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Q 1/34
Score 0
Depreciation expense has no direct effect on cash flow, but it has an indirect effect because it generates a positive tax shield.
30
N/A
TRUE
FALSE
N/A
Q 2/34
Score 0
Depreciation expense represents a negative cash flow.
30
FALSE
N/A
TRUE
N/A
34 questions
Q.
Depreciation expense has no direct effect on cash flow, but it has an indirect effect because it generates a positive tax shield.
1
30 sec
Q.
Depreciation expense represents a negative cash flow.
2
30 sec
Q.
Assets with lower risk tend to generate higher returns.
3
30 sec
Q.
Assets with higher risk tend to generate higher returns.
4
30 sec
Q.
In finance, net present value is the most "correct" way to estimate how much value a project will generate for investors.
5
30 sec
Q.
In finance, payback period is the most "correct" way to estimate how much value a project will generate for investors.
6
30 sec
Q.
If a project’s internal rate of return is higher than its discount rate, this implies that the project has a positive net present value.
7
30 sec
Q.
If a project’s internal rate of return is lower than its discount rate, this implies that the project has a positive net present value.
8
30 sec
Q.
Compound interest can be calculated by multiplying the interest rate times the number of compounding periods.
9
30 sec
Q.
Simple interest can be calculated by multiplying the interest rate times the number of compounding periods.
10
30 sec
Q.
Incremental cash flow is the additional cash flow that an organization receives from taking on a new project.
11
30 sec
Q.
Incremental cash flow is the total cash flow that an organization receives, including the value from taking on new projects.
12
30 sec
Q.
The NPV for a project is a time-weighted average return for a project, measured as a percentage.
13
30 sec
Q.
The IRR for a project is a time-weighted average return for a project, measured as a percentage.
14
30 sec
Q.
The gross value of assets minus accumulated depreciation is called the book value (a.k.a. net asset value).
15
30 sec
Q.
The net value of assets minus accumulated depreciation is called the book value (a.k.a. gross asset value).
16
30 sec
Q.
If a firm sells some of its inventory for cash, at a profit, this will result in an increase in net working capital.
17
30 sec
Q.
If a firm sells some of its inventory for cash, at a profit, this will result in an decrease in net working capital.
18
30 sec
Q.
If $100 is deposited today in an account with 5% compound interest, then the future value of the account in 2 years would 100 Ă— 1.052 = $110.25.
19
30 sec
Q.
If $100 is deposited today in an account with 5% compound interest, then the future value of the account in 2 years would 100 + 100*.05*2 = $110.00.
20
30 sec
Q.
Sunk costs should be included when calculating a project’s NPV.
21
30 sec
Q.
Sunk costs should not be included when calculating a project’s NPV.
22
30 sec
Q.
Payback period provides a precise measure and decision rule that properly accounts for the timing and riskiness of cash flows.
23
30 sec
Q.
Payback period provides a useful-but-rough decision rule that provides an alternative perspective (together with NPV) on the timing and riskiness of cash flows.
24
30 sec
Q.
The CAPM is most appropriate to use in situations where investors are well diversified; it is less appropriate to use in situations where investors have a significant proportion of their personal wealth invested in one business or project.
25
30 sec
Q.
The CAPM is most appropriate to use in situations where investors have a significant proportion of their personal wealth invested in one business or project; it is less appropriate when investors are well diversified.
26
30 sec
Q.
Rational investors would prefer to have $1 today rather than the promise of $1 in the future.
27
30 sec
Q.
Rational investors would prefer to have the promise of $1 tomorrow than $1 today.
28
30 sec
Q.
The cost of equity is the rate of return required by the company's ordinary shareholders in order for that investor to bear the risk of holding that company's shares.
29
30 sec
Q.
The weighted average cost of capital is the rate of return required by the company's ordinary shareholders in order for that investor to bear the risk of holding that company's shares.
30
30 sec
Q.
Publicly traded firms should use a discount rate to evaluate projects that is equal to the sum of diversifiable and non-diversifiable risk.
31
30 sec
Q.
Publicly traded firms should use a discount rate to evaluate projects that is based on an estimate of systematic risk of the firm's assets.
32
30 sec
Q.
A firm’s weighted average cost of capital can be calculated as the risk free rate plus the firm’s levered (equity) beta times the market equity risk premium.
33
30 sec
Q.
A firm’s cost of equity can be calculated as the risk free rate plus the firm’s levered (equity) beta times the market equity risk premium.
