Day 2 Flashcards
What are the assumptions of the Black-Scholes option pricing model?
- No taxes or transaction costs exist
- Stocks behave in a random manner
- The stock pays no dividends
MCQ-04564
The Black-Scholes Merton option pricing model assumes what is constant?
The risk free interest rate over the options term in the calculation
MCQ-15865
What is the primary difference between the binomial (Cox-Ross-Rubstein) model and the Black-Scholes option pricing model?
The consideration of the option over a period of time and it can be used for stocks that pay dividends without model modification
binomial can be used for stocks that pay dividends without modification
MCQ-04565
Define: Premium bond value
When the Bond Interest Rate is higher than the Market Interest Rate
MCQ-14819
Define: valuing intangible assets - Market Approach
This approach requires that actual arms-length transactions in similar markets be used as reference for the asset to be valued
MCQ-04572
What costs are included in the replacement cost approach?
- legal fees
- materials and labor
- overhead
- production costs
- development costs
- opportunity costs
MCQ-04571
Equation: Annual OCF
= Pretax cash flow × (1-Tax rate) + (Depreciation × Tax rate)
MCQ-08558
Define: NPV
The net present value uses the hurdle rate to discount cash flows. If the NPV is positive, the project is acceptable.
MCQ-03373
A projects NPV is affected by the:
Proceeds from the sale of the asset to be replaced
MCQ-03379
What are the rates used to calculate NPV?
- Hurdle rate
- Cost of Capital
- Discount rate
- Required rate of return
MCQ-03769
How does the use of MACRS vs SL Depreciation affect the NPV?
Rule: the greater the depreciation the greater the depreciation tax shield
Increasing the present value of the depreciation tax shield
Depreciation Tax Shield = Depreciation Expense × Marginal Tax Rate
MCQ-03840
Equation: NPV
NPV = Discounted after-tax cash flows - Initial Investment
MCQ-04983
