Good judgment comes from experience, and experience comes from bad judgment.

I like this quote

Stro

ngly Agree

Agree

Neutra

l

Disa

gree

Stro

ngly Disa

gree

29%

41%

6%

0%

24%

1. Strongly Agree2. Agree3. Neutral4. Disagree5. Strongly Disagree

You expect a stock will be worth $110 a year from now Scenario 1: Required Return = 10%, value today = $100

Scenario 2: Required Return = 20%, value today = $91.67What is the lesson from these scenarios?

As the disc

ount rate

go..

As the disc

ount rate

go..

None of t

he above

0% 0%

100%1. As the discount rate goes up, the value of an asset or investment goes down.

2. As the discount rate goes up, the value of an asset or investment goes down.

3. None of the above

Depreciation Expense

Decre

ases c

ash flow bec..

.

Decre

ases c

ash flow bec..

.

Incre

ases c

ash flow beca

...

None of t

he above

6%0%

41%

53%

1. Decreases cash flow because it is a cash expense

2. Decreases cash flow because it is a non-cash expense that decreases operating income which, in turn, decreases income taxes.

3. Increases cash flow because it is a non-cash expense that decreases operating income which, in turn, decreases income taxes.

4. None of the above

Capital Budgeting Project that costs $10,000, depreciated over 10 years—The annual cash outflow equals

$10,000 attime period 0

$1,000 peryear

1 and 2 None of theabove

18%

6%

41%

35%1. $10,000 at time period 0

2. $1,000 per year3. 1 and 24. None of the above