Choose The Correct Answer

1 -

The discount rate that will result in NPV of zero is:

Average Rate of Return

Interest Rate

Internal Rate of Return

Expected rate of return

2- Which of the following statements best distinguishes the difference between real and financial assets?

Real assets are tangible; financial assets are not

Real assets have less value than financial assets

Financial assets represent claims to income that are generated by real assets

Financial assets appreciate in value; real assets depreciate in value

3-What are the two critical decisions that have to be made by the financial manager?

Investment and financing

Short term and long term

All of the choices are correct

Debt and equity

4-There are two investment opportunities: stock A with return 10%, standard deviation 3% and stock B with 12% return, 4% standard deviation, the coefficient of variation that give the best and less risk is equal to ______ and it is for investment______

0.3 A

0.3 B

0.33 A

0.33 B

5- Which of the following statements is most correct?

All else equal, short-term bonds have more reinvestment risk than do long-term bonds.

All of the statements are correct.

All else equal, long-term bonds have more interest rate risk than short term bonds.

All else equal, higher coupon bonds have more reinvestment risk than low coupon bonds.

6- A firm decides to pay for a small investment project through a $1 million increase in short-term bank loans. This is best described as an example of a(n):

Capital budgeting decision

Investment decision

Capital market decision

Financing decision

7- Which of the following statements about the cost of capital is incorrect?

An increase in the risk-free rate is likely to increase the marginal costs of both debt and equity financing.

Weighted average cost of capital calculations should be based on the after-tax costs of all the individual capital components.

Flotation costs can increase the weighted average cost of capital.

If a companys tax rate increases, then, all else equal, its weighted average cost of capital will increase.

8- Future Co. just paid a dividend of $2.00 per share. Analysts expect future dividends to grow at 20% per year for the next four years and then grow at 6% per year thereafter. Calculate the expected dividend in year 5.

$4.40

$4.15

$2.95

$3.81