Ade G. answered • 08/22/21
Finance MBA with 15+ years' experience in Corporate Finance / Modeling
The more the periods compounded, the higher the EAR, all other factors being constant.
Which of the following investment products will probably lead to the lowest EAR?
A.Investment GHI with 13% rate compounded continuously.
B. Investment DEF with 13% rate compounded quarterly.
C. Investment XYZ with 13 % rate compounded monthly.
D. Investment ABC with 13% rate compounded semi-annually.
Answer D.
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The formula for FCFF incorporating all the variables in the question is:
FCFF = NI + D&A +INT(1 – TAX RATE) – CAPEX – Δ Net WC
Which of the following would decrease a firm’s after-tax cashflow from assets (FCFF) for a given year?
A. A decrease in the tax rate.
B. An increase in the change in net working capital, with all else constant.
C. An increase in the depreciation.
D. A increase in the net income, with all else constant.
From the formula for FCFF, the only variable that would decrease FCFF, all other factors constant, is an increase in Δ Net WC.
Answer is B.
