BUSN 379 MCQs

       sunk costs should be included        erosion effects should not be considered        financing costs need to be included        opportunity costs are relevant

       payback ignores the time value of money.        payback can be used in conjunction with time adjusted methods of evaluation.        payback is easy to use and to understand.        none of the above is a disadvantage.

       has no initial cost.        has an expected return that is less than the required return.        should be rejected even if the discount rate is lowered.        never pays back its initial cost.        is earning a return that exactly matches the requirement.

       $1,085.25        $1,193.77        $3,498.28        $4,102.86        $4,513.15

       5.81 years        6.05 years        6.96 years        7.90 years        This project never pays back

       overestimates the internal rate of return on a project.        ignores the possibility that a negative net present value project might be positive, given changes over time.        ignores the possibility that one variable is the primary source of the forecasting risk associated with a project.        underestimates the net present value of a project.

       contingency planning.        hard rationing.        soft rationing.        capital constraint.        scenario analysis.

       The net present value of the project is $11,000        This project should be accepted because it has a negative net present value        This project should be accepted because it has a payback higher than 3 years        The net present value of the project is close to $1,000

       $12,000        $19,200        $19,800        None of the above

       $82,000        $110,000        $42,000        none of these

       multiple states of the economy        probability of occurrence for any one economic state        market rate of return given a particular economic state        all of the above will affect the expected rate of return

       the expected return is usually the same as the actual return        a key to assess risk is determining how much risk an investment adds to a portfolio        risks can always be decreased or mitigated by the financial manager        the higher the risk, the lower the return investors require for the investment

       7.33 percent        9.82 percent        11.26 percent        11.33 percent        11.50 percent

       17.68 percent        17.91 percent        18.42 percent        19.07 percent        19.46 percent

       1.0 percent        1.8 percent        2.3 percent        2.5 percent        3.1 percent

       all public and private information.        historical information only.        all publicly available information.        all publicly available information, plus any data that can be gathered from insider trading.        random information with no clear distinction as to the source of that information.

       between 3 and 9%        exactly 12%        more than 14%        exactly 11%        none of the above

       10.3%        10.1%        4.1%        5.8%

       It is the return that the firm’s creditors demand on new borrowing.        It is always equal to the weighted cost of capital.        An appropriate method to compute the cost of debt is using the coupon rate of current bonds outstanding.        All of the above are true.

       it is irrelevant to the WACC        requires new funds to be raised        need to be adjusted for the flotation costs        have a cost, which is the opportunity cost associated with stockholder funds

       less than 7%        between 8 and 11%        more than 13%        exactly 15%

       Current tax laws favor debt financing.        A decrease in the dividend growth rate increases the cost of equity.        An increase in the systematic risk of a firm will decrease the firm's cost of capital.        A decrease in a firm's debt-equity ratio will usually decrease the firm's cost of capital.        The cost of preferred stock decreases when the tax rate increases.

       8.56 percent        9.32 percent        11.85 percent        13.43 percent        14.47 percent

       a petition is filed in federal court        administrative fees are incurred        a list of creditors is compiled        pre-bankruptcy shareholders tend to lose part, if not all, of their investment in the firm        a trustee-in-bankruptcy is elected by the creditors

       The cost of capital should not consider any flotation costs.        All other being equal, it is preferable to use book value weights than market value weights.        The WACC is the most appropriate discount rate for all projects.        Depends primarily on the use of the funds, not the source.

       Goods are sold on credit        An interest payment on a notes payable is made        A payment due is received from a client        Raw materials are purchased and paid for with credit

       The optimal credit policy minimizes the total cost of granting credit.        Firms should avoid offering credit at all cost.        An increase in a firm's average collection period generally indicates that an increased number of customers are taking advantage of the cash discount.        Character, refers to the ability of a firm to meet its credit obligations out its operating cash flows.        The optimal credit policy, is the policy that produces the largest amount of sales for a firm.

       lengthen the accounts payable period.        shorten the inventory period.        lengthen the operating cycle.        shorten the cash cycle.        shorten the accounts payable period.

       $3,250        $3,400        $3,600        $3,750        $3,900

       increasing the net, working capital while lowering the long-term asset requirements        improving the operating efficiency, thereby increasing the market value of the stock        increasing the firm’s market share        reducing fixed costs and increasing variable costs        increasing the liquidity of the firm by transferring short-term debt into long-term debt

       I and II        I, II and III        II, III and IV        I, III and IV        All of the above

       It reflects the value of the asset based on generally-accepted accounting principles.        Is a crucial component of the balance sheet, and can impact the financial statements.        Market values reflect the amount someone is willing to pay today for an asset. The market value of an asset reflects its historical cost.

       33%        34%        36%        37%        38%

       Regional Bank, APR        Local Bank, EAR        Regional Bank, EAR        Local Bank, APR

        interest rate         initial amount of your deposit         frequency of the interest payments         length of the investment period

       $18,017.22        $20,741.87        $23,190.98        $26,359.88        $28,846.15

       $91.05        $284.13        $556.50        $682.87        $731.60

       effective annual rate        amortized        interest-only        annual percentage        pure discount

       $1078        $1085        $927        $1000

       primary        main        secondary        principal        dealer

       is 100 percent equity financing.        consists of equal amounts of debt and equity financing.        is the mixture of debt and equity financing that minimizes the firm's aftertax cost of debt.        is the mixture of debt and equity financing that minimizes the weighted average cost of capital.        is 100 percent debt financing.

       6.96%        7.69%        11.0%        12.1%

       Bonds do not carry default risk.        Bonds are sensitive to changes in the interest rates.        Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk.        Municipal bonds are free of default risk.        None of the above is true

       Maple's decreased more than Temple's        Temple's decreased more than Maple's        Maple's increased more than Temple's        They are both priced the same

       repurchase the bonds prior to maturity at a pre-specified price.        replace the bonds with equity securities.        repurchase the bonds after maturity at a pre-specified price.        change the coupon rate, provided the bondholders are notified in advance.        buy back the bonds on the open market prior to maturity.