1. Which items are necessary in calculating the net present value of a project?      I. Investment outlays      II. Discount rate      III. Incremental cash flow      IV. Time period for the project I, II and IV I, II and III II, III and IV All of the above

2—- Operating cash flow is generated by a company’s daily operations related to production and sales of goods and/or services. True False

3. Scenario analysis is a way of testing forecasts by changing one assumption at a time. True False

4—

. Suppose a riskless project requires an initial investment of $10 and will generate a one-time cash inflow of $30 two years later. Assuming a risk-free interest rate of 5%, which of the following statements about the project is NOT true? The net present value of the project is positive. The IRR is greater than 50 percent. The accounting rate of return on the project is positive. The payback period is less than 2 years

5—-Analysis of a company’s financial statements: Below are simplified versions of the balance sheet and income statement for Toys by Tom, Inc. Use this information to answer the following question.

Toys by Tom, Inc. has a current ratio of ____, suggesting ________.

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9.6; reasonable ability to cover interest expense

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0.57; potential illiquidity

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0.21; potential collection problems

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1.75; reasonable liquidity

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6—It is possible for a company to grow faster than its sustainable growth rate.

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True

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False

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7—Selecting investment projects according to rules based either on project NPV or IRR results in maximizing firm value.

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True

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False

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8—Analysis of a company’s financial statements: Below are simplified versions of the balance sheet and income statement for Toys by Tom, Inc. Use this information to answer the following question.

What is Toys by Tom, Inc. return on assets (ROA)?

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6.9%

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0.86

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9—Which of the following is commonly used in preparing pro forma statements:

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Historical financial statements

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Projected sales

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Efficiency ratios

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All of the above

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