Details of this Paper





PLEASE SEE DOCUMENT FOR FULL QUESTIONS Which of the following is true regarding the evaluation of projects? (Points: 4) sunk costs should be included erosion effects should not be considered financing costs need to be included opportunity costs are relevant 2. (TCO 4) There are several disadvantages to the payback method, among them: (Points: 4) payback ignores cash flows beyond the cutoff. payback can be used in conjunction with time adjusted methods of evaluation. payback is easy to use and to understand. none of the above is a disadvantage. 3. (TCO 3 and 4) The net present value is: (Points: 4) negative when a project's benefits exceed its costs. equal to the present value of an investment's benefits. equal to zero when the discount rate equals the IRR. negative when a project's IRR exceeds the required rate of return. the current measure of a project's cash inflows. 4. (TCO 3 and 4) What is the net present value of a project with the following cash flows, if the discount rate is 15 percent? (Points: 4) -$2,989.48 -$2,599.55 $1,153.37 $2,880.08 $3,312.09 5. (TCO 4) Howard Company is considering a new project that will require an initial cash investment of $575,000. The project will produce no cash flows for the first three years. The projected cash flows for years 4 through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000, respectively. How long will it take the firm to recover its initial investment in this project? (Points: 4) 5.81 years 6.05 years 6.96 years 7.90 years This project never pays back 6. (TCO 4) The postponement of a project until conditions are more favorable: (Points: 4) is a valuable option. is referred to as the option to extend. could not cause a negative net present value project to become a positive net present value project. will generally cause the internal rate of return for a project to decline. 7. (TCO 4) ___________, occurs when a firm cannot raise financing for a project under any circumstances. (Points: 4) contingency planning. hard rationing. soft rationing. capital constraint. scenario analysis. 8. (TCO 4) ABC Cameras is considering an investment that will have a cost of $10,000 and the following cash flows: $6,000 in year 1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%. Which of the following is true regarding this investment? (Points: 4) The net present value of the project is approximately $10,000 This project should be accepted because it has a positive net present value This project?s payback period is 10 years or more None of the above is true 9. (TCO 4) Assume Company X plans to invest $60,000 in new computers. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the first year depreciation amount under MACRS? (Points: 4) $12,000 $8,575 $19,800 None of the above 10. (TCO 1 and 4) Assume a project has earnings before depreciation, and taxes of $110,000, depreciation of $40,000, and that the firm has a 30 percent tax bracket. What are the after-tax cash flows for the project? (Points: 4) $47,000 $89,000 a loss of $21,000 none of these 11. (TCO 8) Which of the following statements is true regarding systematic risk? (Points: 4) is diversifiable is the total risk associated with surprise events it is measured by beta it is measured by standard deviation 12. (TCO 8) Which statement is not true regarding risk? (Points: 4) the expected return is always the same as the actual return a key to assess risk is determining how much risk an investment adds to a portfolio risks can not always be diversified the higher the risk, the higher the return investors require for the investment 13. (TCO 8) The stock of Hobby Town has an expected return of 8.8 percent. Given the information below, what is the expected return on this stock if the economy is normal? (Points: 4) 3.86 percent 4.42 percent 6.43 percent 7.28 percent 8.21 percent 14. (TCO 8) You own a portfolio that consists of $8,000 in stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is the portfolio weight of stock D? (Points: 4) 17.68 percent 17.91 percent 18.42 percent 19.07 percent 19.46 percent 15. (TCO 8) You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. The one stock has a beta of .80. What does the beta of the second stock have to be if you want the portfolio risk to equal that of the overall market? (Points: 4) 1.4 1.6 1.8 2.0 2.2 (TCO 8) Company insiders cannot earn excess profits based on the knowledge they have related to their employer if the financial markets are: (Points: 4) weak form efficient. strong form efficient. semistrong form efficient. efficient at any level. aware that the trader is an insider. 