Corporate Finance Questions and Correct Answers & Latest Updated
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Course
Corporate Finance
Institution
Corporate Finance
Projects that are calculated as having negative NPVs should be
o :## rejected or abandoned
If adoption of a new product decreases the sales of an old product, what happens?
o :## incremental benefits of the new product may be overestimated
a cost should be considered sunk when it
o :## has no ...
Corporate Finance Questions and Correct
Answers & Latest Updated
Projects that are calculated as having negative NPVs should be
o :## rejected or abandoned
If adoption of a new product decreases the sales of an old product, what happens?
o :## incremental benefits of the new product may be overestimated
a cost should be considered sunk when it
o :## has no effect on future cash flows
originally costs $75,000, book value of $20,000, worth $25,000. What is the opportunity
cost?
o :## $25,000
the likely effect of discounting nominal ash flows with real interest rates will be to
o :## make an investments NPV appear more attractive
adding depreciation expense to net profit equals
o :## cash flows from operations
new project requires increase in both current assets and current liabilities of $125,000 each.
What is the impact on net working capital investment?
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
,2|Page: 2024/2025 Grade A+
o :## an increase of zero
the opportunity cost of an asset
o :## can differ depending on market conditions
when is it appropriate to include sunk costs
o :## never appropriate
the depreciation tax shield equals the product of depreciation and tax rate
o :## true
suppose you finance a project partly with debt. You should neither subtract the debt
proceeds from the required investment, nor would you recognize the interest and principal
payments on the debt as cash outflows
o :## true
investments in working capital, just like investments in plant and equipment, result in cash
inflows
o :## false! (outflows)
discounting real cash flows at a nominal rate is a serious mistake
o :## true
opportunity costs are evaluated for investment decisions at their historical (that is book)
cost
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
, 3|Page: 2024/2025 Grade A+
o :## false
a stock's beta measures the
o :## variability in the stocks returns compared to that of the market portfolio
when the overall market experiences a decline of 8%, an investor with a portfolio of
aggressive stocks will probably experience
o :## portfolio losses greater than 8%
assuming some positive returns on treasury bills, what can you assume about an investor
whose diversified portfolio of stocks yielded 25% when the market portfolio yielded 15%
o :## the portfolio beta is greater than 1
CAPM provides a model of determining expected security returns that is
o :## imprecise, but generally an acceptable guideline
if last month a stock with beta of 1 lost 2% while the S&P 500 had a 1% gain, then it appears
that
o :## the firm may have released negative information
***decreases in the risk-free rate will reduce***
o :## ***the stock's beta***
Master01: DO NOT COPY AND PASTE!! August 25, 2024 Latest Update
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