FIN 370T WK 1 - Apply Homework HTTPS://WWW - Hwtutorial.com/category/fin-370

FIN/370T
Finance For Business

The Latest Version A+ Study Guide
**********************************************
FIN 370T Entire Course Link
hwtutorial.com/category/fin-370/
**********************************************
FIN 370T Wk 1 – Practice: Ch. 1 and 3 Knowledge Check

A potential future negative impact to value and/or cash flows is often discussed in terms of
probability of loss and the expected magnitude of the loss. This is called
Multiple Choice
• options.
• standard deviation.
• coefficient of variation.
• risk.
This subarea of finance looks at firm decisions in acquiring and utilizing cash received from
investors or from retained earnings.
Multiple Choice
• investments
• financial management
• treasury management
Which of these must effectively distribute capital between investors and companies?
Multiple Choice
• individuals
• international investors
• companies
• financial institutions
Which of the following can use financial concepts to improve their decisions?
Multiple Choice
• financial professionals only
• financial and nonfinance professionals
• day-to-day operations managers only
• long-term operations managers only
Which of the following do not ensure firm viability over the long run?
Multiple Choice
• maximizing employment
• market share
• profits
• all of these choices are .
The most common type of business in the United States is the

Multiple Choice
• corporation.
• partnership.
• sole proprietorship.
• hybrid organization such as a limited liability company.
Which of these does NOT act as a monitor of how the firm is being run outside the firm?
Multiple Choice
• auditors
• analysts
• credit rating agencies
• members of the board of directors
For corporations, maximizing the value of owner's equity can also be stated as
Multiple Choice
• maximizing retained earnings.
• maximizing earnings per share.
• maximizing net income.
• maximizing the stock price.
Corporate stakeholders include all of the following EXCEPT

Multiple Choice
• employees.
• shareholders.
• suppliers.
• auditors.
Which of the following statements is ?

Multiple Choice
• Sole proprietorships are easy to start.
• If the sole proprietorship gets sued, the owner is not liable.
• It is relatively easy for sole proprietorships to raise money.
• Profits from the sole proprietorship are subject to double taxation.
The biggest disadvantage of the sole proprietorship is

Multiple Choice
• unlimited liability.
• double taxation.
• limited access to capital.
• total control.
Which of the following is not an impact of the slowdown occurring in China’s economy?
Multiple Choice
• lower demand in materials such as steel, iron ore, and copper
• real estate market declining in Sydney, Australia
• money going out of Manhattan, New York
• falling community prices
You are considering a stock investment in one of two firms (A and B), both of which operate in
the same industry. A finances its $20 million in assets with $18 million in debt and $2 million in
equity. B finances its $20 million in assets with $2 million in debt and $18 million in equity.
Calculate the debt-to-equity ratio for the two firms.
Multiple Choice
• Firm A: 9 times; Firm B: 1.11 times
Which of these is NOT considered a coverage ratio?

Multiple Choice
• cash coverage ratio
• current ratio
• fixed-charge coverage ratio
• times interest earned
Tops N Bottoms Corp. reported sales for 2018 of $50 million. Tops N Bottoms listed $4 million of
inventory on its balance sheet. Using a 365-day year, how many days did Tops N Bottoms'
inventory stay on the premises? How many times per year did Tops N Bottoms' inventory turn
over?
Multiple Choice
• 29.2 days, 12.5 times, respectively
Bree's Tennis Supply's market-to-book ratio is currently 9.4 times and PE ratio is 20 times. If
Bree's Tennis Supply's common stock is currently selling at $20.50 per share, what is the book
value per share and earnings per share?
Multiple Choice
• $1.025, $2.1809, respectively
• $2.1809, $1.025, respectively
• $410.00, $192.70, respectively
• $192.70, $410.00, respectively
Which ratio measures the overall return on the firm's assets including financial leverage and taxes?
Multiple Choice
• ROA
• ROE
• basic earning power
• profit margin
To interpret financial ratios, managers, analysts, and investors use which of the following type of
benchmarks?
Multiple Choice
• competitive analysis
• cross-industry analysis
• time-industry analysis
• time series analysis
If Apex, Inc. has an ROE = 10 percent, equity multiplier = 3, and profit margin of 5 percent, what
is the total asset turnover ratio?
Multiple Choice
• 0.0600
• 0.0667
• 0.1667
• 0.6667
The maximum growth rate that can be achieved by financing asset growth with new debt and
retained earnings is called the
Multiple Choice
• internal growth rate.
• retention rate.
• sustainable growth rate.
• operating expansion rate.
FIN 370T Wk 1 – Apply: Homework

This subarea of finance helps facilitate the capital flows between investors and companies.
Multiple Choice
• financial institutions and markets
• investments
The portion of a company's profits that are kept by the company rather than distributed to the
stockholders as cash dividends is referred to as
Multiple Choice
• venture capital.
• institutional investment.
• retained earnings.
• restricted earnings.
This subarea of finance looks at firm decisions in acquiring and utilizing cash received from
investors or from retained earnings.
Multiple Choice
• investments
This is a general term for securities like stocks, bonds, and other assets that represent ownership in
a cash flow.
Multiple Choice
• financial markets
• investment
• financial asset
• real asset
This type of business organization is relatively easy to start, and it is subject to much lighter
regulatory and paperwork burden than other business forms.
Multiple Choice
• partnership
• corporation
• hybrid organization
• sole proprietorship
Which of these is the system of incentives and monitors that tries to overcome the agency
problem?
Multiple Choice
• corporate Governance
• checks and Balances
• board of Directors
• Security Exchange Commission
From the perspective of access to capital, the best form of business organization is the
Multiple Choice
• corporation.
• sole proprietorship.
• S corporation.
• partnership.
The board of directors

Multiple Choice
• are employed by the Securities Exchange Commission to ensure its rules and regulations
have been met.
• have unlimited liability since they oversee the day-to-day operations of the firm.
• are elected by shareholders.
• are hired by the CEO.
The agency relationship in corporate finance occurs

Multiple Choice
• when the board of directors oversee the CEO.
• when the corporate hires an advertising agency to market their new product or service.
• when the board of directors are elected to staggered terms.
• when the shareholders hire a manager to run their company.
Which of the following statements is in?

