FINC 306 FINAL Exam Questions With 100% Correct Answers.

FINC 306 FINAL Exam Questions With 100% Correct Answers. If you are doing an NPV analysis and using the WACC as the discount rate, how do you account for interest paid to bondholders? - answerthrough the cost of debt portion of the WACC When estimating the WACC, which is the best measure of the firm's cost of debt - answerthe YTM for its bonds When estimating the WACC, which is the best measure of the firm's cost of equity - answerthe stock's expected return according to the CAPM When computing NPV, how do you account for the fact that bond interest is tax deductible? - answermultiply the cost of debt by (1-t) What does EBIT stand for? - answerearnings before interest and taxes how should you handle an interest payment on debt when computing incremental cash flow? - answerignore it how should you handle depreciation when computing incremental cash flow? - answersubtract it just like on an income statement, but add it back after computing taxes an increase in net working capital represents - answera cash outflow what is the goal of the financial manager? - answermaximize shareholder wealth which best describes NPV - answerthe present value of all expected inflows net of the present value of all expected outflows which series of cash flows represents a "normal" project? - answerCF0= -100; CF1 = 200; CF3 = !00; CF4 = 200 all else equal, which will result in a LOWER NPV for a normal project - answerhigher discount rate a bonds entire value is typically repaid at maturity - answertrue selling a stock is equivalent to selling the rights to all of the stock's future dividends - answertrue