Problem Set # 2 – Time Value of Money Solution

Multiple Choice Questions 1. The following are the factors to be considered in Suitability, except A. Environment B. Capabilities C. Expectations D. Scenarios 2. The ____________ for a firm is the internal rate of return on existing investments, based on real cash flows. A. cash flow return on investment (CFROI) B. Economic Value Added (EVA) C. Total Shareholders Return D. Return on Investment 3. The elements that must be considered in using EVA are as follows, except ___________. A. Reasonableness of earnings B. Appropriate cost of Capital C. Volatility of the market D. None of the above

Profitability index. It is a ratio that provides information about the present value of net cash flows to the net investment. It provides a measure of the relative present value return for each dollar of initial investment. Discuss its usefulness. Should managers rely upon it? Consider its usefulness in a capital rationing situation (capital investment under conditions of financial restraint).

Explain how you will apply in real life the following AXIOMS of FINANCIALMANAGEMENT AXIOM 1: RISK-RETURN TRADE OFFAXIOM 2: TIME VALUE OF MONEYAXIOM 3: CASH NOT PROFIT IS KINGAXIOM 4: INCREMENTAL CASH FLOWSAXIOM 5: EFFICIENT CAPITAL MARKETSAXIOM 6: THE CURSE OF COMPETITIVE MARKETSAXIOM 7: AGENCY PROBLEMAXIOM 8: TAXES BIAS BUSINESS DECISIONSAXIOM 9: ALL RISK IS NOT EQUALAXIOM 10: ETHICAL BEHAVIOR IS DOING THE RIGHT THING AND ETHICALDILEMMAS ARE EVERYWHERE IS FINANCE.

Which of the following decision criteria is the easiest to use and very popular among investors? O Payback period. O Internal rate of return. O Average accounting return. Net present value. O Discounted return on investment.

B3 ) Do you think that these techniques(Payback period traditional, Discount payback period modern ,net present value and profitability index ) are really helpful to financial managers?

Corporate finance is concerned with (i) what long-term investments the firm should choose, (in) how the firm should raise funds for selected investments, and (ili) how short-term assets should be managed and financed. option 1: True option 2: False

Discuss the advantages and disadvantages of options in the financial markets? What is Cash conversion cycle? How the company can improve its cash conversion cycle?  give three suggestions

“By applying capital to investments with long-term benefits, the company is attempting to produce value.  This value is dependent on expected future cash flows as well as on the cost of funds.”  1. Explain this statement with regards to the role of cost of capital in financial management decisions.

1. Discuss the reasons why capital rationing may arise    2. Discuss the meaning of the term “relevant cash flow” in the context of investment appraisal, giving examples to illustrate your discussion.

Buying assets that yield a return greater than the minimum acceptable hurdle rate is a part of which core principles of Finance. a. Financing principle b. Investment principle c. Dividend principle d. Cost principle

Answer following questions:1.- What should an investor recognize if required rate on his fixed income investments, whose business model is to do branding, increases significantly?2.- What is understood by bringing values of an investment to “AMORTIZED COST”?

Financial markets promote economic efficiency by *A.channeling funds from investors to savers.B. creating inflation.C.causing recessions.D. channeling funds from savers to investors.

Distinguish between different levels of financial market efficiency. Give examples toillustrate your answer.

Which of the following statements is true? Group of answer choices The Principle of Diversification states that investors are better off by investing in one asset. The Principle of Diversification states that investors are better off by investing in different types of assets. The Principle of Diversification states that investors are better off by investing in risk-free assets. The Principle of Diversification states that investors are better off by investing in an industry of their choice.

Which of the following does not assign a value to a business opportunity using time-value measurement tools? Group of answer choices A. internal rate of return (IRR) method B. net present value (NPV) C. discounted cash flow model D. payback period method

Firms will take investments only when expected risks are remunerated by expected profit. *   a. Incremental cash flows b. Efficient capital markets c. Risk-return trade-off d. All risks are not equal

Why would a company decide to pay investors cash? What are the two ways to give cash back to investors and talk about the trade-off of those two regarding: Tax considerations Share price support/signaling Flexibility Offset dilution Clientele effect, smoothing PLEASE HELP, THANK YOŮ SO MUCH!!

how do banks improve their net profit margin to increase Return on Equity? what are the risk implications ?

Question A18 Which of the following is not an advantage of the NPV investment appraisal technique when compared with the ARR investment appraisal technique? A It shows the increase in shareholder wealth B It considers the time value of money C It is more complicated to calculate and understand D It allows risk to be factored in by adjusting the cost of capital

We learned interest rates differ across firms, and it varies with a firm's investment horizons because investors (or lenders) consider borrower's risk. But how do they decide or evaluate the borrower's risk? Could you explain it combined with concepts or principles we have learned? (Hint: the opportunity cost of capital, but not limited to.)

a) One of the biggest problems for any economy is to figure out how to get or transfer money from people or firms who want to save (savers) to people or firms who want to borrow (investors). • Explain how financial markets can help to solve this problem efficiently. • Discuss how financial markets function and which tools they can offer to solve this problem. • Discuss how financial systems are of crucial significance to adequate capital formation, which is indispensable to a speedy economic growth and development. b) Analyze the relationship of financial development and economic growth/development. In other words, discuss how financial, especially capital, markets help economic growth and development.

An investor wants to determine if his investment in Bulldogs Inc. gives him a good return. Which of the following is the most appropriate to use?     Total asset turnover Operating profit margin Times interest earned ratio Dividend yield