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8803 EXAM 1 QUESTIONS AND ANSWERS FULLY SOLVED

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8803 EXAM 1 QUESTIONS AND ANSWERS FULLY SOLVED The concept of Present Value related to the idea that (T/F) To create economic value, it's only necessary that a firm create positive accounting profits One advantage of the NPV method for capital bugeting rather than the discounted payback period m...

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  • March 19, 2024
  • 4
  • 2023/2024
  • Exam (elaborations)
  • Questions & answers
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8803 EXAM 1 QUESTIONS AND ANSWERS
FULLY SOLVED

1). The concept of present value related to the idea that

 Ans: the money you have now is worth more today than an identical amount that you
would receive in the future


2). (t/f) to create economic value, it's only necessary that a firm create positive accounting
profits

 Ans: False


3). One advantage of the npv method for capital bugeting rather than the discounted payback
period method is that the npv method _______

 Ans: Considers all cash flows


4). If a firm's return on equity is higher than its discount rate, then an increase in retention of
earnings will ____ firm value since reinvested capital earns _____ than the cost of capital

 Ans: increase, more


5). If a firm's return on equity is less than its discount rate, then an decrease in retention of
earnings will ____ firm value since reinvested capital earns _____ than the cost of capital

 Ans: decrease, less


6). Consider both statements. statement 1. if the irr of a project is less than the firm's cost of
capital the npv of the project will be zero. statement 2. a mix of future positive and negative
cash flows may result in multiple npvs.

 Ans: Both are false


7). Which one of these applies to the dividend growth model of stock valuation?

 Ans: The growth rate must be less than the discount rate




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