2. (TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be financed with debt at a cost of 6 percent (after-tax) and common equity at a cost of 18 percent. Assume debt and common equity each represent 50 percent of the firm's capital structure. What is the weighted average cost of capital? (Points: 4) between 3 and 9% exactly 12% more than 14% exactly 11% none of the above 3. (TCO 5, 6 and 7) An issue of common stock is selling for $57.20. The year end dividend is expected to be $2.32, assuming a constant growth rate of six percent. What is the required rate of return? (Points: 4) 10.3% 10.1% 4.1% 5.8% 4. (TCO 5, 6 and 7) Which of the following is true regarding the cost of debt? (Points: 4) It is the same as cost of equity. It is the interest rate that the firm pays on current/existing borrowing. An appropriate method to compute the cost of debt is using the YTM of current bonds outstanding. All of the above are true. 5. (TCO 5) Which of the following is true regarding the cost of retained earnings? (Points: 4) it is irrelevant to the WACC requires new funds to be raised need to be adjusted for the flotation costs have a cost, which is the opportunity cost associated with stockholder funds 6. (TCO 4) A project has the following cash flows. What is the internal rate of return? (Points: 4) less than 10% approximately 14% more than 16% more than 18% but less than 20% 7. (TCO 5, 6 and 7) Which one of the following is a correct statement? (Points: 4) Current tax laws favor debt financing. A decrease in the dividend growth rate increases the cost of equity. An increase in the systematic risk of a firm will decrease the firm's cost of capital. A decrease in a firm's debt-equity ratio will usually decrease the firm's cost of capital. The cost of preferred stock decreases when the tax rate increases. 8. (TCO 5, 6 and 7) The preferred stock of Blue Sky Air pays an annual dividend of $7.25 a share and sells for $54 a share. The tax rate is 35 percent. What is the firm's cost of preferred stock? (Points: 4) 8.56 percent 9.32 percent 11.85 percent 13.43 percent 14.47 percent 9. (TCO 2) The bankruptcy process has been utilized by firms as a means of: (Points: 4) renegotiating labor contracts. reducing labor costs. avoiding payment of a legal judgment. improving the firm's competitive position. all of the above 10. (TCO 5) Which of the following statements is true regarding the cost of capital? (Points: 4) The cost of capital should not consider any flotation costs. All other being equal, it is preferable to use book value weights than market value weights. The WACC is the most appropriate discount rate for all projects. Depends primarily on the use of the funds, not the source. 11. (TCO 2) Which of the following decreases the cash account? (Points: 4) A payment due is received from a client Dividends are paid to shareholders Raw materials are purchased and paid for with credit A new machine is purchased and paid for with the business line of credit 12. (TCO 2) Which of the following statements is true? (Points: 4) There is an opportunity cost associated with not offering credit. The costs of the credit application process and the costs expended in the collection process are not carrying costs of granting credit. Character, refers to the ability of a firm to meet its credit obligations out its operating cash flows. The optimal credit policy, is the policy that produces the largest amount of sales for a firm. 13. (TCO 2) Which one of the following industries is most apt to have the shortest cash cycle? (Points: 4) electric utility company airplane manufacturer fast-food restaurant furniture store clothing manufacturer 14. (TCO 2) Highland, Inc. has the following estimated quarterly sales for next year. The accounts receivable period is 30 days. How much does the firm expect to collect in the fourth quarter? Assume that each month has 30 days. (Points: 4) $3,250 $3,400 $3,600 $3,750 $3,900 15. (TCO 1) Which one of the following actions best matches the primary goal of financial management? (Points: 4) increasing the net, working capital while lowering the long-term asset requirements improving the operating efficiency, thereby increasing the market value of the stock increasing the firm?s market share reducing fixed costs and increasing variable costs increasing the liquidity of the firm by transferring short-term debt into long-term debt (TCO 1) Which one of the following activities best exemplify working capital management? (Points: 4) Sale long-term bonds to raise funds for a new machine. Determine the return of a potential project. Calculate the cash flows for a project. Manage payments to suppliers. 2. (TCO 1) Market values reflect which of the following: (Points: 4) The amount someone is willing to pay today for an asset. The value of the asset based on generally-accepted accounting principles. The asset?s historical cost. A and B only None of the above 3. (TCO 1) Use the following tax table to answer this question: McKenzie, Inc. earned $144,320 in taxable income for the year. What is the company?s approximate average tax rate? (Points: 4) 27% 29% 31% 33% 35% 4. (TCO 3) Regional Bank offers you an APR of nine percent compounded quarterly, and Local Bank offers you an EAR of 9.15 percent for a new automobile loan. You should choose ______________ because its _______ is lower. (Points: 4) Regional Bank, APR Local Bank, EAR Regional Bank, EAR Local Bank, APR 5. (TCO 3) You deposited $5,000 in your bank account today. An increase in which of the following will increase the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all