Finance Assignment Example | Topics and Well Written Essays - 1750 words

Finance - Assignment Example 2. A firm that uses RADR to evaluate investment projects would be most likely to apply the highest risk-adjusted discount rate to which of the following projects? a) The overhaul and repair of a large piece of machinery that it has been using for five years. b) An investment in a new piece of machinery to produce new products to be sold in China. c) An investment in a fleet of trucks to be used for delivery of its products. d) An investment in a new machine that will be used to improve the production process for one of its more successful products it has been producing for about 7 years. 3. A corporate bond with ten years to maturity pays $45 interest semi-annually. If the current market rate of interest on bonds in the same risk class is 9 percent; this bond will be selling for: a) Much less than $1000 b) Much more than $1000 c) Approximately $1000 d) There is not enough information here to be able to determine the answer to this question. 4. You have just calculated the NPV on an i nvestment. It is a negative ($3.33). The IRR on this investment is: a) Equal to the cost of capital b) Higher than the cost of capital c) Lower than the cost of capital d) There is not enough information here to be able to figure out the answer to this question. 5. A firm has daily remittances (collections) of two million dollars and can earn 9 percent on investments of surplus cash. The maximum this firm should pay for a cash management system that will reduce collection time by three days is: a) $5,400,000 b) $1,800,000 c) $540,000 d) $180,000 e) $3,000,000 6. Which of the following courses of action in regard to financing working capital would be taken by a firm, wishing to take moderate risk and earn a moderate profit? a) Long-term financing and a relatively low level of liquid current assets. b) Long-term financing and a relatively high level of liquid current assets. c) Short-term financing and a relatively low level of liquid current assets. d) None of the above represents a position of moderate risk and moderate profits. 7. A firm does not maintain a single, exact, debt/equity ratio at all times because: a) It will want to sell debt when interest rates are low and sell common stock when stock prices are high. b) It will want to take advantage of timing its fund rising in order to minimize the cost of capital over time. c) The â€Å"market† allows some leeway in the debt/equity ratio before it begins to penalize the firm with higher required rates of return. d) All of the above help explain why a firm does not maintain a single, exact debt/equity ratio at all times. 8. The relationship between the price of a bond and market interest rates: a) Is a positively correlated linear relationship b) Is an inverse relationship c) Cannot be determined d) Cannot be determined without more information than is presented here. 9. The closer the correlation coefficient between two investment projects is to (-1), the greater is the a) Risk of the â€Å"portfoli o† when the two projects are combined b) Risk reduction on the â€Å"portfolio† when the two projects are combined c) Return on the â€Å"portfolio† when the two projects are combined. d) Variation on the â€Å"portfolio† returns as compared to the returns on the individual projects. 10. When comparing three investment projects, if the expected cash flows from one project have a higher standard deviation than the cash flows of the other two, which of the follow