Multiple Choice
• Sole proprietorships are subject to less regulation.
• Shareholders are responsible for paying off the corporate bonds in the event of a bankruptcy.
• Both angel investors and venture capitalists exchange capital for ownership.
• All of these choices are .

Multiple Choice
• It is relatively easy for sole proprietorships to raise money.
• If the sole proprietorship gets sued, the owner is not liable.
• Sole proprietorships are easy to start.
• Profits from the sole proprietorship are subject to double taxation.
An employee stock option plan is

Multiple Choice
• a plan that only partnerships can use to defer compensation to partners.
• a way to align the interests of employees with those of the owners.
• a perk usually only given to the board of directors as compensation.
All of the following are an example of a fiduciary relationship EXCEPT

Multiple Choice
• a CEO manages the firm.
• a financial advisor advises her clients.
• a bank employee manages deposits.
• the shareholder elects a board member.
Which of the following is not an impact of the slowdown occurring in China’s economy?
Multiple Choice
• money going out of Manhattan, New York
• real estate market declining in Sydney, Australia
• lower demand in materials such as steel, iron ore, and copper
• falling community prices
A firm reported year-end sales of $20 million. It listed $7 million of inventory on its balance sheet.
Using a 365-day year, how many days did the firm's inventory stay on the premises?
Multiple Choice
• 157.75 days
• 127.75 days
• 87.75 days
• 97.75 days
Which ratio measures how many days inventory is held before the final product is sold?
Multiple Choice
• inventory intensity ratio
• total asset turnover
• inventory turnover
• days' sales in inventory
Which of the following ratios measure how efficiently a firm uses its assets, as well as how
efficiently the firm manages its accounts payable?
Multiple Choice
• asset management
• internal-growth
• cash
• quick or acid-test
Which of these ratios measure the extent to which the firm uses debt (or financial leverage) versus
equity to finance its assets?
Multiple Choice
• financial ratios
• equity ratios
• liquidity ratios
• debt management ratios
A firm has EBIT of $300,000 and depreciation expense of $12,000. Fixed charges total $44,000.
Interest expense totals $7,000. What is the firm's cash coverage ratio?
Multiple Choice
• 3.76 times
• 7.09 times
• 7.25 times
• 4.91 times
Which ratio assesses how efficiently a firm uses its fixed assets?
Multiple Choice
• average collection period
• fixed asset turnover
• current ratio
• capital intensity ratio
Which of these is NOT considered a coverage ratio?

Multiple Choice
• current ratio
• fixed-charge coverage ratio
• times interest earned
• cash coverage ratio
Trina'sTrikes, Inc. reported a debt-to-equity ratio of 2 times at the end of 2018. If the firm's total
debt at year-end was $10 million, how much equity does Trina's Trikes have?
Multiple Choice
• $5 million
• $2 million
• $10 million
• $20 million
CornProducts Corp. ended the year 2018 with an average collection period of 40 days. The firm's
credit sales for 2018 were $9 million. What is the approximate year-end 2018 balance in accounts
receivable for Corn Products?
rev: 03_30_2019_QC_CS-164558
Multiple Choice
• $986,300
• $4,444,400
• $225,000
• $360,000,000
Which of the following measures the number of days that the firm holds accounts payable before
it has to extend cash to buy raw materials?
Multiple Choice
• average payment period
• accounts payable turnover
• accounts receivable turnover
• average collection period
Which ratio measures the overall return on the firm's assets including financial leverage and taxes?
Multiple Choice
• ROA
• ROE
• basic earning power
• profit margin
Which of these ratios show the combined effects of liquidity, asset management, and debt
management on the overall operation results of the firm?
Multiple Choice
• liquidity
• coverage
• financial
• profitability
Tina's Track Supply's market-to-book ratio is currently 4.5 times and PE ratio is 10.5 times. If
Tina's Track Supply's common stock is currently selling at $100 per share, what is the book value
per share and earnings per share?
Multiple Choice
• $1,050, $450, respectively
• $22.2222, $9.5238, respectively
• $450, $1,050, respectively
• $9.5238, $22.2222, respectively

Multiple Choice
• To interpret financial ratios, users should analyze the performance of the firm over time and
the performance of the firm against one or more companies in the same industry.
• Performing cross-sectional analysis is easy since industries are usually clustered with firms
that are identical.
• Time-series analysis is useless in assessing improvement or deterioration of ratios since the
data is historical.
• Performing cross-sectional ratio analysis refers to assessing how a firm performed over a
certain section of time.
Last year Rain Repel Corporation had an ROA of 5 percent and a dividend payout ratio of 90
percent. What is the internal growth rate?
Multiple Choice
• 0.50 percent
• 50.00 percent
• 52.63 percent
• 4.75 percent
Which is true? Ratio analysis

Multiple Choice
• can provide useful information on a firm's current position but should never be used to
forecast future performance.
• can provide useful information on a firm's current position and hint at future performance.
• can provide useful information on a firm's past and current position, but should never be
used to forecast future performance.
• can provide useful information on a firm's past but not current position.

