What is the IRR for a project that has an initial cost of $400.00 and produces a revenue
of $452.00 one year from today? (Hint: calculate the return on the investment)
A.11%
B.12%
C.13%
D.14%
An automatic bias against high-risk projects is created by:
A.using the IRR technique, which produces an intrinsic return which is risk adjusted.
B.using a higher rate than the cost of capital when applying NPV and IRR to risky
projects.
C.adjust NPVs and IRRs up when evaluating risky projects.
D.make an intuitive judgment about risk after the analysis is done.
The term “net working capital” means:
A.the firm’s gross working capital minus spontaneous financing.
B.the firm’s cash, accounts receivable, and inventory minus short-term payables and
accruals.
C.the firm’s current assets minus its current liabilities.
D.All of the above
The over-the-counter market differs from the New York Stock Exchange in that it:
A.trades unlisted securities.
B.is a physical trading place.
C.uses the NASDAQ system.
D.Both a & c
E.All of the above
Although budgeting and forecasting appear similar, forecasting relates to a shorter time
horizon and usually focuses on:
A.cash flow and profitability.
B.capital considerations.
C.human resources.
D.meeting engineering goals.
The cost of new equity would increase with an increase in ____.
A.growth rate
B.stock price
C.flotation costs
D.Both a & c
E.All of the above
In order to compare the yields on municipal and corporate bonds the investor must
restate the yield of either the taxable corporate bond to an after tax basis or the
municipal bond to a pretax equivalent because:
A.corporate bonds are tax free.
B.municipal bonds are tax free and investors must compare rates on an equal basis.
C.a municipal bond is typically safer than a taxable corporate bond.
D.such restatements are not necessary for most taxpayers.
If a firm does not have any debt, what is true about the components of the sustainable
growth rate?
A.The retention ratio is 100%.
B.The dividend payout ratio is 100%.
C.The ROA multiplied by the retention ratio is equal to the sustainable growth rate
D.The ROE is greater than the ROA.
Which is not one of the five ratio categories?
A.Liquidity
B.Asset management
C.Retained earnings management
D.Profitability
Which of the following $1,000 face value bonds has a 10% yield, assuming semiannual
coupon payments of 8%?
1) A 5 year maturity bond selling for $964.54
2) A 10 year maturity bond selling for $875.39
3) A 20 year maturity bond selling for $828.36
A.(1)
B.(2)
C.(3)
D.(2) and (3)
The Tappan family has taxable income of $50,000. Tax tables indicate that the first
$20,000 of income will be taxed at 24% and all income above $20,000 will be taxed at
30%. What are the Tappan’s marginal and average tax rates?
A.Marginal = 29.8%; Average = 30.0%
B.Marginal = 28.2%; Average = 27.6%
C.Marginal = 30.0%; Average = 30.0%
D.Marginal = 30.0%; Average = 27.6%
E.Marginal = 24.0%; Average = 30.0%
In theory, the risk-free rate is more appropriate for the NPV calculation in the certainty
equivalent approach since:
A.it is assumed that there is no business-specific risk associated with the projects.
B.certainty equivalent factors cannot take negative values.
C.certainty equivalents imply zero risk.
D.certainty equivalents consider unsystematic risk only.