FINC 600 Week 2 Practice Quiz Corporate Finance Question 1 If the Wall Street Journal Quotation for a company has the following values close: 55.14; Net chg: = + 1.04; then the closing price for the stock for the previous trading day was? A.$56.18 B.$54.10 C.$55.66 D.None of the above. Feedback: Previous closing = today’s closing net chg. = 55.14 – 1.04 = $54.10 Question 2 The value of a common stock today depends on: A.Number of shares outstanding and the number of shareholders B.The expected future dividends and the discount rate C.The Wall Street analysts D.Present value of the future earnings per share Question 3 Company X has a P/E ratio of 10 and a stock price of $50 per share. Calculate earnings per share of the company. A.$6 per share B.$10 per share C.$0.20 per share D.$5 per share Question 4 Which of the following stocks is/are a growth stock(s)? A.Unilever B.Cummins, Inc C.Starbucks D.All of the above are growth stocks Question 5 Universal Air is a no growth firm and has two million shares outstanding. It is expected to earn a constant 20 million per year on its assets. If all earnings are paid out as dividends and the cost of capital is 10%, calculate the current price per share for the stock. A.$200 B.$150 C.$100 D.$50 Question 6 Which of the following investment rules does not use the time value of the money concept? A.Net present value B.Internal rate of return C.The payback period D.All of the above use the time value concept Question 7 The following are measures used by firms when making capital budgeting decisions except: A.Payback period B.Internal rate of return C.P/E ratio D.Net present value Question 8 Which of the following investment rules has value adding-up property? A.The payback period method B.Net present value method C.The book rate of return method D.The internal rate of return method Question 9 Internal rate of return (IRR) method is also called: A.Discounted payback period method B.Discounted cash-flow (DCF) rate of return method C.Modified internal rate of return (MIRR) method D.None of the above Question 10 Profitability index is the ratio of: A.Future value of cash flows to investment B.Net present value of cash flows to investment C.Net present value of cash flows to IRR D.Present value of cash flows to IRR Question 11 When a firm has the opportunity to add a project that will utilize excess factory capacity (that is currently not being used), which costs should be used to determine if the added project should be undertaken? A.Opportunity cost B.Sunk cost C.Incremental costs D.None of the above Question 12 The cost of a resource that may be relevant to an investment decision even when no cash changes hand is called a (an): A.Sunk cost B.Opportunity cost C.Working capital D.None of the above Question 13 Net Working Capital should be considered in project cash flows because: A.Firms must invest cash in short-term assets to produce finished goods B.They are sunk costs C.Firms need positive NPV projects for investment D.None of the above Question 14 If the discount rate is stated in nominal terms, then in order to calculate the NPV in a consistent manner requires that project: I) cash flows be estimated in nominal terms II) cash flows be estimated in real terms III) accounting income be used A.I only B.II only C.III only D.None of the above Question 15 For example, in the case of an electric car project, which of the following cash flows should be treated as incremental flows when deciding whether to go ahead with the project? A.The cost of research and
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