Net Present Value and Cash Flow - 1400 Words

Corporate Financial Management Practice Mid-Semester Examination (Answers at back) Disclaimer: This practice exam covers a selection of the types of questions that may be asked in the mid-semester exam, however it should not be taken as being exhaustive as to the topics that could be included in the exam. Students should therefore not be surprised if other types of questions appear in the exam. 1. $200 invested today and earning 8 per cent per annum compounded semi-annually will grow to what amount at the end of three years? (A) (B) $251.94 (C) $380.75 (D) 2. $158.80 $253.06 Bill plans to fund his individual retirement account with the maximum contribution of $2,000 at the end of each year for the next†¦show more content†¦(B) a parallel shift downward in the security market line. (C) a decrease in the slope of the security market line. (D) a parallel shift upward in the security market line. 14. The market price of outstanding bond issues often varies from par because (A) (B) the market rate of interest has changed. (C) the maturity date has changed. (D) 15. the coupon rate has changed. old bonds sells for less than new bonds. A firm has an expected dividend next year of $1.20 per share, a zero growth rate of dividends, and a required return of 10 per cent per annum. The value of each of the firm s shares is (A) (B) $12 (C) $120 (D) 16. $10 $100 In the Gordon model, the value of ordinary shares is the (A) present value of a constant, growing dividend stream. (B) actual amount each ordinary shareholder would expect to receive if the firm s assets are sold, creditors and preference shareholders are repaid, and any remaining money is divided among the ordinary shareholders. (C) present value of a non-growing dividend stream. (D) net value of all assets which are liquidated for their exact accounting value. 17. A constant annual rate of dividend growth of 9 per cent is expected on a particular firm’s ordinary shares for an indefinite period into the future. TheShow MoreRelatedNet Present Value and Net Cash Flow1220 Words   |  5 Pagesbudgeting? a Will an investment generate adequate cash flows to promptly recover its cost? b Will an investment generate an acceptable rate of return? c Will an investment have a positive net present value? d Will an investment have an adverse effect on the environment? 3 Which of the following is not considered when using the payback period to evaluate an investment? a The profitability of the investment over its entire life. b The annual net cash flow of the investment. c The cost of the investmentRead MoreNet Present Value and Free Cash Flow Essay example1101 Words   |  5 PagesGiven the proposed financing plan, describe your approach (qualitatively) to value AirThread. Should Ms. Zhang use WACC, APV or some combination thereof? Explain. (2 poin ts) * From the statement of AirThread case, we know that American Cable Communication want to raise capital by Leveraged Buyout (LBO) approach. This means ACC will finance money though equity and debt to buy AirThread and pay the debt by the cash flows or assets of AirThread. * In another word, it’s a highly levered transactionRead MoreCash Flow Per Period Of A Project790 Words   |  4 Pagesthe time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment. It is one of the simplest investment appraisal techniques. Formula The formula to calculate payback period of a project depends on whether the cash flow per period of the project is even or uneven. In case they are even, the formula to calculate payback period is: Payback Period = Initial Investment Cash Inflow per Period When cash inflows are uneven, we need toRead MorePresent Value and Capital Budgeting1106 Words   |  5 PagesPart I A. Present Value with Discount rate of 7% = 15000/(1+7%) = 15000/1.07 = $14,018.69 Present Value with Discount rate of 4% = 15000/(1+4%) = 15000/1.04 = $14,423.08 B. Account A - Present Value with Discount rate of 6% = 6500/(1+6%) = 6500/1.06 = $6,132.08 Account B - Present Value with Discount rate of 6% = 12600/(1+6%)^2 = 12600/1.1236 = $11,213.96 C. Present Value of Gold Mine 7% = 4900000/1.07 + 61,000,000/(1.07)^2 + 85,000,000/(1.07)^3 = 45,794,392.52 + 61,000,000/1.1449 + 85Read MoreCaledonia Project939 Words   |  4 Pagesfocus on project free cash flows as opposed to the accounting profits earned by the project when analyzing whether to undertake the project? Caledonia should focus on cash flows, because free cash flows can be reinvested when received, unlike accounting profits which are shown when earned, and not at the time cash is received. The company should focus on incremental after-tax cash flows. This enables it to analyze the profits or losses after comparing cash flows with or without theRead MoreGuillermo Furniture Capital Budget Recommendation Essay example1087 Words   |  5 Pagescompares cash inflows and cash outflows instead of net income calculated using the accrual basis. Capital projects are typically evaluated using quantitative analysis and qualitative information. There are two capital budget evaluation processes that take into consideration the time value of money Net Present Value (NPV) and the Internal Rate of Return (IRR) (Edmonds, 2007). Time value of money is necessary when comparing possible business investments that have different costs, cash flows, andRead MoreDifferent Aspects Of An Investment1433 Words   |  6 Pagesspending limit among the two. I made substantial analysis for the two corporations, as this is very significant for possible growth of our own company. I analyzed a five-year projected income statement and a five-year projected cash flow. I also determined the Net Present Value, and Internal Rate of Return among the two companies to make a decision. This paper also includes three peer-reviewed sources to combine with the theoretical explanations. Introduction The thought of acquiring another corporationRead MoreCaladonia Products Integrative Problem1382 Words   |  6 Pagesproven to be a wise hiring decision based on the Chief Executive Officer (CEO) view however he is still hesitant to give the assistant any large responsibilities without supervision. The CEO has tasked the assistant with both the calculation of the cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive projects (Keown, Martin, Perry, Scott, 2005). The lack of experience on the assistants part has also lead to the CEO requesting not only thatRead MoreProject Selection Method For Project Management Professionals Essay1560 Words   |  7 Pagesmethod: This selection method is used in selecting projects which are based on the present values of estimated cash out flow and inflow. Cost benefits are calculated and then compared to with other projects to make a decision. The technique used in benefit measurement method are as follows: PAYBACK PERIOD The payback period for a project is the initial fixed investment in the project divided by the estimated annual net cash inflows from the project. The ratio of these quantities is the number of yearsRead MoreAn Evaluation Of Capital Budgeting1137 Words   |  5 Pagesgive a concise view of the process management takes to determine the return on a potential investment. After analyzing this concept, the following methods used in making capital budgeting decisions will be discussed: internal rate of return, net present value, and payback period. For each of these three methods, an explanation of the strengths and weaknesses, how they are used, and decisions rules will be given. Capital Budgeting When management of a company is deciding on developing a new product