MGMT8803 - Finance
Module I
1. What is involved in capital structure decisions: Balances between debt and equity capital
2. What is organice growth of a company?: Things like where to open a new store, enter a new product line
3. The goal of finance is to what?: Increase profits and expected cash flows and decrease the cost of capital
4. What is market capitalization: Outstanding Shares times Share value
5. Market value of Equity is the same thing as: Market Capitalization
6. identification, Evaluation, Selection and Implementation are parts of what?-
: Capital Budgeting
7. If you have $1000 and invest it at r=10% annually. At the end of 1 year, you'll have $1100. In this case r is also
known as what?: Opportunity cost of capital
8. FV_t = PV x (1+r)^t is the formula for what: Future value.
9. FV_t/(1+r)^t is the formula for what: Present Value.
10.What happens to shareholder value if NPV > 0: It goes up.
11.What happens to shareholder value if NPV<0?: It goes down.
12.The cost of capital that makes a project's net present value equal to zero is what?: IRR Internal Rate of
Return
13.If the IRR is greater than the cost of capital what should you do?: Invest in the project.
14. For mutually exclusive projects, which IRR should you go with?: The largest one
15.Which is preferable between payoff period and IRR when deciding on which project to invest?: IRR
16.What should you do if a profability index is less than one (benefit/cost)?: -
Don't invest in the project
17.Cost of Debt =: Treasury Bond Rate + Default Premium
18.What is the default premium: The amount charged on top of the treasury rate based on likelihood above the
treasury bond rate that a company defaults.
19.What rating does Exxon have?: AAA
20.100 basis points =____________%: 1
21.What is cost of equity?: the return required stockholders expect the firm to earn on its equity capital.
22.Cost of equity =: Treasury Bond Rate + Risk Premium
23.How many stocks are in the S&P 500?: 500
24.What are the two types of risk for a stock?: Firm and market
25.What is the Beta risk?: The market risk that you cannot eliminate by diversifi- cation.
26.What is the Beta value for S&P 500?: 1
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Module I
1. What is involved in capital structure decisions: Balances between debt and equity capital
2. What is organice growth of a company?: Things like where to open a new store, enter a new product line
3. The goal of finance is to what?: Increase profits and expected cash flows and decrease the cost of capital
4. What is market capitalization: Outstanding Shares times Share value
5. Market value of Equity is the same thing as: Market Capitalization
6. identification, Evaluation, Selection and Implementation are parts of what?-
: Capital Budgeting
7. If you have $1000 and invest it at r=10% annually. At the end of 1 year, you'll have $1100. In this case r is also
known as what?: Opportunity cost of capital
8. FV_t = PV x (1+r)^t is the formula for what: Future value.
9. FV_t/(1+r)^t is the formula for what: Present Value.
10.What happens to shareholder value if NPV > 0: It goes up.
11.What happens to shareholder value if NPV<0?: It goes down.
12.The cost of capital that makes a project's net present value equal to zero is what?: IRR Internal Rate of
Return
13.If the IRR is greater than the cost of capital what should you do?: Invest in the project.
14. For mutually exclusive projects, which IRR should you go with?: The largest one
15.Which is preferable between payoff period and IRR when deciding on which project to invest?: IRR
16.What should you do if a profability index is less than one (benefit/cost)?: -
Don't invest in the project
17.Cost of Debt =: Treasury Bond Rate + Default Premium
18.What is the default premium: The amount charged on top of the treasury rate based on likelihood above the
treasury bond rate that a company defaults.
19.What rating does Exxon have?: AAA
20.100 basis points =____________%: 1
21.What is cost of equity?: the return required stockholders expect the firm to earn on its equity capital.
22.Cost of equity =: Treasury Bond Rate + Risk Premium
23.How many stocks are in the S&P 500?: 500
24.What are the two types of risk for a stock?: Firm and market
25.What is the Beta risk?: The market risk that you cannot eliminate by diversifi- cation.
26.What is the Beta value for S&P 500?: 1
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