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Corporate Finance Exam 1 Questions and Correct Answers & Latest Updated

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a company that utilizes the MACRS system of depreciation o :## will have a greater taxs shield in year two of a project than it would have if the firm had opted for straight-line depreciation a project has a discounted payback period that is equal to the required payback period. Given this wh...

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  • August 25, 2024
  • 17
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • corporate finance exam 1 questions and correct an

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  • Corporate Finance
  • Corporate Finance

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1|Page: 2024/2025 Grade A+




Corporate Finance Exam 1 Questions and
Correct Answers & Latest Updated
a company that utilizes the MACRS system of depreciation


o :## will have a greater taxs shield in year two of a project than it would have if the firm had
opted for straight-line depreciation



a project has a discounted payback period that is equal to the required payback period.

Given this which of the following statements must be true?


o :## The projec tmust also be acceptable under the payback rule AND The project must have a
profitability index that is equal to or greater than 1



a project has a net present value of zero. Which one of the following best describes this

project?


o :## The project's cash inflows equal its cash outflows in current dollar terms.



A project has a required payback period of three years. Which one of the following

statements is correct concerning the payback analysis of this project?


o :## The cash flow in year two is valued just as highly as the cash flow in year one.



A project has an initial cost of $27,400 and a market value of $32,600. What is the

difference between these two value called?


o :## net present value




Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update

,2|Page: 2024/2025 Grade A+


a project with financing type cash flows is typified by a project that has which one of the

following characteristics?


o :## a cash inflow at time zero



A project's average net income divided by its average book value is referred to as the

project's average:


o :## accounting return



Allof the following are related to a proposed project. Which of these should be included in

the case flow at time zero?


o :## Purchase of $1,400 of parts inventory needed to support the project AND $6,500 of
equipment needed to commence the project



Applying the discounted payback decision rule to all projects may cause


o :## some positive net present value projects to be rejected.



Brubaker & Goss has received requests for capital investment funds for next year from each

of its five devisions....


o :## soft rationing



Changes in the net working capital requirements


o :## can affect the cash flows of a project every year of the project's life.



Dan is comparing three machines to determine which one to purchase...




Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update

, 3|Page: 2024/2025 Grade A+

o :## equivalent annual cost



Danielle's is a furniture store that is considering adding appliances to its offerings...


o :## Utilizing the cred offered by a supplier to purchase the appliance inventory AND
benefiting from increased furniture sales to appliance customers AND purchasing parts for
inventory to handle any appliance repairs that might be necessary



decreasing which one of the following will increase the acceptability of a project


o :## equivalent annual cost



Dexte Smith co. is replacing a machine simply because it has worn out... which of the

following statements is correct?


o :## The new machine will generate positive operating cash flows, at least in the first few
years of its life.



Douglass Interiors is consideringtwo mutually exclusive projects and have determined that

the crossover rates for these projects is 11.7 percent.


o :## You cannot determine which project should be accepted given the information provided.



Forecasting risk emphasizes the point that the correctness of any decision to accept or

reject a project is highly dependent upon the:


o :## accuracy of the projected cash flows.



Forecasting risk is defined as the possibly that:


o :## incorrect decisions will be made due to erroneous cash flow projections




Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update

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