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Whichofthefollowingistrueregardingtheevaluationofprojects?

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Question1.1.(TCO4)Whichofthefollowingistrueregardingtheevaluationofprojects?(Points;4);sunkcostsshouldbeincluded;erosioneffectsshouldnotbeconsidered;financingcostsarenotincluded;opportunitycostsareirrelevant;Question2.2.(TCO4)Thereareseveraldisadvantagestothepaybackmethod,among;them:(Points:4);paybackignoresthetimevalueofmoney.;paybackcanbeusedinconjunctionwithtimeadjustedmethodsofevaluation.;paybackiseasytouseandtounderstand.;noneoftheaboveisadisadvantage.;Question3.3.(TCO3and4)Thenetpresentvalueis:(Points:4);negativewhenaproject'sbenefitsexceeditscosts.;equaltothepresentvalueofaninvestment'sbenefits.;equaltozerowhenthediscountrateequalstheIRR.;negativewhenaproject'sIRRexceedstherequiredrateofreturn.;thecurrentmeasureofaproject'scashinflows.;Question4.4.(TCO3and4)Whatisthenetpresentvalueofaprojectwiththefollowingcash;flows,ifthediscountrateis15percent?;Year;0;1;2;3;4;Cash;flow;$45,000;$11,520;$13,630;$16,470;$18,990;(Points:4);$2,989.48;$2,599.55;$1,153.37;$2,880.08;$3,312.09;Question5.5.(TCO4)TheInventiveCo.isconsideringanewproject.Thisprojectrequiresan;initialcashinvestmentof$70,000.Theprojectwillgeneratecashinflowsof$10,500inthefirst;year.Then,theprojectwilldonothingfortwoyears,afterwhichtimecashinflowsof$25,000will;begeneratedforfouryears.HowlongwillittaketheInventiveCo.torecoverits$70,000;investment?(Points:4);5.16years;5.38years;6.11years;6.62years;6.94years;Question6.6.(TCO4)Thepostponementofaprojectuntilconditionsaremorefavorable:(Points;4);isavaluableoption.;isreferredtoastheoptiontoextend.;couldnotcauseanegativenetpresentvalueprojecttobecomeapositivenetpresent;valueproject.;willgenerallycausetheinternalrateofreturnforaprojecttodecline.;Question7.7.(TCO4)____________,referstothesituationafirmfaceswhenithaspositivenet;presentvalueprojects,butcannotobtainfinancingforthoseprojects. (Points:4);capitalplanning.;softrationing.;capitalrationing.;hardrationing.;asunkcause.;Question8.8.(TCO4)ABCCamerasisconsideringaninvestmentthatwillhaveacostof$10,000andthe;followingcashflows:$6,000inyear1,$4,000inyear2and$3,000inyear3.Assumethecostofcapitalis;10%.Whichofthefollowingistrueregardingthisinvestment?(Points:4);Thenetpresentvalueoftheprojectisapproximately$10,000;Thisprojectshouldbeacceptedbecauseithasapositivenetpresentvalue;Thisprojectspaybackperiodis10yearsormore;Noneoftheaboveistrue;Question9.9.(TCO4)AssumeCompanyXplanstoinvest$60,000innewcomputers.Using;Tables9.6and9.7ofyourtextbook(Page277),whichisthefirstyeardepreciationamount;underMACRS?(Points:4);$12,000;$8,575;$19,800;Noneoftheabove;Question10.10.(TCO1and4)Assumeacorporationhasearningsbeforedepreciation,and;taxesof$100,000,depreciationof$40,000,andthatithasa30percenttaxbracket.Whatare;theaftertaxcashflowsforthecompany?(Points:4);$82,000;$110,000;$42,000;noneofthese;Question11.11.(TCO8)Whichofthefollowingstatementsistrueregardingsystematicrisk?(Points:4);isdiversifiable;isthetotalriskassociatedwithsurpriseevents;itisnotprojectorfirmspecific;itismeasuredbystandarddeviation;Question12.12.(TCO8)Whichstatementistrueregardingrisk?(Points:4);theexpectedreturnisusuallythesameastheactualreturn;akeytoassessriskisdetermininghowmuchriskaninvestmentaddstoaportfolio;riskscanalwaysbedecreasedormitigatedbythefinancialmanager;thehighertherisk,thelowerthereturninvestorsrequirefortheinvestment;Question13.13.(TCO8)ThestockofUptownMen'sWearisexpectedtoproducethefollowing;returns,giventhevariousstatesoftheeconomy.Whatistheexpectedreturnonthisstock?;Stateof;Economy;ProbabilityofState;ofEconomy;Rateof;Return;Recession;.20;.10;Normal;.75;.14;Boom;.05;.22;(Points:4);9.6percent;10.4percent;12.8percent;13.6percent;15.3percent;Question14.14.