D364 Financial Management - Set 3 - Part 3

Correct Answer: It accounts for the time value of money

NPV takes into account the time value of money by discounting future cash flows to present value, providing a comprehensive measure of a projects profitability.

Correct Answer: $8.00

Stock price is calculated as Market Value of Equity / Number of Shares Outstanding. In this case: $800,000 / 100,000 = $8.00.

Correct Answer: $50,000

Annual interest payments are calculated as Face Value Interest Rate. In this case: $1,000,000 5% = $50,000 per year.

Correct Answer: A companys liquidity, excluding inventory

The quick ratio measures a companys ability to meet short-term obligations without relying on the sale of inventory. It excludes inventory from current assets.

Correct Answer: Yankee bond

A Yankee bond is issued in the U.S. by a foreign company and denominated in U.S. dollars. Samurai bonds are issued in Japan, Bulldog bonds in the U.K., and Eurobonds in a different currency from the country of issuance.

Correct Answer: $60,000

ROE is calculated as Net Income / Total Equity. Rearranging the formula: Net Income = ROE Total Equity. In this case: 15% $500,000 = $75,000.

Correct Answer: To hedge against future price fluctuations

Forward contracts are used to lock in prices for future transactions, helping companies hedge against the risk of future price fluctuations.

Correct Answer: 2.0

The equity multiplier is calculated as Total Assets / Total Equity. Total Equity = $1,200,000 - $800,000 = $400,000. Therefore, Equity Multiplier = $1,200,000 / $400,000 = 3.0.

Correct Answer: To regulate and oversee securities firms

FINRA is a self-regulatory organization that oversees brokerage firms and exchange markets, ensuring compliance with securities laws.

Correct Answer: 2.0

The current ratio is calculated as Current Assets / Current Liabilities. In this case: $100,000 / $60,000 = 1.67.