BUSI 408 EXAM 1 QUESTIONS & ANSWERS
True, or False: A decrease in accounts receivable from 2014 to 2015 adds to the firm's
free cash flow in 2014 - Answers -False
True/False, An increase in account payable from 2014 to 2015 adds to the firm's free
cash flows in year 2015 - Answers -True
True/False, IRR Investment decision rule always produces a decision consistent with
NPV decision rule - Answers -False
True/False, One of the drawbacks of discounted payback rule is that it ignores the
concept of time value of money - Answers -False
True/False One of the pitfalls of payback rule is that ignores cash flows after 'cutoff' date
- Answers -True
One of the reason why discounted payback rule is better than payback rule because
there is a clear rule to decide 'cutoff' date in discounted payback rule - Answers -False
Graham and Harvey's survey paper, "The Theory and Practice of Corporate Finance:
Evidence from the Field", shows that the discounted payback rule is more frequently
used technique than payback rule - Answers -False.
Balance Sheet provides information about a firm's financial performance over a period
of time. - Answers -False
If a firm assesses that the value of the intangible assests declined over time, it would
reduce the amount listed on the balance sheet. This is depreciation. - Answers -False
Depreciation listed in income statement is negative cash flow - Answers -False
The timing of the recognition of revenue is always different from the timing of a positive
cash flow generated from sales. - Answers -False
Given that face values of two bonds are the same, the bond with higher YTM has higher
price. - Answers -FAlse
In Gordon model, assuming that the equity cost of capital is fixed, the best way to
increase the stock price is to increase both Div and g - Answers -False
One of the disadvantages of discounted divided model is that we should estimate future
earnings whereas we do not have to estimate the future earnings in discounted free
cash flow model. - Answers -False
True, or False: A decrease in accounts receivable from 2014 to 2015 adds to the firm's
free cash flow in 2014 - Answers -False
True/False, An increase in account payable from 2014 to 2015 adds to the firm's free
cash flows in year 2015 - Answers -True
True/False, IRR Investment decision rule always produces a decision consistent with
NPV decision rule - Answers -False
True/False, One of the drawbacks of discounted payback rule is that it ignores the
concept of time value of money - Answers -False
True/False One of the pitfalls of payback rule is that ignores cash flows after 'cutoff' date
- Answers -True
One of the reason why discounted payback rule is better than payback rule because
there is a clear rule to decide 'cutoff' date in discounted payback rule - Answers -False
Graham and Harvey's survey paper, "The Theory and Practice of Corporate Finance:
Evidence from the Field", shows that the discounted payback rule is more frequently
used technique than payback rule - Answers -False.
Balance Sheet provides information about a firm's financial performance over a period
of time. - Answers -False
If a firm assesses that the value of the intangible assests declined over time, it would
reduce the amount listed on the balance sheet. This is depreciation. - Answers -False
Depreciation listed in income statement is negative cash flow - Answers -False
The timing of the recognition of revenue is always different from the timing of a positive
cash flow generated from sales. - Answers -False
Given that face values of two bonds are the same, the bond with higher YTM has higher
price. - Answers -FAlse
In Gordon model, assuming that the equity cost of capital is fixed, the best way to
increase the stock price is to increase both Div and g - Answers -False
One of the disadvantages of discounted divided model is that we should estimate future
earnings whereas we do not have to estimate the future earnings in discounted free
cash flow model. - Answers -False
