Name Fall 2013 EXAM \"2 SECTION1 SECTION Answer all questions). Circle the leter
ID: 2787507 • Letter: N
Question
Name Fall 2013 EXAM "2 SECTION1 SECTION Answer all questions). Circle the leter for the correct answer. ID 24 points I Ifan asset is sold for less than its deprociation hook value, it is taxed at the capital gain axa taxed at ondinary income tax rate sabject so tax savings due to capital o not subject to any income tax comideration 2. gesinthe firm's cash flows th are a direct consequence of ace ng aea are crosion cash flowsNet present value cash flows incremental cash flows d After tas cash flows Under the IRR method, a projoct is acceptod if the IRR is b. greater than the hurdle rate d equal to the risk premiu US tax lawvening the accelerwed wrteoff of less than or oqual to the hurdle rate . equal to the risk-free rate The depreciation method currently allowable un property under various lise-time classifications is called 4" LIFO deprociation Modified ACRS or MACRS depreciation d straight-line depreciation 5. An analysis of what happens to NPV estimates when only one variable is changed is called Break-even analysis sensitivity analysis c scenario analysis d simulation analysis b. 6 Which investment criterion produces multiple rates of return when the cash flow is uncoeventiona? Average Accounting Rate of Retum Profitability Index b. Net Present Value d Intermal Rate of Return defntion, when two projects are-- -.undertaking one ofte, des preclude our taking on the other. a. identical b similarindependent mually exclusive 8. The components of roquired retun on a stock are a dividend yield and current pain c. Dividend yield and capital gain b. curren yield and funure yield d. capital gain and capital yield 9. The stock valuation model that determines the current stock price as the next dividend divided by the (discount rate less the dividend growth rate) is called the c) Capital Asset Pricing Model a) Zero growth model b) Gordon (Dividend) growth model. d) Earnings capitalization model Which of the following would not be listed on the face of a bond ? 10. The coupon interest rate. b. The maturity date its current market price. e· d, coupon payee and now desee to sell it. The interest rate on bonds ofequivalent risk isi% This bond will sell at a. face value b.party a premium d a discount e. both a and b are comect 12. Return on a bond measured as the coupon divided by the curent price is called b. yield to maturity d. required return coupon rae current yiekd brokerage market Commissioner A stock market in which previously issued securities are traded among investors is called a. econdary market 13. b. primary market d. both b. and c. are corredt An agent who arranges security transactions among investors is referred to as a. dealer 14. b. broker d. contractorExplanation / Answer
1.
If an asset is sold for less than its depreciation book value, it is subject to tax saving due to capital loss.
Option (C) is correct answer.
2.
Change in the firm cash flow that are a direct consequence of accepting a project are called incremental cash flow.
Option (C) is correct answer.
3.
Under IRR method, a project is accepted only when IRR of project is more than hurdle rate or cost of capital.
Option (B) is correct answer.
4.
The depreciation method currently allowable under US tax law governing the accelerated write off property under various life time classification is called Modified ACRS or MACRS depreciation.
Option (C) is correct answer.
5.
An analysis of what happen to NPV estimates when only one variable is changed is called sensitivity analysis.
Option (B) is correct answer.
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