Which of the following is not a part of working capital?
A.The short-term credit offered by a supplier.
B.The tax that is due within a year.
C.The cash held in the cash register for making change on a daily basis.
D.The building in which daily operations take place.
A contract guarantees payment of $500 a month for the next 18 months starting today.
How much is that contract worth today if the interest rate is 12% compounded
monthly?
A.$8281.14
B.$8199.15
C.$9905.58
D.$9087.50
Financial intermediaries are associated with:
A.investment banks.
B.direct transfers.
C.indirect transfers.
D.only money market transactions.
E.b and c
Match the following:
1>MACRS A. Money that has already been spent at the
time of the analysis and cannot influence the future regardless of decisions about the
capital project
2>Financing costs B. Potential income foregone as a result of using
a resource in the project being considered
3>Opportunity costs C. The cost of the capital funds used to support a
project
4>Sunk costs D. The accelerated depreciation method used for
tax purposes
In proper capital budgeting analysis we evaluate incremental _____ cash flows.
A.accounting
B.operating
C.before-tax
D.financing
Which statement is true?
A.Beginning equity + net income = ending equity
B.Beginning equity + net income – dividends = ending equity
C.Beginning equity + net income – dividends + new stock sold = ending equity
D.All of these statements are true.
You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over
15 years at 8% compounded monthly Calculate the principal paid to the bank in month
2 of the loan.
A.$242.67
B.$378.19
C.$413.61
D.$581.25
What is the net present value of a project that requires an initial investment of $76,000
and produces net cash flows of $22,000 per year for 7 years? Assume the discount rate
is 15 percent.
A.$91,520
B.$15,520
C.$78,000
D.$167,474
Holding all other variables constant, an increase in the interest rate will cause ____ to
decrease.
A.future values
B.present values
C.annuity payments
D.growth rates
Since EBIT is not necessarily indicative of cash flow, many financial analysts adjust the
formulation by:
A.adding unpaid taxes to EBIT in the TIE formula.
B.adding unpaid taxes and interest to EBIT in the formula.
C.adding depreciation to EBIT in the TIE formula.
D.adding unpaid taxes, interest and depreciation to EBIT in the TIE formula.
The principal financial advantage of the corporate form of organization is:
A.ease of transferability of ownership.
B.accumulation of earnings for retention in the business.
C.limited liability.
D.ease of raising money through selling stock.
Morage Corp. is replacing an entire baking line that was purchased for $420,000 and
currently has a book value of $60,000. The new, more efficient line, will cost $940,000
installed and can be depreciated as a 7-year MACRS asset. With the increased
efficiency, Morage expects annual revenues to increase by $425,000, and operating
expenses to increase by $170,000. The older machine, which was being depreciated at
the straight-line rate of $20,000/year, will be sold for $30,000. What are the net cash
flows for year 2? Assume the firm’s marginal tax rate is 40% and that the year 2
depreciation rate is 24.49% under MACRS.
A.$26,996
B.$332,206
C.$237,082
D.$383,206
If the firm’s total equity is $600,000, its long-term debt is $300,000, and its current
liabilities are $100,000, then its debt ratio is:
A.66.67%.
B.40%.
C.30%.
D.33.33%.
Two companies are competitors. The following facts about the companies and their
industry are significant.
a. Both firms use similar production, distribution, and sales techniques.
b. One firm is losing money, while the other is profitable.
c. There is a great deal of overhead in the business.
d. The industry is dominated by a single firm that’s about as big as these two
combined.The two companies are considering a merger. State several arguments in
favor of the combination.
Hoffman Inc. has an $1,000 par value bond with 15 years to maturity and a coupon rate
of 12%, paid semiannually. The market rate on similar debt has now risen to 16%. What
is the current price of this bond?
A.$516.69
B.$774.84
C.$776.98
D.$1,342.38
E.$1,450.31
The NPV and IRR techniques can give conflicting results:
A.in standalone cases where the project’s NPV profile is downward sloping.
B.in mutually exclusive decisions in which the NPV profiles do not cross.
C.in mutually exclusive situations in which the NPV profiles cross anywhere.
D.in mutually exclusive decisions in which the NPV profiles cross in the first quadrant.
The cost of particular capital components may be ____ the returns paid to investors in
the underlying securities.
A.greater than
B.less than
C.equal to
D.All of the above
Crown Honda purchased a small motorcycle from the Japanese manufacturer for
965,600 yen. The exchange rate for the yen was 142 yen per U.S. dollar at the time of
purchase but then rose to 171.8 yen by the time payment was made. What was the
dealer’s gain or loss on the change in rates?
A.Gain of $1,180
B.Loss of $1,427
C.Loss of $1,180
D.Gain of $1,427
If a firm sells an asset for less than its book value:
A.there are major tax consequences.
B.the loss is treated as lost depreciation.
C.the loss reduces depreciation expenses.
D.the loss may reduce taxes.
A share of Jones Inc. preferred stock pays a dividend of $1.25 each quarter. You are
willing to pay $37.50 for this stock. Your annual return on the investment is:
A.3.0%.
B.3.3%.
C.6.0%.
D.7.5%.
E.13.3%.