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...
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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