Quiz

profileFrodo
week_2_quiz.docx
Home>Business & Finance homework help>Accounting homework help>Quiz

A benefit of debt financing is that: (Points : 1)

       not making scheduled debt payments can lead to bankruptcy.        interest paid on debt is tax-deductible.        loans must be repaid.        debt magnifies bad outcomes (i.e., makes earnings more variable).

Question 2. 2. If depreciation expense is a noncash charge, why do we consider it when determining cash flows? (Points : 1)

       because depreciation expense reduces taxable income, so reduces the amount of taxes paid        because depreciation expense offsets part of the initial cash outlay for depreciable assets        because depreciation expense reduces net income        because depreciation expense is a method for allocating costs

Question 3. 3. The appropriate cash flows for evaluating a corporate investment decision are: (Points : 1)

       incremental additional cash flows.        marginal after-tax cash flows.        incremental after-tax cash flows.        investment after-tax cash flows.

Question 4. 4. The internal rate of return is: (Points : 1)

       the discount rate at which the NPV is maximized.        the discount rate used by people within the company to evaluate projects.        the rate of return that a project must exceed to be acceptable.        the discount rate that equates the present value of benefits to the present value of costs.

Question 5. 5. When making investment decisions, we focus on after-tax cash flows because: (Points : 1)

       taxes must be paid.        those are the cash flows available to shareholders.        taxes can have a significant effect on profits.        tax rates differ across companies.

Question 6. 6. In perfect capital markets, the capital structure decision is: (Points : 1)

       important because it affects the cash flows to shareholders.        important because debt and equity are taxed differently.        irrelevant because the decision has no effect on cash flows.        important sometimes.

Question 7. 7. Which of the following is a problem associated with bankruptcy? (Points : 1)

       It is embarrassing for managers to work at a firm that fails.        Bankruptcy shifts assets to more highly valued uses.        The costs associated with bankruptcy further reduce cash flows to shareholders.        A company immediately ceases to be able to conduct business once it has filed for bankruptcy.

Question 8. 8. Which of the following is true when a company has very little debt? (Points : 1)

       The expected costs of bankruptcy will be moderate.        The expected costs of bankruptcy will be about zero.        The risk of bankruptcy is still significant.        Managers will work very hard to avoid bankruptcy.

Question 9. 9. The appropriate cash flows for evaluating a corporate investment decision are: (Points : 1)

       incremental additional cash flows.        marginal after-tax cash flows.        incremental after-tax cash flows.        investment after-tax cash flows.

Question 10. 10. When determining the cash flows for a proposed investment, we generally ignore overhead. Many overhead costs are fixed and will be paid whether the project is accepted or not, so they are not incremental. Which item on the following list, though similar to overhead, would be included as an incremental cash flow? (Points : 1)

       the cost of a new managerial position specifically for a proposed project        the allocation of factory floor space by square feet or square meters utilized by a proposed project        the allocation of time that salaried managers used developing a proposed project        the allocation of headquarters rent or lease expense based on anticipated revenue of a proposed project