Archives: Quiz

1) If a firm’s projects differ in risk, then one way of handling this problem is to evaluate each project with the appropriate risk-adjusted discount rate. 2) If the market is in equilibrium, then an option must sell at a […]

1) An option is a contract that gives its holder the right to buy or sell an asset at a predetermined price within a specified period of time. 2) A line of credit can be either a formal or an […]

1) The text identifies three methods for estimating the cost of common stock from reinvested earnings (not newly issued stock): the CAPM method, the DCF method, and the bond-yield-plus-risk-premium method. Since we cannot be sure that the estimate obtained with […]

1) The cost of equity raised by retaining earnings can be less than, equal to, or greater than the cost of external equity raised by selling new issues of common stock, depending on tax rates, flotation costs, the attitude of […]

1) If a firm adopts a residual distribution policy, distributions are determined as a residual after funding the capital budget. Therefore, the better the firm’s investment opportunities, the lower its payout ratio should be. 2) The retained earnings account on […]

1) Which of the following statements is CORRECT? a.Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm’s common stock, and, as a result, the expected after-tax yield on the preferred is lower […]

1) Freedman Flowers’ stock has a 50% chance of producing a 25% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm’s expected rate of return? a.9.41% b.9.65% […]

1) Which of the following statements is CORRECT? a.The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects b.The discounted payback method is generally regarded by academics as being the best […]

1) McCurdy Co.’s Class Q bonds have a 12-year maturity, $1,000 par value, and a 5.75% coupon paid semiannually (2.875% each 6 months), and those bonds sell at their par value. McCurdy’s Class P bonds have the same risk, maturity, […]

1) Your consultant firm has been hired by Eco Brothers Inc. to help them estimate the cost of common equity. The yield on the firm’s bonds is 8.75%, and your firm’s economists believe that the cost of common can be […]

1) Refer to Exhibit 3.1. What is the firm’s TIE? a. 1.94 b. 2.15 c. 2.39 d. 2.66 e. 2.93 2) You are considering two mutually exclusive, equally risky, projects. Both have IRRs that exceed the WACC. Which of the […]

1) Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? a.Shipping and installation costs b.Cannibalization effects c.Opportunity costs d.Sunk costs that have been expensed for […]

1) Shannon Co. is considering a project that has the following cash flow and WACC data. What is the project’s discounted payback? WACC:10.00% Year01234 Cash flows-$950$525$485$445$405 a.1.61 years b.1.79 years c.1.99 years d.2.22 years e.2.44 years 2) Which of the […]

1) Murray Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO wants to use the IRR criterion, while the CFO favors the NPV method. […]

1) If a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that a. the dividend payout ratio is increasing b. no dividends were paid during the year c. the dividend payout ratio […]

1) Zumbahlen Inc. has the following balance sheet. How much total operating capital does the firm have? Cash$ 20.00Accounts payable$ 30.00 Short-term investments50.00Accruals50.00 Accounts receivable20.00Notes payable 30.00 Inventory 60.00 Current liabilities$110.00 Current assets$150.00Long-term debt70.00 Gross fixed assets$140.00Common stock30.00 Accumulated deprec. […]

1) Taylor Inc., the company you work for, is considering a new project whose data are shown below. What is the project’s Year 1 cash flow? Sales revenues, each year$62,500 Depreciation$8,000 Other operating costs$25,000 Interest expense$8,000 Tax rate35.0% a.$25,816 b.$27,175 […]

1) Which of the following statements is CORRECT? a.We should use historical measures of the component costs from prior financings that are still outstanding when estimating a company’s WACC for capital budgeting purposes b.The cost of new equity (re) could […]

1) Cornwall Corporation is planning to raise $1,000,000 to finance a new plant. Which of the following statements is CORRECT? a.If debt is used to raise the million dollars, but $500,000 is raised as first mortgage bonds on the new […]

1) Ziebart Corp.’s EBITDA last year was $390,000 ( = EBIT + depreciation + amortization), its interest charges were $9,500, it had to repay $26,000 of long-term debt, and it had to make a payment of $17,400 under a long-term […]

1) In your first job with TBL Inc. your task is to consider a new project whose data are shown below. What is the project’s Year 1 cash flow? Sales revenues$22,250 Depreciation$8,000 Other operating costs$12,000 Tax rate35.0% a.$8,903 b.$9,179 c.$9,463 […]

1) Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky. a.If a project’s IRR is equal to its WACC, then under all reasonable conditions, the project’s IRR must […]

1) Which of the following statements is CORRECT? a. Suppose a firm’s total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% […]

1) If D1 = $1.25, g (which is constant) = 5.5%, and P0 = $44, what is the stock’s expected total return for the coming year? a.7.54% b.7.73% c.7.93% d.8.13% e.8.34% 2) Which of the following statements is CORRECT? a. […]

1) Which of the following should not influence a firm’s dividend policy decision? a. A strong preference by most shareholders for current cash income versus capital gains b. Constraints imposed by the firm’s bond indenture c. The fact that much […]

1) Tibbs Inc. had the following data for the year ending 12/31/12: Net income = $300; Net operating profit after taxes (NOPAT) = $400; Total assets = $2,500; Short-term investments = $200; Stockholders’ equity = $1,800; Total debt = $700; […]