Time value of money concepts can be used by
Multiple Choice
•
individuals doing personal financial planning.
•
CFOs and CEOs to make business decisions.
•
investors calculating a return on an investment.
•
All of these choices are correct.
With regard to money deposited in a bank, future values are

Multiple Choice
•
smaller than present values.
•
larger than present values.
•
equal to present values.
•
are completely independent of present values.
What is the future value of $1,000 deposited for one year earning 5 percent interest rate annually?
Multiple Choice
•
$1,000
•
$1,005
•
$1,050
•
$2,050
Approximately what interest rate is needed to double an investment over eight years?
Multiple Choice
•
8 percent
•
9 percent
•
12 percent
•
100 percent
A dollar paid (or received) in the future is

Multiple Choice
•
worth more than a dollar paid (or received) today.
•
worth as much as a dollar paid (or received) today.
•
not worth as much as a dollar paid (or received) today.
•
not comparable to a dollar paid (or received) today.
Approximately how many years does it take to double a $500 investment when interest rates are 4
percent per year?
Multiple Choice
•
0.06 year
•
6 years
•
6.94 years
•
18 years
When computing the rate of return from selling an investment, the number of years between the
present and future cash flows is an important factor in determining
Multiple Choice
•
the annual rate earned.
•
the annual payments required.
•
whether the present value or the future value is a cash inflow.
•
whether the present value or the future value is a cash outflow.
Determine the interest rate earned on a $200 deposit when $208 is paid back in one year.
Multiple Choice
•
104 percent
•
8 percent
•
4 percent
•
2 percent
Which of the following will increase the future value of an annuity?

Multiple Choice
• The number of periods increases.
• The amount of the annuity increases.
• The interest rate increases.
• All of these choices are correct.
What is the future value of an $800 annuity payment over 15 years if the interest rates are 6
percent?
Multiple Choice
• $1,917.25
• $7,002.99
• $12,720.00
• $18,620.78
A perpetuity, a special form of annuity, pays cash flows

Multiple Choice
• and is not effected by interest rate changes.
• that do not have time value of money implications.
• continuously for one year.
• periodically forever.
What is the present value of a $300 annuity payment over 5 years if interest rates are 8 percent?
Multiple Choice
• $204.17
• $440.80
• $1,197.81
• $1,938.96
What is the present value of a $600 annuity payment over 4 years if interest rates are 6 percent?
Multiple Choice
• $475.26
• $757.49
• $2,079.06
• $3,145.28
What is the present value, when interest rates are 6.5 percent, of a $100 payment made every year
forever?
Multiple Choice
• $6.50
• $650.00
• $1,000.00
• $1,538.46
A loan is offered with monthly payments and a 14.5 percent APR. What is the loan's effective
annual rate (EAR)?
Multiple Choice
• 14.97 percent
• 15.50 percent
• 15.13 percent
• 15.63 percent
A loan is offered with monthly payments and a 10 percent APR. What is the loan's effective
annual rate (EAR)?
Multiple Choice
• 10.00 percent
• 10.47 percent
• 11.20 percent
• 12.67 percent
A loan is offered with monthly payments and a 6.5 percent APR. What is the loan's effective
annual rate (EAR)?
Multiple Choice
• 5.69 percent
• 6.697 percent
• 7.28 percent
• 12.63 percent
People refinance their home mortgages

Multiple Choice
• when rates fall.
• when rates rise.
• when rates fall and rise.
• whenever they need to, independent of rates.
When you get your credit card bill, it will offer a minimum payment, which
Multiple Choice
• usually only pays the accrued interest and a small amount of principal.
• usually only pays the principal and a small amount of accrued interest.
• usually only pays the principal and no accrued interest.
• usually only pays the accrued interest and no principal.
Loan amortization schedules show

Multiple Choice
• the principal balance paid per period only.
• the interest paid per period only.
• both the principal balance and interest paid per period.
• the present value of the payments due.
If an average home in your town currently costs $300,000, and house prices are expected to grow
at an average rate of 5 percent per year, what will an average house cost in 10 years?
Multiple Choice
•
$507,593.74
•
$488,688.39
•
$483,153.01
•
$450,000.00
We call the process of earning interest on both the original deposit and on the earlier interest
payments
Multiple Choice
•
discounting.
•
compounding.
•
multiplying.
•
computing.
What is the future value of $1,000 deposited for one year earning 5 percent interest rate annually?
Multiple Choice
•
$1,000
•
$2,050
•
$1,005
•
$1,050
When your investment compounds, your money will grow in a(n) __________ fashion.
Multiple Choice
•
static
•
linear
•
exponential
•
implied
An average home in Chicago costs $295,000. If house prices are expected to grow at an average
rate of 3 percent per year, what will a house cost in five years?
Multiple Choice
•
$338,941.27
•
$341,985.85
•
$347,028.19
•
$328,995.61
Which of the following statements is incorrect with respect to time lines?

Multiple Choice
•
A helpful tool for organizing our analysis is the time line.
•
Interest rates are not included on our time lines.
•
Cash flows we receive are called inflows and denoted with a positive number.
•
Cash flows we pay out are called outflows and designated with a negative number.
What is the future value of $2,500 deposited for one year earning a 14 percent interest rate
annually?
Multiple Choice
•
$2,550
•
$3,150
•
$2,850
•
$2,950
Compute the present value of $9,000 paid in four years using the following discount rates: 4
percent in year 1, 5 percent in year 2, 4 percent in year 3, and 3 percent in year 4.
rev: 10_14_2017_QC_CS-105529
Multiple Choice
•
$8,543.26
•
$9,000.00
•
$10,823.01
•
$7,693.95
What is the present value of a $500 payment made in four years when the discount rate is 8
percent?
Multiple Choice
•
$367.51
•
$365.35
•
$680.24
•
$460.00
How are present values affected by changes in interest rates?