that apply: (Points: 4) interest rate initial amount of your deposit frequency of the interest payments length of the investment period 6. (TCO 3) Thirteen years from now, you will be inheriting $30,000. What is this inheritance worth to you today, if you can earn four percent interest compounded annually? (Points: 4) $18,017.22 $20,741.87 $23,190.98 $26,359.88 $28,846.15 7. (TCO 3) High Risk Operations, Inc. owes your firm $52,800. This amount is delinquent, so you have offered to arrange a payment plan in the hopes that you might at least collect a portion, if not all, of this money. Your offer will consist of weekly payments for two years, at an interest rate of four percent. What is the amount of each payment? (Points: 4) $241.29 $528.47 $736.28 $884.10 $1,036.22 8. (TCO 3) Which type of loan is comparable to the present value of a future lump sum? (Points: 4) effective annual rate amortized interest-only annual percentage pure discount 9. (TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 16 percent? Assume annual payments. (Points: 4) $1315 $1300 $756 $1000 10. (TCO 6) The market where one shareholder sells shares to another shareholder is called the _____ market. (Points: 4) primary main secondary principal dealer 11. (TCO 7) Which one of the following statements concerning financial leverage is correct? (Points: 4) The benefits of leverage are unaffected by the amount of a firm's earnings. The use of leverage will always increase a firm's earnings per share. The shareholders of a firm are exposed to greater risk anytime a firm uses financial leverage. Earnings per share are unaffected by changes in a firm's debt-equity ratio. Financial leverage is beneficial to a firm only when the firm has minimal earnings. 12. (TCO 3) SmithKline Company's bonds are currently selling for $1,157.75 per $1000 par-value bond. The bonds have a 10 percent coupon rate and will mature in 10 years. What is the approximate yield to maturity? (Points: 4) 6.96% 7.69% 11.0% 12.1% 13. (TCO 8) Which of the following is true regarding bonds? (Points: 4) Most bonds do not carry default risk. Municipal bonds are free of default risk. Bonds are not sensitive to changes in the interest rates. Moody?s and Standard and Poor?s provide information regarding a bond?s interest rate risk. None of the above is true 14. (TCO 8) Which one of the following bonds is the most sensitive to interest rate movements? (Points: 4) zero-coupon, five year seven percent annual coupon, five year zero-coupon, 10 year five percent semi-annual coupon, 10 year five percent annual coupon, 10 year 15. (TCO 6) A call provision in a bond agreement grants the issuer the right to: (Points: 4) repurchase the bonds prior to maturity at a pre-specified price. replace the bonds with equity securities. repurchase the bonds after maturity at a pre-specified price. change the coupon rate, provided the bondholders are notified in advance. buy back the bonds on the open market prior to maturity. TCO 6) Which of the following is true regarding income bonds? (Points: 4) Are relatively uncommon Can be exchanged for a fixed number of shares at maturity only Can be exchanged for a fixed number of shares before maturity Allow the holder to require the issuer to buy the bond back 2. (TCO 6 and 7) The document that outlines the covenants and duties existing between bondholders and the issuing corporation is called (Points: 4) an indenture. a debenture. secured debt. protective covenants. 3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market price of $820, and a maturity date in five years. Assume the par value to be $1,000. What is the bond?s yield to maturity? (Points: 4) 9% 14% 11% Cannot be determined None of the above 4. (TCO 2) Which of the following does not reduce collection float? (Points: 4) installing a lockbox system. deposit collections weekly, instead of daily. requiring all customers pay by cash, rather than with check. utilize the benefits of the Check Clearing Act for the 21stCentury. 5. (TCO 2) Storage and tracking costs, insurance and taxes, and losses due to theft are examples of: (Points: 4) Inventory depletion costs Sunk costs Inventory costs None of the above 6. (TCO 1) Provide three examples of situations in which business ethics play a role in the financial management process. Explain your rationale, and how these situations may affect the value of the firm. (Points: 10) 7. (TCO 4) What are sunk costs? Provide at least two real-life examples of sunk costs for a project. Should sunk costs be included as incremental cash flows? Why or why not? Explain your rationale. (Points: 10) 8. (TCO 8) Consider the following statement: ?Any risk is diversifiable?. Do you agree or disagree? Why? (Points: 10) 9. (TCO 2) What are the costs associated with extending (or not extending) a credit policy to customers? (Points: 10) 10. (TCO 6 and 7) Consider the following statement: ?In order to maximize value, all firms should maintain a 30/70 debt to equity ratio?. Do you believe this statement is correct? Explain your rationale. (Points: 10)


Paper#3748 | Written in 18-Jul-2015

Price : $25