17. The ‘efficient market’ the
17. The ‘efficient market’ theory seems to be the reasonablebecause :
a. there are fewer financial analysts valuing securities
b. there are hundreds of investors trying to make money fromimproperly valued securities and the market forces which results indriving stock prices to a fair value
c. A and B
d. None of the above
18. Residue cash flows are estimated when:
a. the useful lives of alternatives are different
b. one asset has a shorter economics life than itsalternatives
c. one asset has a longer economics life than itsalternatives.
d. A and B
e A,B and C
19. Which of the following elements is needed to calculatepresent value payback?
a. Initial investment
.b. Present value of the annual cash flows
c. Both A and B
d. Neither A or B
20. In year four Ashworth LLC had EBIT of 500. Taxes were 40%and depreciation was 20. What was cash flow in year four?
a. 300
b. 320
c. 340
d. 360
21. Elvis LLC is investing in a new piece of equipment that cost$300,000. The new equipment will would generate a cash flow of$200,000 for each of the next three years.
What is the cost ration:
1
2
3
4
22. Which of the following methods results in a net presentvalue of zero ?
a. IRR
b. Payback
c. Discounted payback
d. None of the above
23. If a bound is issued at a premium the coupon rate is:
a. Equal to the marker rate of interest
b. Greater than the market rate of interest
c. less than the market rate of interest
Answer:
Answer : effective market theory means : The (now largelydiscredited) theory that all market participants receive and act onall of the relevant information as soon as it becomes available. Ifthis were strictly true, no investment strategy would be betterthan a coin toss. Proponents of the efficient market theory believethat there is perfect information in the stock market. This meansthat whatever information is available about a stock to oneinvestor is available to all investors 17) option is from the above”C”-both A&B. Residual cash flowis calculated by taking the net adjusted cashflows for the accounting period, reported on acashflow statement, and subtracting the cost of capital. Costof capital is determined by multiplying the total investment orequity by its financing cost, such as an adjusted interest rate.18) option is “E”- A,B andC. present value payback period = initialinvestment/present value of annual cash flow. 19) option is ‘C”-both A&B. 20) NET CASH FLOW= EBIT-TAX+DEPRECIATION.={500-40%}+20=320. Option “B”
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