1. Choose the statement that is not appropriate regarding the comparison between finance and accounting.

1. Finance and accounting both attempts to paint a picture of how a business is performing.
2. Finance focuses on cashflows instead of profits regarding economic returns.
3. Accounting focuses on historical cost regarding how to value assets.
4. Finance focuses on book value regarding how to value equity.
5. Finance is forward-looking whereas accounting is backward-looking.

2. Choose all that are appropriate

1. Even if Pfizer have valuable patents developed in-house for its COVID-19 vaccine, they would not appear on the firm's balance sheet.
2. Companies in stable, predictable industries with reliable cash flows are likely to have low leverage.
3. Retail companies are likely to have relatively short receivables collection periods.
4. United Airlines, an airline, is likely to have high inventory turnover.
5. A firm's suppliers would be very interested in the firm's current ratio.

3. Choose all that are appropriate.

1. Returns to capital that exceed costs of capital should result in value creation.
2. Increased leverage will not necessarily result in enhanced firm value.
3. A project with a higher internal rate of return (IRR) is not necessarily superior to a project with lower IRR.
4. The present value (PV) of cashflows from a project is not sufficient to determine if the project creates value for a business.
5. Price to earnings ratio is an example of a valuation multiple.

4. Choose all that are appropriate

1. A firm whose ROE is 5% and cost of capital is 10% is creating value.
2. Positive NPV projects will have rates of return greater than the cost of capital.
3. If a division of a firm has lower risks than other divisions, the firm has a risk of underinvesting in that division
4. A company with sustainable returns to capital of 15% and a cost of capital of 12% will maximize its value by offering dividends at 3% of par value.
5. Management should prioritize payment of dividends because that would create value for shareholders.

5. Choose all that are appropriate.

1. If two firms are in the same industry, the firm with a higher P/E ratio is expected to have more growth opportunities.
2. The value of a firm can be calculated from the firm's balance sheet by subtracting the sum of all liability items from the sum of all the assets items.
3. An assumption of discount rate of 10 percent and 3 percent growth would be broadly consistent with a multiple of enterprise value to free cash flow of 13.0.
4. The cost of debt of a firm can be calculated by multiplying the firm's current ratio by the firm's credit rating and add the risk-free rate.
5. One way to calculate the cost of equity of a firm is to take the risk-free rate and add the market risk premium adjusted by the firm's beta.

Thank you so much