The value of a company depends upon all of its future expected free cash flows (FCF) defined as NOPAT minus increases in operating working capital and operating fixed assets.

True

False

Operating Current Assets consists of all of the following EXCEPT

A/R

Inventories

Short-term investments

Accruals

Cash

Is an investment in machinery an investment in operating capital?

Yes

No

High FCF can cause waste if:

Interest expense is too high

Bonds are called in at a premium

Managers fail to act in the best interests of shareholders

Managers buy more assets that generate returns above the cost of capital

At its core, what is FCF?

The cash available for distribution to investors.

A driver of the fundamental value of the firm.

All of the above

None of the above

A financial metric used to determine if growth is adding value is

ROE

ROA

ROIC

NOPAT

Economic Value Added (EVA) measures how effective managerial actions in a given period.

True

False

EVA = NOPAT - (WACC)(Capital). In this form of the EVA question, (WACC)(Capital) represents, what?

An opportunity cost, but nevertheless a real cost

The cost of debt

The cost of equity

None of the above.

An inverted yield curve doesnt happen much. When it does, short-term bonds yield more than long-term bonds, all else equal.

True

False

Market Value Added (MVA) = Market Value of the firm - Book value of the firm. This metric, represents what?

The value added by management since the inception of the firm.

The value added by management since last year.

The value added by management since last quarter.

None of the above.

YTM = Current Yield for a coupon bond selling at par.

True

False

What affects an investments value?

The amount of expected cash flows

The timing of cash flows

The risk of cash flows

All of the above

None of the above

The WACC is the weighted average cost of capital and is affected by what?

The capital structure of the firm

The current interest rate environment

The risk of the firm

All of the above

None of the above

A California Muni Bond yielding 5% or a corporate bond yielding 7%. Assuming all other factors are equal, which bond should you prefer if your marginal tax rate is 30%?

The muni bond

The corporate bond

Either. You would be indifferent to the two.