Multiple Choice
•
The lower the interest rate, the larger the present value will be.
•
The higher the interest rate, the larger the present value will be.
•
Present values are not affected by changes in interest rates.
•
One would need to know the future value in order to determine the impact.
What is the present value of a $600 payment in one year when the discount rate is 8 percent?
Multiple Choice
•
$555.56
•
$525.87
•
$498.61
•
$575.09
Approximately how many years does it take to double a $500 investment when interest rates are 4
percent per year?
Multiple Choice
•
6.94 years
•
0.06 year
•
18 years
•
6 years
Approximately what interest rate is needed to double an investment over eight years?
Multiple Choice
•
12 percent
•
8 percent
•
100 percent
•
9 percent
Approximately what rate is needed to double an investment over five years?

Multiple Choice
•
15.8 percent
•
12.2 percent
•
14.4 percent
•
8 percent
Determine the interest rate earned on a $500 deposit when $650 is paid back in one year.
Multiple Choice
•
77.0 percent
•
1.30 percent
•
0.77 percent
•
30.0 percent
Determine the interest rate earned on a $1,500 deposit when $1,680 is paid back in one year.
Multiple Choice
•
1.12 percent
•
89.00 percent
•
12.00 percent
•
0.89 percent
Determine the interest rate earned on an $800 deposit when $808 is paid back in one year.
Multiple Choice
•
10 percent
•
15 percent
•
1 percent
•
100 percent
In order to discount multiple cash flows to the present, one would use
Multiple Choice
• the appropriate tax rate.
• the appropriate compound rate.
• the appropriate simple rate.
• the appropriate discount rate.
Which of the following will increase the future value of an annuity?

Multiple Choice
• The number of periods increases.
• The amount of the annuity increases.
• The interest rate increases.
• All of these choices are correct.
Level sets of frequent, consistent cash flows are called

Multiple Choice
• loans.
• annuities.
• budgets.
• bills.
When saving for future expenditures, we can add the ________ of contributions over time to see
what the total will be worth at some point in time.
Multiple Choice
• time value to money
• payment
• future value
• present value
What is the future value of a $1,000 annuity payment over 4 years if the interest rates are 8
percent?
Multiple Choice
• $4,320.00
• $3,312.10
• $9,214.20
• $4,506.11
If the future value of an ordinary, 11-year annuity is $5,575 and interest rates are 5.5 percent, what
is the future value of the same annuity due?
Multiple Choice
• $5,947.88
• $5,769.06
• $5,881.63
• $5,619.52
What is the present value of a $1,100 payment made every year forever when interest rates are 4.5
percent?
Multiple Choice
• $24,444.44
• $21,089.37
• $11,100
• $22,963.14
What is the present value of a $775 annuity payment over six years if interest rates are 11 percent?
Multiple Choice
• $3,017.84
• $3,202.92
• $3,119.67
• $3,278.67
If the present value of an ordinary, 10-year annuity is $25,000 and interest rates are 7 percent,
what is the present value of the same annuity due?
Multiple Choice
• $24,997.51
• $26,750.00
• $25,000.00
• $23,644.49
Many people who want to start investing for their future want to start today, which implies an
annuity stream that is paid at the beginning of the period. Beginning-of-period cash flows are
referred to as
Multiple Choice
• ordinary annuities.
• perpetuities.
• present values.
• annuities due.
Compounding monthly versus annually causes the interest rate to be effectively higher, and thus
the future value
Multiple Choice
• is independent of the monthly compounding.
• grows.
• is affected only if the calculation involves an annuity due.
• decreases.
When you get your credit card bill, it will offer a minimum payment, which
Multiple Choice
• usually only pays the accrued interest and a small amount of principal.
• usually only pays the accrued interest and no principal.
• usually only pays the principal and no accrued interest.
• usually only pays the principal and a small amount of accrued interest.
A loan is offered with monthly payments and a 10 percent APR. What is the loan's effective
annual rate (EAR)?
Multiple Choice
• 12.67 percent
• 11.20 percent
• 10.00 percent
• 10.47 percent

Bond prices are quoted in terms of which of the following?
Multiple Choice
• Original issue discount
• Percent of par value
• Coupon rate in dollars
• Market rate in dollars
Consider the following bond quote: a municipal bond quoted at 101.25. If the municipal bond has
a par value of $5,000, what is the price of the bond in dollars?
Multiple Choice
• $5,089.06
• $5,050.19
• $5,062.50
• $5,109.75
A 3.75 percent TIPS has an original reference CPI of 183.9. If the current CPI is 214.7, what is the
current interest payment? (Assume semi-annual interest payments and a par value of $1,000.)
Multiple Choice
• $43.78
• $37.50
• $21.89
• $18.75
Determine the interest payment for the following three bonds: 2.5 percent coupon corporate bond
(paid semi-annually), 3.15 percent coupon Treasury note, and a corporate zero coupon bond
maturing in 10 years. (Assume a $1,000 par value.)
Multiple Choice
• $2.50, $3.15, $0, respectively
• $12.50, $15.75, $0, respectively
• $12.50, $15.75, $100, respectively
• $25.00, $31.50, $0, respectively
Multiple Choice
• $15.00
• $16.25
• $17.61
• $31.54
Bonds are issued by which of the following?

