Essay on Corporate Finance

1270 Words Sep 6th, 2013 6 Pages
Corporate Finance Exam with Answers
Posted on May 10, 2012 by Sam
Corporate Finance, Chapters 8, 9 & 10. Exam Questions: 1. A project’s opportunity cost of capital is: A. The forgone return from investing in the project. 2. Which of the following statements is correct for a project with a positive NPV? A. The IRR must be greater than 1. 3. What is the NPV of a project that costs $100,000 and returns $50,000 annually for 3 years if the opportunity cost of capital is 14%? C. $16,085 4. The decision rule for net present value is to: C. Accept all projects with positive net present values 5. What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for 3 years,
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D. It is never appropriate to include sunk costs. 16. Which of the following is least likely to influence the opportunity cost of an asset? D. Its current book value 17. Assume your firm has an unused machine that originally cost $75,000, has a book value of $20,000, and is currently worth $25,000. Ignoring taxes, the correct opportunity cost for this machine in capital budgeting decisions is: B. $25,000 18. Which of the following methods will provide a correct analysis for capital budgeting purposes? A. Discounting real cash flows with real taxes. 19. Your forecast shows $500,000 annually in sales for each of the next 3 years. If your second and third year predictions have failed to incorporate 2.5% expected annual inflation, how far off in total dollars is your 3-year forecast? A. $37,813 20. Capital budgeting proposals should be evaluated as if the project were financed: B. Entirely by equity 21. Adding depreciation expense to net profit equals: D. Cash flows from operations 22. What is the amount of the operating cash flow for a firm with $500,000 profit before tax, $100,000 depreciation expense, and a %35% marginal tax rate? D. $425,000 23. At current prices and a 13% cost of capital, a project’s NPV is $100,000. By what minimum amount must the initial cost of the project decrease (revenues will be unchanged) before you would wait 2 years to invest? C. $27,690 24. An investment today

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