CFIN 5 NEW EXAM QUESTIONS AND CORRECT
ANSWERS 100% VERIFIED
It is important for managers to establish an average hurdle rate because: a. hurdle rates
are varied in accordance with risk, b. in order to vary hurdle rates, one must have a
frame of reference, c. no two investments can be analyzed using the same hurdle rate. -
ANSWER hurdle rates are varied in accordance with risk, & in order to vary hurdle
rates, one must have a frame of reference
If a company uses hurdle rates that are higher than its marginal cost of capital, then: a.
it will definitely increase its earnings, b. it may have fewer and fewer investment
alternatives, c. the risk of the firm will increase - ANSWER B and C
A firm with high fixed costs, such as manufacturing overhead, will have higher risk in the
trough of a business cycle than will a firm with high variable costs and limited fixed
costs (T/F) - ANSWER true
The advantage of using the marginal cost of capital as a company's average hurdle rate
is - ANSWER capital market estimations of risk are probably more objective than the
company's, it reflects the incremental cost of funding future investments, and it is the
basis of the market's assessments of a company's investment decisions
Efficient market theory seems reasonable because: a. hundreds of financial analysts
value securities, b. hundreds of investors try to earn money on the stock exchange with
low or high valued securities, and market forces, which are a result drive the prices of
stock to their fair value, c. statistical estimates play an increasingly bigger role in
financial analysis - ANSWER A, B and C
The risk of illiquidity is greater for debt holders than it is for share owners in a public
company - T/F - ANSWER true
A firm's marginal cost of capital can be used as its average hurdle rate because: a. the
ANSWERS 100% VERIFIED
It is important for managers to establish an average hurdle rate because: a. hurdle rates
are varied in accordance with risk, b. in order to vary hurdle rates, one must have a
frame of reference, c. no two investments can be analyzed using the same hurdle rate. -
ANSWER hurdle rates are varied in accordance with risk, & in order to vary hurdle
rates, one must have a frame of reference
If a company uses hurdle rates that are higher than its marginal cost of capital, then: a.
it will definitely increase its earnings, b. it may have fewer and fewer investment
alternatives, c. the risk of the firm will increase - ANSWER B and C
A firm with high fixed costs, such as manufacturing overhead, will have higher risk in the
trough of a business cycle than will a firm with high variable costs and limited fixed
costs (T/F) - ANSWER true
The advantage of using the marginal cost of capital as a company's average hurdle rate
is - ANSWER capital market estimations of risk are probably more objective than the
company's, it reflects the incremental cost of funding future investments, and it is the
basis of the market's assessments of a company's investment decisions
Efficient market theory seems reasonable because: a. hundreds of financial analysts
value securities, b. hundreds of investors try to earn money on the stock exchange with
low or high valued securities, and market forces, which are a result drive the prices of
stock to their fair value, c. statistical estimates play an increasingly bigger role in
financial analysis - ANSWER A, B and C
The risk of illiquidity is greater for debt holders than it is for share owners in a public
company - T/F - ANSWER true
A firm's marginal cost of capital can be used as its average hurdle rate because: a. the
