QUESTION 1
1. Net Present Value (NPV) for a company…
Decreases as the WACC increases
Can only be applied to independent projects
Is unaffected by the timing of cash flows
Is equal to the initial investment when the IRR is equal to the required return

QUESTION 2
1. ABC Electronics has a required payback period of 3 years for all its projects. Currently, the company is analyzing 2 independent projects. Project A has a Payback period of 2.8 years and an NPV of $6,000. Project B has a Payback of 3.2 years and an NPV of $28,000. Which statement is FALSE?
Shareholders are better off if Project B is chosen
The Payback decision says choose Project A
Companies are always better off when choosing the quicker Payback
Both Projects add value to shareholders

QUESTION 3
1. You purchased a bond 3 years ago for par value. The bond has a maturity in 5 more years. Since the time you purchased the bond, interest rates have fallen. Which statement below is TRUE?
The bond will be worth par if you sold it today
The bond will be worth more than par if you sold it today.
The bond will be worth less than par if you sold it today
The company must lower its coupon rate to match the new interest rate

QUESTION 4
1. Which of the following statements is TRUE?
Net Present Value is positive when the required return exceeds the internal rate of return
If the cost of the investment increases, the Net Present Value will increase as well
Net Present Value is a measure of the profits expressed in today’s dollars
If IRR = required return, the Net Present Value will = $0

QUESTION 6
1. Which definition means the return a shareholder receives from a dividend on the initial investment.
Return on Equity
Dividend payout
Dividend yield
Retention ratio
QUESTION 7
1. A young family wants to be able to have more money for retirement. All of these are ways they can do this EXCEPT…
Deposit money at the end of the month as opposed to the beginning of the month
Find an account to compound inteterest daily as opposed to monthly
Deposit more money
Find an account with a higher interest rate

QUESTION 8
1. Which of these actions would cause an increase in the intrinsic value of a stock?
The company unexpectedly decreases its dividend
The required return increases
The company has a decrease in revenues and an increase in expenses
The growth rate in cash flows increases
QUESTION 9
1. A company has decided it wants to use more debt and less equity to finance its assets. This has many benefits, however, it also has some disadvantages. Which of these is a FALSE statement about using more leverage?
The company can take advantage of the current historically low interest rates
The company will have a lower level of risk
It will increase the company’s ROE assuming the company is profitable
The company will have a lower WACC potentially helping it find more “go” capital budgeting projects

QUESTION 10
1. All of the following will increase ROE EXCEPT? Assume a positive net margin and asset turnover to begin with.
Increasing the inventory turn, leaving all else constant.
Increasing the sales price, leaving all else constant
Decreasing leverage, leaving all else constant
Decreasing the raw materials cost of inventory, leaving all else constant
QUESTION 11
1. The Current Ratio is currently at 0.5. Which statement is FALSE?
Current liabilities are greater than current assets
The company has a favorable liquidity position
Net working capital is in poor shape
The company may be having trouble
QUESTION 12
1. Which one of the following indicates that a project is expected to create value for its owners?
Payback period longer than the required payback
NPV of + 1,000
IRR less than (<) the required rate of return Profitability index of .3 QUESTION 13 1. Which of these is an advantage of a corporation? Corporations are the easiest form to set up Corporations limit liability for owners Corporations are shielded from all federal taxes Corporations have double taxation of earnings