Corporate Finance Test 3 Questions and Correct Answers & Latest Updated
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Course
Corporate Finance
Institution
Corporate Finance
A small business received a five-year $1,000,000 loan at a subsidized rate of 3% per year.
The firm will pay 3% annual interest payment each year and the principal at the end of five
years. If market interest rates on similar loans are 6% per year, what is the NPV of the loan?
(Ignore taxes.
...
Corporate Finance Test 3 Questions and
Correct Answers & Latest Updated
A small business received a five-year $1,000,000 loan at a subsidized rate of 3% per year.
The firm will pay 3% annual interest payment each year and the principal at the end of five
years. If market interest rates on similar loans are 6% per year, what is the NPV of the loan?
(Ignore taxes.
A. +$126,371
B. +$348,369
C. -$501,595
D. -$137,391
o :## A. +$126,371
NPV = +1,000,000 - [((30,000/1.06) + ... + (30,000/(1.06^5)) + (1,000,000/(1.06^5))] =
126,371.
A large firm received a loan guarantee from the government. Due to the guarantee, the firm
can borrow $50 million for five years at 8% interest rate per year instead of 10% per year.
Calculate the value of the guarantee to the firm. (Ignore taxes.)
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
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A. +$53.79 million
B. +$3.79 million
C. -$3.79 million
D. $3.99 million
o :## B. +$3.79 million
If capital markets are efficient, then the sale or purchase of any security at the prevailing
market price is generally:
A. a positive-NPV transaction.
B. a zero-NPV transaction.
C. a negative-NPV transaction.
D. no general trend exists for such transactions.
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
,3|Page: 2024/2025 Grade A+
o :## B. a zero-NPV transaction
Financing decisions differ from investment decisions for which of the following reasons?
I) you cannot use NPV to evaluate financing decisions;
II) markets for financial assets are more active than for real assets;
III) it is easier to find financing decisions with positive NPV than to find investment decisions
with positive NPV
A. I only
B. II only
C. III only
D. I and III only
o :## B. II only
Financing decisions differ from investment decisions because:
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
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I) financing decisions are easier to reverse;
II) markets for financial assets are generally more competitive than real asset markets;
III) generally, financing decisions have NPVs very close to zero
A. I only
B. I and II only
C. I, II, and III
D. II and III only
o :## C. I, II, and III
Generally, a firm is able to find positive-NPV opportunities among its:
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
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