fall 2014-without answers - Name Student Number TEST 2 MGF...

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Name_________________________________ Student Number___________________________________ TEST 2 MGF 301 Corporation Finance Fall 2014 Please sign name in box Please tear off the answer sheet and answer all of the following questions on the answer sheet. (Note: Total Points = 100; Multiple Choice = 4 points each unless otherwise indicated) 1. The following arise out of a new project X implemented by YT Inc. Which of the following does not represent a cash flow that should be taken into account for capital budgeting purposes? (a) allocation of pre-existing overhead expenses to project X (b) an increase in sales of a related YT Inc. product caused by project X (c) a decrease in income taxes paid to the government because of expenses of project X (d) expected revenues from project X 2. Jon is conducting a capital budgeting analysis using NPV for a major expansion of his company’s product. He is concerned that there is a lot of uncertainty about what the market conditions will be for this product the next few years. Does the NPV analysis we reviewed in class consider the uncertainty of cash flows like revenues? 3. In which of the following investments is an investor expected to earn the highest return over a 40 year period? A: E(r)=8% and σ = 30% B: E(r)= 8% and σ = 25% C: E(r)= 7% and σ = 20% Explain your answer . (6 points) 4. Mark each statement about capital budgeting as true or false. (2 points each) 5. Which of the following is true about the strong-form of market efficiency theory?
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Name_______________________________ Test 2 – Fall 2014 Student Number______________________
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