Multiple Choice
• Corporations
• Federal government or its agencies
• State and local governments
• All of the options
Regarding a bond's characteristics, which of the following is the principal loan amount that the
borrower must repay?
Multiple Choice
• Call premium
• Maturity date
• Par or face value
• Time to maturity value
Which of the following terms means the chance that future interest payments will have to be
reinvested at a lower interest rate?
Multiple Choice
• Credit quality risk
• Interest rate risk
• Liquidity rate risk
• Reinvestment rate risk
What's the current yield of an 8.15 percent coupon corporate bond quoted at a price of 94.30?
Multiple Choice
• 4.30 percent
• 8.01 percent
• 8.15 percent
• 8.64 percent
Rank the following bonds in order from lowest credit risk to highest risk all with the same time to
maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate
bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O
Corporate bond with a yield of 5.99 percent.
Multiple Choice
• JM bond, TC bond, B&O bond, IB bond
• IB bond, B&O bond, TC bond, JM bond
• TC bond, B&O bond, IB bond, JM bond
• JM bond, IB bond, B&O bond, TC bond
A bond's current yield is defined as:

Multiple Choice
• the bond's annual coupon rate divided by the bond's par value.
• the bond's annual coupon rate divided by the market interest rate.
• the bond's annual coupon rate divided by the bond's current market price.
• the bond's annual coupon rate divided by the bond's original issue price.
The NASDAQ Composite includes:

Multiple Choice
• all of the stocks listed on the NASDAQ Stock Exchange.
• 30 of the largest (market capitalization) and most active companies in the U.S. economy.
• 500 firms that are the largest in their respective economic sectors.
• 500 firms that are the largest as ranked by Fortune Magazine.
The Dow Jones Industrial Average (DJIA) includes:

Multiple Choice
• all of the stock listed on the New York Stock Exchange.
If on November 27, 2017, The Dow Jones Industrial Average closed at 12,958.44, which was up
215.04 that day. What was the return (in percent) of the stock market that day?
Multiple Choice
• −0.017 percent
• +0.017 percent
• −1.69 percent
• +1.69 percent
You would like to buy shares of International Business Machines (IBM). The current bid and ask
quotes are $96.17 and $96.24, respectively. You place a market buy-order for 100 shares that
executes at these quoted prices. How much money did it cost to buy these shares?
Multiple Choice
• $7.00
• $9,617.00
• $9,624.00
• $19,241.00
You would like to buy shares of Nokia (NOK). The current bid and ask quotes are $25.43 and
$25.45, respectively. You place a market buy-order for 150 shares that executes at these quoted
prices. How much money did it cost to buy these shares?
Multiple Choice
• $1,908.75
• $3,815.50
• $3,817.50
• None of the options
Stock valuation model dynamics make clear that higher growth rates lead to:
Multiple Choice
• lower valuations.
• higher valuations.
• lower growth rates continuing.
• higher growth rates continuing.
At your full-service brokerage firm, it costs $110 per stock trade. How much money do you
receive after selling 100 shares of Time Warner, Inc. (TMX), which trades at $22.62?
Multiple Choice
• $2,152.00
• $2,262.00
• $2,372.00
• $2,388.20
A preferred stock from DLC pays $5.10 in annual dividends. If the required return on the preferred
stock is 12.1 percent, what is the value of the stock?
Multiple Choice
• $6.31
• $42.15
• $47.25
• $240.97
Pfizer, Inc. (PFE) has earnings per share of $2.09 and a P/E ratio of 11.02. What is the stock price?
Multiple Choice
• $0.19
• $5.27
• $18.97
• $23.03

A 6 percent corporate coupon bond is callable in 10 years for a call premium of one year of
coupon payments. Assuming a par value of $1,000, what is the price paid to the bondholder if the
issuer calls the bond?
Multiple Choice
• $600
• $1,000
• $60
• $1,060
Regarding a bond's characteristics, which of the following is the principal loan amount that the
borrower must repay?
Multiple Choice
• Par or face value
• Call premium
• Maturity date
• Time to maturity value
A 5.5 percent corporate coupon bond is callable in four years for a call premium of one year of
issuer calls the bond? (Assume annual interest payments.)
Multiple Choice
• $220
• $1,000
• $55
• $1,055
Multiple Choice
• $31.54
• $16.25
• $15.00
• $17.61
To increase the liquidity for the home mortgage market, Fannie Mae and Freddie Mac purchased
home mortgages from banks and other lenders. They combined the mortgages into diversified
portfolios of loans and issued:
Multiple Choice
• current yield securities.
• trust securities.
• Treasury Inflation Protected Securities.
• mortgage-backed securities.
Determine the interest payment for the following three bonds: 2.5 percent coupon corporate bond
Multiple Choice
• $12.50, $15.75, $100, respectively
• $12.50, $15.75, $0, respectively
• $2.50, $3.15, $0, respectively
•
Which of the following is NOT a factor that determines the coupon rate of a company's bonds?
Multiple Choice
• The term of the loan.
• All of the options are factors that determine the coupon rate of a company's bonds.
• The amount of uncertainty about whether the company will be able to make all the
payments.
• The level of interest rates in the overall economy at the time.
A 4.5 percent corporate coupon bond is callable in five years for a call premium of one year of
issuer calls the bond?
Multiple Choice
• $45
• $1,000
• $1,045
• $225
Multiple Choice
• $37.50
• $21.89
• $43.78
• $18.75
Which of the following was the catalyst for the recent financial crisis?
Multiple Choice
• Defaults on subprime mortgages.
• Corruption in the investment banking industry.
• Widespread layoffs due to illegal alien hiring.
• All of the options were catalysts.
Determine the interest payment for the following three bonds: 4 percent coupon corporate bond
Multiple Choice
• $20.00, $23.75, $0, respectively
• $4.00, $4.75, $0, respectively
• $20.00, $23.75, $150, respectively
• $40.00, $47.50, $0, respectively
Calculate the price of a zero coupon bond that matures in five years if the market interest rate is
7.50 percent. (Assume semi-annual compounding and $1,000 par value.)
Multiple Choice
• $1,000.00
• $696.57
• $962.50
• $692.02
Which of the following is a true statement?

