AFM341 Study Guide - Final Guide: Business Process, Real Options Valuation, Strategy Map

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lemonbeetle804

16 Dec 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM341

Professor

Adeel Mahmood

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Document Summary

In making the business case for an it investment, companies should assess the sensitivity of results to the assumptions. Answer: true: the appropriate cost of capital to use in valuing an it project is the same regardless of the project riskiness. Answer: false: capital budgeting techniques provide precise estimates on an it projects costs and benefits. Answer: false: net present value techniques compute the unique rate of return for a particular it project. Answer: false: one weakness of the internal rate of return financial metric is that larger projects tend to have higher internal rates of return. Answer: false: the value proposition step in the analysis of an it initiative should focus on five questions, including the timing of expected benefits. Answer: true: the benefits of an it project are not necessarily measurable in financial term s. Answer: false: benefits are often estimated without complete information.

Related Questions

1. Which of the following would be included among the investment numbers of a capital budget?

A. Purchase price of the asset

B. Trade- in value of an asset being replaced

C. Investment tax credit from acquistion

D. Installation costs of the machinery

E. All of the above

2. A valuation determines whether a merger should occur; legalities determine what form the business combination should be.

A. True

B. False

3. A FRICTO analysis enables prudent mangers to assess important issues in asset financing

A. True

B. False

4. Timing issues involve:

A. The costs of the alternative forms of capital

B. Sequencing the alternatives, once funding amouts are known

C. None of the above

D. A & B

5. The present value of a cash flow allows an investor to assess:

A. The present value of a future cash flow

B. The value of a stream of cash flows in terms of the best and most certain alternative

C. What equivalent present payment would be equally acceptable in lieu of the investment consideration

D. A & B

E. A, B, & C

6. Hypothesis that are formed during the qualitative analysis cannot be verfied when the analyst reviews the firm's historical performance.

A. True

B. False

7. If a company consistently uses hurdle rates that are higher than its marginal cost of capital, then:

A. It will certainly increase its earnings

B. It may have fewer and fewer investment activities

C. The risk of the firm will decrease

D. A & C

E. B & C

8. If mangers have discovered an actractive investment but financing opportunities are not good as they have been, they should probaly not delay the acqusition since financing and investment decisions should not be mixed.

A. True

B. False

9. The ratio which many observers use to quantify the stock maerkt's opinion of a firm is the:

A. ROE

B. EPS

C. D/E

D. E/A

E. None of the above

10. In a staple predictable industry an average of the previous 10 year's sales growth figures probably a less accurate forcast than assuming the avg. level of sales next year as in the current year.

A. True

B. False

11. The utility of sensitivity analysis is great in merger valuations as it is in capital budgeting.

A. True

B. False

12. Present value calcualtions allows mergers to:

A. Choose assets which creaste the most value even if their cash flows are times differently

B. Express present values in terms of future cash flows

C. Create value for the firm

D. A & C

E. A,B, & C

13. FRITCTO analysis does not print our poor investments.

A. True

B. False

orangeeagle209

Hello, I am having some trouble with my Finance homework. I was wondering if someone could check the answers for me. (explanations are very helpful, but not necesary)

1) How much money will Jane Mims have in three years if the money compounds at an annual rate of 10% and she sets aside $1000

A) $1300

B)$1331

C) $1406

D) $1420

E) None of the Above

2) As the interest rate used to discount future cash flows is decreased, present value of the future cash inflows....

A) Increases

B) Decreases

C) Stays the Same

3) The ratio which many observers use to quantify the stock market's opinion of a firm is the....

A) ROE

B) EPS

C) D/E

D) P/E

E) None of the above

4) Compound rates, not discount rates, are used in an attempt to....

A) Screen out weak investments

B) quantify the firm's opportunity costs

C) Quantify the Firm's risk

D) A & B

E) None of the above

5) If Carla Rice puts $200 in the bank for nine years, and the money compounds at 7% annually, how much will Carla have at the end of the nine year period?

A) $362

B) $368

C) $374

D) $381

E) None of the Above

6) Adrian Ardell is saving for a new guitar. How much must Adrian set aside now to receive $4000, seven years from nowusing a compound interest rate of 7% annually?

A) $2400

B) $2491

C) $2411

D) $2500

E) None of the Above

7) Which of the following would be included among the investment numbers of a capital budget?

A) Purchase price of the asset

B) Trade - In - Value of an asset being replaced

C) Investment tax credit from acquistion

D) Installation costs of the Machinery

E) All of the above

8) Synergy between two companies

A) Is the complementary situation where value is created in the joining of the firms

B) May result in the improvement of the acquire's bottom line

C)Could be defined by purely qualitative benefits

D) A & C

E) A, B, & C

9) Gadsen acquires Digital corporation which is upstream in the marketing chain. This is an example of....

A) Diversification

B) Vertical Integration

C) Horizontal Integration

D) None of the Above

10) The cost of capital can be defined as

A) the weighted average cost of attracting investors to the firm

B) The price of obtaining funding for the firm, weighted according to target ratios in the capital structure

C) Less than the weighted average return that investors in the firm require

D) A & B

E) A, B,& C

Hello, I am having trouble with my financial homework. I was wondering if I could compare my answers (explaining the answer is much appreciated, but not necessary)

1) Which of the following ratios is not a liquidity ratio?

A) ROE

B) Current

C) Quick

D) Recievables turnover

E) None of the above

2) Which of the following methods does not consider the time value of money?

A) IRR

B) NPV

C) Payback

D) None of the above

33) Which of the following limits a firms ability to rasie equity through retaied earnings?

A) Set dividend policy

B) Low P/E

C) High P/E

D) None of the above

4) Ellison corporation acquires Redstone corporation because Redstone has unused production facilities that Ellison needs. This is an example of....

A) Diversification

B) Vertical Integration

C) Horizontal Integration

D) None of the Above

5) Gilber Jones is saving for a new outboard motor. he needs to have $10000 four years from now. How much must he set aside now to have $10000 four years from now if money compounds 12% annually?

A) $6310

B $6355

C) $6332

D) $6106

E) none of the above

6) James Company acquires Johns company. Johns is in a totally unrelated business to James. This is an example of....

A) Vertical integration

B) Horizontal integration

C) Diversification

D) None of the above

7) Projected sales growth assumes.....

A) Adequate asset base

B) Decrease in property, plant, and equipment

C) Decrease in accounts receivable

D) Decrease in inventory

E) None of the above

8) Aspect company acquires Penn company, which is downstream in the production chain. This is an example of....

A) Diversification

B) Vertical Integration

C) Horizontal Integration

D) None of the above

9) If the bond's coupon rate is greater than the general interest rates in the market, the bond will sell at a.....

A) Premium

B) Discount

C) Neither A nor B

AFM341 Study Guide - Final Guide: Business Process, Real Options Valuation, Strategy Map

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