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- 9. Which of the following statements is CORRECT? Group of answer choices One defect of the IRR method is that it does not take account of the cost of capital. One defect of the IRR method is that it values a dollar received today the same as a dollar that will not be received until sometime in the future. One defect of the IRR method is that it does not take account of the time value of money. One defect of the IRR method is that it does not take account of cash flows over a project's full life. One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree? Discuss.15. Since a financial manager prefers to receive cash flows as fast as possible,____.A. a longer depreciable life is preferred to a shorter oneB. a shorter depreciable life is preferred to a longer oneC. the manager is not concerned with depreciable life, because depreciation is a noncash expenseD. the manager is not concerned with depreciable life, because once depreciation is a sunk cost.
- Efficiency in adding value to an asset that is less valued is key to creating wealth. In what instance is this model not applicable? O when incidental restrictions require it so O when the organization redirects goals for higher productivity O when possibility of a shift spells provision of growth O when the organization is raking high percentage of returnWhich of coming up next isn't a money inflow? a) Decrease in borrowers b) Issue of offers c) Decrease in leasers d) Sale of fixed resourcesWhen measuring the investment of the firm, assets are often used. Select all that are issues with this measurement: Question 2 options: a) The book value of assets declines with use for sales (matching), which makes it appear that the same sales can be made with a smaller investment in assets in the future b) The firm has paid for these assets already (cash flow in the past) c) The market value of assets can vary d) Assets do not represent everything that is needed to make sales
- i Explain how wrong calculation of the cost of capital of a project leads toincorrect choice of a project. ii Explain the superiority of the Security Market Line (SML) approach ascompared to the dividend valuation model. iii A company is faced with the choice of one of two investment opportunities Aand B. The initial cost of each is Rs.200,000 and their estimated cash flows areas follows.Year Cash Flows (Rs.) – A Cash Flows (Rs.)- B1 200,000 40,0002 240,000 60,000Assuming a cost of capital of 7% calculate (year 1: .935; year 2: .873)a. NPVb. The yield rate of each projectc. Say which project you would selectWhy is the depreciation tax shield a component of analyzing investment decisions? O A. Depreciation causes a cash outflow that is added to determine net income. O B. Though no cash was paid out, depreciation was included on the tax return, which caused the company to pay taxes on the amount of depreciation. O C. Depreciation lowers cash outflows for income taxes paid. O D. Depreciation creates cash flows that do not appear on the income statement.Which of the following is not true? GAP analysis Ignores changes in the market value of assets and liabilities. GAP analysis Ignores time value of money. GAP analysis is easy to compute and can accurately predicts the exact losses or gains Gap analysis fails to capture non-interest revenue
- Which of the following decreases the cash holding A.The rising commodity prices increases the value of law material inventoriesby 10% B.A manufacturer decreases production in anticipation of a decrease in demand C.THe frim repurchases its own stocks D.THe corporation has decided to give their customer less time in paying their purchasesPresent value of an amount lesser than its value that is to be received (paid) in the future because of what reason? a.Deflation causes investors to lose purchasing power when their pesos are invested for greater than one year. b.Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future. c.Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted. d.Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future. e.None of the choices is a correct answer.The TRUTH about Free Cash Flow (FCF): FCF decreases when additional investments in working capital are needed Terminal value is deducted from the PV of FCF to arrive at valuation Accelerated depreciation methods reduces FCF O FCF is estimated on a before tax basis