Multiple Choice
• If interest rates fall, no bonds will enjoy rising values.
• If interest rates fall, corporate bonds will have decreasing values.
• If interest rates fall, all bonds will enjoy rising values.
• If interest rates fall, U.S. Treasury bonds will have decreasing values.
Rank from lowest credit risk to highest credit risk the following bonds, with the same time to
maturity, by their yield to maturity: Treasury bond with yield of 5.55 percent, IBM bond with
yield of 7.95 percent, Trump Casino bond with a yield of 9.15 percent and Banc Ono bond with a
yield of 6.12 percent.
Multiple Choice
• Treasury, Banc Ono, IBM, Trump Casino
• Trump Casino, Banc Ono, IBM, Treasury
• Treasury, Trump Casino, Banc Ono, IBM
• Trump Casino, IBM, Banc Ono, Treasury
Which of the following is a reason municipal bonds offer lower rates of interest income for their
investors?
Multiple Choice
• They are tax exempt — at least at the federal level.
• They are able to offer reduced credit risk as they are backed by the federal government.
• They are able to avoid interest rate risk.
• They are able to avoid reinvestment rate risk.
Sally has researched GLE and wants to pay no more than $50 for the stock. Currently, GLE is
trading in the market for $54. Sally would be best served to:
Multiple Choice
• buy using a limit order.
• buy using a market order.
• use the bid-ask spread to her advantage.
• None of the options.
Which of these investors earn returns from receiving dividends and from stock price appreciation?
Multiple Choice
• Managers
• Bondholders
• Investment bankers
• Stockholders
Trading at physical exchanges like the New York Stock Exchange and the American Stock
Exchange takes place at all of the following except:
rev: 04_16_2019_QC_CS-166212
Multiple Choice
• at brokers' trading posts.
• at online marketplaces.
• at market markers.
• at dealers' trading posts.
All of the following are stock market indices EXCEPT:

Multiple Choice
• Standard & Poor's 500 Index.
• Dow Jones Industrial Average.
• Mercantile 1000.
• Nasdaq Composite Index.
The Standard & Poor's 500 Index includes:

Multiple Choice
• all of the stock listed on the New York Stock Exchange.
If on November 26, 2017, The Dow Jones Industrial Average closed at 12,743.40, which was
down 237.44 that day. What was the return (in percent) of the stock market that day?
Multiple Choice
• +0.02 percent
• −1.83 percent
• +1.83 percent
• −0.02 percent
Which of the following is an electronic stock market without a physical trading floor?
Multiple Choice
• Nasdaq Stock Market
• Mercantile Exchange
• New York Stock Exchange
• American Stock Exchange
If Target Corp. (TGT) recently earned a profit of $6.07 earnings per share and has a P/E ratio of
16.5. The dividend has been growing at a 10 percent rate over the past few years. If this growth
continues, what would be the stock price in five years if the P/E ratio remained unchanged? What
would the price be if the P/E ratio increased to 18 in five years?
Multiple Choice
• $259.78, $283.39 respectively
• $261.30, $275.96 respectively
• $161.30, $175.96 respectively
• $100.16, $109.26 respectively
Dividend yield is defined as:

Multiple Choice
• the last four quarters of dividend income expressed as a percentage of the current stock
price.
• the last four quarters of dividend income expressed as a percentage of the par value of the
stock.
• the last dividend paid expressed as a percentage of the current stock price.
• the next dividend to be paid expressed as a percentage of the current stock price.
At your discount brokerage firm, it costs $9.95 per stock trade. How much money do you need to
buy 200 shares of General Electric (GE), which trades at $45.19?
Multiple Choice
• $9,038.00
• $9,047.95
• $4,528.95
• $4,595.95
At your full-service brokerage firm, it costs $125 per stock trade. How much money do you
receive after selling 200 shares of Time Warner, Inc. (TMX), which trades at $29.54?
Multiple Choice
• $5,908.00
• $5,783.00
• $6,033.00
• $19,092.00
You would like to sell 400 shares of International Business Machines (IBM). The current bid and
ask quotes are $96.24 and $96.17, respectively. You place a limit sell-order at $96.20. If the trade
executes, how much money do you receive from the buyer?
Multiple Choice
• $38,480.00
• $38,496.00
• $38,464.00
• $38,468.00
Which of these are valued as a special zero-growth case of the constant growth rate model?
Multiple Choice
• Future dividends
• Future stock prices
• Common stock
• Preferred stock
Many companies grow very fast at first, but slower future growth can be expected. Such
companies are called:
Multiple Choice
• Fortune 500 companies.
• variable growth rate firms.
• blue chip companies.
• constant growth rate firms.
A firm does not pay any dividends at this point in time. Which valuation method should be used
on this stock?
Multiple Choice
• Capital Gain Model
• Variable Growth Model
• P/E Ratio Model
• Residual Claimant Model
FIN 370T Wk 4 – Practice: Ch. 9, 10, and 11 Knowledge Check

