Finance 3610 Final

FINA 3610 Final Exam Review Material 1) Discussion Question 1--**REQUIRED** Question on test may be worded a little differently; therefore, be prepared! a) Under which conditions would the IRR and the NPV rank projects differently? **LIST** i) Significant differences in the sizes of the projects ii) Significant differences in the timing of the cash flows of the projects. b) Under which conditions would there be a call for different project selections after obtaining the IRR and NPV project rankings? **LIST** iii) Mutual exclusion (selection of one precludes the selection of another) iv) Capital rationing (can only take a certain number of projects) 2) Chapter 12 Question 3 page 417 c) Why does a decrease in NWC result in a cash inflow to the firm? v) At the end of the project, the firm will recover the NWC, so it will be a cash inflow. At the end of the life of a project, the project no longer requires the net working capital support and we return the remaining net working capital as an inflow for the project. After a project ends, the NWC must be adjusted to be brought back down to zero; therefore, this causes a cash inflow to the firm. 3) Chapter 19 Question 1 page 636: d) What do global organizations like the World Trade Organization and the International Monetary Fund do? vi) Global organizations like the WTO and the IMF promote and facilitate unrestricted trade globally. The WTO’s goals are to increase international trade by promoting lower trade barriers and providing a platform for negotiations and disputes. The IMF monitors currency exchange, examines financial stability, and watches the overall global financial system. 4) Chapter 19 Question 2 page 636: e) What is the purpose of trading zones? What are some of the most important zones for world trade? vii) The purpose of trading zones is to voluntarily reduce trading restrictions and