(TCO8)Youownaportfoliothatconsistsof$8,000instockA,$4,600instockB;$13,000instockC,and$5,500instockD.WhatistheportfolioweightofstockA? (Points:4);14.79percent;15.91percent;18.42percent;19.07percent;25.72percent;Question15.15.(TCO8)StockAhasanexpectedreturnof14percentandabetaof1.3.StockB;hasanexpectedreturnof10percentandabetaof.9.Bothstockshavethesamerewardtorisk;ratio.Whatistheriskfreerate?(Points:4);1.0percent;1.8percent;2.3percent;2.5percent;3.1percent;Question1.1.(TCO8)Weakformmarketefficiencystatesthatthevalueofasecurityisbased;on:(Points:4);allpublicandprivateinformation.;historicalinformationonly.;allpubliclyavailableinformation.;allpubliclyavailableinformation,plusanydatathatcanbegatheredfrominsidertrading.;randominformationwithnocleardistinctionastothesourceofthatinformation.;Question2.2.(TCO5)RoyalPetroleumCo.canbuyapieceofequipmentthatcanbefinanced;withdebtatanaftertaxcostof8percentandcommonequityatacostof20percent.Assume;debtandcommonequityeachrepresent50percentofthefirm'scapitalstructure.Whatisthe;weightedaveragecostofcapital?(Points:4);between4%and10%;between11and12%;between12and13%;exactly14%;morethan14%;Question3.3.(TCO5,6and7)Anissueofcommonstock'smostrecentdividendis$3.75.Its;growthrateiseightpercent.Whatisitspriceifthemarket'srateofreturnis16percent?(Points;4);$25.01;$46.88;$50.63;noneofthese;Question4.4.(TCO5,6and7)Whichofthefollowingistrueregardingthecostofdebt?(Points:4);Itisthereturnthatthefirmscreditorsdemandonnewborrowing.;Itisalwaysequaltotheweightedcostofcapital.;Anappropriatemethodtocomputethecostofdebtisusingthecouponrateofcurrentbonds;outstanding.;Alloftheabovearetrue.;Question5.5.(TCO5)Retainedearningshasacostassociatedwithitbecause: (Points:4);newfundsmustberaised.;thereisanopportunitycostassociatedwithstockholderfunds.;Ke>g;flotationcostsincreasethecostoffunding.;Question6.6.(TCO4)Aprojecthasthefollowingcashflows.Whatistheinternalrateofreturn?;Year;0;1;2;3;Cash;flow;$195,600;$99,800;$87,600;$75,300;(Points:4);lessthan5%;between5and15%;between15and18%;morethan21%;Question7.7.(TCO5,6and7)Allelseconstant,theweightedaveragecostofcapitalforafirm;willdecreaseif:(Points:4);afirm'sbondsstartsellingatapremium,ratherthanatadiscount.;themarketriskpremiumincreases.;thefirmreplacessomeofitsdebtwithpreferredstock.;corporatetaxesareeliminated.;thedividendyieldonthecommonstockincreases.;Question8.8.(TCO5,6and7)ThesixpercentpreferredstockofFKHManufacturingisselling;for$62ashare.Whatisthefirm'scostofpreferredstock,ifthetaxrateis34percentandthe;parvaluepershareis$100?(Points:4);5.98%;7.06%;8.05%;9.68%;10.10%;Question9.9.(TCO2)Thebankruptcyprocesshasbeenutilizedbyfirmsasameansof: (Points;4);renegotiatinglaborcontracts.;reducinglaborcosts.;avoidingpaymentofalegaljudgment.;improvingthefirm'scompetitiveposition.;alloftheabove;Question10.10.(TCO5)Whichofthefollowingstatementsisfalseregardingthecostofcapital?(Points;4);Thecostofcapitalshouldconsidertheflotationcosts.;Allotherbeingequal,itispreferabletousemarketvalueweightsthanbookvalueweights.;TheWACCisthemostappropriatediscountrateforallprojects.;Shouldincludethecostofretainedearnings.;Question11.11.(TCO2)Whichofthefollowingdecreasesthecashaccount?(Points:4);Apaymentdueisreceivedfromaclient;Dividendsarepaidtoshareholders;Rawmaterialsarepurchasedandpaidforwithcredit;Anewmachineispurchasedandpaidforwiththebusinesslineofcredit;Question12.12.(TCO2)Whichofthefollowingstatementsistrue?