Professional Documents
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A reduction in the sales of existing products caused by the introduction of a new product is an example of:
A. incidental effects
If the depreciation amount is $100,000 and the marginal tax rate is 28%, then the tax shield due to
depreciation is:
A. $28,000
If the NPV of project A is +$40 and that of project B is -$50, then the NPV of the combined project is:
C. -$10
The cash cycle is represented by the following sequence:
A. Cash, raw materials, finished goods, and receivables, cash
The cash budget is the primary short-term financial planning tool. The key reasons a cash budget is created are:
(II) To estimate the size and timing of your new cash flows
(III) To prepare for potential financing needs
B. II and III only
The NPV value obtained by discounting nominal cash flows using the nominal discount rate is:
(I) The same as the NPV value obtained by discounting real cash flows using the real discount rate
A. I only
Y ou are given a job to make a decision on project X, which is composed of three independent projects A, B,
and C which have NPVs of +$60, -$30 and +$120, respectively. How would you go about making the decision
about whether to accept or reject the project?
C. Break up the project into its components: accept A and C and reject B
Which of the following cash flows should be treated as incremental flows when deciding whether to go
ahead with an electric car project?
C. The reduction in taxes resulting from the depreciation charges
If a firm grants credit with terms of 3/10 net 30, the creditor:
C. Receives a discount of 3% when payment is made in less than 10 days after the sale
Short-term financial decisions:
(I) Involve short lived assets
(II) Involve short lived liabilities
(III) Are easily reversed
C. I, II, and III
Which of the following investment rules does not use the time value of the money concept?
C. The payback period
A customer has ordered goods with a value of $800. The production cost is $600. Under what conditions
should you extend credit if there is no possibility of repeat orders?
C. If the probability of payment exceeds 0.75
Last year Axle Inc. reported total assets of $400, equity of $200, net income of $50, dividends of $10 and
earnings retained in the period of $40.What is Axle Inc.'s sustainable growth rate?
C. 20.0%
Negotiable CDs are issued by:
C. Banks
A cash flow received in two years is expected to be $10,816. If the real rate of interest is 4% and the
inflation rate is 4%, what is the real cash flow for year-2?
C. $10,000
A capital equipment costing $300,000 today has no (zero) salvage value at the end of 5 years. If straightline
depreciation is used, what is the book value of the equipment at the end of three years?
A. $120,000
MConstruction Company must choose between two types of cranes. Crane A costs $600,000, will last for 5
years, and will require $60,000 in maintenance each year. Crane B costs $750,000 and will last for seven years
and will require $30,000 in maintenance each year.Maintenance costs for cranes A and B are incurred at the end
of each year. The appropriate discount rate is 12%per year. Which machine should OM Construction purchase?
B. Crane B as EAC is $194,336
Given the following cash flows for project Z: C0= -2,000, C1= 1,200, C2= 1,440 and C3= 6000, calculate
the discounted payback period for the project at a discount rate of 20%.
B. 2 years
If an investment project (normal project) has an IRR equal to the cost of capital, the NPV for that project is:
D. Zero
In the United States large-value electronic payments are made by:
(I) Fedwire
(III) CHIPS
D. I and III only
Earnings before interest and taxes is calculated as:
B. Total revenues - costs - depreciation
Muscle Company is investing in a giant crane. It is expected to cost 6.0 million in initial investment and it is
expected to generate an end of year cash flow of 3.0 million each year for three years. Calculate the NPV at 12%
(approximately).
B. 1.2. million
The main difference between short-term and long-term finance is:
C. The timing of short-term cash flow being within a year or less
Internal growth rate is calculated as:
C. Internal growth rate = plowback ratio return on equity [equity/net assets]
A commercial draft can be
(I) Sight draft
(II) Time draft
D. I and II only
A repurchase agreement occurs when:
C. An investor buys part of a government security dealer's inventory and simultaneously agrees to sell it
back
Given the following data:
FCF1 = $7 million; FCF2 = $45 million; FCF3 = $55 million; free cash flow grows at a rate of 4% for year 4 and
beyond. If the weighted average cost of capital is 10%, calculate the value of the firm.
B. $801.12 million
A company has forecast sales in the first 3 months of the year as follows (figures in millions): January,
$200; February, $140;March, $100. 50% of sales are usually paid for in the month that they take place, 30% in
the following month, and the final 20% in the next month. Receivables at the end of December were $100
million.What are the forecasted collections on accounts receivable in March?
A. $132 million
The interest rate on a loan is set at "1% over LIBOR." If the LIBOR rate is 5% then the interest rate on the
loan is:
C. 6%
The principal short-term assets are:
(I) Cash
(II) Accounts receivable
(III) Inventories
C. I, II, and III
Generally, a line of credit is:
(I) Less costly than stretching accounts payable
(II) Provided by a bank