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DeVry BUSN 379 Week 8 Final Exam..
sunk costs should be included
erosion effects should be considered financing costs need to be included opportunity costs are irrelevant |
net present value method
payback method internal rate of return method all of these are time-adjusted methods |
have a PI equal to zero.
produce negative rates of return. have positive AARs. have positive IRRs. have positive NPVs. |
$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 |
is a valuable option.
is referred to as the option to extend. could not cause a negative net present value project to become a positive net present value project. will generally cause the internal rate of return for a project to decline. |
contingency planning.
hard rationing. soft rationing. capital constraint. scenario analysis. |
The net present value of the project is approximately $1,011
This project should be accepted because it has a negative net present value This project’s payback period is 10 years or more All of the above are true |
$12,000
$8,574 $19,800 None of the above |
$82,000
$110,000 $42,000 none of these |
is diversifiable
is the total risk associated with surprise events it is measured by beta it is measured by standard deviation |
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 |
.46
.55 .61 .70 .90 |
only the most talented analysts can determine the true value of a security.
only company insiders have a marketplace advantage. technical analysis provides the best tool to gain a marketplace advantage. no one person has an advantage in the marketplace. every security offers the same rate of return. |
between 4.5% and 8%
more than 13% between 12 and 13% between 13 and 14% none of the above |
$103.68
$36.92 $96.00 none of these |
It is the return that the firm’s creditors demand on new borrowing.
It is the interest rate that the firm pays on current/existing borrowing. An appropriate method to compute the cost of debt is using the YTM of current bonds outstanding. It needs to be converted into an after-tax cost. |
it is relevant to the WACC
does not require new funds to be raised has associated flotation costs has a cost, which is the opportunity cost associated with stockholder funds |
less than 5%
between 5 and 15% between 15 and 18% more than 21% |
the WACC can be used as the required return for all new projects.
the WACC of a leveraged firm will decrease when the tax rate decreases. an increase in the market risk premium will tend to decrease a firm's WACC. the WACC is a starting point for the subjective approach to setting discount rates. a reduction in the risk level of a firm will tend to increase the firm's WACC. |
5.98%
7.06% 8.05% 9.68% 10.10% |
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 consider the flotation costs.
All other being equal, it is preferable to use market value weights than book value weights. The WACC is the most appropriate discount rate for all projects. Should include the cost of retained earnings. |
Goods are sold cash
An interest payment on a notes payable is made A payment due is received from a client Dividends are paid to shareholders Inventory is purchased and paid for with credit |
There is an opportunity cost associated with not offering credit.
The costs of the credit application process and the costs expended in the collection process are not carrying costs of granting credit. 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. |
electric utility company
airplane manufacturer fast-food restaurant furniture store clothing manufacturer |
$567
$600 $821 $1,134 $1,200 |
Because by maximizing the current stock value, you also maximize the company’s profit for the year.
Because this criterion is non-ambiguous. Because financial managers always act in the best interest of shareholders. Because it creates short-term gains in the financial statements. |
6. (TCO 1) Provide three examples of recent well-known unethical behavior cases. Explain the situation in one or two paragraphs. How do you believe that this behavior affected the firm’s value? (Points : 10)
7. (TCO 4) What are sunk costs? Provide at least two real-life examples of sunk costs for a project. Should sunk costs be included as incremental cash flows? Why or why not? Explain your rationale. (Points : 10)
8. (TCO 8) What is the difference between business risk and financial risk? If Company A has a higher business risk than Company B, should its cost of capital be higher? Why or why not? Explain your rationale. (Points : 10)
9. (TCO 2) What are some important factors to consider when conducting a credit evaluation and scoring? (Points : 10)
0. (TCO 6 and 7) Do you believe that it is appropriate for some industries to be more leveraged than others? Explain your rationale. (Points : 10)
I and II
I, II and III II, III and IV I, III and IV All of the above |
Book values reflect the value of the asset based on generally-accepted accounting principles.
Book values are used in the company’s balance sheet. Book values do not reflect the amount someone is willing to pay today for an asset. All of the above None of the above |
33%
34% 36% 37% 38% | |||||||||||||||||||
Regional Bank, APR
Local Bank, EAR Regional Bank, EAR Local Bank, APR |
a decrease in the interest rate
increasing the initial amount of your deposit increasing the frequency of the interest payments decreasing the length of the investment period |
$12,468.07
$12,502.14 $14,597.62 $17,044.32 $17,129.01 |
$91.05
$284.13 $556.50 $682.87 $731.60 |
interest-only
pure discount compounded amortized complex |
$1080
$1085 $925 $1000 |
primary
main secondary principal dealer |
Financial leverage increases profits and decreases losses.
Financial leverage has no effect on a firm's return on equity. Financial leverage, refers to the use of common stock. Financial leverage magnifies both profits and losses. Increasing financial leverage will always increase the earnings per share. |
10.5%
10.6% 11.5% 12.1% |
Most bonds do not carry default risk.
Municipal bonds are free of default risk. Bonds are not sensitive to changes in the interest rates. Moody’s and Standard and Poor’s provide information regarding a bond’s interest rate risk. None of the above is true |
zero-coupon, five year
seven percent annual coupon, five year zero-coupon, 10 year five percent semi-annual coupon, 10 year five percent annual coupon, 10 year |
paying interest payments on a semi-annual basis.
redeeming bonds early. repaying the face value at maturity. paying the expenses required to reissue outstanding bonds. paying the "balloon payment" at maturity. Click here for the SOLUTION |
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