You are considering the following 2 mutually exclusive projects. Using the equivalent
annual annuity method and a cost of capital of 10%, which project should be selected?
(Round to nearest $)
A.Project B because of an EAA of $12,060
B.Project A because of an EAA of $5,857
C.Project B because of an EAA of $38,320
D.Project A because of an EAA of $10,165
_____ laws prohibit mergers that significantly reduce competition.
A.Merger
B.Consolidation
C.Antitrust
D.Acquisition
Which of the following factors does notdirectly affect the firm’s investment in working
capital?
A.The firm’s inventory and credit policies
B.The age of the firm’s plant and equipment
C.The firm’s sales level
D.The length of the firm’s operating cycle
A firm’s cost of capital is the appropriate rate to use in the evaluation of:
A.its common stock.
B.all capital budgeting proposals.
C.average risk on capital budgeting proposals.
D.None of the above
Stock A’s returns over the past ten years have been: 10.0%, 8.0%, 12.0%, (5.0%),
10.0%, 12.0%, 10.0%, (4.0%), 8.0%, 9.0%.
a. What is the mean of Stock A’s return over the past 10 years?
b. What is the standard deviation of Stock A’s return over the past 10 years?
c. What is the coefficient of variation of Stock A’s return over the past 10 years?
Discuss the idea of stretching payables clearly indicating the pros and cons of the idea.
Which of the following are not relevant to the evaluation of a capital budgeting project?
A.Sunk costs
B.Financing costs
C.Inflation effects
D.a and c
E.All of the above
If a firm’s sales change by 15% and it has a degree of operating leverage (DOL) of 2.0,
what is the expected change in earnings before interest and taxes (EBIT)?
A.30%
B.40%
C.50%
D.60%
The ____ ratio, sometimes called the “acid test,” is a more stringent measure of ____
than the current ratio.
A.quick; liquidity
B.fixed-asset turnover; activity
C.net profit margin; gross profit margin
D.None of the above
In the calculation of the component cost of a firm’s debt, the yield-to-maturity on the
firm’s bonds:
A.is equal to the component cost of debt.
B.must be adjusted for expected capital gains or losses on the bonds.
C.must be adjusted for the tax-deductibility of interest expense.
D.b and c
A commitment fee is required by a commercial bank on:
A.line of credit.
B.revolving credit agreement.
C.single payment note.
D.a and b.
E.All of the above
Total return for a constant growth stock consists of:
A.capital gains yield.
B.dividend Yield.
C.current Yield.
D.Both a & b
E.All of the above