The term ____ refers to the assets and liabilities required to operate a business on a
day-to-day basis.
A.capital management
B.working capital
C.operating capital
D.operating management
Braebner Corp. orders 500,000 microchips per year at an average cost of $130. The
carrying cost of each chip is $25, and each order costs $150. Compute Braebner’s EOQ.
A.23,846
B.2,449
C.17,333
D.3,005
Marshall Manufacturing has just borrowed money at 13% for 2 years. The pure rate of
interest is 2%. Marshall’s default risk premium is 4%, its liquidity risk premium is 2%,
and its maturity risk premium is 0.5%. Inflation is expected to be 3% during the first
year of the loan’s life. What does the lender expect the inflation rate to be in the loan’s
second year?
A.3%
B.4%
C.5%
D.6%
You have just won a $5 million lottery to be received in twenty annual equal payments
of $250,000. What will happen to the present value of your winnings if the interest rate
increases?
A.It will be worth less.
B.It will be worth more.
C.It will not change.
D.None of the above
A firm projects next year’s after-tax earnings at $500,000, and proposes spending
$800,000 on new capital budgeting projects. The target capital structure is 50% debt
and 50% equity. What dividend payout ratio would be appropriate if the firm adheres
strictly to a residual dividend policy?
A.37.5%
B.20.0%
C.50.0%
D.60.0%
The projected cash flows for two mutually exclusive projects are as follows:
If the cost of capital is 10%, the decidedly more favorable project is:
A.project B with an NPV of $39,539 and an IRR of 19.9%.
B.project A with an NPV of $5,230 and an IRR of 10.8%.
C.project A with an NPV of $39,539 and an IRR of 10.8%.
D.project B with an NPV of $5,230 and an IRR of 19.9%.
Portfolios:
A.are held only by rich investors.
B.are considered diversified if they contain many stocks from one industry.
C.have their own risk and returns.
D.can be diversified away.
Which of the following is not a feature of a dividend reinvestment plan?
A.Stockholders have the option of participating in dividend reinvestment plans.
B.Companies can provide stock for dividend reinvestment plans by buying it on the
open market.
C.Dividends that are put in a dividend reinvestment plan are tax deferred until the
stockholder sells the stock.
D.Companies can issue new stock for dividend reinvestment plans and avoid floatation
costs.
E.A dividend reinvestment plan provides an additional source of equity capital if the
companies fund it with new stock.
In any financial plan, forecasting interest depends on knowing debt, and forecasting
debt depends on knowing interest. This problem of “circularity” can be solved with:
A.an iterative technique.
B.a counter-circular reasoning.
C.additional planning assumptions.
D.calculus.
The cash conversion cycle measures the time:
A.between the creation of receivables and their collection.
B.it takes for inventory to be turned into product and sold.
C.between payment for inventory and collection of cash for its subsequent sale as
product.
D.for a check to clear the banking system.
A firm uses an inventory item with the following characteristics.
How many times should the product be reordered each year and what are the related
ordering and carrying costs of inventory?
A.5 $150 $150
B.3.3 $150 $150
C.5 $300 $150
D.3.3 $300 $300