FINS1612 Study Guide - Final Guide: Preferred Stock, Capital Market, Listing Rules

153 views9 pages

bluebee342

5 Nov 2018

School

Department

Course

Professor

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

F the listing rules of the stock exchange provide corporations with a useful guideline on how to structure their business activities. Essay questions: disney corporation is considering the re-release of its classic film library. The project will involve an investment of 000 000 and will produce a positive cash flow of 000 000 in the first year. The cash flows will increase by 10 per cent each year thereafter for another five years (i. e. the project runs for six years). The company expects a rate of return of 17 per cent on this type of project. (lo5. 1) (a) calculate the npv and the irr. Because the cash flows are conventional, an irr can be computed. This can be undertaken by hand, using a financial calculator or excel. In excel, simply use the irr function to obtain the answer.

Related Questions

Which of the following statements are true? Select 4 that apply. (4 points)

Discounted payback method of capital appraisal ignores cash flows beyond the discounted payback period.

The net present value is found by discounting all positive cash flows at the projectâs cost of capital.

The project is accepted if the IRR is less than the projectâs cost of capital.

The IRR is the discount rate which forces the present value of a projectâs future cash flows to equal the future value of its costs.

Firms often choose among mutually exclusive projects on the basis of the present value of future costs.

To use the CAPM approach in capital budgeting, we estimate the firmâs beta, multiply this by the market risk premium and add the firmâs risk premium to the risk-free rate to obtain the firmâs cost of retained earnings or cost of equity.

The best proxy for the risk-free rate is the yield on treasury bonds.

Floatation costs are generally material when looking at its effect on the after-tax cost of debt.

burgundygnat457

5. A capital budgeting project has a positive net present value. The internal rate of return of the project MUST A. be less than the cost of capital. B. be greater than the cost of capital. C. be equal to the cost of capital. D. be less than the payback period. 6. When the financial manger is faced with making a mutually exclusive capital budgeting decision, where the NPV and IRR methods do not agree on which project should be selected, the manager should select A. the project which has the highest positive NPV. B. the project which has an IRR which is greater than the WACC, and if both meet this criteria, select the project with the highest IRR. C. since the IRR and NPV method disagree, select the project which will pay back the quickest. D. since the IRR and NPV methods disagree, it does not matter which quantitative method is used to make the selection. 7. All of the following influence capital budgeting cash flows EXCEPT A. the salvage value of the project B. the economic length of the project C. the projected sales revenue of the project D. costs that have previously been incurred that are unrecoverable. 8. J & B Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently the yield to maturity on these bonds is 14%. If the firm's tax rate is 40%, what is J&B's after tax cost of debt? A. 12% B. 14% C. 8.4% D. 5.6% 9. The cost of equity in the form of new common stock (external equity) will be higher than the cost of retained earnings (internal equity) because of A. the existence of taxes. B. the existence of flotation costs. C. the existence of restrictive covenants. D. investors

QUESTION 1 The time value of money refers to the issue of: A. what the value of the stream of future cash flows is today. B. why a dollar received tomorrow is worth more than a dollar received today. C. what the time required to double an amount of money. D. why people prefer to consume things at some time in the future rather than today.

QUESTION 2 The process of converting an amount given at the present time into a future value is called: A. annualizing. B. discounting. C. compounding. D. capital budgeting. 2 points

QUESTION 3 Juan Vinson is planning to buy a house in five years. He is looking to invest $25,000 today in an index mutual fund that will provide him a return of 12 percent annually. How much will he have at the end of five years? (Round to the nearest dollar.) A. $45,000 B. $28,000 C. $44,059 D. $28,530 2 points

QUESTION 4 Which of the following statements is true with respect to the present value of a future amount? A. The higher the discount rate, the higher the present value of a single sum for a given time period. B. The relation between present value and time is exponential. C. The greater the time period, the higher the present value of a single sum for a given interest rate. D. The lower the discount rate, the lower the present value of a single sum for a given time period. 2 points

QUESTION 5 Which of the following statements is true of the rule of 72? A. It can be used to determine the amount of time it takes to double an investment. B. It is fairly accurate for interest rates between 25 and 50 percent. C. It states that the time to double your money (TDM) approximately equals 72/i, where i represents the years it takes to double your investment. D. It can be used to estimate approximate compound interest earned for a period of 72 days. 2 points

QUESTION 6 The present value of future cash flows are computed by multiplying future value with the: A. discounting factor. B. compound factor. C. interest rate. D. number of periods. 2 points

QUESTION 7 The present value of multiple cash flows is: A. greater than the sum of the cash flows. B. equal to the sum of all the cash flows. C. less than the sum of the cash flows. D. higher or lower than the cash flows depending on the interest rate. 2 points

QUESTION 8 Cash flows associated with annuities are considered to be: A. an uneven cash flow stream. B. a constant cash flow stream. C. a mix of constant and uneven cash flow streams. D. a cash flow stream with decreasing trend. 2 points

QUESTION 9 The annuity transformation method is used to transform: A. a present value annuity to a future value annuity. B. a present value annuity to an annuity due. C. an ordinary annuity to an annuity due. D. a perpetuity to an annuity. 2 points

QUESTION 10 The true cost of borrowing is the: A. annual percentage rate. B. effective annual rate. C. quoted interest rate. D. periodic rate.

FINS1612 Study Guide - Final Guide: Preferred Stock, Capital Market, Listing Rules

Document Summary

Get access

Related Documents

FINS1612 Chapter Notes - Chapter 5: Foreign Exchange Risk, Interest Rate Risk, Net Present Value

FINS1612 Chapter 5: Viney8e_IRM_ch05

FINS1612 Chapter Notes - Chapter 5: Capital Market, Net Present Value, Cash Flow

Related Questions