1.
Which items are necessary in calculating the net
present value of a project?
I. Investment outlays
II. Discount rate
III. Incremental cash flow
IV. Time period for the
project
I, II and IV
I, II and III
II, III and IV
All of the above
2—-
Operating cash flow is generated by a company’s daily operations
related to production and sales of goods and/or services.
True
False
3.
Scenario analysis is a way of testing forecasts
by changing one
assumption at a time.
True
False
4—
.
Suppose a riskless project requires an initial
investment of $10 and
will generate a one-time cash inflow of
$30 two years later. Assuming
a risk-free interest rate of 5%, which of the
following statements
about the project is NOT true?
The net present value of the project is
positive.
The IRR is greater than 50 percent.
The accounting rate of return on the project is
positive.
The payback period is less than 2 years
5—-Analysis
of a company’s financial statements: Below are simplified
versions of the balance sheet and income statement for Toys by Tom,
Inc. Use this information to answer the following question.
Toys by Tom, Inc. has a current ratio of ____, suggesting
________.
Top of Form
9.6; reasonable ability
to cover interest expense
0.57; potential
illiquidity
0.21; potential
collection problems
1.75; reasonable
liquidity
Bottom of Form
6—It is possible for a
company to grow faster than its sustainable growth rate.
Top of Form
True
False
Bottom of Form
7—Selecting investment
projects according to rules based either on project NPV or IRR results in
maximizing firm value.
Top of Form
True
False
Bottom of Form
8—Analysis
of a company’s financial statements: Below are simplified
versions of the balance sheet and income statement for Toys by Tom,
Inc. Use this information to answer the following question.
What is Toys by Tom, Inc. return
on assets (ROA)?
Top of Form
6.9%
0.86
Bottom of Form
9—Which of the following
is commonly used in preparing pro forma statements:
Top of Form
Historical financial
statements
Projected sales
Efficiency ratios
All of the above
Bottom of Form
10—-For which of the
following generic businesses would you expect a combination of high asset
turnover and low profit margins?
Top of Form
Supermarkets
Banks
Software developers
Airlines
Bottom of Form
11—-A company can shorten
its cash cycle by:
Top of Form
Reducing inventory
turnover
Reducing account
payables
Reducing days receivable
None of the above
Bottom of Form
12—For a levered firm, EBIT
is equivalent to:
Top of Form
Net income
Pro forma earnings
Operating profit
Net income before taxes
Bottom of Form
13—-The amount by which a
project increases the value of the firm is given by the project’s ______.
Top of Form
accounting rate of
return
net present value (NPV)
internal rate of return
(IRR)
present value
Bottom of Form
14—-A dollar today is worth
more than a dollar tomorrow.
Top of Form
True
False
Bottom of Form
15—The NPV rule, which says
companies should invest in projects for which NPV is greater than 0, depends on
the assumption of value maximization.
Top of Form
True
False
Bottom of Form
16—A company has a
retention rate of 50%, sales of $25,000, beginning equity of $50,000 and profit
margins of 10%, an asset turnover ratio of .75 and debt of $10,000. What is its
sustainable growth rate?
Top of Form
2.5%
1.7%
3.75%
Not enough information
given
Bottom of Form
17—Common-size financial
statements are constructed in order to:
Top of Form
Adjust for inflation and
risk
Facilitate comparisons
of different-sized companies
To comply with SEC
requirements
All of the above
Bottom of Form
18—Leverage and liquidity
generally rise or fall together.
Top of Form
True
False
Bottom of Form
19—Which of the following
ratios uses sales in the denominator?
Top of Form
Days in inventory
Receivables turnover
Cash ratio
Average collection
period
Bottom of Form
20–What is the present
value of a perpetuity of $100 given a discount rate of 5%?
Top of Form
$2,000
$3,000
$1,500
$500
Bottom of Form
21—Compute the net present
value of an investment with 5 years of annual cash inflows of $100 and two cash
outflows, one today of $100 and one at the beginning of the second year of $50.
Use a discount rate of 10 percent.
Top of Form
$229.08
$287.60
$233.62
$271.53
Bottom of Form
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