Chapter 007 Net Present Value and Other Investment Criteria
True / False Questions
1. As the opportunity cost of capital decreases, the net present value of a project increases.
TRUE
2. The IRR is the rate of return on the cash flows of the investment, al
Chapter 006 - Valuing Stocks
True / False Questions
1. The term "irrational exuberance" was coined by Fed Chairman Greenspan to describe the
dot.com boom.
TRUE
2. The New York Stock Exchange (NYSE) is an example of an auction market.
TRUE
3. An excess of
E15-1. Understanding Shareholders Equity
Requirement 1:
Preferred stock is a class of capital stock that pays dividends at a specified rate and
that has preference over common stock in the payment of dividends and the liquidation
of assets. Preferred stoc
Chapter 005 - Valuing Bonds
True / False Questions
1. A bond's payment at the maturity is referred to as its face value.
TRUE
2. When the market interest rate exceeds the coupon rate, bonds sell for less than face value to
provide enough compensation to i
Chapter 004 The Time Value of Money
True / False Questions
1. Compound interest pays interest for each time period on the original investment plus the
accumulated interest.
TRUE
2. When money is invested at compound interest, the growth rate is the intere
Chapter 10 - Project Analysis
Solutions to Chapter 10
Project Analysis
1.
a. The capital budget mitigates the problem of overoptimism by project sponsors by
awarding lower-level managers on the basis of net present value and contribution to
value.
b. The
Chapter 008 Using Discounted Cash-Flow Analysis to Make Investment
Decisions
True / False Questions
1. Capital budgeting analysis focuses on cash flow as opposed to profits.
TRUE
2. Accurate capital budgeting analysis depends on total cash flows as oppose
Chapter 12 - Risk, Return, and Capital Budgeting
Solutions to Chapter 12
Risk, Return, and Capital Budgeting
1.
a.
False. Investors require higher expected rates of return on investments with high
market risk, not high total risk. Variability of returns i
Chapter 11 - Introduction to Risk, Return, and the Opportunity Cost of Capital
Solutions to Chapter 11
Introduction to Risk, Return, and the Opportunity Cost of Capital
1.
Rate of return =
capital gain + dividend ($44 $40) + $2
=
= 0.15 = 15.0%
initial sh
Chapter 13 - The Weighted-Average Cost of Capital and Company Valuation
Solutions to Chapter 13
The Weighted-Average Cost of Capital and Company Valuation
1.
The yield to maturity for the bonds (since maturity is now 19 years) is the interest
rate (r) tha
Solutions to Chapter 21 Credit Management and Bankruptcy 1. a. b. c. The discount is: 1% of $1,000 = $10 The customer gains an extra 40 days of credit. With the discount, the customer pays $990. Without the discount, the customer pays $1,000. The differen