Which of these statements is true?
Multiple Choice
• When people purchase a stock, they know exactly what their dollar and percent return are
going to be.
• Many people purchase stocks as they find comfort in the certainty for this safe form of
investing.
• When people purchase a stock, they know the short-term return, but not the long-term return.
• When people purchase a stock, they do not know what their return is going to be-either short
term or in the long run.
MedTech Corp. stock was $50.95 per share at the end of last year. Since then, it paid a $0.45 per
share dividend. The stock price is currently $62.50. If you owned 500 shares of MedTech, what
was your percent return?
Multiple Choice
• 7.20 percent
• 8.83 percent
• 22.67 percent
• 23.55 percent
Rank the following three stocks by their risk-return relationship, best to worst. Night Ryder has an
average return of 33 percent and standard deviation of 40 percent. The average return and standard
deviation of WholeMart are 10 percent and 20 percent; and of Fruit Fly are 19 percent and 33
percent.
Multiple Choice
• Night Ryder, WholeMart, Fruit Fly
• WholeMart, Fruit Fly, Night Ryder
• Night Ryder, Fruit Fly, WholeMart
• Fruit Fly, Whole Mart, Night Ryder
Which of these is a measure of risk to reward earned by an investment over a specific period of
time?
Multiple Choice
• Coefficient of variation
• Market deviation
• Standard deviation
• Total variation
Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an
average return of 10 percent and standard deviation of 19 percent. The average return and standard
deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25
percent.
Multiple Choice
• Idol Staff, Rail Haul, Poker-R-Us
• Rail Haul, Idol Staff, Poker-R-Us
• Idol Staff, Poker-R-Us, Rail Haul
• Poker-R-Us, Rail Haul, Idol Staff
Consider the following correlations:

IBM Apple Disney
IBM 1.0
Apple -2 1
Disney 0.3 -7 1
________________________________________
Given this data, which of the following is most preferable if an investor can only select one pair of
companies?
Multiple Choice
• Apple and IBM
• Disney and IBM
• Disney and Apple
• It does not matter which two are selected-there is no preference order.
Which of the following is the concept and procedure for combining securities into a portfolio to
minimize risk?
Multiple Choice
• Firm specific theory
• Modern portfolio theory
• Optimal portfolio theory
• Total portfolio theory
Determine which one of these three portfolios dominates another. Name the dominated portfolio
and the portfolio that dominates it. Portfolio Blue has an expected return of 7 percent and risk of
10 percent. The expected return and risk of portfolio Yellow are 13 percent and 10 percent, and for
the Purple portfolio are 9 percent and 14 percent.
Multiple Choice
• Portfolio Blue dominates portfolio Yellow
• Portfolio Yellow dominates portfolio Blue
• Portfolio Purple dominates portfolio Blue
• Portfolio Purple dominates portfolio Yellow
Which of the following is a model that includes an equation that relates a stock's required return to
an appropriate risk premium?
Multiple Choice
• Asset pricing
• Behavioral finance
• Beta
• Efficient markets
Which of the following is the average of the possible returns weighted by the likelihood of those
returns occurring?
Multiple Choice
• Efficient return
• Expected return
• Market return
• Required return
Hastings Entertainment has a beta of 1.24. If the market return is expected to be 10 percent and the
risk-free rate is 4 percent, what is Hastings' required return?
Multiple Choice
• 11.44 percent
• 12.44 percent
• 14.96 percent
• 16.40 percent
Which of these is the measurement of risk for a collection of stocks for an investor?
Multiple Choice
• Beta
• Efficient market
• Expected return
• Portfolio beta
Which of the following statements is correct?

Multiple Choice
• Penny stocks are the stocks of small companies that are priced below $1 per share.
• Restricted stocks are shares of stock issued to executives that have limitations on voting
rights.
• The Capital Market Line graphs the relationship between return and risk (beta).
• All of the statements are correct.
Shares of stock issued to employees that have limitations on when they can be sold are known as:
Multiple Choice
• executive stock options.
• privately held information.
• restricted stock.
• stock market bubble.
Paccar's current stock price is $75.10 and it is likely to pay a $3.29 dividend next year. Since
analysts estimate Paccar will have a 14.2 percent growth rate, what is its required return?
Multiple Choice
• 15.39 percent
• 17.94 percent
• 18.58 percent
• 19.62 percent

Multiple Choice
• The weighted average cost of capital is calculated on a before-tax basis.
• An increase in the market risk premium is likely to increase the weighted average cost of
capital.
• The weights of debt and equity should be based on the balance sheet because this is the most
accurate assessment of the valuation.
Bill's Boards has 20 million shares of common stock outstanding, 4 million shares of preferred
stock outstanding, and 20 thousand bonds. If the common shares are selling for $30 per share, the
preferred shares are selling for $17 per share, and the bonds are selling for 96 percent of par, what
would be the weight used for debt in the computation of Bill's WACC?
Multiple Choice
• 0.83 percent
• 2.79 percent
• 2.87 percent
• 3.33 percent
Town Crier has 10 million shares of common stock outstanding, 2 million shares of preferred
stock outstanding, and 10 thousand bonds. If the common shares are selling for $28 per share, the
preferred shares are selling for $15.50 per share, and the bonds are selling for 97 percent of par,
what would be the weight used for debt in the computation of Town Crier's WACC?
Multiple Choice
• 3.02 percent
• 3.12 percent
• 3.20 percent
• 3.33 percent
IVY has preferred stock selling for 98 percent of par that pays a 7 percent annual coupon. What
would be IVY's component cost of preferred stock?
Multiple Choice
• 6.86 percent
• 7.00 percent
• 7.14 percent
• 14.00 percent
Which of the following is a principle of capital budgeting which states that the calculations of cash
flows should remain independent of financing?
Multiple Choice
• Generally accepted accounting principle
• Financing principle
• Separation principle
•

