Capital Budgeting: Mid-Term Exam Guideline (Fall 2012-1213)

Question TypePointsChapters

Multiple Choice Questions

(Multiple Choice Questions. Encircle the letter of the single best answer)15x1 = 15 points

Chapter 4: Net Present ValueBasic concepts, simple and compound interest rates, annuities, growing annuities, perpetuities, inflation, real rate of return, multiple cash flows, effective interest rate, nominal interest rate, multiple compounding period, decision making using TMV concepts etc.Chapter 6: Some Alternative Investment RulesNPV, payback period, discounted payback period, average accounting return, internal rate of return, profitability index: Definition, estimation, decision rules, advantages and disadvantages. Issues related with IRR, how to address those issues, mutually exclusive and independent projects etc.

Chapter 7: NPV and Capital BudgetingIncremental cash flows, relevant cash flows for capital budgeting decisions, cash flows vs. accounting profit, estimating cash flows, inflation and capital budgeting, real vs. nominal rate of return, investment with unequal lives etc.

Modified True/False

Agree or disagree with the following statements (please first write Agree / Disagree). You must correct the underlined statement if you disagree.

5x1 = 5 points

Problem Solving

(Please solve any three out of four questions)

3x10 = 30 pointsChapter End Problems: Ravi ShuklaTMV Problems: Solve ALL TVM Overview and Practice problems.Chapter 4: Text book examples, Exercises 4.7, 4.8, 4.10, 4.11, 4.14, 4.19, 4.21, 4.22, 4.26, 4.29, 4.31, 4.33, 4.35, 4.39, 4.47 and similar problems. Chapter 6: Exercises 6.1 6.10, 6.13, 6.14, 6.15, 6.17, 6.19, 6.26 and similar problems.Chapter 7: Exercises 7.3, 7.4, 7.6, 7.21, 7.30, 7.39, 7.40 and similar problems.Short notes on Capital Budgeting Techniques.

Total50 points2 Hours Exam

Exam Instructions:

1. Points of each question are indicated separately.

2. There are three parts of this exam, Parts A, B & C.

3. Parts A and B must be answered on the question paper. For part C, use the answer script.

4. Write your Name, ID and Section on the answer script.

5. Sharing of calculator or any other materials with other students are Not Allowed.

6. All relevant formulas are attached with the question paper.

7. Students are Not Allowed to bring any PV/FV tables with them.

8. Students must return the question paper with the answer scripts after finishing the exam to the invigilator.

9. The use of mobile phone during the exam is strictly prohibited.