FINANCE FINAL EXAM QUESTIONS WITH
COMPLETE SOLUTIONS
Alternatively, if two projects have unequal lives, use the
____________ ________ ___________ ________, converting
project cash flows into a constant cash flow stream using a
______ _______ ___ _________ calculation. Correct Answers
equivalent annual annuity method; time value of money
Capital Budgeting Project Types: Correct Answers 1)
Equipment replacement
2) Expansion of existing product lines
3) New products
4) Regulatory projects (safety/environmental)
Define: Additional Funds Needed Correct Answers The growth
in assets required to finance projected growth in sales.
Define: Capital Intensity Ratio Correct Answers The assets
required to support sales - assets at time zero divided by sales at
time zero.
Define: Corporate risk Correct Answers The project's risk,
reflecting the project's effect on corporate earnings stability and
the firm's diversification.
Define: Crossover Rate Correct Answers At the crossover rate,
the NPVs of two projects are equal.
, Define: Financing Feedbacks Correct Answers These occur
when the additional financing costs of new external capital are
included in a forecasting analysis.
Define: independent project Correct Answers Acceptance of
one project does not depend upon the decision made on other
projects.
Define: Internal Rate of Return (IRR) Correct Answers The
discount rate at which the present value of the project's cash
inflows equals the present value of its cash outflows.
Define: Market risk Correct Answers The project's risk,
reflecting the project's effect on a well-diversified stock
protfolio, taking account of stockholders' other assets.
Define: Modified Internal Rate of Return (MIRR) Correct
Answers Whereas IRR assume all cash flows are reinvested at
IRR, MIRR assumes all cash flows are reinvested at the cost of
capital.
Define: mutually exclusive project Correct Answers If one
project is accepted, others must be rejected.
Define: Payout Ratio Correct Answers Dividends divided by
net income.
Define: Retained Earnings Breakpoint Correct Answers The
total amount of new capital that can be raised without issuing
new equity, while still allowing the company to maintain its
capital structure.
COMPLETE SOLUTIONS
Alternatively, if two projects have unequal lives, use the
____________ ________ ___________ ________, converting
project cash flows into a constant cash flow stream using a
______ _______ ___ _________ calculation. Correct Answers
equivalent annual annuity method; time value of money
Capital Budgeting Project Types: Correct Answers 1)
Equipment replacement
2) Expansion of existing product lines
3) New products
4) Regulatory projects (safety/environmental)
Define: Additional Funds Needed Correct Answers The growth
in assets required to finance projected growth in sales.
Define: Capital Intensity Ratio Correct Answers The assets
required to support sales - assets at time zero divided by sales at
time zero.
Define: Corporate risk Correct Answers The project's risk,
reflecting the project's effect on corporate earnings stability and
the firm's diversification.
Define: Crossover Rate Correct Answers At the crossover rate,
the NPVs of two projects are equal.
, Define: Financing Feedbacks Correct Answers These occur
when the additional financing costs of new external capital are
included in a forecasting analysis.
Define: independent project Correct Answers Acceptance of
one project does not depend upon the decision made on other
projects.
Define: Internal Rate of Return (IRR) Correct Answers The
discount rate at which the present value of the project's cash
inflows equals the present value of its cash outflows.
Define: Market risk Correct Answers The project's risk,
reflecting the project's effect on a well-diversified stock
protfolio, taking account of stockholders' other assets.
Define: Modified Internal Rate of Return (MIRR) Correct
Answers Whereas IRR assume all cash flows are reinvested at
IRR, MIRR assumes all cash flows are reinvested at the cost of
capital.
Define: mutually exclusive project Correct Answers If one
project is accepted, others must be rejected.
Define: Payout Ratio Correct Answers Dividends divided by
net income.
Define: Retained Earnings Breakpoint Correct Answers The
total amount of new capital that can be raised without issuing
new equity, while still allowing the company to maintain its
capital structure.
