Question 41 (1 point) Your initial balance of $13300 grows to $16000 in 9 full y

Question

Question 41 (1 point)

Your initial balance of $13300 grows to $16000 in 9 full years. What was the average annual Geometric growth rate?

Your Answer:

Question 42 (1 point)

Based on the balance sheets in the attached image, the firm's 2015 Statement of Cash Flows will include a cash inflow related to Accounts Receivable.

Question 42 options:

True

False

Question 43 (1 point)

A firm with a flexible working capital policy sees the financing of working capital as a permanent financing need.

Question 43 options:

True

False

Question 44 (1 point)

The stock of a new company will most likely have a lower Beta than the stock of an existing, well-established firm.

Question 44 options:

True

False

Question 45 (1 point)

One of the costs of a proposed new product line is that additional service reps will need to be hired. Only the cost of the existing service reps should be included in a capital budgeting analysis.

Question 45 options:

True

False

Question 46 (1 point)

You will receive a lump sum of $12,500 eight years from now. The Present Value of that lump sum increases as the discount rate used to calculate the Present Value increases.

Question 46 options:

True

False

Question 47 (1 point)

The Security Market Line relates the expected return of a stock to its Beta. If the stock's Beta = 0, the expected return of the stock would also be 0.

Question 47 options:

True

False

Question 48 (1 point)

When using the Free Cash Flow method, the value of the entire firm is calculated. The amount of any LT debt must be subtracted from that value prior to calculating the stock's intrinsic value.

Question 48 options:

True

False

True

False

Explanation / Answer

41.

$ 13,300 grows to $ 16,000 in 9 years at "r%" per anum

$ 16,000 = $ 13,300 ( 1+r )9

( 1+r )9 = $ 16,000 / $ 13,300

= 1.2030

1+r = (1.2030)1/9

= 1.0207

r = .0207

i.e 2.07%

42.

Cash flow statement will include all type of cash movement

Cash flow in related to AR, will be included in cash flow statement.

43.

Flexible working capital see the working capital as temporary finance, thus the statement mentioned is not correct.

44.

Beta is the no.of times of systematic risk compared to market systematic risk, generally it is high for new compnay rather than existing companies.

Thus the statement is wrong.

45.

All decisions shall be made on relevant costing, It explains to ignore the existing costs even if the decision is not finalised.

Hence ignore the existing service rep cost.

46.

there is inverse relation between Present value of cash flows and discount rate, Hence discount rate increases PV of Cashflow decreases

47.

SML or CAPM = Rf + Beta ( Rm - Rf )

if Beta is "zero" the required return is "Rf", Hence the statement is not correct.

48.

Intrisic Value = Share Holders funds / No. of shares

as it is not part of share holders funds, it shall be deducted before computing Intrinsic value.

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