Nu Tek is comprised of four separate operating divisions. For this year, the firm has
decided to allocate capital funds using a soft rationing approach. Which one of the
following applies to this situation?
A. Division managers will be limited to accepting a single new project each.
B. Division managers are being given blanket approval to accept all positive net present
value projects.
C. Divisions managers will vie with each other for additional capital allocations.
D. Division managers will not receive any funding for new projects but will be allowed
to expand current operations.
E. Division managers will not receive capital funding for any project.
A project requires $360,000 of equipment that is classified as seven-year property. What
is the depreciation expense in year 3 given the following MACRS depreciation
allowances, starting with year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46
percent?
A. $38,033
B. $41,267
C. $51,444
D. $62,964
E. $88,164
Today, Courtney wants to invest less than $5,000 with the goal of receiving $5,000 back
some time in the future. Which one of the following statements is correct?
A. The period of time she has to wait until she reaches her goal is unaffected by the
compounding of interest.
B. The lower the rate of interest she earns, the shorter the time she will have to wait to
reach her goal.
C. She will have to wait longer if she earns 6 percent compound interest instead of 6
percent simple interest.
D. The length of time she has to wait to reach her goal is directly related to the interest
rate she earns.
E. The period of time she has to wait decreases as the amount she invests today
increases.
Cash flow from assets is defined as:
A. the cash flow to shareholders minus the cash flow to creditors.
B. operating cash flow plus the cash flow to creditors plus the cash flow to
shareholders.
C. operating cash flow minus the change in net working capital minus net capital
spending.
D. operating cash flow plus net capital spending plus the change in net working capital.
E. cash flow to shareholders minus net capital spending plus the change in net working
capital.
How quickly can a bank receive payment once it transmits a copy of a check to the
bank on which the check was drawn?
A. Immediately
B. In one day
C. Between one and two days
D. In two days
E. Between two and three days
Diversifying a portfolio across various sectors and industries might do more than one of
the following. However, this diversification must do which one of the following?
A. Increase the expected risk premium
B. Reduce the beta of the portfolio to zero
C. Increase the securitys risk premium
D. Reduce the portfolios systematic risk level
E. Reduce the portfolios unique risks
Which of the following have been offered as justification for IPO underpricing?I.
Young firms tend to be very risky.II. The best IPOs are oversubscribed.III. Underwriters
like to avoid lawsuits.IV. It benefits the existing shareholders.
A. I and III only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, III, and IV
The potential conflict of interest between a firms owners and its managers is referred to
as which type of conflict?
A. Organizational
B. Structural
C. Formation
D. Agency
E. Territorial
What is the NPV of the following set of cash flows at a discount rate of zero percent?
What if the discount rate is 15 percent?
A. -$41,700; -$8,665.07
B. -$41,700; $1,208.19
C. $0; $1,208.19
D. $2,500; $1,208.19
E. $2,500; -$8,665.07
A project has sales of $462,000, costs of $274,000, depreciation of $26,000, interest
expense of $3,400, and a tax rate of 35 percent. What is the value of the depreciation
tax shield?
A. $9,100
B. $9,564
C. $10,650
D. $10,800
E. $11,350
Home Grown Tomatoes stock returned 28.7 percent, 2.6 percent, 13.1 percent, 12.2, and
11.8 percent over the past five years, respectively. What is the arithmetic average return
for this period?
A. 13.68 percent
B. 14.62 percent
C. 15.10 percent
D. 15.93 percent
E. 17.10 percent
The spot exchange rate is the exchange rate that applies to a(n):
A. LIBOR transaction.
B. ADR transaction.
C. spot trade.
D. forward trade.
E. future transaction.
Precision Cuts has a target debt-equity ratio of 0.55. Its cost of equity is 15.4 percent,
and its pretax cost of debt is 7.8 percent. If the tax rate is 32 percent, what is the
companys WACC?
A. 10.20 percent
B. 10.72 percent
C. 10.91 percent
D. 11.28 percent
E. 11.82 percent