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1. The discount rate is related to the capitalization rate by the relationship discount rate = capitalization rate + long term sustainable growth rate. T or F?
2. The concept of present value is the inverse of future value compounding. T or F?
3. The IRR is the discount rate that will cause the net present value NPV to be zero. T or F?
4. For a given cash flow stream, as we raise the discount rate the net present value will go lower. T or F?
5. When considering two projects the one with the higher IRR will always be the better choice. T or F?
6. Total Assets must Equal Total Liabilities minus Owner's Equity. T or F
7. Operating profit causes an increase in owner's equity. T or F
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. T or F
9. The yield curve describes the relationship between short term rates and long term rates at any particular time. T or F
Multiple Choice
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
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
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
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