True or False:
Problem 1. The discount rate is related to the capitalization rate by the relationship discount rate = capitalization rate + long term sustainable growth rate.
Problem 2. The concept of present value is the inverse of future value compounding.
Problem 3. The IRR is the discount rate that will cause the net present value NPV to be zero.
Problem 4. For a given cash flow stream, as we raise the discount rate the net present value will go lower.
Problem 5. When considering two projects the one with the higher IRR will always be the better choice.
Problem 6. Total Assets must Equal Total Liabilities minus Owner’s Equity.
Problem 7. Operating profit causes an increase in owner’s equity.
Problem 8. Depreciation is a non-cash expense so that to calculate the cash produced by the business it is necessary to add back the depreciation charge.
Problem 9. The yield curve describes the relationship between short term rates and long term rates at any particular time.
Multiple Choice:
Problem 1. Discount rate can be derived from which method(s)
A. WACC weighted average cost of capital
B. Build-up method
C. Capitalization Rate
D. All of the above
Problem 2. If a firm has too much cash it can simply
a. pay a dividend
b. buy back stock
c. reduce debt
d. all of the above
Problem 3. WACC is the same as the:
A. Discount Rate
B. Investors Required Rate of Return
C. Hurdle rate (that we compare to the IRR)
D. All of the above