Find study materials for any course. Check these out:
Browse by school
Make your own
To login with Google, please enable popups
To login with Google, please enable popups
Don’t have an account?
To signup with Google, please enable popups
To signup with Google, please enable popups
Sign up withor
Capital budgeting includes the evaluation of which of the following?
A. Size of future cash flows only
B. Size and timing of future cash flows only
C. Timing and risk of future cash flows only
D. Risk and size of future cash flows only E. Size, timing, and risk of future cash flows
E. Size, timing, and risk of future cash flows
Which one of the following is a capital structure decision?
A. Determining the optimal inventory level
B. Establishing the preferred debt-equity level
C. Selecting new equipment to purchase
D. Setting the terms of sale for credit sales
E. Determining when suppliers should be paid
Working capital management includes which one of the following?
A. Deciding which new projects to accept
B. Deciding whether to purchase a new machine or fix a current machine
C. Determining which customers will be granted credit
D. Determining how many new shares of stock should be issued
E. Establishing the target debt-equity ratio
Which one of the following applies to a general partnership?
A. The firm's operations must be controlled by a single partner.
B. Any one of the partners can be held solely liable for all of the partnership's debt.
C. The profits of the firm are taxed as a separate entity.
D. Each partner's liability for the firm's debts is limited to each partner's investment in the firm. E. The profits of a general partnership are taxed the same as those of a corporation.
Which one of the following is most apt to create a situation where an agency conflict could arise? A. Increasing the size of a firm's operations
B. Downsizing a firm
C. Separating management from ownership
D. Decreasing employee turnover
E. Reducing both management and nonmanagement salaries
Which one of the following decreases net income but does not affect the operating cash flow of a firm that owes no taxes for the current year?
A. Indirect cost
B. Direct cost
C. Noncash item
D. Period cost
E. Variable cost
Which one of the following is an equity account? A. Paid-in surplus
B. Bonds payable
E. Net fixed assets Refer to Section 2.1.
Which one of the following will decrease the net working capital of a firm? A. Obtaining a three-year loan and using the proceeds to buy inventory
B. Collecting a payment from a credit customer
C. Obtaining a five-year loan to buy equipment
D. Selling inventory at a profit
E. Making a payment on a long-term debt
Early Works had $87,600 in net fixed assets at the beginning of the year. During the year, the company purchased $6,400 in new equipment. It also sold, at a price of $2,300, some old equipment with a book value of $1,100. The depreciation expense for the year was $3,700. What is the net fixed asset balance at the end of
Redneck Farm Equipment owes $48,329 in tax on a taxable income of $549,600. The company has determined that it will owe $56,211 in tax if its taxable income rises to $565,000. What is the marginal tax rate at this level of income?
A. 9.95 percent
B. 30.00 percent
C. 30.67 percent
D. 51.03 percent
E. 51.18 percent
Plaza Cafe has an operating cash flow of $78,460, depreciation expense of $8,960, and taxes paid of $21,590. A partial listing of its balance sheet accounts is as follows: Table included with beginning and ending balance. What is the amount of the cash flow from assets (free cash flow)? A. $58,913
The Pretzel Factory has net sales of $821,300 and costs of $698,500. The depreciation expense is $28,400 and the interest paid is $8,400. What is the amount of the firm's operating cash flow if the tax rate is 34 percent?
Which one of the following is the maximum growth rate that a firm can achieve without any additional external financing?
A. DuPont rate
B. External growth rate
C. Sustainable growth rate
D. Internal growth rate
E. Cash flow rate
Which one of the following actions will increase the current ratio, all else constant? Assume the current ratio is greater than 1.0.
A. Cash purchase of inventory
B. Cash payment of an account receivable
C. Cash payment of an account payable
D. Credit sale of inventory at cost
E. Cash sale of inventory at a loss
A firm has sales of $529,000 for the year. The profit margin is 3.4 percent and the retention ratio is 60 percent. What is the common-size percentage for the dividends paid?
