The following is a listing of tax considerations for a family. How much is the their
taxable income?
A.$36,800
B.$23,200
C.$27,300
D.$24,800
If the debt ratio is 40.00%, then the equity multiplier is:
A.60.00%.
B.1.67:1.
C.1:50:1.
D.66.67%.
For financial purposes, a partnership is:
A.essentially a sole proprietorship with more than one owner.
B.a joining of two corporations.
C.an agreement between two corporations.
D.None of these are correct.
Which of the following represents a source of cash?
A.A decrease in accounts receivable
B.An increase in inventory
C.A decrease in accrued expenses
D.A decrease in accounts payable
Addleson Corp. has a $1,000 par value bond outstanding that was issued for 30 years 5
years ago at a coupon rate of 15%. The yield on similar bonds is now 12%. What is its
price?
A.$1235.27
B.$2418.58
C.$836.74
D.$1236.44
Which of the following would not qualify as a planning assumption for next year’s
operations?
A.A 5% reduction in unit sales
B.A 2% increase in the cost of raw materials
C.A 10% increase in human resources support
D.A 1% reduction in interest rates due to the redemption of outstanding bonds
E.All of the above are planning assumptions.
In a stock dividend:
A.there is no change in the retained earnings account.
B.shareholder wealth is unchanged.
C.the stock accounts decrease while retained earnings increases.
D.par value is reduced.
What is the Equivalent Annual Annuity (EAA) of a project that has an initial outlay of
$2,500 followed by cash inflows of $1,000, $3,000 and $5,000 in years 1, 2 & 3
respectively? Assume a cost of capital of 11%. (Round to nearest $)
A.$1,256
B.$1,591
C.$1,838
D.$2,141
Which of the following is true of certainty equivalent factors?
A.Certainty equivalent factors cannot be fractions.
B.They can either be positive or negative based on the risks of the project.
C.They are constant across the life span of the business.
D.They usually decline as they proceed into the future.
Ben bought an ice cream machine 2 years ago for $8,000. The depreciation life for ice
cream machines is 4 years. Ben uses straight line depreciation and a convention of
taking one-half year’s depreciation in the first year. Ben just sold his machine to Jerry
for $6,000. What will be Ben’s Capital Gain/(Loss) on this transaction?
A.$1,000
B.$2,000
C.$5,000
D.($2,000)
If the direct quote, forward exchange rate is lower than the spot rate, the forward
currency is trading at a:
A.spot rate.
B.discount.
C.premium.
D.forward spot rate.
Ajax Corp recently entered bankruptcy proceedings during which the court decided the
firm should be liquidated. Just before the bankruptcy filing, the firm’s owners
transferred most of its remaining assets into their own names without paying the
company anything for them. Creditors are now claiming that those assets should
rightfully be used to satisfy their claims. Which of the following is true?
A.The assets can be recovered by the trustee in bankruptcy for the benefit of the
creditors.
B.The creditors are out of luck since the assets were legally transferred before the
bankruptcy filing.
C.The creditors can sue the owners for the assets in a separate court proceeding, but it
will be expensive and time consuming to do so.
D.The transfer will stand if it was done in accordance with the rules for prefilling
transfers established in Chapter 11 of the bankruptcy code.
A decrease in the cost of capital will cause the ____ to decrease.
A.NPV
B.IRR
C.payback period
D.None of the above
Standard deviation is an important concept in portfolio theory because:
A.it is a measure of risk for a stock when it is held on a stand-alone basis.
B.it is a measure of risk for a stock when it is held in a diversified portfolio.
C.it is a measure of the variability of a stock’s return.
D.Both a. and c. are correct
E.All of the above are correct
Muller, Inc., manufacturer of cardboard boxes, is considering taking on a new line of
quality stationery, a related but very different field than cardboard boxes. Management
has prepared a, six-year forecast for the project planning to reevaluate the venture after
that time. The forecast anticipates that the project will cost $2 million to start after
which it will generate $500,000 in each of the next six years. To be conservative a
$200,000 shut down cost at the end of the sixth year has also be forecast. Muller’s beta
is 1.2, but Nugent Paper, a rival stationery manufacturer that does nothing else, is
known to have a beta of 1.6. The return on an average stock is 9%, and the risk free rate
is 5%. Muller’s cost of capital is 8%.a. What is the NPV of the stationery project if
Muller uses the traditional cost of capital method for calculating NPV?
b. Assume that Nugent Paper is a pure play company for Muller’s project. What is the
NPV of the project using Nugent Paper and the pure play method?
c. What should Muller do? Why?
Ashley Manufacturing is expanding its product line. As a consequence, it will have to
hire thirty-five new production workers at an annual cost of $1,050,000, seven new
supervisors at a cost of $350,000, and one additional individual in the personnel
department at an annual cost of $35,000. The incremental impact on projected cash
flows is:
A.$0.
B.$385,000.
C.$1,400,000.
D.$1,435,000.