Business Finance Name ________________
Fall 2000
Examination Three
Select the best answer to each of the following questions and mark your selection on the exam. Also, record your answer on the answer sheet on the back of the exam. Detach the answer sheet when you finish. Exam keys will be posted after the exam is completed. Your score will be based on your answers on the exam and not on the answer sheet.
3 points each
1. A traditional technique for valuing assets is:
D0(1+g)
Value = -----------
(k - g).
The use of this model requires that:
A. The earnings of the firm are growing faster than the dividends.
B. The firm is publicly traded.
C. The required rate of return (k) is greater than the growth rate (g).
D. The growth rate (g) is positive.
E. The dividend is constant over time.
2. If the net present value of a proposed project is negative, then:
A. the internal rate of return for the project is less than zero
B. the internal rate of return for the project is less than the required rate of return.
C. the internal rate of return for the project is greater than the required rate of return.
D. the internal rate of return for the project is less than the modified internal rate of return.
E. the internal rate of return for the project is zero.
3. Which of the following would increase the NPV of the project being considered (all other things held constant)?
A. A reduction in the operating costs associated with the project.
B. An increase in the initial cost of the project.
C. An increase in the required rate of return on the project.
D. A reduction in the incremental revenues generated by the project.
E. The use of straight-line depreciation rather than an accelerated method of depreciating the asset.
4. A significant weakness of the Internal Rate of Return (IRR) evaluation technique is:...
