1. The ‘efficient market’ theory seems to be the reasonable because :

a. there are fewer financial analysts valuing securities

b. there are hundreds of investors trying to make money from improperly valued securities and the market forces which results in driving stock prices to a fair value

c. A and B

d. None of the above

2. Residue cash flows are estimated when:

a. the useful lives of alternatives are different

b. one asset has a shorter economics life than its alternatives

c. one asset has a longer economics life than its alternatives.

d. A and B

e A,B and C

3. Which of the following elements is needed to calculate present value payback?

a. Initial investment

b. Present value of the annual cash flows

c. Both A and B

d. Neither A or B

4. 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

5. Which of the following methods results in a net present value of zero ?

a. IRR

b. Payback

c. Discounted payback

d. None of the above

6. 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