Practice Final

Practice Final - University of Houston-Victoria School of...

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FIN 6352 – Financial Management Final Exam Dr. Xavier Garza Gomez University of Houston-Victoria School of Business Administration FIN 6352 - Financial Management Dr. Xavier Garza Gomez Final Exam Fall 2005 N a m e : 1. The modified IRR (MIRR) always leads to the same capital budgeting decisions as the NPV method. a. True b. False 2. Conflicts between two mutually exclusive projects, where the NPV method chooses one project but the IRR method chooses the other, should generally be resolved in favor of the project with the higher NPV. a. True b. False 3. A decrease in the firm's discount rate (r) will increase NPV, which could change the accept/reject decision for a potential project. However, such a change would have no impact on the project's IRR, hence on the accept/reject decision under the IRR method. a. True b. False 4. Net incremental cash flow is calculated by adding back the change in depreciation to the change in net income. a. True b. False 5. When risk is explicitly accounted for in capital budgeting, a project will be acceptable to a firm if its IRR (or modified IRR) is greater than the firm's weighted average cost of capital. a. True b. False 6. The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales, assuming the firm is operating with a positive profit margin. a. True b. False 7. Pro forma financial statements, as discussed in the text, are used primarily to assess a firm's historical performance. a. True b. False 8. Free cash flows should be discounted at the weighted average cost of capital to find the value of a company’s operations. a. True b. False
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FIN 6352 – Financial Management Final Exam Dr. Xavier Garza Gomez 9. Financial risk refers to the extra risk stockholders bear as a result of the use of debt as compared with the risk they would bear if no debt were used. a. True b. False 10. The announcement of an increase in the cash dividend always causes an increase in the price of the firm's common stock. a. True b. False 11. Even if a stock split has no information content, and even if the dividend per share adjusted for the split does not increase, there can still be a real benefit (i.e., a higher value for shareholders) from such a split, but any such benefit is probably small. a. True b. False 12. Shorter-term cash budgets, in general, are used for actual cash control while longer-term budgets are used primarily for planning purposes. a. True b. False 13. In managing a firm's accounts receivable it is possible to increase credit sales per day yet still keep accounts receivable fairly steady if the firm can shorten the length of its collection period. a. True b. False 14. Two mutually exclusive projects each have a cost of $10,000. The total, undiscounted cash flows from Project L are $15,000, while the undiscounted cash flows from Project S total $13,000. Their NPV profiles cross at a discount rate of 10 percent. Which of the following statements best describes this situation?
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Practice Final - University of Houston-Victoria School of...

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