(Points:4);Firmsshouldavoidofferingcreditatallcost.;Anincreaseinafirm'saveragecollectionperiodgenerallyindicatesthatanincreased;numberofcustomersaretakingadvantageofthecashdiscount.;Thecostsofthecreditapplicationprocessandthecostsexpendedinthecollection;processarecarryingcostsofgrantingcredit.;Character,referstotheabilityofafirmtomeetitscreditobligationsoutitsoperating;cashflows.;Theoptimalcreditpolicy,isthepolicythatproducesthelargestamountofsalesfora;firm.;Question13.13.(TCO2)Whichoneofthefollowingcredittermsismostapttoproducethe;shortestaccountsreceivableperiod?;(Points:4);net25;net10;1/10,net30;3/10,net15;2/20,net45;Question14.14.(TCO2)Highland,Inc.hasthefollowingestimatedquarterlysalesfornextyear.;Theaccountsreceivableperiodis30days.Howmuchdoesthefirmexpecttocollectinthe;fourthquarter?Assumethateachmonthhas30days.;Sales;Q1;Q2;Q3;Q4;$3,200;$4,500;$4,400;$2,900;(Points:4);$3,250;$3,400;$3,600;$3,750;$3,900;Question15.15.(TCO1)Whyismaximizationofthecurrentvaluepershareamoreappropriate;financialmanagementgoalthanprofitmaximization? (Points:4);Becausebymaximizingthecurrentstockvalue,youalsomaximizethecompanysprofit;fortheyear.;Becausethiscriterionisnonambiguous.;Becausefinancialmanagersalwaysactinthebestinterestofshareholders.;Becauseitcreatesshorttermgainsinthefinancialstatements.;Question1.1.(TCO1)Whichofthefollowingarecapitalstructureconcerns?;I.howtoobtainshorttermfinancing;II.thecompany'sfinancingmix;III.thecostoffunds;IV.howandwheretoraisemoney(Points:4);IandII;I,IIandIII;II,IIIandIV;I,IIIandIV;Alloftheabove;Question2.2.(TCO1)Marketvalueisimportanttothefinancialmanagerbecause: (Points:4);Itreflectsthevalueoftheassetbasedongenerallyacceptedaccountingprinciples.;Isacrucialcomponentofthebalancesheet,andcanimpactthefinancialstatements.;Marketvaluesreflecttheamountsomeoneiswillingtopaytodayforanasset.The;marketvalueofanassetreflectsitshistoricalcost.;Question3.3.(TCO1)Usethefollowingtaxtabletoanswerthisquestion;TaxableIncome;TaxRate;$0;$50,000;15%;$50,001;75,000;25;$75,001;100,000;34;$100,001;335,000;39;$335,001;10,000,000;34;McKenzie,Inc.earned$144,320intaxableincomefortheyear.Whatisthecompanys;approximateaveragetaxrate?(Points:4);27%;29%;31%;33%;35%;Question4.4.(TCO3)RegionalBankoffersyouanAPRof19percentcompounded;semiannually,andLocalBankoffersyouanEARof19.50percentforanewautomobileloan.;Youshouldchoose______________becauseits_______islower. (Points:4);RegionalBank,APR;LocalBank,EAR;RegionalBank,EAR;LocalBank,APR;Question5.5.(TCO3)Youdeposited$5,000inyourbankaccounttoday.Anincreaseinwhichof;thefollowingwillincreasethefuturevalueofyourdeposit,assumingthatallinterestis;reinvested?Assumetheinterestrateisapositivevalue.Selectallthatapply:(Points:4);interestrate;initialamountofyourdeposit;frequencyoftheinterestpayments;lengthoftheinvestmentperiod;Question6.6.(TCO3)Amyneedstosave$20,000incashtobuyanewcarfiveyearsfrom;today.Sheexpectstoearn6.5percent,compoundedannually,onhersavings.Howmuchdoes;sheneedtodeposittoday,ifthisistheonlymoneyshesavesforthispurpose? (Points:4);$12,468.07;$12,502.14;$14,597.62;$17,044.32;$17,129.01;Question7.7.(TCO3)PaperProneededanewstore.Thecompanyspent$65,000torefurbish;anoldshopandcreatethecurrentfacility.Thefirmborrowed75percentoftherefurbishment;costateightpercentinterestfor11years.Whatistheamountofeachmonthlypayment? (Points;4);$91.05;$284.13;$556.50;$682.87;$731.60;Question8.8.(TCO3)Amyborrowed$5,000fromherbankthreeyearsago.Theloantermisfive;years.Eachyear,Amymustrepaythebank$1,000plustheannualinterest.Whichtypeofloan;doesAmyhave?(Points:4);amortized;blendeddiscount;interestonly;purediscount;complex;Question9.9.(TCO3)FantaColahas$1,000parvaluebondsoutstandingat12percentinterest.;Thebondsmaturein25years.Whatisthecurrentpriceofthebond,iftheYTMis11percent?;Assumeannualpayments.(Points:4);$1080;$1085;$925;$1000;Question10.10.