Incremental cash flows associated with capital budgeting projects can include:
A.reductions in labor costs.
B.reductions in fuel and maintenance costs.
C.increased profitability.
D.All of the above
Project A has a payback period of 8 years, while Project B has a payback period of 7
years. The payback policy maximum is 6 years. Which project should be accepted?
A.Project A, if they are mutually exclusive
B.Project B, if they are mutually exclusive
C.Both Project A and Project B
D.Neither Project A or Project B
If a net present value analysis for a normal project gives an NPV greater than zero, an
internal rate of return calculation on the same project would yield an internal rate of
return ____ the firm’s cost of capital.
A.greater than
B.less than
C.equal to
D.Cannot be determined from the information given
Consider a capital expenditure project with an expected 10-year economic life and
forecasted revenues equal to $40,000 per year; cash expenses are estimated to be
$29,000 per year. The cost of the project equipment is $23,000, and the equipment’s
estimated salvage value at the end of the project is $9000. The equipment’s $23,000
cost will be depreciated using MACRS depreciation (7-year asset). The project requires
a $7,000 working capital investment in year 0 and another $5,000 in year 5. The
working capital investment is recovered in the final year of the project. The company’s
marginal tax rate is 40%. Calculate the expected net cash flow in year 10 of the project.
A.$32,000
B.$27,000
C.$24,000
D.None of the above
If the U.S. dollar weakens against the Japanese Yen, which of the following will occur.
A.Japanese imports will be more expensive in the U.S.
B.Japanese imports will be less expensive in the U.S.
C.American imports will be less expensive in Japan.
D.Both a. and c. are correct.
E.None of the above is correct.
The market to book value ratio, or price to book ratio, as it is sometimes called, is an
indication of the market’s perception of the company’s value as a “going concern.”
Generally, when the market “prices” the firm’s stock below the book value of its
common equity, the market is said to be:
A.disappointed with the firm’s future growth potential.
B.disappointed with the firm’s future earnings prospects such that the value of the stock
is not equivalent to the net assets of the firm.
C.disappointed that the return falls below that which the firm is capable of producing.
D.All of the above
Which is correct about a dividend payment assuming an investor purchases a stock after
the ex-dividend date?
A.The investor is entitled to the dividend because ownership of the stock precedes the
payment date.
B.The investor is not entitled to the dividend.
C.The investor may be entitled to the dividend because it is possible for the investor to
purchase the stock prior to the date of record.
D.The investor is not entitled to the dividend because stock ownership did not precede
the declaration date.
A firm’s EPS increased 27% on a 12% increase in sales. At the same time its EBIT
increased 8% what is the firm’s DFL?
A.1.50
B.3.36
C.1.34
D.0.67
Your company is expected to earn $4.0 million in net income next year of which it will
pay out 40% in dividends. If equity represents 50% of your capital, what is the
breakpoint on the MCC where new stock will have to be issued?
A.$2.4 million
B.$3.2 million
C.$4.0 million
D.$4.8 million
E.$8.0 million
A project is acceptable under the profitability index technique if its:
A.PI is less than one.
B.PI is greater than one.
C.PI is greater than zero.
D.PI is greater than the initial outlay.
Supporting working capital with short-term financing is:
A.inexpensive but risky.
B.conservative but expensive.
C.expensive and risky.
D.conservative and inexpensive.
Short-term liabilities:
A.represent claims on a firm’s income and assets.
B.are sources of funds for the firm.
C.can arise spontaneously from a firm’s operations.
D.All of the above