FINA 5170

Capital budgeting decisions that include both investment and financing decisions can be analyzed by: I) Adjusting the present value II) Adjusting the discount rate III) Ignoring financing mix A. I only B. II only C. III only D. I and II only - Answer D. I and II only Total market value of a firm (V): [D = market value of debt; E = market value of equity A. V=D+E B. V=D+E+tax shield effect of debt C. V = D + E + tax shield effect of debt-Present value of bankruptcy cos...

Mr. Bird has $100 income this year and zero income next year. The market interest rate is 10% per year. Mr. Bird also has an investment opportunity in which he can invest $50 today and receive $80 next year. Suppose Mr. Bird consumes $30 this year and invests in the project. What will be his consumption next year? - Answer Consumption next year = (100 - 30 - 50) × 1.1 + 80 = 102. "Companies usually buy xxxx assets. These include both tangible assets such as xxxx and intangible assets s...

Which of the following investment rules may not use all possible cash flows in its calculations? - Answer payback period If an investment project (normal project) has an IRR equal to the cost of capital, the NPV for that project is: - Answer zero If the sign of the cash flows for a project changes two times, then the project likely has: - Answer two IRRs The profitability index is the ratio of the: - Answer net present value of cash flows to investment The IRR is defined ...

C.1 Shareholder wealth maximization means - Answer C) maximizing the price of existing common stock C.1 A financial manager is considering two projects, A and B. A is expected to add $2 million to profits this year while B is expected to add $1 million to profits this year. Which of the following statements is MOST correct? Concept questions - Answer D) The manager should select the project that causes the stock price to increase the most, which could be A or B. C.1 The five basic ...

The term multinational corporation is used to describe a firm that operates in two or more countries. True or False - Answer True Which of the following represents a difference between an S corporation and a limited liability company(LLC)? a. An S corporation can have more than one type of stock outstanding, whereas an LLC can have only one type of stock outstanding. b. An S corporation can choose to be taxed as a corporation or as a partnership, whereas an LLC is taxed as a corpor...

typically, firms must invest cash in short-term assets to produce finished goods. - Answer One should consider net working capital (NWC) in project cash flows because 1 + nominal rate = (1 + real rate) (1 + inflation rate) = (1.03)(1.05) = (1.0815). Nominal rate = 0.0815 = 8.15%. - Answer The real interest rate is 3 percent and the inflation rate is 5 percent. What is the nominal interest rate? Annual depreciation = ($250,000 - $50,000)/5 = $40,000. Book value at the end of two yea...