UB MGF 401 - MGF301_Test_2_-_Spring_2008_Version_I (6 pages)

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MGF301_Test_2_-_Spring_2008_Version_I



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MGF301_Test_2_-_Spring_2008_Version_I

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Pages:
6
School:
University at Buffalo, The State University of New York
Course:
Mgf 401 - Financial Institutions

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Name Student Number TEST 2 MGF 301 Corporation Finance Spring 2008 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 unless otherwise indicated 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 A decrease in required inventory levels b An increase in income taxes paid to the government c Labor costs to run the new machinery for the project d All of the above should be taken into account 2 Anthony has earned actual returns of 5 10 and 2 the last three years on an investment he made three years ago Which of the following must be true about the expected return on this investment a E r Rf b E r Rf c E r Rf d E r 0 3 You currently own only a single stock that has 1 5 If you form a portfolio by buying another stock with 1 5 are you reducing the expected level of market risk in your portfolio a No because the portfolio still has a 1 5 b No because all stocks have risk and you can only reduce risk by adding a bond c Yes because the second stock will cancel out some of the variation in the first stock d Yes because the portfolio will now have a 75 4 Mark each statement about capital budgeting as true or false 2 points each a If a project has negative cash flows in time periods 0 1 and 2 then there is no way to calculate the NPV b The time value of money is included in the IRR analysis by discounting future cash flows to the present c The Payback method ignores cash flows after the required payback period d To find the IRR you must first know the discount rate 5 If markets follow the semi strong form of efficient market theory which is not true a market prices should quickly reflect all public information b stock prices will only increase when there is news that is publicly announced Name Student Number c if stock prices



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