The relevance of a sunk cost to the evaluation of a capital budgeting project depends on
how recently in the past the cost was incurred.
While a firm’s bad debts should rise as it relaxes its credit standards, its ACP should
fall.
Operating activities involve the income statement and current accounts of the balance
sheet.
The dividend decision also represents a decision concerning internal vs. external equity
financing.
S-type corporations have difficulty in accumulating earnings because their profits are
subject to double taxation.
Firms are required to commit capital to funding cash balances just as they commit
capital to fund inventory, receivables, and fixed assets.
The probability of a path is also called the conditional probability of the individual
branches along it.
The impact of a project on cash flows in other parts of the business is outside of the
project’s scope and therefore need not be considered in estimating the project’s cash
flows.
Financial risk is additional risk borne by shareholders as the firm issues more debt.
The present value of an amount can be represented as:
A.PV = FVn[PVFk,n].
B.PV = FVn[PVFAk,n].
C.PV = FV[1 / (1 + k)].
D.a and c
The following items are components of a firm’s balance sheet. How much is the firm’s
working capital (net working capital)?
A.$14,500
B.$ 2,500
C.$18,500
D.$12,500
Toys For U, Inc. just purchased a new asset costing $500,000. The machine will be
depreciated straight-line over a 10-year period using the convention of taking a half
year’s depreciation in the first year. Given the following information about old assets
the firm already had, calculate net fixed assets at year end.
A.$765,000
B.$925,000
C.$1,275,000
D.$1,600,000
Assume the following information about a firm’s capital components:
The firm’s WACC is:
A.11.00%.
B.11.90%.
C.12.20%.
D.12.05%.
Greg is interested in investing in a small company, and he thinks Allen, Co. might be a
good investment. He has been given the following information and would like to know
the return on stockholder’s equity (ROE). Assume Allen’s marginal tax rate is 40%.
A.12%
B.20%
C.15%
D.18%
What present amount is equivalent to $100 received at the end of each year for 8 years,
given an opportunity cost of 20%?
A.$361.90
B.$432.20
C.$383.72
D.$407.80
E.419.30
Financial management involves:
A.financial input for general business decisions.
B.providing oversight for the management of money in other departments.
C.judging the feasibility of projects.
D.Both a & c
E.All of the above
An aggressive working capital policy:
A.uses more short-term financing than long-term.
B.uses short-term financing to support only the peaks of temporary working capital.
C.supports a portion of permanent working capital with short-term financing.
D.Both a & b
E.Both a & c
The net effect of a stock dividend is to:
A.increase the firm’s total stockholders’ equity.
B.increase the number of shares outstanding.
C.increase total dividends.
D.increase stock prices.
Fixed cost is also called:
A.expenses.
B.overhead.
C.variables.
D.depreciation.
The supply of loanable funds ultimately depends on:
A.the Federal Reserve’s monetary and economic policy.
B.commercial banks’ inclination to lend at prevailing interest rates.
C.the time preference for consumption.
D.the opportunities available to use the funds.
The marriage penalty refers to the fact that:
A.married people have less freedom than their single friends.
B.it generally costs more money to support a family than two single people.
C.two-income married couples generally pay more taxes than they would if they were
single and had the same two incomes.
D.married people generally work harder than single people.
An exchange rate quoted as $1.47 per British pound is known as a ____ quote.
A.hedge
B.direct
C.futures
D.indirect
Cosmos Touring wishes to replace its luxury bus in 10 years by accumulating funds in a
special account. The new bus is expected to cost $180,000. How much must Cosmos
put into the fund in equal, end-of-year amounts if earnings are expected to be 8% for
the first 4 years and 10% thereafter?
A.$12,107
B.$11,465
C.$9,901
D.$14,727
The aftermath of a leveraged buyout might include:
A.the immediate sale of the some of the firm’s assets or divisions to pay down excessive
debt.
B.the prospect of failure from an inability to service the excessive debt.
C.an imminent proxy fight.
D.a or b.
Last year’s dividend was $2.00, the anticipated constant growth rate is 5%, the selling
price today is $30 per share, and flotation costs for new equity are estimated to be 10%.
What is the estimated cost of retained earnings?
A.7.8%
B.12.0%
C.7.0%
D.12.8%
Which of the following is not a financial market?
A.Bond market
B.A market in which small business owners buy and sell their companies
C.Stock market
D.All of these are financial markets