格拉斯哥大学corporate finance mid-term exam.docVIP

For each question, please answer only one of the options. Students should answer all 20 questions. 1 hour multiple choice examination. 1st set In finance theory the maximisation of shareholder wealth means: Increasing the total value of a portfolio of shares owned by an investor through good advice by a broker Paying very high dividends in the next two to three years Having a major buy-back of shares in the near future The maximising of the purchasing power available from a shareholdering in a firm or the maximising of discounted cash flow to shareholders over a long time horizon. In an efficient market it is equivalent to maximising the share price In discounted cash flow analysis, which of the following is a bad decision rule? If NPV= ￡3,900m then accept the project If NPV= ￡1 then reject the project If NPV= -￡1,200 then reject the project If NPV= ￡100 then accept the project If NPV= -￡1 then reject the project What is the annual equivalent annuity of the following cash flows? Year 0 1 2 Cash flow -￡10,000 +￡1,000 +￡3,000 Discount rate is equal to 9%. -￡7,010 -￡6,558 -￡3,728 +6,558 -￡5,678 Solution NPV=-10+1/1.09+3/1.09^2=-6.5575 -6,5575/1.7591=-3.728 If the NPV of a project is ￡550 when discounted at 10% and -￡430 when discounted at 12%, which of the following is the IRR 10.56% 10.28% 11.22% 11.12% 13.28% Solution 10+550/(550+430)*2=11.12% Year 0 1 2 3 4 5 Cash flow -￡3,000 ￡1,000 ￡500 ￡1,000 ￡600 ￡2,000 Discount rate is equal to 8% Payback in 4 years and discounted payback in 3 years Payback in 5 years and discounted payback in 4 years Payback in 4 years and discounted payback in 2 years Payback in 4 years and discounted payback in 5 years Payback in 5 years and discounted payback in 5 years Solution 1,000+500+1,000+600=4,100. Payback in 4 years Year 0 1 2 3 4 5 Cash flow -￡3,000 ￡1,000 ￡500 ￡1,000 ￡600 ￡2,000 Discounted cashflows ￡925.93 ￡428.67 ￡793.83 ￡441.02 ￡1,361.17 Sum ￡925.93 ￡1,354.60 ￡2,148.43 ￡2,589.45 ￡3,950.61 Discounted payback 5 ye