MU - S1 2004 - Mid Semester Business Finance

# MU - S1 2004 - Mid Semester Business Finance - 04111111...

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MONASH UNIVERSITY DEPARTMENT OF ACCOUNTING AND FINANCE AFC2140 BUSINESS FINANCE MID-SEMESTER TEST FIRST SEMESTER 2004 SURNAME (FAMILY NAME)_____________________________________________ GIVEN NAME(S)______________________________________________________ FACULTY AND YEAR__________________________________________________ ID NUMBER__________________________________________________________ TUTOR’S NAME______________________________________________________ TUTORIAL DAY AND TIME______________________________________________ INSTRUCTIONS: TIME ALLOWED: 60 MINUTES WRITING TIME (NIL READING TIME) CALCULATOR WITH NON-ALPHABETIC KEYBOARD ONLY MAY BE USED CLOSED BOOK TEST ANSWER ALL 3 QUESTIONS (AND IN THE SPACES PROVIDED) A FORMULA SHEET IS INCLUDED AT THE BACK (WHICH CAN BE DETACHED) OFFICE USE ONLY QUESTION MARK 1 2 3 TOTAL (OUT OF 50) Page 1 of 14

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Question 1 This question consists of 15 multiple-choice questions. For each multiple choice question, choose the one correct answer from the four alternatives given by placing a tick next to the correct letter A, B, C, or D. Each multiple- choice question counts as 2 marks, giving a total of 30 marks for Question 1. The following abbreviations are used in the multiple-choice questions: NPV net present value RRR required rate of return IRR internal rate of return 1. Which of the following is the correct method of calculating the NPV of a project? ± A: The future incremental cash flows are added and subtracted from the initial outlay to determine the NPV. ± B: The sum of the discounted cash flows is added to the outlay to determine the NPV. ± C: The sum of the discounted cash flows is subtracted from the initial outlay to determine the NPV. ± D: The initial outlay of the project is subtracted from the sum of the discounted cash inflows to determine the project NPV. 2. A project under consideration has an NPV of \$4,000. Which of the following best applies? ± A: The project should be rejected. ± B: The project NPV is positive, but does not generate a competitive return for shareholders, so the project should be rejected. ± C: The project NPV of \$4,000 indicates an increased value for shareholders of \$4,000, so the project should be accepted. ± D: The project’s positive NPV indicates that the project will increase reported profits in the future. 3. Your business is evaluating the decision to market a new product to replace your
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MU - S1 2004 - Mid Semester Business Finance - 04111111...

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