FIN-515-Managerial-Finance-Final-Exam-Complete-A-
Answer
1. (TCO A) In the United States, which of the following types of organization has the
greatest revenue in total?
a. Sole proprietorship
b. C corporation
c. S corporation
d. Limited partnership
Question 2. (TCO A) Which of the following statements is NOT correct? (Points : 5)
The corporate valuation model can be used both for companies that pay dividends
and those that do not pay dividends.
The corporate valuation model discounts free cash flows by the required return
on equity.
The corporate valuation model can be used to find the value of a division.
An important step in applying the corporate valuation model is forecasting the firm's
pro forma financial statements.
Free cash flows are assumed to grow at a constant rate beyond a specified date in
order to find the horizon, or terminal, value.
Question 3. (TCO A) Sole proprietorships have all of the following advantages except ?
a. easy to set up.
b. single taxation of income.
c. limited liability.
d. ownership and control are not separated.
Question 4. (TCO B) Which of the following would cause the present value of an annuity to
decrease?
, FIN-515-Managerial-Finance-Final-Exam-Complete-A-
Answer
a. Reducing the number of payments.
b. Increasing the number of payments.
c. Decreasing the interest rate.
d. Decreasing the liquidity of the payments.
Question 5. (TCO B) In a TVM calculation, if incoming cash flows are positive, outgoing
cash flows must be
a. positive.
b. negative.
c. either positive or negative. It really doesn’t matter.
d. stated in time units that are different from the time units in which the
interest rates are stated.
Question 6. Which of the following statements is correct? (Points : 5)
One advantage of the NPV over the IRR is that NPV takes account of cash flows
over a project’s full life, whereas IRR does not.
One advantage of the NPV over the IRR is that NPV assumes that cash flows
will be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at
the IRR. The NPV assumption is generally more appropriate.
One advantage of the NPV over the MIRR method is that NPV takes account of cash
flows over a project’s full life, whereas MIRR does not.
One advantage of the NPV over the MIRR method is that NPV discounts cash flows,
whereas the MIRR is based on undiscounted cash flows.
Since cash flows under the IRR and MIRR are both discounted at the same rate (the
WACC), these two methods always rank mutually exclusive projects in the same order.
Question 7. (TCO G) The Chadmark Corporation's budgeted monthly sales are $3,000.
In the first month, 40% of its customers pay and take the 2% discount. The remaining
60% pay in the month following the sale and don't receive a discount. Chadmark's bad
debts are very small and are excluded from this analysis. Purchases for next month's
Answer
1. (TCO A) In the United States, which of the following types of organization has the
greatest revenue in total?
a. Sole proprietorship
b. C corporation
c. S corporation
d. Limited partnership
Question 2. (TCO A) Which of the following statements is NOT correct? (Points : 5)
The corporate valuation model can be used both for companies that pay dividends
and those that do not pay dividends.
The corporate valuation model discounts free cash flows by the required return
on equity.
The corporate valuation model can be used to find the value of a division.
An important step in applying the corporate valuation model is forecasting the firm's
pro forma financial statements.
Free cash flows are assumed to grow at a constant rate beyond a specified date in
order to find the horizon, or terminal, value.
Question 3. (TCO A) Sole proprietorships have all of the following advantages except ?
a. easy to set up.
b. single taxation of income.
c. limited liability.
d. ownership and control are not separated.
Question 4. (TCO B) Which of the following would cause the present value of an annuity to
decrease?
, FIN-515-Managerial-Finance-Final-Exam-Complete-A-
Answer
a. Reducing the number of payments.
b. Increasing the number of payments.
c. Decreasing the interest rate.
d. Decreasing the liquidity of the payments.
Question 5. (TCO B) In a TVM calculation, if incoming cash flows are positive, outgoing
cash flows must be
a. positive.
b. negative.
c. either positive or negative. It really doesn’t matter.
d. stated in time units that are different from the time units in which the
interest rates are stated.
Question 6. Which of the following statements is correct? (Points : 5)
One advantage of the NPV over the IRR is that NPV takes account of cash flows
over a project’s full life, whereas IRR does not.
One advantage of the NPV over the IRR is that NPV assumes that cash flows
will be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at
the IRR. The NPV assumption is generally more appropriate.
One advantage of the NPV over the MIRR method is that NPV takes account of cash
flows over a project’s full life, whereas MIRR does not.
One advantage of the NPV over the MIRR method is that NPV discounts cash flows,
whereas the MIRR is based on undiscounted cash flows.
Since cash flows under the IRR and MIRR are both discounted at the same rate (the
WACC), these two methods always rank mutually exclusive projects in the same order.
Question 7. (TCO G) The Chadmark Corporation's budgeted monthly sales are $3,000.
In the first month, 40% of its customers pay and take the 2% discount. The remaining
60% pay in the month following the sale and don't receive a discount. Chadmark's bad
debts are very small and are excluded from this analysis. Purchases for next month's
