The reason why there is a the time value of money is: a. Risk b. Interest, c. Inflation, d. Need/want for consumption, e. a and d, f. b and c. 2. As interest rates rise, which of the following is (are) true? a. The Future Value of future cash flows increases, b. The Future Value of current cash held decreases, c. The Present value of future cash flows increases, d. The Present Value of current cash held stays the same, e. None of the above. 3. The following are properties of an ordinary annuity, except; a. Have lower present values than the sum of the future cash flows, b. Cash flows at the beginning of each period, c. A series of future cash flows, d. Equal cash flows. 4. When comparing annual compounding to semiannual compounding; a. Semiannual compounding will lead to higher effective annual rates, b. Annual compounding will lead to lower present values, c. None of the above, d. Both a and b. 5. A perpetuity: a. Involves infinite future cash flows, and thus has an infinite value, b. Has no value if the interest rate is zero, c. Is an annuity with uneven cash flows, d. Is an annuity that never ends. 6. Why are current cash flows more valuable than future cash flows? a. Inflation, b. Future cash flows are riskier, c. Current cash flows can earn interest, d. all of the above. 7. Compounding refers to: a. Earning interest on the principle invested and prior interest earned, b. Putting all of ones money in the same place (a compound), c. Earning interest only on the original principle invested, d. Earning interest only on interest earned. 8. Which of the following are determinants of a given cash flows discount rate? a. How far into the future the cash flow occurs, b. Riskiness of the cash flow, c. Opportunity costs, d. Only a and b. 9. The wide spread purchase of lottery tickets (a risky asset with a negative expected return) implies what about risk tolerance? a. The magnitude of the payoff outweighs the small investment required, b. Most people are not risk averse, but risk lovers, c. The lottery actually has a positive expected return, d. All of the above. 10. Most of the benefits to diversifying can be achieved by having a portfolio of at least how many stocks? a. 1000, b. 50, c. 10, d. 5. 11. Diversification reduces risk the most when assets are a. Not correlated at all, b. Perfectly positively correlated, c. Perfectly negatively correlated, d. Correlation doesnt matter, just each assets variance. 12. Implications of portfolio theory include all of the following except a. The standard deviation is not the best measure of a portfolios risk, b. The standard deviation is not the best measure of an individual assets risk, c. Holding a single risky asset is not rational, d. Much of an assets risk can be avoided. 13. In financial analysis, increased risk is most often and most easily incorporated by a. Adjusting the cash flows lower, b. Adjusting the cash flows higher, c. Adjusting the interest rate lower, d. Adjusting the interest rate higher, e. None of the above. 14. Stand alone risk is a. The amount of diversifiable risk, b. the total risk of an individual asset, c. The amount of risk an asset adds to a portfolio, d. The change in total portfolio risk an asset makes. 15. Which of the following is a disadvantage of the Capital Asset Pricing Model (CAPM)? a. It focuses only on the risk an asset adds to a portfolio, b. It is based on expectations, c. It ignores diversifiable risk, d. It is simple and logical. 16. Which of the following is not a disadvantage of debt financing? a. It requires mandatory interest payments, b. The principle must be repaid, c. Interest is tax deductible, d. Bankruptcy costs. 17. The cost of capital may be considered all of the following except a. A tool in determining the optimal capital structure, b. The opportunity cost of funds the business acquires, c. A minimum return for any new investment of any risk level, d. The hurdle rate for investments with similar risk as the business. 18. Which of the following is not a determinant of an optimal capital structure? a. Business risk, b. Financial risk, c. Asset structure, d. Reserve borrowing capacity. 19. Which of the following is/are differences in the cost of capital between profit and not-for-profit businesses; a. Though they may have the same assets, the asset risk will be different, b. The cost of Equity capital is much higher for not-for-profit businesses, c. Debt financing is relatively more expensive for not-for-profits, d. All of the above are differences. 20. If it were not for the unique mission of not-for-profit businesses, which of the following would be the best estimate of the cost of Fund capital? a. Zero donators do not receive a return, b. The expected growth rate of the businesses assets, c. The cost of equity for similar for-profit businesses, d. A cost that maintains the businesss credit worthiness. 21. Capital budgeting involves a. purchases of long-term fixed assets b. acquisition of capital c. political lobbying d. buying supplies e. all of the above. 22. A hospital which adds a new ER center on the far side of town would be an example of which type of capital budgeting project? a. Expansion into new markets b. Expansion into new services c. Expansion of existing markets d. Expansion of existing services 23. Which cash flows are not included in capital budgeting analysis? a. Noncash accounting expenses b. Incremental cash flows c. Salvage value d. Sunk costs e. Installation costs f. Opportunity costs g. Changes in working capital h. All of the above are included 24. Which capital budgeting tool does not use the time value of money? a. IRR b. NPV c. MIRR d. TNPV e. Payback f. None of the above. 25. A capital budgeting Post Audit will a. Provide historical risk data, b. improve operations, c. improve forecasts, d. reduce losses, e. All of the above.