Discussion 4 - NPV & IRR

Comment on the following statements with suitable example: i. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall. ii. Explain how return on assets could decline, given an increase in net profit margin. iii. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.

Consider the following statement: "The estimation of the Free Cash Flow to the Firm (FCF) considers investment decisions but ignores financing decisions." Is this statement true or false? Explain your answer.

Which of the following is not an advantage of the average rate of return method? a.includes the amount of income earned over the entire life of the proposal b.takes into consideration the time value of money c.emphasizes accounting income d.easy to use

A centerpiece of any study of finance is "valuation." A simple function, "V=l/R," can be used to describe an asset's "value." What does the "R" in that expression stand for? O a future cash flow O a current cash flow O a market-determined discount rate O a variable income measure O a measure of probability

A primary strength of the net present value method for analyzing investments is that it accounts for the amount and timing of earnings for that investment. A.   True B.   False

Which of the following is an advantage of the average accounting return (AAR)? Multiple choice question. It is based on cash flows and market value. It accounts for the time value of money. Its input data are easily available. It uses an arbitrary benchmark cutoff rate.

The most accurate way to analyze the profitability of an investment is to compute the payback period. A.   True B.   False

What is the definition of “opportunity cost” as it relates to the time value of money? It is the loss of a potential gain choosing one alternative over another, particularly ignoring the time value of money. It is the benefit side of the cost/benefit ratio. It is the price of selling an asset. It is the amount of money invested in saving bonds. exoplain your answer give correct answer

Profitability index. It is a ratio that provides information about the present value of net cash flows to the net investment. It provides a measure of the relative present value return for each dollar of initial investment. Discuss its usefulness. Should managers rely upon it? Consider its usefulness in a capital rationing situation (capital investment under conditions of financial restraint).

Which of the following decision criteria is the easiest to use and very popular among investors? O Payback period. O Internal rate of return. O Average accounting return. Net present value. O Discounted return on investment.

Which method does not consider the time value of money? Choose the correct. A. Net present value B. Internal Rate of Return C. Average rate of return D. Profitability Index

I need help in this question!! What does ROI stand for in finance?A) Return on InvestmentB) Rate of InterestC) Revenue on IncomeD) Return on Insurance

Use IFRS 9 to determine how to subsequently measure the following financial assets.  Three choices of measurement basis are amortized cost, fair value through other comprehensive income, and fair value through profit or loss.  Provide justification for your choice. Long-term loans that are held for collecting contractual cash flows till their maturities, but may be subsequently sold if the loans’ credit risk substantially increases. Investments in bonds that are held for collecting contractual cash flows, and may be subsequently sold to re-invest the cash in financial assets with a higher return. Subprime (high risk) mortgage loans that were originated by a mortgage-broker firm that always sell these loans to banks right after their origination. Forward contracts that an EU bank purchased to hedge the exposure to changes in fair value of US$-denominated loans. Investment in bonds that are convertible into common stock of the bond issuer. Investment in bonds that pay a variable market…

Which of the following statements are true regarding the payback period of an investment? It does not account for the time value of money No objective criteria exists for what is an acceptable payback period Cash flows occurring after the payback period have no impact on the payback computation All of the above

The payback method measures: The profitability of an investment. The net cash inflow from an investment. The economic life of an investment. How rapidly the investment is recovered. The investment’s true rate of return.

Answer following questions:1.- What should an investor recognize if required rate on his fixed income investments, whose business model is to do branding, increases significantly?2.- What is understood by bringing values of an investment to “AMORTIZED COST”?

Which of the following statements describing the elements of intrinsic valuation is most accurate? A.) When the present value of the cashflows is discounted with the appropriate rate and this present value is positive, then the asset providing these cashflows has a value to the investor. B.) The risk-free rate is the lowest rate that an investor can earn from short-term investments. C.) Cashflows may include depreciation expenses and amortization costs. D.) A simple calculation of present values of expected cashflows of different investments using the risk free rate would be enough to determine which asset is best.