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QUESTION 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 tax purposes.


                  

                   e.

                   Changes in net working capital.


                   




1 points  

QUESTION 2

                   Tallant Technologies is considering two potential projects, X and Y. In assessing the projects’ risks, the company estimated the beta of each project versus both the company’s other assets and the stock market, and it also conducted thorough scenario and simulation analyses. This research produced the following data:

                  

                    

                   Project X

                   Project Y

                   Expected NPV

                   $500,000

                   $500,000

                   Standard deviation (sNPV)

                   $200,000

                   $250,000

                   Project beta (vs. market)

                   1.4

                   0.8

                    

                    

                    

                  

                   Correlation of the project cash flows with cash flows from currently existing projects. Cash flows are not correlated with the cash flows from existing projects. Cash flows are highly correlated with the cash flows from existing projects.

                  

                   Which of the following statements is CORRECT?



                  

                   a.

                   Project X has more corporate (or within-firm) risk than Project Y.


                  

                   b.

                   Project X has more market risk than Project Y.


                  

                   c.

                   Project X has the same level of corporate risk as Project Y.


                  

                   d.

                   Project X has less market risk than Project Y.


                  

                   e.

                   Project X has more stand-alone risk than Project Y.


                   




1 points  

QUESTION 3

                   You have just landed an internship in the CFO’s office of ABC Inc. Your first task is to estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow?

                  

                  

                   Sales revenues

                   $13,000

                   Depreciation

                   $4,000

                   Other operating costs

                   $5,000

                   Tax rate

                   30.0%

                    

                    

                  

                  

                   a.

                   $5,950


                  

                   b.

                   $6,099


                  

                   c.

                   $6,350


                  

                   d.

                   $6,400


                  

                   e.

                   $6,800


                   




1 points  

QUESTION 4

                   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 rate

                   30.0%

                    

                    

                  

                  

                   a.

                   $8,903


                  

                   b.

                   $9,179


                  

                   c.

                   $9,463


                  

                   d.

                   $9,575


                  

                   e.

                   $9,663


                   




1 points  

QUESTION 5

                   ABA Inc. is considering a capital budgeting project that has an expected return of 22% and a standard deviation of 30%. What is the project’s coefficient of variation?



                  

                   a.

                   1.20


                  

                   b.

                   1.26


                  

                   c.

                   1.32


                  

                   d.

                   1.36


                  

                   e.

                   1.42


                   




1 points  

QUESTION 6

                   Which of the following statements is CORRECT?



                  

                   a.

                   Commercial paper is a form of short-term financing that is primarily used by large, strong, financially stable companies.


                  

                   b.

                   Short-term debt is favored by firms because, while it is generally more expensive than long-term debt, it exposes the borrowing firm to less risk than long-term debt.


                  

                   c.

                   Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.


                  

                   d.

                   Commercial paper is typically offered at a long-term maturity of at least five years.


                  

                   e.

                   Trade credit is provided only to relatively large, strong firms.


                   




1 points  

QUESTION 7

                   Fireside Inc. has the following data. What is the firm’s cash conversion cycle?

                  

                  

                   Inventory conversion period =

                   40 days

                   Average collection period =

                   18 days

                   Payables deferral period =

                   20 days

                    

                    

                  

                  

                   a.

                   33 days


                  

                   b.

                   37 days


                  

                   c.

                   38 days


                  

                   d.

                   42 days


                  

                   e.

                   49 days


                   




1 points  

QUESTION 8

                   Bubba Inc. had credit sales of $4,500,000 last year and its days sales outstanding was DSO = 30 days. What was its average receivables balance, based on a 365-day year?



                  

                   a.

                   $335,616


                  

                   b.

                   $352,397


                  

                   c.

                   $369,863


                  

                   d.

                   $389,836


                  

                   e.

                   $407,944


                   




1 points  

QUESTION 9

                   ABNA’ cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period?



                  

                  

                   11.7 days


                  

                  

                   13.0 days


                  

                  

                   14.4 days


                  

                  

                   15.2 days


                  

                  

                   16.7 days


                   




1 points  

QUESTION 10

                   Which of the following items should a company report directly in its monthly cash budget?



                  

                   a.

                   Cash proceeds from selling one of its divisions.


                  

                   b.

                   Accrued interest on zero coupon bonds that it issued.


                  

                   c.

                   New shares issued in a stock split.


                  

                   d.

                   New shares issued in a stock dividend.


                  

                   e.

                   Its monthly depreciation expense.


                   




1 points  

QUESTION 11

                   If the inflation rate in Britain is greater than the inflation rate in the United States, other things held constant, the British pound will



                  

                   a.

                   Depreciate against the U.S. dollar.


                  

                   b.

                   Remain unchanged against the U.S. dollar.


                  

                   c.

                   Appreciate against other major currencies.


                  

                   d.

                   Appreciate against the dollar and other major currencies.


                  

                   e.

                   Appreciate against the U.S. dollar.


                   




1 points  

QUESTION 12

                   If it takes $0.81 U.S. dollars to purchase one Swiss franc, how many Swiss francs can one U.S. dollar buy?



                  

                   a.

                   0.50


                  

                   b.

                   0.71


                  

                   c.

                   1.23


                  

                   d.

                   1.41


                  

                   e.

                   2.81


                   




1 points  

QUESTION 13

                   Suppose one U.S. dollar can purchase 140 yen today in the foreign exchange market. If the yen depreciates by 7.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?



                  

                   a.

                   155.5 yen


                  

                   b.

                   149.8 yen


                  

                   c.

                   133.5 yen


                  

                   d.

