FIN3701 SEMESTER 2 (2017) ADDITIONAL PRAC. QUESTIONS WITH SOLUTIONS

FIN3701 – SEMESTER 2 (2017)
ADDITIONAL QUESTIONS WITH SOLUTIONS

INSTRUCTIONS:

SECTION A: Answer all multiple choice questions.
SECTION B: Answer all long questions.

SECTION A [20 MARKS]

1. The book value of an asset is equal to the …

1. fair market value minus the accounting value
2. original purchase price minus annual depreciation expenses
3. original purchase price minus accumulated depreciation
4. depreciated value plus recaptured depreciation

2. In comparing the internal rate of return and net present value methods of
evaluation …

1. internal rate of return is theoretically superior, but financial managers
prefer net present value
2. net present value is theoretically superior, but financial managers prefer
Internal rate of return
3. financial managers prefer net present value because it is presented as
a rate of return
4. financial managers prefer net present value because it measures
benefits relative to the amounts invested

3. A company is evaluating a proposal which has the following cash flows:

Year Net cash flow
0 (R40 000)
1 R20 000
2 R25 000
3 R 5 000

The payback period is …

1. 1 year
2. 1.8 years
3. 2.8 years
4. 3.8 years



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