(TCO6)Themarketwherenewsecuritiesareofferediscalledthe;market.(Points:4);primary;main;secondary;principal;dealer;Question11.11.(TCO7)Whichoneofthefollowingstatementsconcerningfinancialleverageis;correct?(Points:4);Financialleverageincreasesprofitsanddecreaseslosses.;Financialleveragehasnoeffectonafirm'sreturnonequity.;Financialleverage,referstotheuseofcommonstock.;Financialleveragemagnifiesbothprofitsandlosses.;Increasingfinancialleveragewillalwaysincreasetheearningspershare.;Question12.12.(TCO3)Whatistheapproximateyieldtomaturityforasevenyearbondthat;pays11percentinterestona$1000facevalueannuallyifthebondsellsfor$952? (Points:4);10.5%;10.6%;11.5%;12.1%;Question13.13.(TCO8)Whichofthefollowingistrueregardingbonds? (Points:4);Bondsdonotcarrydefaultrisk.;Bondsaresensitivetochangesintheinterestrates.;MoodysandStandardandPoorsprovideinformationregardingabondsinterestrate;risk.;Municipalbondsarefreeofdefaultrisk.;Noneoftheaboveistrue;Question14.14.(TCO8)Twoyearsago,MorningStarCompanyissuedsevenpercent,25year;bondsandTrack,Inc.issuedsevenpercent,10yearbonds.Sincetheirtimeofissue,interest;rateshaveincreased.Whichofthefollowingstatementsistrueofeachfirm'sbondpricesinthe;market,assumingtheyhaveequalrisk?(Points:4);Track'sdecreasedmorethanMorningstar's;Morningstar'sincreasedmorethanTrack's;Morningstar'sdecreasedmorethanTrack's;Theyarebothpricedthesame;Question15.15.(TCO6)Asinkingfundisanaccountmanagedbyabondtrusteeforthesole;purposeof:(Points:4);payinginterestpaymentsonasemiannualbasis.;redeemingbondsearly.;repayingthefacevalueatmaturity.;payingtheexpensesrequiredtoreissueoutstandingbonds.;payingthe"balloonpayment"atmaturity.;Question1.1.(TCO6)Whichofthefollowingistrueregardingputbonds? (Points:4);Havecouponsthatdependonthecompanysincome;Canbeexchangedforafixednumberofsharesbeforematurityonly;Canbeexchangedforafixednumberofsharesbeforematurity;Allowtheholdertorequiretheissuertobuythebondback;Question2.2.(TCO6and7)Thetermdebenturerefersto(Points:4);longterm,secureddebt.;longterm,unsecureddebt.;theafteracquiredpropertyclause.;adocumentcoveringthespecifictermsofthedebtissue.;Question3.3.(TCO6)CompanyAhasabondoutstandingwith$90annualinterestpayment,a;marketpriceof$820andamaturitydateinfiveyears.Assumetheparvaluetobe$1,000.What;isthebondscouponrateandcurrentyield,respectively? (Points:4);11%and9%;9%and11%;9%and14%;Cannotbedetermined;Noneoftheabove;Question4.4.(TCO2)Whichofthefollowingdoesnotreducecollectionfloat? (Points:4);installingalockboxsystem.;depositcollectionsweekly,insteadofdaily.;requiringallcustomerspaybycash,ratherthanwithcheck.;utilizethebenefitsoftheCheckClearingActforthe21 stCentury.;Question5.5.(TCO2)Storageandtrackingcosts,insuranceandtaxes,andlossesduetotheft;areexamplesof:(Points:4);Inventorydepletioncosts;Sunkcosts;Inventorycosts;Noneoftheabove;5Shortanswerquestions;Question6.6.(TCO1)Providethreeexamplesofsituationsinwhichbusinessethicsplayarolein;thefinancialmanagementprocess.Explainyourrationale,andhowthesesituationsmayaffect;thevalueofthefirm.(Points:10);Question7.7.(TCO4)Whataresunkcosts?Provideatleasttworeallifeexamplesofsunkcosts;foraproject.Shouldsunkcostsbeincludedasincrementalcashflows?Whyorwhynot?Explain;yourrationale.(Points:10);Question8.8.(TCO8)Whatisthedifferencebetweenbusinessriskandfinancialrisk?IfCompany;AhasahigherbusinessriskthanCompanyB,shoulditscostofcapitalbehigher?Whyorwhy;not?Explainyourrationale.(Points:10);Question9.9.(TCO2)Whataresomeimportantelementsofthecollectionpolicy? (Points:10);Question10.10.(TCO6and7)Howcanyoucalculatethecostofdebt?Whatmethodscanyou;use?Provideatleasttwoexamples.(Points:10)

 

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