                   78.0 yen


                  

                   e.

                   72.0 yen


                   




1 points  

QUESTION 14

                   Suppose one U.S. dollar can purchase 140 yen today in the foreign exchange market. If the yen appreciates by 5.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?



                  

                   a.

                   155.5 yen


                  

                   b.

                   149.8 yen


                  

                   c.

                   133 yen


                  

                   d.

                   78.0 yen


                  

                   e.

                   72.0 yen


                   




1 points  

QUESTION 15

                   Suppose the exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the exchange rate between the U.S. dollar and the euro is $1.00 = 1.64 euros. What is the cross-rate of Swiss francs to euros?



                  

                   a.

                   0.43


                  

                   b.

                   0.86


                  

                   c.

                   1.41


                  

                   d.

                   1.64


                  

                   e.

                   2.27


                   




1 points  

QUESTION 16

                   Which of the following is generally NOT true and an advantage of going public?



                  

                   a.

                   Increases the liquidity of the firm’s stock.


                  

                   b.

                   Makes it easier to obtain new equity capital.


                  

                   c.

                   Establishes a market value for the firm.


                  

                   d.

                   Makes it easier for owner-managers to engage in profitable self-dealings.


                  

                   e.

                   Facilitates stockholder diversification.


                   




1 points  

QUESTION 17

                   Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time?



                  

                   a.

                   A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates.


                  

                   b.

                   The flotation costs associated with issuing new bonds rise.


                  

                   c.

                   The firm’s CFO believes that interest rates are likely to decline in the future.


                  

                   d.

                   The firm’s CFO believes that corporate tax rates are likely to be increased in the future.


                  

                   e.

                   The yield to maturity on the company’s outstanding bonds increases due to a weakening of the firm’s financial situation.


                   




1 points  

QUESTION 18

                   Which of the following statements concerning common stock and the investment banking process is NOT CORRECT?



                  

                   a.

                   If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market.


                  

                   b.

                   Listing a large firm’s stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional costs to the firm.


                  

                   c.

                   Stockholders have the right to elect the firm’s directors, who in turn select the officers who manage the business. If stockholders are dissatisfied with management’s performance, an outside group may ask the stockholders to vote for it in an effort to take control of the business. This action is called a tender offer.


                  

                   d.

                   The announcement of a large issue of new stock could cause the stock price to fall. This loss is called “market pressure,” and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue.


                  

                   e.

                   The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue.


                   




1 points  

QUESTION 19

                   Which of the following statements about listing on a stock exchange is most CORRECT?



                  

                   a.

                   Any firm can be listed on the NYSE as long as it pays the listing fee.


                  

                   b.

                   Listing provides a company with some “free” advertising, and it may enhance the firm’s prestige and help it do more business.


                  

                   c.

                   Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC.


                  

                   d.

                   The OTC is the second largest market for listed stock, and it is exceeded only by the NYSE.


                  

                   e.

                   Listing is a decision of more significance to a firm than going public.


                   




1 points  

QUESTION 20

                   Which of the following statements is NOT CORRECT?



                  

                   a.

                   “Going public” establishes a firm’s true intrinsic value and ensures that a liquid market will always exist for the firm’s shares.


                  

                   b.

                   Publicly owned companies have sold shares to investors who are not associated with management, and they must register with and report to a regulatory agency such as the SEC.


                  

                   c.

                   When stock in a closely held corporation is offered to the public for the first time, the transaction is called “going public,” and the market for such stock is called the new issue market.


                  

                   d.

                   It is possible for a firm to go public and yet not raise any additional new capital.


                  

                   e.

                   When a corporation’s shares are owned by a few individuals who own most of the stock or are part of the firm’s management, we say that the firm is “closely, or privately, held.”


                   




1 points  

QUESTION 21

                   Which of the following would cause average inventory holdings to decrease, other things held constant?



                  

                   a.

                   The purchase price of inventory items decreases by 50 percent.


                  

                   b.

                   The carrying price of an item decreases (as a percent of purchase price).


                  

                   c.

                   The sales forecast is revised downward by 10 percent.


                  

                   d.

                   Interest rates fall.


                  

                   e.

                   Fixed order costs double.


                   




1 points  

QUESTION 22

                   Halliday Inc. receives a $2 million payment once a year. Of this amount, $600,000 is needed for cash payments made during the next year. Each time Halliday deposits money in its account, a charge of $2.00 is assessed to cover clerical costs. If Halliday can hold marketable securities that yield 5 percent, and then convert these securities to cash at a cost of only the $2 deposit charge, what is the total cost for one year of holding the minimum cost cash balance according to the Baumol model?



                  

                   a.

                   $6,928


                  

                   b.

                   $173


                  

                   c.

                   $3,464


                  

                   d.

                   $346


                  

                   e.

                   $748


                   




1 points  

QUESTION 23

                   Which of the following is true of the EOQ model? Note that the optimal order quantity, Q, will be called EOQ.



                  

                   a.

                   If the annual sales, in units, increases by 20%, then EOQ will increase by 20%.


                  

                   b.

                   If the average inventory increases by 20%, then the total carrying costs will increase by 20%.


                  

                   c.

                   If the average inventory increases by 20% the total order costs will increase by 20%.


                  

                   d.

                   The EOC is the same for all companies.


                  

                   e.

                   If the fixed per order cost increases by 20%, then EOQ will increase by 20%.


                   




1 points  

QUESTION 24

                   If a company increases its safety stock, then its EOQ will go up.


True 
False 





1 points  

QUESTION 25

                   If a company increases its safety stock, then its average inventory will go up.

True 
False 





1 points  

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