A. 0.99 percent
B. 1.18 percent
C. 1.21 percent
D. 1.36 percent
E. 1.42 percent
Peter's Motor Works has total assets of $689,400, long-term debt of $299,500, total equity of $275,000, net fixed assets of $497,800, and sales of $721,500. The profit margin is 4.6 percent. What is the current ratio?
Fried Foods has sales of $238,900, total assets of $217,000, total equity of $121,300, net income of $18,700, and dividends paid of $7,000. What is the internal growth rate?
A. 5.48 percent
B. 5.70 percent
C. 5.98 percent
D. 7.34 percent
E. 7.92 percent
Turner's Store had a profit margin of 6.8 percent, sales of $898,200, and total assets of $798,000. If management set a goal of increasing the total asset turnover to 1.40 times, what would the new sales figure need to be, assuming no increase in total assets?A. $860,333
Jenny needs to borrow $16,000 for 3 years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny?
A. 8 percent simple interest
B. 8 percent interest, compounded annually
C. 8.5 percent simple interest
D. 8.5 percent interest, compounded annually E. 9 percent interest, compounded annually
Which of the following will increase the future value of a lump sum investment? I. Decreasing the interest rate II. Increasing the interest rate
III. Increasing the time period
IV. Decreasing the amount of the lump sum investment A. I and III only
B. I and IV only
C. II and III only
D. II and IV only
E. II, III, and IV only
Which one of the following will increase the present value of a lump sum future amount? Assume the interest rate is a positive value and all interest is reinvested.
A. Increase in the time period
B. Increase in the interest rate
C. Decrease in the future value
D. Decrease in the interest rate E. None of these
Travis invests $10,000 today into a retirement account. He expects to earn 8 percent, compounded annually, on his money for the next 26 years. After that, he wants to be more conservative, so only expects to earn 5 percent, compounded annually. How much money will he have in his account when he retires 38 years from now, assuming this is the only deposit he makes into the account? A. $129,411.20 B. $132,827.88
C. $134,616.56 D. $141,919.67 E. $142,003.12
Today, Stacy is investing $26,000 at 6.0 percent, compounded annually, for 4 years. How much additional income could he earn if he had invested this amount at 7 percent, compounded annually?
You're trying to save to buy a new $210,000 Ferrari. You have $38,000 today that can be invested at your bank. The bank pays 4.1 percent annual interest on its accounts. How long will it be before you have enough to buy the car?
A. 39.13 years
B. 39.29 years C. 40.67 years D. 41.08 years E. 42.54 years
Christie buying a new car today and is paying a $500 cash down payment. She will finance the balance at 7.25 percent annual interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase? A. The present value of the car is equal to $500 + (36 $450). B. The $500 is the present value of the purchase. C. The car loan is an annuity due. D. To compute the initial loan amount, you must use a monthly interest rate. E. The future value of the loan is equal to 36 $450.
26. Which one of the following cannot be computed?
A. Future value of an ordinary annuity
B. Future value of a perpetuity
C. Present value of a perpetuity
D. Present value of an annuity due
E. Present value of an ordinary annuity
McClary Tires just decided to save money each year for the next four years to help fund a new building. If it earns 6.5 percent on its savings, how much will the firm have saved at the end of year 4? End of year : amount saved table
A. $107,525.40 B. $108,392.69 C. $111,860.57
D. $113,200.39 E. $119,426.41
Turntable Industrial, Inc. owes your firm $138,600. This amount is seriously delinquent so your firm has offered to arrange a payment plan in the hopes that it might at least collect a portion of this receivable. Your firm's offer consists of weekly payments for one year at an annual interest rate of 3 percent. What is the amount of each payment?
A. $2,229.90 B. $2,318.11 C. $2,409.18 D. $2,599.04
You just received a loan offer from Friendly Loans. The company is offering you $5,000 at 14.3 percent annual interest. The monthly payment is only $100. If you accept this offer, how long will it take you to pay off the loan?
A. 5.84 years
B. 6.37 years C. 6.80 years D. 7.33 years E. 7.59 years
30. The Townhouse Galleries offers credit to its customers at a rate of 1.6 percent per month. What is the effective annual rate of this credit offer?