1) Refer to Exhibit 3.1. What is the firm’s days sales outstanding? Assume a 360-day year for this calculation. a. 48.17 b. 50.71 c. 53.38 d. 56.19 e. 59.14 2) Refer to Exhibit 3.1. What is the firm’s inventory turnover […]

1) Hernandez Corporation expects to have the following data during the coming year. What is Hernandez’s expected ROE? Assets$200,000Interest rate8% D/A65%Tax rate40% EBIT$25,000 a.12.51% b.13.14% c.13.80% d.14.49% e.15.21% 2) A firm wants to strengthen its financial position. Which of the […]

1) A 15-year bond has an annual coupon rate of 8%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 6%. Which of the following statements is CORRECT? a.The bond is […]

1) Daylight Solutions is considering a recapitalization that would increase its debt ratio and increase its interest expense. The company would issue new bonds and use the proceeds to buy back shares of its common stock. The company’s CFO thinks […]

1) Which of the following statements is CORRECT? a.If a firm’s assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firm’s AFN to be negative b.If a firm […]

1) If a firm is privately owned, and its stock is not traded in public markets, then we cannot measure its beta for use in the CAPM model, we cannot observe its stock price for use in the DCF model, […]

1) Compare and contrast between the strategies of direct and indirect exports. 2) In the first half of the 20th century, the services sector started commanding height. Answer: F 3) Expatriates act as daily managers to run operations and to […]

1) The term supply chain is almost synonymous with value chain, encompassing both inbound and outbound logistics. 2) Equity-based alliances include co-marketing, research and development, contracts, turnkey products, strategic suppliers, and strategic distributors. Answer: F 3) Voice-based governance mechanisms are […]

1) Cartels are often labeled as anticompetitive and outlawed by antitrust laws. 2) Cross-shareholding is based on financial interest between the firms. Answer: T 3) Differentiate between the radical, the free market and pragmatic nationalism view on FDI. Answer: First, […]

1) Competitive dynamics are the actions and responses undertaken by competing firms. 2) A common stereotype is that players from collectivist societies are more collaborative and trustworthy, and that those from individualist societies are more competitive and opportunistic. What do […]

1) What are the two core propositions of the institution-based view? 2) Describe the four driving forces that influence the choice of a contract or an equity approach in the formation of alliances. Answer: In stage two of the alliance […]

1) Middle-aged expatriates are the most expensive, because the employer often has to provide a heavy allowance for childrens education. 2) Explain the role of the Board of Directors. Answer: Boards of directors perform control, service, and resource acquisition functions. […]

1) Explain the role of nongovernmental organizations (NGOs) in globalization. 2) Combining resource similarity and market commonality helps yield a framework of competitor analysis for any pair of rivals. Answer: T 3) During the first stage of alliance formation, a […]

1) Compare and contrast the advantages and disadvantages of a strong and a weak dollar. 2) When MNEs adopt a localization strategy, the interdependence on knowledge management is high. Answer: F Answer: A strong (appreciating) dollar: Advantages: US consumers benefit […]

1) The minimization of principalagent conflicts through concentration of ownership and control, unfortunately, introduces more principalprincipal conflicts. 2) The transnational strategy is usually the easiest strategy for an MNE to implement and the first one adopted when the firm ventures […]

1) Integrating individuals from two (parent and host) countries is a lot more complex than molding managers from a variety of nationalities. 2) Formal institutions governing domestic competition are broadly guided by competition policy. Answer: T 3) What is totalitarianism? […]

1) The three potential motives for alliances are synergistic, hubristic, and managerial motives. 2) Strategic investments in an equity-based alliance involve one partner investing in another. Answer: T 3) Individuals who discover, evaluate, and exploit previously unexplored opportunities are referred […]

1) Cartel is an output- and price-fixing entity involving multiple competitors. 2) Briefly discuss market orientation versus relationship orientation that concern marketing and supply chain management. Answer: Market orientation places the highest priority on the creation of superior customer value […]

1) Global sustainability disregards sustainable capitalism. 2) The antitrust policies in the United States make it difficult for incumbents to raise entry barriers for new entrants. Answer: T 3) In the context of segmentation based on customer categories, global dreamers […]

1) The informal institution-based view that stresses on the cognitive pillar is centered on the internalized taken-for-granted values and beliefs that guide firm behavior. 2) In order to win a predation case in the US, an attempt to monopolize must […]

1) Discuss the formation of GATT and the issues that precipitated the formation of the WTO (Post GATT). 2) Domestic transaction costs are qualitatively higher than international transaction costs. Answer: Answer: GATT was established in 1948. Unlike the WTO, the […]

1) The more hard to describe the capabilities of a firm in an alliance, the greater the preference for an equity involvement. 2) It is impossible to internationalize without venturing abroad. Answer: F 3) Describe what it means for a […]

1) Social capital is the ability to recognize the value of new information, assimilate it, and apply it. 2) Elaborate on the institution-based view of alliances and acquisitions. Answer: Alliances and acquisitions function within formal legal and regulatory frameworks. The […]

1) Introducing third-party logistics (3PL) providers may more effectively align the interests in the supply chain. 2) The free market school has provided much of the intellectual underpinning for globalization spearheaded by MNEs. Answer: T 3) In entrepreneurial firms, an […]