FIN 350 Conceptual Questions
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The equation for free cash flow is: FCF = EBIT(1-T) - Net Investment in Working Capital.
True or false? -correct answer_False The balance sheet reports measures the flow of
capital into and out of various accounts over time, while the income statement
describes the firm's financial position at a point in time. True or false -correct
answer_False Retained earnings are reinvested profits contributed only by
shareholders, therefore they represent part of shareholders' claims against the firm's
existing assets. True or false -correct answer_True The income statement is tied to the
balance sheet through the retained earnings account. True or False -correct
answer_True The financial statements reflect historical data, but managers'
performance must be evaluated on the basis of _____ values. -correct answer_Market
The difference between the money stockholders have invested in the firm versus the
cash they could receive if the firm were sold is called market value added. True or
False -correct answer_True Net operating working capital could be estimated as the
difference between operating current assets and total current liabilities. True or False
-correct answer_False EVA differs from net income because EVA has a deduction for
the cost of equity. True or False -correct answer_True In our textbook, free cash flow is
defined as. -correct answer_cash that is available to distribute to creditors and equity
holders. A change in which one of these accounts will affect the estimation of free
cash flows? -correct answer_Inventory A firm's profits that are retained in the firm
provide an important source of financing for a firm's growth and expansion, as long as
the firm does not pay out its earnings entirely. True or False -correct answer_True Based
on the definition of AFN as in the textbook, a negative value of Additional Fund
Needed (AFN) means that the company will require some amount of investment from
lendors. True or False -correct answer_False If Shao forecasts her company will have a
financing surplus in next year, which one of the following action the comapny could
take to handle the situation? -correct answer_Paying a special dividend If a firm
expects to achieve a positive sales growth, yet maintain its percent to sales ratios
unchanged, it will require some amount of external funding for a growth rate of any
amount. True or false -correct answer_False In AFN equation, the financial ratio
measured as net income divided by sales is known as the firm's : -correct answer_Profit
Margin The percentage of sales method separates accounts that vary with sales from
those that do not vary with sales. True or False -correct answer_True The possible
external sources of financing include commercial papers, short-term bank loans,
long-term bonds, preferred stock, and common stock. True or False -correct
answer_True The self support growth rate is a growth rate when, and only when a firm
has no debt. True or False -correct answer_False Theoretically, a company will use up
spontaneous liabilities to the extent possible. True or False -correct answer_True When
a firm's sales increase, its inventories normally increase, resulting in more accounts
payable. This leads to an increase in spontaneous liabilities that helps to reduce AFN.
True or False -correct answer_True A project with a positive NPV should be accepted.
The is because. True or False -correct answer_A.The project is expected to increase
shareholder value. An NPV profile depicts how a project's value varies with its life. True
or False -correct answer_False Holding other things constant, the net present value of
a typical investment project increases when. -correct answer_the rate of return
decreases. How would you interpret, if the net present value of a project is estimated
at $210? -correct answer_The project is earning $210 in addition to the project's
required rate of return If the IRR of Project A is greater than the IRR of mutually
exclusive Project B, we can conclude that the firm should always select A rather than
B as long as NPV of Porject A is positive. True or False -correct answer_False In project
analysis, the internal rate of return is the discount rate that sets the net present value of
a project non-negative. True or False -correct answer_False The major weaknesses of
the internal rate of return method are the. -correct answer_failure to correctly analyze
mutually exclusive projects. The net present value of a normal investment project is
Save
The equation for free cash flow is: FCF = EBIT(1-T) - Net Investment in Working Capital.
True or false? -correct answer_False The balance sheet reports measures the flow of
capital into and out of various accounts over time, while the income statement
describes the firm's financial position at a point in time. True or false -correct
answer_False Retained earnings are reinvested profits contributed only by
shareholders, therefore they represent part of shareholders' claims against the firm's
existing assets. True or false -correct answer_True The income statement is tied to the
balance sheet through the retained earnings account. True or False -correct
answer_True The financial statements reflect historical data, but managers'
performance must be evaluated on the basis of _____ values. -correct answer_Market
The difference between the money stockholders have invested in the firm versus the
cash they could receive if the firm were sold is called market value added. True or
False -correct answer_True Net operating working capital could be estimated as the
difference between operating current assets and total current liabilities. True or False
-correct answer_False EVA differs from net income because EVA has a deduction for
the cost of equity. True or False -correct answer_True In our textbook, free cash flow is
defined as. -correct answer_cash that is available to distribute to creditors and equity
holders. A change in which one of these accounts will affect the estimation of free
cash flows? -correct answer_Inventory A firm's profits that are retained in the firm
provide an important source of financing for a firm's growth and expansion, as long as
the firm does not pay out its earnings entirely. True or False -correct answer_True Based
on the definition of AFN as in the textbook, a negative value of Additional Fund
Needed (AFN) means that the company will require some amount of investment from
lendors. True or False -correct answer_False If Shao forecasts her company will have a
financing surplus in next year, which one of the following action the comapny could
take to handle the situation? -correct answer_Paying a special dividend If a firm
expects to achieve a positive sales growth, yet maintain its percent to sales ratios
unchanged, it will require some amount of external funding for a growth rate of any
amount. True or false -correct answer_False In AFN equation, the financial ratio
measured as net income divided by sales is known as the firm's : -correct answer_Profit
Margin The percentage of sales method separates accounts that vary with sales from
those that do not vary with sales. True or False -correct answer_True The possible
external sources of financing include commercial papers, short-term bank loans,
long-term bonds, preferred stock, and common stock. True or False -correct
answer_True The self support growth rate is a growth rate when, and only when a firm
has no debt. True or False -correct answer_False Theoretically, a company will use up
spontaneous liabilities to the extent possible. True or False -correct answer_True When
a firm's sales increase, its inventories normally increase, resulting in more accounts
payable. This leads to an increase in spontaneous liabilities that helps to reduce AFN.
True or False -correct answer_True A project with a positive NPV should be accepted.
The is because. True or False -correct answer_A.The project is expected to increase
shareholder value. An NPV profile depicts how a project's value varies with its life. True
or False -correct answer_False Holding other things constant, the net present value of
a typical investment project increases when. -correct answer_the rate of return
decreases. How would you interpret, if the net present value of a project is estimated
at $210? -correct answer_The project is earning $210 in addition to the project's
required rate of return If the IRR of Project A is greater than the IRR of mutually
exclusive Project B, we can conclude that the firm should always select A rather than
B as long as NPV of Porject A is positive. True or False -correct answer_False In project
analysis, the internal rate of return is the discount rate that sets the net present value of
a project non-negative. True or False -correct answer_False The major weaknesses of
the internal rate of return method are the. -correct answer_failure to correctly analyze
mutually exclusive projects. The net present value of a normal investment project is
