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Finance Assessment: Exam 3

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Question;Arguments against using the net present value and internal rate of return methods include thatthey fail to use accounting profits.they require detailed long-term forecasts of the incremental benefits and costs.they fail to consider how the investment project is to be financed.they fail to use the cash flow of the project.Question 4 2 pointsSaveDividends generally:are paid as a fixed percentage of earningsfluctuate more than earningsare guaranteed by the SECare more stable than earningsQuestion 7 2 pointsSaveA firm that uses large amounts of debt financing in an industry characterized by a high degreeof business risk would have _______ earnings per share fluctuations resulting from changes inlevels of sales.noconstantlargesmallQuestion 12 2 pointsSaveThe moderate view of capital structure management says that the cost of capital curve is:a straight lineV-shapedS-shapednone of the aboveQuestion 14 2 pointsSaveA significant advantage of the internal rate of return is that it:Provides a means to choose between mutually exclusive projects.Provides the most realistic reinvestment assumption.Avoids the size disparity problem.None of the above.Question 15 2 pointsSaveHow frequently do corporations generally pay dividends?AnnuallySemi-annuallyQuarterlyMonthlyQuestion 16 2 pointsSaveWhich type of risk is a direct result of a firm's financing decision?business riskfinancial risksystematic riskrisk aversionQuestion 17 2 pointsSaveA project would be acceptable if:The payback is greater than the discounted equivalent annual annuity.The equivalent annual annuity is greater than or equal to the firm's discount rate.The profitability index is greater than the net present value.None of the above.Question 21 2 pointsSaveA significant disadvantage of the internal rate of return is that it:Does not fully consider the time value of money.It does not give proper weight to all cash flows.Can result in multiple rates of return (more than one IRR).All of the above.Question 22 2 pointsSaveWhich of the following is a method of distributing a firm's profits to its owners?Cash dividends.Stock dividends.Stock repurchase program.All of the above.None of the above.Question 23 2 pointsSaveDividend policy is influenced by:a company's investment opportunitiesa firm's capital structure mixa company's availability of internally generated fundsa and ca, b, and cQuestion 26 2 pointsSaveWhich of the following causes a firm's cost of capital (WACC) to differ from an investor'srequired rate of return on the company's common stock?The fact that interest payments on debt are tax-deductible.The incurrence of flotation costs when new securities are issued.Both a and b aboveNone of the above - the WACC and required return are the sameQuestion 27 2 pointsSaveIf the federal income tax rate were increased, the result would be todecrease the net present valueincrease the net present valueincrease the payback perioda and cQuestion 28 2 pointsSaveThe simulation approach provides us with:a single value for the risk-adjusted net present valuean approximation of the systematic risk levela probability distribution of the project's net present value or internal rate of returna graphic exposition of the year-by-year sequence of possible outcomesQuestion 29 2 pointsSaveWhich of the following would be a method of improving a firm's economic profit? Assume allelse equal.Identify and improve operating efficiencies.Increase sales.Dispose of underutilized assets.Recapitalize the firm to reduce its cost of capital.All of the above.Question 33 2 pointsSaveWhich of the following statements about the internal rate of return is false?It has an unrealistic reinvestment assumption.It never gives conflicting answers.It fully considers the time value of money.All of the above.Question 34 2 pointsSaveAssume that Johnson & Squib have 1,000,000 common shares outstanding that have a parvalue of $3 per share. The stock currently sells for $15 per share. Which of the following willresult from a 2 for 1 stock split?A decrease in retained earnings of $1,500,000.Market value will increase from $15 per share to $30 per share.Par value will increase from $3 per share to $6 per share.The number of outstanding shares will increase from 1,000,000 to 2,000,000.Question 35 2 pointsSaveThe moderate view of capital structure management assumes:no corporate income taxescost of equity remains constant with an increase in financial leveragefirms may failboth b and cQuestion 37 2 pointsSaveThe disadvantage of the IRR method is that:the IRR deals with cash flows.the IRR gives equal regard to all returns within a project's life.the IRR will always give the same project accept/reject decision as the NPV.the IRR requires long, detailed cash flow forecasts.Question 40 2 pointsSaveThe cost of retained earnings is less than the cost of new common stock because:marginal tax brackets increase.flotation costs are incurred when new stock is issued.both a and b abovenone of the aboveQuestion 42 2 pointsSaveWhich of the following statements would be consistent with the residual dividend theory?Wealthy investors prefer corporations to defer dividend payments because capital gainsproduce greater after-tax income.Dividends are more certain than capital gains.Dividends should only be paid if a firm has profits in excess of the amount needed to financethe current year's capital investments.Investors are indifferent whether stock returns come from dividend income or capital gainsincome.None of the above.Question 43 2 pointsSaveOne component of a firm's financial structure which is not a component of its capital structureis:preferred stockmortgage bondsaccounts payableretained earningsQuestion 45 2 pointsSaveBasic tools of capital-structure management include:EBIT-EPS analysiscomparative leverage ratioscapital budgeting techniquesboth a and bQuestion 46 2 pointsSaveWhich problem listed is not associated with the corresponding method of measuring thecommon stockholder's required rate of return?Estimation of the expected growth rate of future dividends: The dividend-growth modelDetermination of the expectations in the minds of investors: The CAPM approachThe estimates of the risk premium involve subjectivity: The risk-premium approachAll of the above are correctQuestion 48 2 pointsSaveWhich of the following statements about project standing alone risk is true?It ignores the fact that much of the risk of a project will be diversified away as the project iscombined with the firm's other projects.It ignores the cash flows that are associated with a project that occur beyond the paybackperiod.It takes into consideration the effects of diversification of the firm's shareholders.None of the above.Question 49 2 pointsSaveIncremental cash flows refer to:The difference between after-tax cash flows and before-tax accounting profits.The new cash flows that will be generated if a project is undertaken.The cash flows of a project, minus financing costs.The cash flows that are foregone if a firm does not undertake a project.Question 50 2 pointsSaveAn independent project should be accepted if it:Produces a net present value that is greater than or equal to zero.Produces a net present value that is greater than the equivalent IRR.Has only one sign reversal.None of the above.

 

Paper#48497 | Written in 18-Jul-2015

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