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1. American Public University System FINC
600 Week 4 Practice Quiz
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FINC 600 Week 4 Midterm Quiz
Question1
The concept of compoundinterestismostappropriatelydescribedas:
Question2
Whichof the followinginvestmentrulesdoesnotuse the time value of the moneyconcept?
Question3
The unique riskisalsocalledthe:
Question4

2. What are some of the importantpointstorememberwhile estimatingthe cashflowsof aproject?
Question5
A bondwithdurationof 10 yearshas yieldtomaturityof 10%. This bond'svolatilityis:
Question6
Major disadvantagesof the Sarbanes-OxleyActof 2002 (SOX) are the followingexcept:
Question7
Accordingto the netpresentvalue rule,aninvestmentinaprojectshouldbe made if the:
Question8
If the Wall StreetJournal Quotationforacompany hasthe followingvaluesclose:55.14; Netchg: = +
1.04; thenthe closingprice forthe stockfor the previoustradingdaywas?
Question9

3. For example,inthe case of anelectriccar project,whichof the followingcashflowsshouldbe treatedas
incremental flowswhendecidingwhethertogoaheadwiththe project?
Question10
The followingare some of the actionsshareholderscantake if the corporationisnot performingwell:
Question11
The mixture of debtand equity,usedtofinance acorporationisalsoknownas:
Question12
Discussthe general principleinthe valuationof acommonstock.
Question13
The managersof a firmcan maximize stockholderwealthby:
Question14

4. FloridaCompany(FC) andMinnesotaCompany(MC) are bothservice companies.Theirhistorical return
for the past three yearsare:FC: - 5%,15%, 20%; MC: 8%, 8%, 20%. If FCand MC are combinedina
portfoliowith50%of the fundsinvestedineach,calculate the expectedreturnonthe portfolio.
Question15
The market value of XYZCorporation'scommonstockis 40 millionandthe marketvalue of the risk-free
debtis60 million.The betaof the company'scommonstock is0.8, andthe expectedmarketrisk
premiumis10%. If the Treasurybill rate is6%, whatis the firm'scost of capital?(Assume notaxes.)
Question16
The followingare importantfunctionsof financialmarkets:I) Source of financing;II) Provide liquidity;III)
Reduce risk;IV) Source of information
Question17
Whichof the followingportfolioshave the leastrisk?
Question18
PresentValue of $100,000 thatis, expected,tobe receivedatthe endof one yearat a discountrate of
25% peryear is:

5. Question19
Discusssome of the disadvantagesof the paybackrule.
.
Question20
What isthe relationshipbetweeninterestratesandbondprices?
Question21
Spill Oil Company'sstockshad -8%,11% and 24% ratesof returnduringthe last three yearsrespectively;
calculate the average rate of returnforthe stock.
Question22
Whichof the followingstatementsregardingthe discountedpaybackperiodrule istrue?
Question23

6. The NPV value obtainedbydiscountingnominalcashflowsusingthe nominaldiscountrate isthe:I)
same as the NPV value obtainedbydiscountingreal cashflowsusingthe real discountrate II) same as
the NPV value obtainedbydiscountingreal cashflowsusingthe nominaldiscountrate III) same asthe
NPV value obtainedbydiscountingnominal cashflowsusingthe real discountrate
Question24
Market riskis alsocalled:I) systematicrisk,II) undiversifiable risk,III) firmspecificrisk.
Question25
The cost of a resource that maybe relevanttoaninvestmentdecisionevenwhennocashchangeshand
iscalleda (an):
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FINC 600 Week 4 Practice Quiz Corporate Finance
Question1
Usingthe companycost of capital to evaluate aprojectis:
I) Alwayscorrect

7. II) Alwaysincorrect
III) Correctfor projectsthatare about as riskyas the average of the firm'sotherassets
A.I only
B.II only
C.IIIonly
D.I and IIIonly
Question2
Whichof the followingtype of projectshasaverage risk?
A.Speculationventures
B.Newproducts
C.Expansion of existingbusiness
D.Cost improvement
Question3

8. The market value of Cable Company'sequityis$60 million,andthe marketvalue of itsrisk-freedebtis
$40 million.If the requiredrate of returnonthe equityis15% and that on the debtis5%, calculate the
company'scost of capital.(Assume notaxes.)
A.15%
B.10%
C.11%
D.None of the above
Question4
The hurdle rate for capital budgetingdecisionsis:
A.The cost of capital
B.The cost of debt
C.The cost of equity
D.All of the above
Question5

9. The market value of XYZCorporation'scommonstockis 40 millionandthe marketvalue of the risk-free
debtis60 million.The betaof the company'scommonstock is0.8, andthe expectedmarketrisk
premiumis10%. If the Treasurybill rate is6%, whatis the firm'scost of capital?(Assume notaxes.)
A.9.2%
B.14%
C.8.1%
D.None of the above
Question6
On a graph withcommonstockreturnson the Y- axisand marketreturnson the X-axis,the slope of the
regressionlinerepresentsthe:
A.Alpha
B.Beta
C.R-squared
D.Adjustedbeta
Question7

10. Generally,postauditsare conductedforlarge projects:
A.shortlyafterthe completionof the project
B.afterseveral yearsafterthe completionof the project
C.shortlyafterthe projecthasbegunto operate
D.well before the startof the project
Question8
You are giventhe followingdataforyear-1.
Revenue =$43;
Total costs= $30;
Depreciation=$3;
Tax rate = 30%.
Calculate the operatingcashflowforthe projectforyear-1.
A.$7
B.$10
C.$13

11. D.None of the above
Question9
The followingare drawbacksof sensitivityanalysisexcept:
A.itprovidesambiguousresults.
B.underlyingvariablesare likelytobe interrelated.
C.itprovidesadditionalinformationaboutthe projectthatisuseful.
D.all of the above statementsare drawbacksof sensitivityanalysis.
Question10
The accountingbreak-evenpointoccurs when:
A.the total revenue linecutsthe fixedcostline
B.the presentvalue of inflowsline cutsthe presentvalue of outflowsline
C.the total revenue line cutsthe total costline
D.none of the above

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