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D076 TEST OFFICIAL EXAM
QUESTIONS WITH ANSWERS.
Will the firm need to acquire additional fixed assets if its sales are
predicted to increase by $6 million next year?
No, because the increase in sales will exceed the firm's sales
capacity.
Yes, because the increase in sales will exceed the firm's sales
capacity.
Correct
No, because the increase in sales will not exceed the firm's sales
capacity. - correct answer -No, because the increase in sales will
not exceed the firm's sales capacity.
How does an analyst use the hurdle rate?
It is used to calculate the IRR for a project and determine its
value.
It is used to determine the time frame of a project.
It is used to compare with the IRR to determine whether a project
should be accepted. - correct answer -It is used to compare with
the IRR to determine whether a project should be accepted.
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Which term refers to the metrics and calculations that use tools
such as net present value (NPV), internal rate of return (IRR), and
profitability index (PI) to evaluate investments?
Capital budgeting criteria
Projected financing criteria
Security analysis criteria - correct answer -Capital budgeting
criteria
What would profitability index (PI) be useful for?
Computing the future value of a project in the future rather than
the present value
Determining whether a firm should invest in projects with different
initial outlays
Calculating returns for a project that does not have a definite
return rate for IRR or NPV - correct answer -Determining whether
a firm should invest in projects with different initial outlays
Maria is planning to invest in some company stocks for retirement
and is trying to figure out if the stocks are a good buy. She
calculates the intrinsic value of one of the stocks, Quiet Flag
Industries, to be $35. The stock is currently trading on the market
for $30, so she decides to buy it.
Why was it a good idea for Maria to buy this stock?
The stock is overvalued.
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The stock's intrinsic value is greater than 1.
The stock is undervalued. - correct answer -The stock is
undervalued.
How do bond payments to investors differ from stock payments to
investors?
Stock payments have a shorter duration than bond payments.
Bond payments are larger than stock payments.
Bond payments are fixed, and stock payments are variable. -
correct answer -Bond payments are fixed, and stock payments
are variable.
An investor really cares about having voting rights in a firm.
Which type of financial security should this investor purchase?
Common stock
Secured bonds
Preferred stock
Zero-coupon bonds - correct answer -Common stock
The lowest rate of return is required by which type of investor or
lender?
D076 TEST OFFICIAL EXAM
QUESTIONS WITH ANSWERS.
Will the firm need to acquire additional fixed assets if its sales are
predicted to increase by $6 million next year?
No, because the increase in sales will exceed the firm's sales
capacity.
Yes, because the increase in sales will exceed the firm's sales
capacity.
Correct
No, because the increase in sales will not exceed the firm's sales
capacity. - correct answer -No, because the increase in sales will
not exceed the firm's sales capacity.
How does an analyst use the hurdle rate?
It is used to calculate the IRR for a project and determine its
value.
It is used to determine the time frame of a project.
It is used to compare with the IRR to determine whether a project
should be accepted. - correct answer -It is used to compare with
the IRR to determine whether a project should be accepted.
, Page | 2
Which term refers to the metrics and calculations that use tools
such as net present value (NPV), internal rate of return (IRR), and
profitability index (PI) to evaluate investments?
Capital budgeting criteria
Projected financing criteria
Security analysis criteria - correct answer -Capital budgeting
criteria
What would profitability index (PI) be useful for?
Computing the future value of a project in the future rather than
the present value
Determining whether a firm should invest in projects with different
initial outlays
Calculating returns for a project that does not have a definite
return rate for IRR or NPV - correct answer -Determining whether
a firm should invest in projects with different initial outlays
Maria is planning to invest in some company stocks for retirement
and is trying to figure out if the stocks are a good buy. She
calculates the intrinsic value of one of the stocks, Quiet Flag
Industries, to be $35. The stock is currently trading on the market
for $30, so she decides to buy it.
Why was it a good idea for Maria to buy this stock?
The stock is overvalued.
, Page | 3
The stock's intrinsic value is greater than 1.
The stock is undervalued. - correct answer -The stock is
undervalued.
How do bond payments to investors differ from stock payments to
investors?
Stock payments have a shorter duration than bond payments.
Bond payments are larger than stock payments.
Bond payments are fixed, and stock payments are variable. -
correct answer -Bond payments are fixed, and stock payments
are variable.
An investor really cares about having voting rights in a firm.
Which type of financial security should this investor purchase?
Common stock
Secured bonds
Preferred stock
Zero-coupon bonds - correct answer -Common stock
The lowest rate of return is required by which type of investor or
lender?
