multiple choice question

Question 8 Consider the following cash flows for a project. What is the payback period of the project? Year Cash Flow 0 -600 300 2 250 3 150 A. B. C. D. 2 years 2.33 years 2.5 years 3 years Question 9 Which method should be used to select independent projects if the amount of available capital is limited and not all available projects can be undertaken? A. B. C. D. Profitability index Payback period NPV IRR Question 10 Which of the following pairs of shares is likely to have the highest correlation? A. B. C. D. Shares in two firms in different industries and different countries Shares in two firms in different industries but the same country Shares in two firms in the same industry but different countries Shares in two firms in the same industry and the same country Question 11 Based on the diagram below (next page), it can be concluded that share Ris: A. B. C. D. Correctly priced Overpriced Underpriced There is insufficient information to answer the question L Expected return (%) 12 10 R 8- M 6+ Q 4+ OR - Actual 2 Beta 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 Question 12 Which of the following needs to be adjusted for tax in calculating a firm's weighted average cost of capital? A. B. C. D. The cost of preference shares The cost of ordinary shares The cost of debt All of the above Question 13 What are the implications for investing if the capital market is semi-strong-form efficient? A. B. C. D. It is impossible to use technical analysis to consistently earn an abnormal return. It is impossible to use fundamental analysis to consistently earn an abnormal return. It is impossible to use insider trading to consistently earn an abnormal return. Both (a) and (b). Question 14 Refer to the diagram below. If projects M and N are mutually exclusive, and the cost of capital is 6%, which project should be accepted? A. B. C. D. Project M Project N Both projects Neither project L Question 15 NPV 60 50 Given the diagram to the right, what is the IRR of project M? 40 30 A. B. C. D. 21% 20% 15% 9% 20 10 Cost of Capital (%) 3 6 9 12 15 18 21 M N Question 16 Which of the following will enable you to consistently earn an abnormal return if a market IS weak-form efficient but NOT semi-strong-form efficient? A. B. C. D. Charting Analysis of publicly available information Use of private information Both (b) and (c)