• When evaluating multiple projects, regardless of whether they are independent or mutually exclusive, NPV always gives the better answer.

  1. True
  2. False

3- When evaluating a project utilizing the payback period for your analysis you can rest easy knowing this approach will always arrive at the best decision.

1. True
2. False

• Question 4

  Stand-alone risk is equal to:

  1. Diversifiable Risk

  2. Price Risk + Reinvestment Risk

  3. Market Risk

  4. Market Risk + Diversifiable Risk

  5. Portfolio Risk + Market Risk

• Question 5

  This course was taken at Sacred Heart University.

  1. False

  2. False

  3. True

  4. False

• Question 6

  Susan buys 100 shares of Home Depot Stock at $250.00 per share

  During the year she receives a dividend of $0.75 per share.

  At the end of the year she sells 100 shares at $187.50 per share.

  What is her per share capital gain (loss)?

  1. $62.50

  2. $0.75

  3. $187.50

  4. -$62.50

Question 7

A positive Beta means

1. A stock is cheap relative to the market

2. A stock has no relation to the market.

3. In general, the stock will move in the same direction as the market.

4. In general, the stock will move in the opposite direction as the market.

• Question 8

  Portfolio A has but one stock, while Portfolio B consists of all stocks that trade in the market, each held in proportion to its market value. Because of its diversification, Portfolio B will by definition be riskless.

  1. True
  2. False

• Question 9

  Susan buys 100 shares of Home Depot Stock at $250.00 per share

  During the year she receives a dividend of $0.75 per share.

  At the end of the year she sells 100 shares at $187.50 per share.

  In dollars, how much is her total return from this investment?

  1. $6,325

  2. -$6,250

  3. $6,250

  4. -$6,175

• Question 10

  Common stock dividends are contractual obligations of the firm.

  1. True
  2. False

• Question 11

  Preferred stock is often referred to as a hybrid security because it has features of both stocks and bonds.

  1. True
  2. False

• Question 12

  ABC Company just heard from their banker that they can borrow at a rate of 7%. Assuming the company has taxable income, If their corporate tax rate is 40%, what is the interest rate the company will pay after taxes?

  1. 11.67%

  2. 7%

  3. 3%

  4. 4.2%

• Question 13

  The market risk premium is

  1. The difference between the expected return on a market portfolio and the risk free rate.

  2. The amount earned in a riskless portfolio.

  3. The higher standard deviation in a market portfolio.

  4. The best risk.

• Question 14

  The corporate valuation model, also called the free cash flow model,

  1. is not considered a valid model for security analysis.

  2. is based on the dividends the firm actually pays out to shareholders.

  3. suggests the value of the entire firm equals the present value of the firm's free cash flows.

  4. discounts cash flows by the risk free rate.

• Question 15

  You are given the following cash flows for a project:

  Time Cash Flow

  0 -50,000

  1 +60,000

  2 +40,000

  3 +30,000

  4 +20,000

  5 -20,000

  In corporate finance, this would be described as:

  1. Non Normal cash flows.

  2. Bumpy cash flows.

  3. Linear cash flows.

  4. Normal cash flows.

• Question 16

  The Beta of the Market is

  1. 1.0

  2. 0

  3. -1.0

  4. -2.0

  5. 2.0

• Question 17

  The before-tax cost of debt, which is lower than the after-tax cost, is used as the component cost of debt for purposes of developing the firms WACC.

  1. True
  2. False
• Question 18

  Free cash flow is defined as

  1. the amount of cash that could be withdrawn without harming a firm's ability to operate.

  2. money that has been distributed as dividends.

  3. the money a firm is giving away.

  4. funds that are tied up in investments by the firm.

• Question 19

  The WACC for your projects is 8%. After evaluating the forecasted cash flows for each, you determine the following:

  Project ABC has an NPV of -4,500 and an IRR of 6%

  Project XYZ has an NPV of 10,000 and an IRR of 11%

  If the projects are independent and you can undertake any, all or none, which would you choose?

