Finance: Net Present Value and Options Principle Objective

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FIN/571 Final Examination Study Guide

This study guide will prepare you for the Final Examination you will complete in the final week. It contains practice questions, which are related to each week’s objectives. In addition, refer to each week’s readings and your student guide as study references for the Final Examination.

Week One: Foundations of Finance

Objective: Discuss 12 principles of foundational corporate finance.

1.__________ occurs when inaccurate information exists.
a.0 The principle of valuable ideas
b.0 Free-rider problem
c.0 Moral hazard
d.0 Adverse selection

Objective: Discuss 12 principles of foundational corporate finance.

2.__________ refers to situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal. a.0 Moral hazard
b.0 Zero-sum game
c.0 Adverse selection
d.0 The behavioral principle

Objective: Discuss 12 principles of foundational corporate finance.

3.Which of the following correctly completes the next sentence? The value of any asset is the present value of all future a.0 profits it is expected to provide
b.0 revenue it is expected to provide
c.0 net working capital it is expected to provide
d.0 cash flows it is expected to provide

Objective: Compare and contrast the market value of an asset or liability from the book value.

4.Original maturity refers to
a.0 a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time b.0 the price for which something could be bought or sold in a reasonable length of time, where reasonable length of time is defined in terms of an item’s liquidity c.0 the length of an asset’s life when it is issued

d.0 the net amount, or net book value, for something shown in quarterly accounting statements

Week Two: Business Valuation

Objective: Apply the capital-asset pricing model to calculate a business’s required return.

5.The principle of __________ implies that the expected return for an asset equals its required return given that the market is performing at an optimal pace. a.0 capital market efficiency
b.0 risk-return trade-off
c.0 comparative advantage
d.0 signaling

Week Three: Working Capital
Objective: Describe the cash conversion cycle and its importance to working capital management.

6.__________ says to calculate the incremental after-tax cash flows connected with working capital decisions. a.0 The signaling principle
b.0 The principle of incremental benefits
c.0 The principle of time value of money
d.0 The options principle

Objective: Identify sources and uses of short-term financing.

7.Which principle says to calculate the incremental after-tax cash flows connected with working capital decisions? a.0 The signaling principle
b.0 The principle of incremental benefits
c.0 The principle of time value of money
d.0 The options principle

Objective: Identify sources and uses of short-term financing.

8.Which principle says to compare the benefits and costs of alternative uses and sources of money using after-tax annual percentage yields? a.0 The principle of time value of money
b.0 The signaling principle
c.0 The principle of incremental benefits
d.0 The options principle

Week Four: Capital Budgets

Objective: Analyze a capital project’s present value based on expected future net cash flows.

9.The __________ method breaks down when evaluating projects in which the sign of the cash flow changes. a.0 net present value
b.0 profitability index
c.0 internal rate of return
d.0 payback

Week Five: Long-Term Financing

Objective: Explain the types and main features of long-term debt.

10.If the coupon rate of an annual bond at par value is 12%, what is the annual interest payment? a.0 $60
b.0 $100
c.0 $120
d.0 $12

Week Six: Financial Planning

Objective: Analyze the...
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