Finance Quiz on Investment Concepts

<p>Minimizing risk and potential losses (B)</p> Signup and view all the answers

<p>The return on an investment with zero risk of loss (A)</p> Signup and view all the answers

<p>The RRR includes a risk premium, while the risk-free rate does not. (D)</p> Signup and view all the answers

<p>It provides a more comprehensive picture of a company's total value than market capitalization alone. (A)</p> Signup and view all the answers

<p>They are only available to institutional investors. (A)</p> Signup and view all the answers

<p>Venture capital firms invest in start-ups, while private equity firms invest in established companies. (C)</p> Signup and view all the answers

<p>When the company has a high level of immediate cash flow. (A)</p> Signup and view all the answers

<p>Decreased earnings per share. (A)</p> Signup and view all the answers

<p>Acting as an intermediary between companies and investors. (C)</p> Signup and view all the answers

<p>The average cost of capital for a company. (A)</p> Signup and view all the answers

<p>It decreases the cost of debt due to tax deductions. (D)</p> Signup and view all the answers

<p>It helps gauge the expense of funding future projects. (D)</p> Signup and view all the answers

<p>A lower WACC indicates a greater ability to fund new projects. (A)</p> Signup and view all the answers

<p>The IRR represents the discount rate at which the NPV equals zero. (B)</p> Signup and view all the answers

<p>The investment is expected to generate a return lower than the initial investment. (D)</p> Signup and view all the answers

<p>Equity investors typically demand a higher return on their investment due to their higher risk tolerance. (A)</p> Signup and view all the answers

<p>To provide a larger loan amount than a single lender could typically afford. (A)</p> Signup and view all the answers

<p>The cost of capital is significantly higher than the IRR. (D)</p> Signup and view all the answers

<p>To meet the capital needs of large borrowers that exceed a single lender's capacity. (A)</p> Signup and view all the answers

<p>By finding the discount rate that makes the NPV of a project equal to zero. (D)</p> Signup and view all the answers

<p>If the cost of capital is lower than the IRR, the NPV will be positive. (D)</p> Signup and view all the answers

<p>When companies need to borrow money for large capital projects, such as mergers, acquisitions, or buyouts (A)</p> Signup and view all the answers

<p>All of the above (D)</p> Signup and view all the answers

<p>All of the above (D)</p> Signup and view all the answers

<p>Economic growth generally leads to lower corporate bond yields due to reduced default risk and increased company profitability. (B)</p> Signup and view all the answers

<p>To predict future performance of a project or industry. (C)</p> Signup and view all the answers

<p>Inventory Valuation (B)</p> Signup and view all the answers

<p>All of the above (D)</p> Signup and view all the answers

<p>To create a pool of assets, and packaging them into tradable securities, making them more liquid. (A)</p> Signup and view all the answers

<p>$40 (D)</p> Signup and view all the answers

<p>The company's future dividend payments (B)</p> Signup and view all the answers

<p>The stock is undervalued (C)</p> Signup and view all the answers

<p>Current market price of the stock (C)</p> Signup and view all the answers

<p>Current assets (C)</p> Signup and view all the answers

<p>Securities Transactions Tax (C)</p> Signup and view all the answers

<p>An amount received as tax refunds due to past overpayments (D)</p> Signup and view all the answers

<p>Long-term bonds (D)</p> Signup and view all the answers

<p>Assessing the current market value of an asset or company (A)</p> Signup and view all the answers

<p>Earnings Per Share (A)</p> Signup and view all the answers

<p>The discounted payback period considers the time value of money while the payback period does not. (D)</p> Signup and view all the answers

<p>FCFE represents cash flow available to shareholders while FCFF represents cash flow available to all stakeholders. (A)</p> Signup and view all the answers

<p>Interest Expense (A)</p> Signup and view all the answers

<p>Incremental Principle (A)</p> Signup and view all the answers

<p>To evaluate the present value of future cash flows from an investment (D)</p> Signup and view all the answers

<p>When valuing a company with highly uncertain future cash flows (A)</p> Signup and view all the answers

Companies that buy firms to improve operations and increase revenues.

Investors who provide funding to start-ups with high growth potential.

Asset growth through addition or expansion, can be internal or via mergers.

Reduction in earnings per share from issuing more shares.

Banks that accept deposits and provide loans to businesses and consumers.

Intermediaries that help companies raise capital and provide advisory services.

Weighted Average Cost of Capital; a company's average cost of financing.

Represents the tax shield on interest, reducing actual debt cost.

A formula to calculate stock value based on future dividends and growth.

Valuation method that discounts predicted dividends to find stock price.

Excise tax on goods considered harmful to society.

Tax on purchase or sale of securities on Indian stock exchanges.

An account reflecting taxes owed in the future due to temporary differences.

An asset representing overpaid taxes expected to reduce future tax payments.

Assets that can be quickly converted to cash, like bank accounts and marketable securities.

Cost allocation of finite natural resources over time.

The difference between the present value of cash inflows and outflows, used to analyze profitability.

NPV = Cash inflows / (1+r)^n – Cash outflows, where r is the discount rate.

The discount rate making NPV equal to zero, measuring investment profitability.

A situation where cash flows are less than the initial investment, indicating a loss.

The interest expense on borrowed funds, which is tax deductible.

The return required by equity investors, typically higher than debt cost.

The process of multiple lenders providing portions of a loan to share risk.

The process of planning investments in long-term assets to improve profitability.

Transforming illiquid assets into securities by pooling and selling their cash flows to investors.

Economic elements influencing corporate bond yields include interest rates, inflation, and economic growth.

A quantitative method for forecasting a company's financial performance using hypothetical variables.

Corporate strategies involving the consolidation of companies through buying, selling, or combining.

Types of securities backed by a pool of loans or other debt, offering different risk levels to investors.

Higher interest rates raise borrowing costs, potentially lowering corporate bond prices and increasing yields.

Growing economy increases corporate revenues but can lead to inflation, affecting bond yields and labor costs.

The process of determining the current worth of an asset or company.

The time required to recover the cost of an investment.

The time to break even, considering the time value of money.

Cash available to equity holders after all expenses and reinvestments.

Cash available to all investors, including equity and debt holders.

A method to estimate the attractiveness of an investment using future cash flows.

Rules guiding cash flow estimations: Consistency, Incremental, Separation, Post-tax.

The minimum annual return needed to motivate investment in a security or project.

Theoretical return expected from an investment with zero risk over a specified period.

Alternative investments using pooled funds that aim to generate high returns using various strategies.

Strategies used to minimize risk, often through insurance or other protective measures.

A comprehensive measure of a company's total value, including debt and excluding cash.

The total market value of a company's outstanding shares.

The portion of ownership in a subsidiary not controlled by the parent company.

The return on an investment that outperforms a benchmark index.