BFIN 300 STUDY QUESTIONS AND ANSWERS ALL CORRECT
The internal rate of return for a project will increase if - Answer-The initial cost of the project can be reduced
A bond has a market price that exceeds its face value. Therefore, the - Answer-Yield to maturity is less than the coupon rate
...
The internal rate of return for a project will increase if - Answer-The initial cost of the
project can be reduced
A bond has a market price that exceeds its face value. Therefore, the - Answer-Yield to
maturity is less than the coupon rate
It is easier to evaluate a firm using its financial statements when the firm - Answer-Uses
the same accounting procedures as other firms in its industry
The cash flow tax savings generated as a result of a firm's tax-deductible depreciation
expense is called the - Answer-Depreciation tax shield
An increase in total assets - Answer-Must be offset by an equal increase in liabilities
and shareholders' equity
The secondary market is best defined by which one of the following - Answer-Market
where outstanding shares of stock are resold
The two-stage dividend growth model evaluates the current price of a stock based on
the assumption a stock will - Answer-Grow at a fixed rate for a period of time after which
it will grow at a different rate indefinitely
The interest rate risk premium is the - Answer-Compensation investors demand for
accepting interest rate risk
Standard deviation measures - Answer-Total risk
Ratios that measure how efficiently a firm's management uses its assets and equity to
generate bottom line net income are known as ratios - Answer-
Profitability
All else constant, the net present value of a typical investment project increases when
the - Answer-Discount rate decreases
Changes in the net working capital - Answer-Can affect the cash flows of a project every
year of the project's life
Interest earned on both the initial principal and the interest reinvested from prior periods
is called - Answer-Compound interest
The discount rate that makes the net present value of an investment exactly equal to
zero is the - Answer-Internal rate of return
Sunk costs include any cost that - Answer-Has previously been incurred and cannot be
, changed
Real rates are defined as nominal rates that have been adjusted by - Answer-Inflation
The rate at which a stock's price is expected to appreciate is the - Answer-Capital gains
yield
Payback is frequently used to analyze independent projects because - Answer-It is easy
and quick to calculate
A forward PE is based on - Answer-Estimated future earnings
A indicates a portfolio is being effectively diversified - Answer-
Decrease in the portfolio standard deviation
The internal rate of return for a project will increase if - Answer-The initial cost of the
project can be reduced
If the discount rate decreases and cash flows increase, the net present value of a
particular project should - Answer-Increase
A decrease in net working capital - Answer-Is a cash flow in
Dividend growth may lag earnings growth because - Answer-Managements wait for
higher earnings to be stable
The underlying assumption of the dividend growth model is that a stock is worth -
Answer-The present value of the future income which the stock generates
A disadvantage of the internal rate of return measure is that it - Answer-Assumes all
cash flows are reinvested at the IRR rate
The discount rate that makes the net present value of an investment exactly equal to
zero is the - Answer-Internal Rate of Return
Ratios that measure how effectively a firm's management uses its assets and equity to
generate bottom line net income are known as ratios - Answer-
Profitability
Efficient Market Hypothesis - Answer-All securities in an efficient market are zero net
present value investments
Sunk costs include any cost that - Answer-Has previously been incurred and cannot be
changed
An increase in total assets... - Answer-Must be offset by an equal increase in liabilities
and stockholders' equity.
All else constant, a bond will sell at when the yield to maturity is
the coupon rate - Answer-A premium; less than
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