A. 18.45 percent
B. 19.09 percent
C. 19.41 percent
D. 20.04 percent
E. 20.98 percent
What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming
A. Registered account
B. Bearer account
C. Call account
D. Sinking fund
E. Premium fund
A protective covenant:
A. protects the borrower from unscrupulous practices by the lender.
B. is designed to protect the bond dealer from potential legal liability related to the bond issue. C. prevents a bond from being called.
D. limits the actions of the borrower.
E. guarantees that a bond will be repaid in full with interest.
Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?
A. Interest rate risk premium
B. Inflation premium
C. Liquidity premium
D. Taxability premium
E. Default risk premium
A bond dealer sells at the _____ price and buys at the _____ price. A. clean; dirty
B. dirty; clean
C. bid; asked
D. asked; bid
E. asked; asked
Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interest semiannually, and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is 6.82 percent?
AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974. The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate?
A. 3.75 percent
B. 4.20 percent
C. 4.25 percent
D. 7.50 percent
E. cannot be calculated given information
Keyser Materials has 8 percent coupon bonds on the market with 19 years to maturity. The bonds make semiannual payments and currently sell for 102 percent of par. What is the current yield on Keyser Materials bonds? The YTM? The effective annual yield?A. 7.84 percent; 7.80 percent; 7.95 percent
B. 7.84 percent; 7.92 percent; 7.95 percent
C. 7.84 percent; 7.92 percent; 7.97 percent
D. 7.80 percent; 7.84 percent; 7.92 percent
E. 7.80 percent; 7.92 percent; 7.95 percent
The benefit of cumulative voting is:
A. the ability of a small minority of the shareholders to control the entire corporate board.
B. limiting access to voting to only shareholders who attend the annual shareholders' meeting.
C. the ability of shareholders, who own fewer shares, to elect at least one corporate director of their choice. D. voting for each corporate director in a separate election.E. limiting each shareholder to one vote per open position on the board.
I. generally has a fixed dividend.
II. generally has a dividend that increases annually.
III. receives preference in bankruptcy over bonds.
IV. receives preference in bankruptcy over common stock. A. Ionly
River Rock, Inc. just paid an annual dividend of $2.80. The company has increased its dividend by 2.5 percent a year for the past 10 years and expects to continue doing so. What will a share of this stock be worth 6 years from now if the required return is 16 percent?
D. $25.50 E. $26.90
Brickhouse is expected to pay annual dividends of $1.90 and $2.10 over the next two years, respectively. After that, the company expects to pay a constant dividend of $2.30 a share. What is the value of this stock at a required return of 16 percent?
Given the following partial stock quote, what was the closing price on the previous trading day if the firm's earnings per share are $1.90? DIVYLD% 3.2 ClosePrice $16.93 NetChg -0.16
Which one of the following statements is correct?
A. The net present value is a measure of profits expressed in today's dollars. B. The net present value is positive when the required return exceeds the internal rate of return. C. If the initial cost of a project is increased, the net present value of that project will also increase. D. If the internal rate of return equals the required return, the net present value will equal zero. E. Net present value is equal to an investment's cash inflows discounted to today's dollars.
Which one of the following statements is correct?
A. A longer payback period is preferred over a shorter payback period.
B. The payback rule states that you should accept a project if the payback period is less than one year. C. The payback period ignores the time value of money.
D. The payback rule is biased in favor of long-term projects.
E. The payback period considers the timing and amount of all of a project's cash flows.
The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following?
A. One of the time periods within the investment period has a cash flow equal to zero. B. The initial cash flow is negative. C. The investment has cash inflows that occur after the required payback period.
D. The investment is mutually exclusive with another investment under consideration. E. The cash flows are conventional.
Which one of the following will occur when the internal rate of return equals the required return?
