CFM - Exam 3 TESTS WITH ANSWERS A+ GRADE.
discounted payback means cash flows are discounted at the ____________. Meaning it does consider the
TVM of money. Therefore, it regards cash flows _____________ the cutoff period more than regular
payback. - WACC, beyond (it's more long term than regular payback)
Net present value is the ? - PV of expected cash flow of an investment
What is used as the discount rate for NPV? - Wacc
When do we accept a project doing NPV? - if the NPV is greater than zero (if it's a positive number)
the IRR comes out as an (percentage/number)? - percentage
IRR is the ? - return generated from est cash flows
What is different about MIRR than IRR? ( - assumes cash flows are reinvested at the WACC rather than
the IRR
accommodates non-conventional cash flows
What are non-conventional cash flows? - cash flows are anything other than when it starts with negative
numbers and ends with all positive
________________ projects means you will evaluate each project individually. ____________
___________ projects mean that you must choose one or the other. - independent, mutually exclusive
What is the difference between independent and mutually exclusive projects? - independent means you
look at each project individually, mutually exclusive means you must choose one project
If the projects are mutually exclusive select the ________ _____________ project - best profitable
, If the projects are independent, select all _____________ projects. - profitable
If the criteria for selecting a project disagree, what order of capital budgeting techniques should you
follow? - 1. NPV
2. IRR
3. payback
What is the WACC formula?
what do they all mean? - WdRd(1-Tc) + WpRp + WcRc
Wd - weight of debt
Rd - cost of debt
Tc -tax rate
Wp = weight of preferred
Rp = cost of preferred
Wc = weight of common
Rc = cost of common
How do you calculate:
the cost of debt?
cost of preferred?
cost of equity? (2) - solve for YTM with TVM (i is left blank)
discounted payback means cash flows are discounted at the ____________. Meaning it does consider the
TVM of money. Therefore, it regards cash flows _____________ the cutoff period more than regular
payback. - WACC, beyond (it's more long term than regular payback)
Net present value is the ? - PV of expected cash flow of an investment
What is used as the discount rate for NPV? - Wacc
When do we accept a project doing NPV? - if the NPV is greater than zero (if it's a positive number)
the IRR comes out as an (percentage/number)? - percentage
IRR is the ? - return generated from est cash flows
What is different about MIRR than IRR? ( - assumes cash flows are reinvested at the WACC rather than
the IRR
accommodates non-conventional cash flows
What are non-conventional cash flows? - cash flows are anything other than when it starts with negative
numbers and ends with all positive
________________ projects means you will evaluate each project individually. ____________
___________ projects mean that you must choose one or the other. - independent, mutually exclusive
What is the difference between independent and mutually exclusive projects? - independent means you
look at each project individually, mutually exclusive means you must choose one project
If the projects are mutually exclusive select the ________ _____________ project - best profitable
, If the projects are independent, select all _____________ projects. - profitable
If the criteria for selecting a project disagree, what order of capital budgeting techniques should you
follow? - 1. NPV
2. IRR
3. payback
What is the WACC formula?
what do they all mean? - WdRd(1-Tc) + WpRp + WcRc
Wd - weight of debt
Rd - cost of debt
Tc -tax rate
Wp = weight of preferred
Rp = cost of preferred
Wc = weight of common
Rc = cost of common
How do you calculate:
the cost of debt?
cost of preferred?
cost of equity? (2) - solve for YTM with TVM (i is left blank)
