UB MGF 401 - MGF301_Test_2_-_Fall_2010_-_Version_I_ (7 pages)

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MGF301_Test_2_-_Fall_2010_-_Version_I_



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MGF301_Test_2_-_Fall_2010_-_Version_I_

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Pages:
7
School:
University at Buffalo, The State University of New York
Course:
Mgf 401 - Financial Institutions

Unformatted text preview:

Name MGF 301 Corporation Finance Fall 2010 Student Number TEST 2 Version I Please sign name in box Please tear off the answer sheet and answer all of the following questions on the answer sheet Note Total Points 100 Multiple Choice 4 points each 1 The following arise out of a new project implemented by YT Inc Which of the following does not represent a cash flow that should be taken into account for capital budgeting purposes a an increase in overall company sales because of the project b a decrease in income taxes paid to the government because of the project c allocation of existing overhead expenses to the project d all of the above should be taken into account 2 Jon is conducting a capital budgeting analysis using NPV for a major expansion of his company He is concerned because there is a lot of uncertainty about what the market conditions will be for his product the next few years Jon has decided to decrease all of his revenue estimates because of the high risk of a bad outcome Is this the correct way to handle uncertainty in an NPV analysis a No because increased uncertainty is accounted for in an NPV analysis through a higher discount rate b No because uncertainty about estimates is not important to capital budgeting decisions c Yes NPV analysis requires the use of cash flows adjusted downward for risk d Jon will get the same NPV regardless of the cash flows he uses 3 Halle put 10 000 into a fund run by a professional manager three years ago at the end of 2007 Jason the professional manager uses public information and his 30 years of experience to try and pick winning stocks Halle s investment balance at the end of each year is as follows 2007 10 000 2008 8 000 10 000 2009 9 500 2010 Mark each statement below as T rue or F alse 2 points each a After three years Halle ended up with the same amount she started with so the E r of joining this fund in 2007 must have been 0 b Halle has decided to fire Jason and buy stocks herself by throwing darts at a list of



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