A. The average accounting return will equal 1.0.
B. The profitability index will equal 1.0.
C. The profitability index will equal 0.
D. The net present value will equal the initial cash outflow.
E. The profitability index will equal the average accounting return.
A project has the following cash flows. What is the payback period? Year and Cash Flow Table
A. 2.38 years
B. 2.49 years
C. 2.60 years
D. 3.01 years
E. 3.33 years
A project has the following cash flows. What is the internal rate of return? Year and Cashflow table
A. 8.26 percent
B. 9.11 percent
C. 10.58 percent
D. 11.23 percent
E. 12.18 percent
The present value of a project's cash inflows is $8,216 at a 14 percent discount rate. The profitability index is 1.03 and the firm's tax rate is 34 percent. What is the initial cost of the project?
You are considering the following two mutually exclusive projects. The required return on each project is 14 percent. Which project should you accept and what is the best reason for that decision?
A. Project A, because it pays back faster
B. Project A, because it has the higher internal rate of return C. Project B, because it has the higher internal rate of return D. Project A, because it has the higher net present value E. Project B, because it has the higher net present value
The Shoe Box is considering adding a new line of winter footwear to its product lineup. Which of the following are relevant cash flows for this project?
I. Decreased revenue from products currently being offered if this new footwear is added to the lineup II. Revenue from the new line of footwear
III. Money spent to date looking for a new product line to add to the store's offerings
IV. Cost of new counters to display the new line of footwear
Which one of the following will increase the operating cash flow as computed using the tax shield approach?
A. Decrease in depreciation
B. Decrease in sales
C. Increase in variable costs
D. Decrease in fixed costs
E. Increase in the tax rate
A project with conventional cash flows has a profitability index equal to 1.0, the project:I. will pay back during the life of the project.II. will have an internal rate of return that equals the project's required rate of return. III. will have a negative net present value.IV. will produce more cash inflows than outflows in today's dollars.
A. I and II only
b. III and IV only c. II and III only
d. I, III, and IV only e. I, II, and IV only
The net working capital invested in a project is generally:
A. a sunk cost
B. an opportunity cost
C. recouped in the first year of the project
D. depreciated to a zero balance over the life of the project
E. recouped at the end of the project
Scenario analysis can be thought of as the:
A. variation of one input variable to see how it affects some key output variable B. means of identifying the key variable to the success of a project. C. methodology of identifying which variables, if any, have negligible effects on the outcome of a project. D. means of answering "What if?" questions that affect multiple variables simultaneously. E. methodology of identifying which variable within a project will require the closest monitoring
The Green Tomato purchased a parcel of land six years ago for $299,500. At that time, the firm invested $64,000 grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $28,000 a year. The Green Tomato is now considering building a hotel on the site as the rental lease is expiring. The current value of the land is $355,000. The firm has no loans or mortgages secured by the property. What value should be included in the initial cost of the hotel project for the use of this land? A. $0 B. $299,500
C. $355,000 D. $363,500 E. $419,000
A nine-year project is expected to generate annual revenues of $114,500, variable costs of $73,600, and fixed costs of $14,000. The annual depreciation is $3,500 and the tax rate is 34 percent. What is the annual operating cash flow?
A new project you are considering is expected to generate an operating cash flow of $45,620 and will initially free up $22,000 in net working capital. Purchases of fixed assets costing $68,800 will be required to start up the project. What is the total cash flow for this project at time zero?
D. -$26,580 E. -$41,220
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $171,600. This cost will be depreciated straight-line to zero over the project’s 10-year life, at the end of which the sausage system can be scrapped for $26,400. The sausage system will save the firm $52,800 per year in pretax operating costs, and the system requires an initial investment in net working capital of $12,320, which is recovered at the project's end. If the tax rate is 32 percent and the discount rate is 15 percent, the NPV of this project is:
A. $23,014 B. $25,728 C. $29,753 D. $30,186 E. $31,315
A project has an initial requirement of $698,700 for fixed assets and $61,000 for net working capital. The fixed assets will be depreciated to a zero book value over the four-year life of the project and will be worthless at the end of the project. All of the net working capital will be recouped after four years. The expected annual operating cash flow is $218,000. What is the project's internal rate of return if the tax rate is 35 percent? A. 7.72 percent B. 8.41 percent C. 8.69 percent D. 9.11 percent E. 9.97 percent
Sign up for free and study better.
Get started today!