  1. Only Project XYZ

  2. Only Project ABC

  3. Both Projects

  4. Neither Project

• Question 20

  Diversification will normally reduce the riskiness of a portfolio of stocks.

  1. True
  2. False
• Question 21

  The Discounted Dividend Model is the sum of the present value of future expected dividends to be generated by a stock.

  1. True
  2. False
• Question 22

  Using the Free Cash Flow Corporate Valuation model you calculate that a company has a Market Value of $26 million. They have debt worth $7 million and 4 million shares of common stock outstanding. Using this information, what is the intrinsic value of one share?

  1. $3.20

  2. $6.50

  3. $4.75

  4. $4.00

• Question 23

  In class we looked at Hi Tech and Collections Inc. Hi Tech has a Beta of 1.32 and Collections Inc. has a Beta of -0.87. If we have a portfolio in which 60% of our money is invested in Hi Tech and 40% is invested in Collections Inc. what is the Beta of our portfolio?

  1. 0.66

  2. 0.792

  3. 0.444

  4. 1.0

  5. -0.348

• Question 24

  When calculating the free cash flow of a firm, we add back depreciation because

  1. it only applies to fixed assets.

  2. it represents a non cash expense.

  3. it is constantly changing.

  4. it is just an estimate.

• Question 25

  Susan buys 100 shares of Home Depot Stock at $250.00 per share

  During the year she receives a dividend of $0.75 per share.

  At the end of the year she sells 100 shares at $187.50 per share.

  What is her dividend yield?

  1. 0.30%

  2. 10%

  3. 0.40%

  4. 7.5%

  5. 0.75%

• Question 26

  In order to arrive at an intrinsic value for the stock of a company when using the Corporate Valuation model we must subtract debt and preferred stock from the market value of the firm we calculated.

  1. True
  2. False
• Question 27

  Given Amazon has Beta of 1.72, the Risk Free Rate is 2%, and the expected return on the market is 9%, what is the required return for Amazon stock?

  1. 18.92%

  2. 15.48%

  3. Can not be determined.

  4. 14.04%

• Question 28

  OBrien Inc. has the following data: Risk Free Rate = 5.00%; Expected Market Return = 11.00%; and beta = 1.05. What is the firms cost of equity from retained earnings based on the CAPM?

  1. 11.99%

  2. 11.64%

  3. 12.72%

  4. 11.30%

  5. 12.35%

• Question 29

  If Amazon has a Beta of 1.72 and the market moves by -1% on any given day, we would expect the price of Amazon to change by

  1. -1.72%

  2. -$1.72

  3. +1.72%

  4. 0%

  5. $1.72

• Question 30

  You are given the following forecast for 2016:

  EBIT (1-T) = $215.2

  Depreciation Expense = $115

  Change in Net Fixed Assets Plus Depreciation = $102

  Change in Net Operating Working Capital = $69.1

  How much is 2016 Free Cash Flow forecast to be?

  1. $297.3

  2. $159.1

  3. $162.5

  4. $24.3

• Question 31

  A firm should use it's target capital structure when calculating the WACC for a new project.

  1. True
  2. False
• Question 32

  Risk aversion implies that investors require higher expected returns on riskier than on less risky securities.

  1. True
  2. False
• Question 33

  You were hired as a consultant to Giambono Company, whose target capital structure is 40% debt and 60% common equity. The after-tax cost of debt is 6.00% and the cost of common equity is 12.75%. What is its WACC?

  1. 18.75%

  2. 9.38%

  3. 8.7%

  4. 10.05%

• Question 34

  When calculating the WACC for a potential project, the interest rate used for the debt component should be

  1. the rate charged for a new loan.

  2. the rate charged the last time the company borrowed money.

  3. the risk free rate.

  4. the same rate as the dividend yield.