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Financial management 3771 test 2




Question;Multiple;Choice Questions;Question;1(5 points);Jefferson & Sons is evaluating a project;that will increase annual sales by $138,000 and annual costs by $94,000. The;project will initially require $110,000 in fixed assets that will be;depreciated straight-line to a zero book value over the 4-year life of the;project. The applicable tax rate is 32 percent. What is the operating cash flow;for this project?;Question 1 options;A);$11,220;B);$29,920;C);$38,720;D);$46,480;Save;Question;2(5 points);Bernie's Beverages;purchased some fixed assets classified as 5-year property for MACRS. The assets;cost $87,000. What will the accumulated depreciation be at the end of year;three?;MACRS Five Year Property;Year Rate;1 20%;2 32%;3 19.20%;4 11.52%;5 11.52%;6 5.76%;Question 2 options;A);$13,520;B). $25,056;C). $38,241;D);$61,944;Save;Question;3(5 points);The common stock of Textile Mills pays an annual;dividend of $1.65 a share. The company has promised to maintain a constant;dividend even though economic times are tough. How much are you willing to pay;for one share of this stock if you want to earn a 12 percent annual;return?;Question 3 options;A);$13.75;B);$14.01;C);$14.56;D);$14.79;Save;Question;4(5 points);You are considering the;following two mutually exclusive projects. The required rate of return is 14.6;percent for project A and 13.8 percent for project B. Which project should you;accept and why?;Year;Project;A;Project B;0 -$50,000 -$50,000;1 24,000 41,000;2 36,200 20,000;3;21,000 10,000;Question 4 options;A);project A, because;it has the higher required rate of return;B);project A, because;its NPV is about $4,900 more than the NPV of project B;C);project B, because;it has the largest total cash inflow;D);project B, because;it has the largest cash inflow in year one;Save;Question;5(5 points);A project will produce cash inflows of $3,200 a;year for 4 years with a final cash inflow of $5,700 in year 5. The project's;initial cost is $9,500. What is the net present value of this project if the;required rate of return is 16 percent?;Question 5 options;A);-$311.02;B);$2,168.02;C);$4,650.11;D);$9,188.98;Save;Question;6(5 points). You are;considering two mutually exclusive projects with the following cash flows.;Which project(s) should you accept if the discount rate is 8.5 percent? What if;the discount rate is 13 percent?;Year Project;A;Project B;0 -$80,000 -;$80,000;1 32,000;0;2 32,000 0;3 32,000;105,000;Question 6 options;A);accept project A as;it always has the higher NPV;B);accept project B as;it always has the higher NPV;C);accept A at 8.5;percent and B at 13 percent;D);accept B at 8.5;percent and neither at 13 percent;Save;Question;7(5 points);You own some equipment;that you purchased 4 years ago at a cost of $216,000. The equipment is 5-year;property for MACRS. You are considering selling the equipment today for;$75,500. Which one of the following statements is correct if your tax rate is;35 percent?;MACRS Five Year Property;Year Rate;1 20%;2 32%;3 19.20%;4 11.52%;5 11.52%;6;5.76%;Question 7 options;A);The tax due on the;sale is $26,425.;B);The book value today;is $178,675.20;C);The accumulated;depreciation to date is $37,324.80.;D);The aftertax salvage;value is $62,138.68.;Save;Question;8(5 points);How much are you willing to pay for one share of;Jumbo Trout stock if the company just paid a $0.70 annual dividend, the;dividends increase by 1.6 percent annually, and you require a 10 percent rate;of return?;Question 8 options;A);$8.29;B);$8.33;C);$8.47;D);$8.53;Save;Question;9(5 points);What is the net present;value of a project with the following cash flows if the required rate of return;is 12 percent?;Year;Cash Flow;0;-42,398;1;13,407;2;21,219;3;17,800;Question 9 options;A);-$1,574.41;B);-$1,208.19;C);-$842.12;D);$729.09;Save;Question;10(5 points);Miller Brothers Hardware paid an annual dividend;of $1.15 per share last month. Today, the company announced that future;dividends will be increasing by 2.6 percent annually. If you require a 12;percent rate of return, how much are you willing to pay to purchase one share;of this stock today?;Question 10 options;A);$12.23;B);$12.55;C);$12.67;D);$12.72;Save;Question 11 (10 points) Question 11 Unsaved;Stock valuation is extremely difficult. Why?;Be sure to discuss risk issues, cash flow and dividends.;Question 11 options;Spell check;Save;Question 12 (10 points) Question 12 Unsaved;What are the strengths and weaknesses of the pay back method;of investment evaluation? How does risk;fit into looking at the pay back approach?;Question 12 options;Spell check;Save;Question 13 (10 points) Question 13 Unsaved;Why is the average accounting return approach considered;flawed? Does it have any strengths?;Question 13 options;Spell check;Save;Question 14 (10 points) Question 14 Unsaved;What are the strengths and weaknesses of the internal rate;of return method of evaluating investments?;Question 14 options;Spell check;Save;Question 15 (10 points) Question 15 Unsaved;What are the strengths and weaknesses of the Net Present;Value approach to evaluating investments. Why is considered better than the;internal rate of return method?;Question 15 options


Paper#49275 | Written in 18-Jul-2015

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