Corporate Finance

1266 WordsSep 17, 20136 Pages
Corporate Finance Exam with Answers Posted on May 10, 2012 by Sam Corporate Finance, Chapters 8, 9 & 10. Exam Questions: 1. A project’s opportunity cost of capital is: A. The forgone return from investing in the project. 2. Which of the following statements is correct for a project with a positive NPV? A. The IRR must be greater than 1. 3. What is the NPV of a project that costs $100,000 and returns $50,000 annually for 3 years if the opportunity cost of capital is 14%? C. $16,085 4. The decision rule for net present value is to: C. Accept all projects with positive net present values 5. What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for 3 years,…show more content…
A. 3.5% 25. What nominal annual return is required on an investment for an investor to experience a 12% gain in purchasing power? Assume inflation to be 4%. D. 16.48% 26. What is the undiscounted cash flow in the final year of an investment, assuming $10,000 after-tax cash flows from operations, $1,000 from the sale of a fully depreciated machine, $2,000 required in additional working capital, and a 35% tax rate? C. $12,650 27. For a profitable firm in the 30% marginal tax bracket with $100,000 of annual depreciation expense, the depreciation tax shield would be: B. $40,000 28. Why is accelerated depreciation often favored for the corporation’s set of tax books? D. It impacts favorably with the time value of money 29. Why is it likely that firms use straight-line depreciation methods for reporting to shareholders? D. It allows asset balances to decline more slowly 30. What is the net effect on a firm’s working capital if a new project requires $30,000 in inventory, $10,000 increase in accounts receivable, $35,000 increase in machinery, and a $20,000 increase in accounts payable? C. +$20,000 31. What level of management is responsible for originating capital budgeting proposals? D. All levels of management 32. Which of the following is least likely to be responsible for a regional manager’s conflict of interest in promoting a capital budgeting proposal? B.

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