Advanced R Programming for Data Analytics in Business - Week 0 Quiz Solutions | SwayamSolver

Back to Course: Advanced R Programming for Data Analytics in Business

Practice: Week 0: Assignment 0

Advanced R Programming for Data Analytics in Business · Instructor: Prof. Abhinava Tripathi

Week 010 Questions

Question 1

In a perfect market with no frictions, all securities in the same risk class, if priced appropriately, should have the same expectations of returns.

A.No: Hint: As per the classical risk-return framework, ideally, securities in the same risk class should offer the same expected returns. However, frictions such as taxes and market imperfections (noise, sentiment, among others) may cause prices to diverge from efficient values

B.Yes: Hint: As per the classical risk-return framework, ideally, securities in the same risk class should offer the same expected returns. However, frictions such as taxes and market imperfections (noise, sentiment, among others) may cause prices to diverge from efficient values

C.Can not say. Hint: As per the classical risk-return framework, ideally, securities in the same risk class should offer the same expected returns. However, frictions such as taxes and market imperfections (noise, sentiment, among others) may cause prices to diverge from efficient values

D.Invalid information

Correct Answer: Yes: Hint: As per the classical risk-return framework, ideally, securities in the same risk class should offer the same expected returns. However, frictions such as taxes and market imperfections (noise, sentiment, among others) may cause prices to diverge from efficient values

Question 2

Identify the correct Investment decision.

A.Raising funds through equity issuance. Hint: This is related to the financing decision, that is, raising funds through equity issuance (new liability is created)

B.Raising funds through Bank loans. Hint: This is related to financing decision, that is, raising funds through borrowing (new liability is created)

C.Repayment of interest on the bank loan. Hint: This is related to the financing decision as the payment is made on account of the borrowing (cash outflow on account of interest liability)

D.Purchasing plants and machinery for the upcoming project. Hint: This is related to an investment decision as the funds are being utilized for the creation of a real asset (New asset is created)

Correct Answer: Purchasing plants and machinery for the upcoming project. Hint: This is related to an investment decision as the funds are being utilized for the creation of a real asset (New asset is created)

Question 3

The future value of $125 is $139, what is the appropriate interval for the discount factor?

A.0.2-0.4. Hint: =125/139 = .899

B.0.4-0.6. Hint: =125/139 = .899

C.0.6-0.8. Hint: =125/139 = .899

D.0.8-1.0. Hint: =125/139 = .899

Correct Answer: 0.8-1.0. Hint: =125/139 = .899

Question 4

Consider the three projects A, B, and C, as shown here. If the opportunity cost of capital is 10%, which of these projects has a positive NPV?

A.A and B; Hint: Projects A, B, and C, have discounted PVs amounting to -702, 3378, and 2405 respectively

B.B and C; Hint: Projects A, B, and C, have discounted PVs amounting to -702, 3378, and 2405 respectively

C.C and A; Hint: Projects A, B, and C, have discounted PVs amounting to -702, 3378, and 2405 respectively

D.None of the above; Hint: Projects A and B are the two candidates that recover the initial investment within two years

Correct Answer: B and C; Hint: Projects A, B, and C, have discounted PVs amounting to -702, 3378, and 2405 respectively

Question 5

Which of the following is not associated with the term “separation of ownership and control.”

A.Managers are responsible for the firm’s operations, and they are different from owners. Hint: The fact that ownership and management are different gives the name “separation of ownership and control.”

B.The change in ownership does not affect firm operations. Hint: Because of the separation of ownership and control, as ownership changes hands, the firm operations are unaffected

C.Managers may not act in the best interest of the owners. Hint: Since the managers are not the same as owners, it may so happen that managers while acting in their interest may act in a manner that is adverse to owners (or shareholders)

D.Managers are also the owners and hence always act in the best interest of the firm. Hint: Managers, most often, are not the owners, and therefore, may act in self-interest which is not aligned with the interest of the firm

Correct Answer: Managers are also the owners and hence always act in the best interest of the firm. Hint: Managers, most often, are not the owners, and therefore, may act in self-interest which is not aligned with the interest of the firm

Question 6

A stock will pay a $4 dividend, starting from this year's end. Thereafter, these dividends are expected to grow infinitely in the future at a steady rate of 4%. If the discount rate is 14%, what is the appropriate interval for these cash flow streams?

A.10-30; Hint: PV = 4/(.14-.04) = $40

B.30-50; Hint: PV = 4/(.14-.04) = $40

C.50-70; Hint: PV = 4/(.14-.04) = $40

D.70-90; Hint: PV = 4/(.14-.04) = $40

Correct Answer: 30-50; Hint: PV = 4/(.14-.04) = $40

Question 7

Compute the IRR of the project with the following cash flows.

A.85%-95%

B.95%-105%

C.105%-110%

D.110%-115%

Correct Answer: 95%-105%

Question 8

If the opportunity cost of capital is 9%, what is the appropriate interval for the present value of $374 paid in the 9th year

A.160-180; Hint: PV = 374/(1.09)9 = 172.20

B.180-200; Hint: PV = 374/(1.09)9 = 172.20

C.200-220; Hint: PV = 374/(1.09)9 = 172.20

D.220-240; Hint: PV = 374/(1.09)9 = 172.20

Correct Answer: 160-180; Hint: PV = 374/(1.09)9 = 172.20

Question 9

Which is the form of organization most suitable for large companies with fragmented shareholders who cannot keep track of day-to-day firm operations?

A.Proprietorship. Hint: This is suitable for small businesses tightly run by the sole individual owner. Also, the owner has unlimited liability on account of the firm

B.Partnership. Hint: This is suitable for small businesses tightly run by a small group of owners. Also, the owners have unlimited liability on account of the firm (except the LLPs)

C.Private Company. Hint: This is suitable for small to medium businesses run by a small group of owners

D.Public company. Hint: This is suitable for large organizations, where shareholders are expected to be a large number of small investors, who cannot keep track of day-to-day operations. These shareholders are expected to buy and sell the firm’s shares on some stock exchanges

Correct Answer: Public company. Hint: This is suitable for large organizations, where shareholders are expected to be a large number of small investors, who cannot keep track of day-to-day operations. These shareholders are expected to buy and sell the firm’s shares on some stock exchanges

Q10

Question 10

If a company does not offer any dividends and plows back all the money, then it should have zero (0) price.

A.No. Hint: Even if there are no dividends, the firm may still have value, if it has positive NPV projects. The firm can add value by plowing back money into these projects rather than paying dividends

B.Yes. Hint: Even if there are no dividends, the firm may still have value if it has positive NPV projects. The firm can add value by plowing back money into these projects rather than paying dividends

C.Can not say. Hint: Even if there are no dividends, the firm may still have value if it has positive NPV projects. The firm can add value by plowing back money into these projects rather than paying dividends

D.Invalid information

Correct Answer: No. Hint: Even if there are no dividends, the firm may still have value, if it has positive NPV projects. The firm can add value by plowing back money into these projects rather than paying dividends