Subject: Business / Finance
Are the following capital budgeting or financial decisions? Intel decides to spend $1 billion to develop a new microprocessor. Avon spends $200 million to launch a new range of cosmetics in US markets. Pfizer issues new shares to buy a small biotech company. Toyota borrows $350 million yen from Bank of Tokyo.
Which of the following are financial assets, and which are real assets? A patent. A share of stock issued by Microsoft. A new laser machine used by a manufacturing company. A real estate loan to buy property for a new location.
What are agency problems and agency costs? Give two examples of decisions by managers that lead to agency costs.
Explain the distinction of: Primary market vs. secondary market. Capital market vs. money market. Stock market vs. fixed-income market. Foreign exchange market vs. commodities market.
What are the key differences between a mutual fund and a bank or an insurance company?
Would the following activities increase or decrease the firm’s cash balance? Inventories are increased. Accounts payable are decreased. Additional common stock is issued. New equipment is purchased.
What information is contained in the: Balance Sheet. Income Statement. Retained Earnings Statement. Cash Flow Statement.
What are some of the measures used to assess financial performance?
How can we calculate present and future values for streams of cash payments?
Why do investors pay attention to bond ratings and demand a higher interest rate for bonds with low ratings?
Explain market values, book values and liquidation value of stock.
True/False: If stock prices follow a “random walk”: Successive stock prices are not related. Successive stock price changes are not related. Stock prices fluctuate above and below a normal long-range price. The history of stock prices cannot be used to predict future returns to investors.
Technical analysts and fundamental analysts try to earn superior returns in the stock market. Explain how their efforts help keep the market “efficient”.
Explain the net present value of an investment, and how is NPV calculated?
Explain the internal rate of return of an investment, and how is IRR calculated?
A firm is considering an investment in a new manufacturing plant. The site is already owned by the company, but existing building would need to be demolished. Which of the following should be treated as “incremental” cash flows? The market value of the site. Demolition costs and site clearance. The cost of a new access road put in last year. Lost cash flows on other projects due to executive time spend on the new facility.
How do changes in working capital affect project cash flows?
What is the basic difference between sensitivity analysis and scenario analysis?
What is the basic difference between sensitivity analysis and break-even analysis?
Investments in new products or production capacity often include an option to expand. What are the other major types of options encountered in capital investment decisions?
Why is managerial flexibility important in capital budgeting?
An investor is currently fully invested in gold mining stock? Explain which action would do more to reduce portfolio risk and why: Diversification into silver mining stock. Diversification into automotive stock.
What is the difference between specific risk (can be diversified away), and market risk (cannot be diversified away)?
How can you measure and interpret the market risk or beta of a security?
What is the relationship between the market risk of a security and the rate of return that investors demand for that security?

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