examen 2 Flashcards
true or false
When performing a sensitivity analysis Variable costs change as the output changes
true
true or false When performing a sensitivity analysis: Fixed costs are not dependent on the amount of goods or services produces during the period
fals
A corporate finance manager is considering how to finance an investment project and wants your help create a strategy to avoid signaling.
Use pecking order theorem to find the appropriate strategy. Prioritize the means of financing and drag the financing method from the left to the appropriate numbered box to the right, then assign the method´s signal to investors. With 1 being the highest order and 3 being the lowest order.
strategi 1= finance internally => signals prowide no signals
strategi 2 = finance using bonds => signals signal that the shears is underprice
strategi 3 = finance using shares => signal that the shears is overprice
When considering the Payback period method which of the following is correct?
A) The payback period disregards the time value of money
B) The payback period does account for what happens after payback, taking into account the overall profitability of an investment.
C) The shorter the payback, the more desirable the investment
D) Shorter paybacks mean more attractive investments, while longer payback periods are less desirable.
E) The payback period is the cost of the investment divided by the annual cash flow.
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The payback period disregards the time value of money
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The shorter the payback, the more desirable the investment
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Shorter paybacks mean more attractive investments, while longer payback periods are less desirable.
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The payback period is the cost of the investment divided by the annual cash flow.
The term structure of interest rates are constructed of?
A) Interest rate risk premium
B) Inflation premium
C) Real rate
D) Discount factor
E) Bond rating
F) Growth rate
G) Share value
Real rate
Inflation premium
Interest rate risk premium
On risk and return, which is true?
A) Market risk can be eliminated with diversification
B) Expected return on a security is positively related to the security´s BETA
C) A diversified portfolio can eliminate all the risk associated with individual securities
D) Unsystematic risk increases proportionally with increased number of securities in a portfolio
Expected return on a security is positively related to the security´s BETA
Assume that the risk-free rate is 5% and the market risk premium is 8%. Security A has a beta of 0.75 and Security B has a beta of 1.25. Suppose that Security C has a risk-return characteristic such that it lies below the security market line. Is Security C a desirable investment? Why or why not?
A) Security C lies above the SML and so it is underpriced. In other words, it is yielding a return greater than what can be expected.
B) It is a desirable investment and can be purchased.
C) It is not a desirable investment and should not be purchased
D) Security C lies above the SML and so it is overpriced. In other words, it is yielding a return lower than what can be expected.
E) Security C lies below the SML and so it is underpriced. In other words, it is yielding a return greater than what can be expected.
F) Security C lies below the SML and so it is overpriced. In other words, it is yielding a return lower than what can be expected.
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Security C lies below the SML and so it is overpriced. In other words, it is yielding a return lower than what can be expected.
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It is not a desirable investment and should not be purchased
When considering investment projects using IRR. Which are correct?
A) When considering mutually exclusive investments. One can always reach a correct decision by accepting the larger project if the incremental IRR is greater than the discount rate
B) If we choose independent investment projects with highest IRR, NPV always gives the same decision
C) When a project has cash inflow followed by one or more outflows: One should accept when the IRR is below the discount rate
D) IRR does not give the same decision as NPV when considering independent investment projects where the initial outflows are only followed by a series of inflows
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When considering mutually exclusive investments. One can always reach a correct decision by accepting the larger project if the incremental IRR is greater than the discount rate
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When a project has cash inflow followed by one or more outflows: One should accept when the IRR is below the discount rate
Oppgave 16Financial statements
(1 point)
You are given the following information for Arion ASA in $ million
What is the change in net working capital in 2020?
diferansen fra 2019 to 2020 on curent assets - current libilties
(520-165) - (361-129) = 123
According to the course literature, it is suggested that a firms price-earning (PE) ratio is a function of which three factors?
A) The per share amount of the firm´s valuable growth opportunities
B) The risk of the stock
C) The type of accounting method used by the firm
D) Financial leverage
E) Operating leverage
F) Last years EBIT
G) Next years forecasted EBIT
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The risk of the stock
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The per share amount of the firm´s valuable growth opportunities
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The type of accounting method used by the firm
According to the course literature and considering the Profitability index (PI), which is FALSE?
A) We reject independent projects if PI < 1
B) For mutually exclusive project the PI method does not have the same scale problem as IRR
C) When choosing mutually exclusive projects and using the profitability index on the incremental cash flows with PI >1, we get the same result as using NPV
D) PI has an arbitrary cutoff date
E) PI is affected by accounting judgements
F) With capital rationing, the PI is is a useful method of adjusting the NPV
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PI is affected by accounting judgements
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For mutually exclusive project the PI method does not have the same scale problem as IRR
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PI has an arbitary cutoff date
disse stemmer ikke. alså de er false
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Is it possible that a risky asset could have a beta of zero and why/why not?
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No, as it is not possible to construct a portfolio of risky assets whose return would be equal or less than the risk free rate.
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Yes, as it is possible to construct a zero beta portfolio of risky assets whose return would be equal to the risk free rate.
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Unable to determine,
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Yes, as it is possible to construct a zero beta portfolio of risky assets whose return would be equal to the risk free rate.
Given the following alternatives, capital asset pricing theory asserts that portfolio returns are best explained by:
pick one:
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Diversification
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Systematic risk
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Specific risk
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Economic factors
Systematic risk
When considering risk analysis, which of the following is correct?
A) With scenario analysis, one variable is examined over a broad range of values.
B) With sensitivity analysis, all variables are examined for limited range of values
C) Forecasting risk is the risk that a bad decisions is made because of errors in projected cash flows.
D) From a shareholders perspective. A project that exceeds the accounting and cash break even points should under all circumstances be accepted.
Forecasting risk is the risk that a bad decisions is made because of errors in projected cash flows.
Consider the following sentence and fill in the blanks.
Both _______ and _________ measure the responsiveness of a security to movement in the market.
Select one or more alternatives:
Beta
Financial leverage
Covariance
Net present value
Operating leverage
WACC
Beta
Covariance
On bond price sensitivity. All other things being equal, which of the following are true?
A) The longer the time to maturity the greater the interest rate risk
B) The lower the coupon rate, the greater the interest rate risk
C) The higher the coupon rate the greater the interest rate risk
D) The shorter the time to maturity the greater the interest rate risk
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A) The longer the time to maturity the greater the interest rate risk
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B) The lower the coupon rate, the greater the interest rate risk
From a shareholders perspective, which break even point(s) is the most important?
A) Financial break even
B) Accounting break even
C) Cash break even
D) All equally important
A) Financial break even
Operating cash flow reflects:
A) Tax payments
B) Change in net working capital
C) Capital spending
D) Financing
A) Tax payments
In the figure above, what is line from Rf through M called? With M being market, where M is located on. (1, E(Rm)) in the graph
Characteristic line
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Portfolio asset line
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Security market line
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Individual security line
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Capital market line
Security market line
6 Q
In the figure, what is line II called? (Select one)
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Characteristic line, Portfolio asset line, Security market line, Individual security line, Capital market line
6 A
Capital market line
