify problems in forecasting
All of the above
Steve "Uncle Stevie" Cohen is speaking to David Stearns about "efficient capital markets
theory".
Uncle Stevie would be correct if he stated the following about "efficient capital markets":
a) A market in which a security trades is priced efficiently
b) Based on available information, there is no reason that the current share price is too
high or too low
c) Although market inefficiencies may exist, they are relatively small and uncommon
d) The theory is nonsense and is just taught so professors can sell textbooks
All of the above
How is return on investment (ROI) of an equity security calculated?
Adding the capital gain percentage to the dividend yield
Verified Answers
You purchase a run-down home in Albany for $25,000 and spend another $25,000 to repair
it. Your total in-cost is $50,000. When the work is done, you place the home back on the
market and find that it's worth $60,000. What is your NPV? (Market Value - Total Cost)
10000
What is the difference between an investment's market value and cost?
Net Present Value (NPV)
As a financial manager, what will you do with an investment if its Net Present Value (NPV)
is negative?
Reject the investment
Which investment technique yields the same result as Net Present Value (NPV)?
Internal Rate of Return
Which statement is true regarding the Internal Rate of Return (IRR)?
IRR is a popular alternative to NPV
It summarizes a project's return
It's the rate at which NPV = 0
Projects with IRR > required return are accepted
All of the Above
All of the Above
,What is the best definition of an opportunity cost?
The most valuable investment alternative given up if a particular investment is undertaken
What is considered a relevant cash flow for a project?
A cash flow for project evaluation consists of any and all changes in the firm's future cash flows
with a project that are a direct consequence of taking on the project
What are some common pitfalls when looking at incremental cash flows?
Including opportunity costs
An example of erosion when taking on a new project would be?
Disney adding a new park in Shanghai which would erode or cannibalize Hong Kong Disney and
Tokyo Disney revenues
What are pro forma financial statements?
Financial statement projecting future years operations
If a company in in violation of a financial covenant, and is precluded from accessing
funding to undertake a positive
NPV project, what type of situation what kind of capital rationing would this be
considered?
Hard rationing
Which type of company analysis only allows for one variable to change?
Sensitivity Analysis
, Which type of company analysis considers the inter-relationships between different cash
flow components?
Simulation Analysis
Which of the following is a true statement about "operating leverage"?
A) The greater the degree of operating leverage, the greater the potential for forecasting
risk
b) Suggests that a business is capital intensive
c) The degree to which a business relies on fixed costs
d) Small errors in operating leverage can magnify problems in forecasting
All of the above
Steve "Uncle Stevie" Cohen is speaking to David Stearns about "efficient capital markets
theory".
Uncle Stevie would be correct if he stated the following about "efficient capital markets":
a) A market in which a security trades is priced efficiently
b) Based on available information, there is no reason that the current share price is too
high or too low
c) Although market inefficiencies may exist, they are relatively small and uncommon
d) The theory is nonsense and is just taught so professors can sell textbooks
All of the above
How is return on investment (ROI) of an equity security calculated?
Adding the capital gain percentage to the dividend yield
