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Finance and Risk Management for IB exam answers
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Finance and Risk Management for IB exam . Questions and answers.
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Question 1Which of the following are considerations in relation to managing net working capital?
How much debt finance should we employ?
Will we sell on credit?
Should we issue new equity?
How much non-current assets should we hold?
Question 2
When a firm has flotation costs equal to 7 percent of the funding need, project analysts should:
increase the initial project cost by dividing that cost by (1 - 0.07).
increase the initial project cost by multiplying that cost by 1.07.
increase the project's discount rate to offset these expenses by multiplying the firmls WACC by 1.07.
increase the project's discount rate to offset these expenses by dividing the firm's WACC by (1 -
0.07).
Question 3
The company X YZ has a project with an estimated annual sales of and depreciation of €20,000. The
new project will reduce annual net working capital with an amount of € 7,000. The firm has a tax rate
of 35 percent and a profit margin of 6 percent. The firm has also interest expense of €21,960 to be
considered including the weighted average cost of capital (WACC). What should be the annual
amount of the operating cash flow to be included in the calculation of its NPV?
€268,480
€125,520
€98,520
€147.480
, Question 4
A company pays an annual dividend that is expected to increase by 4.1 percent per year. The equity
commands a required rate of return of 12.6 percent and sells for €24.90 a share. What is the expected
amount of the next dividend?
€2.03
€2.12
€2.20
€3.17
Question 5
The third component in the Fisher effect (the term structure for nominal interest rate, which is
symbolized by (R) looks at how inflation rate (h) impacts the money earned (reel interest rate, r) on an
investment (r x h). Because this component is __________ it is often dropped.
negative
small
zero
large
Question 6
A firm has total debt of €4,620 and a debt-equity ratio of 0.57. What is the value of the total assets?
€9,571.95
€11,034.oo
€7,253.40
€12,725.26
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