FINC600 Corporate Finance Midterm Exam Answers

FINC600 Corporate Finance Midterm Exam Answers

FINC600 Corporate Finance Midterm Exam Answers
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FINC600 Corporate Finance Midterm Exam Answers

FINC600 Corporate Finance
Mid Term
Question 1 of 25

The concept of compound interest is most appropriately described as:

A.Interest earned on an investment
B.The total amount of interest earned over the life of an investment
C.Interest earned on interest
1. None of the above

Question 2 of 25

Which of the following investment rules does not use the time value of the money concept?

A.Net present value
B.Internal rate of return
C.The payback period
D.All of the above use the time value concept

Question 3 of 25

The unique risk is also called the:

A.Unsystematic risk
B.Diversifiable risk
C.Firm specific risk
D.All of the above

Question 4 of 25

What are some of the important points to remember while estimating the cash flows of a project?

The most important points are
1) They are estimates. So there can be deviations
2) Some huge loss may completely change the return from product.
3) Other risks like market risks, reinvestment risk etc. may affect the cash flow pattern
Feedback: • Estimate after-tax cash flows on an incremental basis.
• Include all incidental effects.
• Include working capital requirements.
• Include opportunity costs.
• Do not include sunk costs.
• Take inflation into consideration in a consistent manner.
Comment: Missing some important items in your answer

Question 5 of 25

A bond with duration of 10 years has yield to maturity of 10%. This bond’s volatility is:
Correct A.9.09%

B.6.8%
C.14.6%
D.6.0%

Feedback: Volatility (%) = Duration/(1 + yield) = 10/1.1 = 9.09%
Major disadvantages of the Sarbanes-Oxley Act of 2002...

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