Section 1 solution

# Section 1 solution - Lahore University of Management...

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Lahore University of Management Sciences FINN200 Intermediate Finance: Section 1 Farah Said Fall Semester 2010/11 20/09/2010 Quiz 1 Total Marks: 30 Roll Number: ___________________ Total Time: 45 min 1. If the one year discount factor is 0.8333, what is the discount rate (interest rate) per year? A. 10% B. 20% C. 30% D. None of the above 2. The managers of a firm can maximize stockholder wealth by: A. Taking all projects with positive NPVs B. Taking all projects with NPVs greater than the cost of investment C. Taking all projects with NPVs greater than the present value of cash flows D. All of the above 3. The LMN corporation is considering an investment that will cost \$ 80,000 and have a useful like of 4 years. During the first 2 years, the net incremental after-tax cash flows are \$ 25,000 per year and for the last two years they are \$ 20,000 per year. What is the payback period for this investment? A. 3.2 years B. 3.5 years C. 4.0 years D. Cannot be determined from this information 4. John has taken a \$ 150,000 mortgage on his house at an interest rate of 6% per year. If the mortgage calls for thirty equal annual payments, what is the amount of each payment? A. \$ 14,158.94 B. \$ 10,897.34 C. \$ 16,882.43 D. None of the above 5. Which of the following statements is incorrect regarding a normal project? A. If the NPV of a project is greater than 0, then its PI will exceed 1 B. If the IRR of a project is 8%, its NPV, using a discount rate, k, greater than 8%, will be less than 0.

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C. If the PI of a project equals 0, then the projects initial cash outflow equals the PV of its cash flows. D. If the IRR of a project is greater than the discount rate, k, then its PI will be greater than one 6. MIRRs have the value additivity property, while the IRRs do not A. True B. False 7. The following cash flows should be treated as incremental flows when deciding whether to go ahead with an electric car except: A. The consequent deduction in sales of the company’s existing gasoline models B. The expenditure on new plants and equipment C. The value of the tools that can be transferred from the company’s existing plants D. Interest payment in debt 8. The NPV value obtained by discounting nominal cash flows using the nominal discount rate is: A. The same as the NPV value obtained by discounting real cash flows using the discount rate B. The same as the NPV value obtained by discounting real cash flows using the nominal discount rate C. The same as the NPV value obtained by discounting nominal cash flows using the real
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## This note was uploaded on 03/19/2012 for the course FINN 321 taught by Professor Farahsaid during the Spring '12 term at Alvin CC.

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Section 1 solution - Lahore University of Management...

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