UB MGF 401 - MGF301_Test_2_-_Spring_2011_Test_2a (6 pages)

Previewing pages 1, 2 of 6 page document View the full content.
View Full Document

MGF301_Test_2_-_Spring_2011_Test_2a



Previewing pages 1, 2 of actual document.

View the full content.
View Full Document
View Full Document

MGF301_Test_2_-_Spring_2011_Test_2a

170 views


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

Unformatted text preview:

Name Student Number TEST 2 MGF 301 Corporation Finance Spring 2011 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 X 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 income taxes paid to the government because of expenses of project X b increase in electricity usage because of new machinery c an increase in sales of a related YT Inc product caused by project X 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 use his best estimate for the revenue even though there is a lot of uncertainty Is this the correct way to handle uncertainty in an NPV analysis a No he should use worst case estimates for cash flows if there is a lot of uncertainty b No NPV analysis requires the use of best case scenario cash flows c Yes because increased uncertainty is accounted for in an NPV analysis through a higher discount rate d It doesn t matter what cash flows Jon uses as he will get the same NPV 3 In which of the following investments is an investor expected to earn the most over a 40 year period A E r 1 and 100 2 and 10 Explain your answer 6 points B E r 0 and 25 C E r 4 Mark each statement about capital budgeting as true or false 2 points each a If a company accepts a project with a positive NPV the value of the company increases by the NPV b The IRR decision rule will give the same answer as the NPV decision rule for projects where none of the flaws with IRR are present Name Test 2 Spring 2011 Student Number c The payback method is not used as



View Full Document

Access the best Study Guides, Lecture Notes and Practice Exams

Loading Unlocking...
Login

Join to view MGF301_Test_2_-_Spring_2011_Test_2a and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view MGF301_Test_2_-_Spring_2011_Test_2a and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?