Question 1

Investment manager Liam Lynx decides to make investments across the board, anticipating a sharp increase in the economy. This is called:

Accepted Answer

Liam Lynx anticipates a higher return in all sectors of the ecomony, so he uses a top down approach to earn maximum profits.

Question 2

One share of Caracal Enterprises has a par value of $50, while its market value is $120. The earnings per share (EPS) for Caracal Enterprises is $15. What would be the P/E ratio?

Accepted Answer

The P/E ratio of the company is 8.
To find the P/E ratio, divide the market value by the EPS. In this case, $120$15 = 8.

Question 3

What would be the market value of a company if its annual cash profit is $8 million and its WACC is 10%?

Accepted Answer

The market value of a company is equal to its annual profits divided by its WACC. In this case, $8 million / 0.10 = $80 million.

Question 4

If the compound interest on a company's irredeemable bonds is 8% and the tax rate is 15%, what would be cost of the bond after tax if the bond's market value is $110.

Accepted Answer

The after-tax cost of the bond is 8(1 - 0.15)/110 = 0.04636 x 100 = 4.636%.

Question 5

Operational cash flow comes into a business through all of the following EXCEPT:

Accepted Answer

Sale of inventory and cash collected from debtors are sources of cash inflow, butnot the sale of fixed assets.

Quiz 1: Foundation of Financial and Investment

Investment manager Liam Lynx decides to make investments across the board, anticipating a sharp increase in the economy. This is called:

One share of Caracal Enterprises has a par value of $50, while its market value is $120. The earnings per share (EPS) for Caracal Enterprises is $15. What would be the P/E ratio?

What would be the market value of a company if its annual cash profit is $8 million and its WACC is 10%?

If the compound interest on a company's irredeemable bonds is 8% and the tax rate is 15%, what would be cost of the bond after tax if the bond's market value is $110.

Operational cash flow comes into a business through all of the following EXCEPT: