Financial Analysis Exam reviews

# Financial Analysis Exam reviews - 1 The NPV method is...

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1. The NPV method is superior to the payback method in that it takes into account all cash flows. Student Response Value True 100% Score: 5/5 2. Because the cost of debt is always more than the cost of equity, most companies try to apply financial leverage as much as possible. Student Response Value False 100% Score: 5/5 3. The payback period is the amount of time a project requires to pay back the initial equity investment. Student Response Value True 100% Score: 5/5 4. When computing the present value of an investment, the rate used to discount future cash flows is the investor's borrowing rate. Student Response Value False 100% Score: 5/5 5. As the discount rate increases, the present value of the investment increases. Student Response Value False 100% Score:

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5/5 6. What is the net present value of a project with the following cash flows if the discount rate is 12 percent? Year 0 1 2 Cash flow -18,000 5,000 7,500 Score: 10/10 7. Sonny and James are both considering the same project with the cash flows shown below. Sonny is content earning 8 percent on the project but James wants to earn at least 12 percent. Who, if either, should accept this project? Year 0 1 2 Cash flow -67,000 18,000 24,000 Score: 10/10 8. The Barry Noble Co. is considering adding a new product to their lineup. This product is expected to generate sales for four years after which time the product will be discontinued. What is the project's net present value if the firm wants to earn a 12 percent rate of return? Year 0 1 2 Cash flow -87,000 25,350 27,430
Score: 10/10 9. An un-leveraged return on investment assumes: Student Response Value Feedback A. 100% debt. B. 100% equity.

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## This note was uploaded on 03/08/2011 for the course MGF 1107 taught by Professor Storfer during the Spring '08 term at FIU.

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Financial Analysis Exam reviews - 1 The NPV method is...

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