Sprint Nextel Corp. stock ended the previous year at $25.00 per share. It paid a $2.57 per share
dividend last year. It ended last year at $18.89. If you owned 650 shares of Sprint, what was your
dollar return and percent return?
Multiple Choice
• −$4,960; −16.13 percent
• −$2,301; −14.16 percent
• $2,960; 11.13 percent
• −$3,960; −15.13 percent
Noble stock was $60.00 per share at the end of last year. Since then, it paid a $2.00 per share
dividend last year. The stock price is currently $58. If you owned 400 shares of Noble, what was
your percent return?
Multiple Choice
• 3.33 percent
• −3.33 percent
• 3.45 percent
• 0 percent
Sharif's portfolio generated returns of 12 percent, 15 percent, −15 percent, 19 percent, and −12
percent over five years. What was his average return over this period?
Multiple Choice
• 19 percent
• 17 percent
• 3.8 percent
• 2.1 percent
FedEx Corp. stock ended the previous year at $113.39 per share. It paid a $0.40 per share dividend
last year. It ended last year at $126.69. If you owned 300 shares of FedEx, what was your dollar
return and percent return?
Multiple Choice
• $3,990; 11.73 percent
• $4,110; 12.08 percent
• $2,009; 9.13 percent
• $4,250; 12.29 percent
WayCo stock was $75 per share at the end of last year. Since then, it paid a $3 per share dividend
last year. The stock price is currently $70. If you owned 200 shares of WayCo, what was your
percent return?
Multiple Choice
• 4.00 percent
• −2.67 percent
• −6.67 percent
• 4.29 percent
Which of the following is defined as the volatility of an investment, which includes firm specific
risk as well as market risk?
Multiple Choice
• Market risk
• Diversifiable risk
• Total risk
Which of these is the dollar return characterized as a percentage of money invested?

Multiple Choice
• Market return
• Dollar return
• Average return
• Percentage return
Which of the following is a measurement of the co-movement between two variables that ranges
between -1 and +1?
Multiple Choice
• Coefficient of variation
• Correlation
• Total risk
Which of these is defined as a combination of investment assets held by an investor?

Multiple Choice
• Portfolio
• All of the options
• Market basket
• Bundle
Year-to-date, Company O had earned a −2.10 percent return. During the same time period,
Company V earned 8.00 percent and Company M earned 6.25 percent. If you have a portfolio
made up of 40 percent Company O, 30 percent Company V, and 30 percent Company M, what is
your portfolio return?
Multiple Choice
• 16.35 percent
• 5.115 percent
• 3.435 percent
• 12.15 percent
An investor owns $2,000 of Adobe Systems stock, $4,000 of Dow Chemical, and $6,000 of Office
Depot. What are the portfolio weights of each stock?
Multiple Choice
• Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
Which of these is the reward for taking systematic stock market risk?
Multiple Choice
• Risk-free rate
• Required return
• Market risk premium
• Risk premium
The annual return on the S&P 500 Index was 18.1 percent. The annual T-bill yield during the same
period was 6.2 percent. What was the market risk premium during that year?
Multiple Choice
• 24.3 percent
• 18.1 percent
• 11.9 percent
• 6.2 percent
Which of these is the set of probabilities for all possible occurrences?

Multiple Choice
• Market probabilities
• Stock market bubble
• Probability distribution
• Probability
Which of the following is a model that includes an equation that relates a stock's required return to
an appropriate risk premium?
Multiple Choice
• Beta
• Efficient markets
• Asset pricing
• Behavioral finance
If the risk-free rate is 10 percent and the market risk premium is 4 percent, what is the required
return for the market?
Multiple Choice
• 14 percent
• 4 percentIn
• 10 percent
• 7 percent
Which of the following is typically considered the return on U.S. government bonds and bills and
equals the real interest plus the expected inflation premium?
Multiple Choice
• Market risk premium
• Risk-free rate
• Required return
• Risk premium
A company has a beta of 2.91. If the market return is expected to be 16 percent and the risk-free
rate is 4 percent, what is the company's risk premium?
Multiple Choice
• 11.64 percent
• 34.92 percent
• 12.00 percent
• 22.91 percent
Which of these is the measurement of risk for a collection of stocks for an investor?
Multiple Choice
• Portfolio beta
• Expected return
• Efficient market
• Beta
The Nasdaq stock market bubble peaked at 10,816 in 2000. Two and a half years later it had fallen
to 4,000. What was the percentage decline?
Multiple Choice
• −49.18%
• −57.13%
• −69.47%
• −63.02%
ABC Inc. has a dividend yield equal to 5 percent and is expected to grow at a 12 percent rate for
the next seven years. What is ABC's required return?
Multiple Choice
• 6.7 percent
• 17.0 percent
• 2.4 percent
• 7.0 percent
ABC Inc. has a dividend yield equal to 3 percent and is expected to grow at a 7 percent rate for the
next seven years. What is ABC's required return?
Multiple Choice
• 5 percent
• 11 percent
• 4 percent
• 10 percent

Multiple Choice
• An increase in the market risk premium is likely to increase the weighted average cost of
capital.
• The weights of debt and equity should be based on the balance sheet because this is the most
accurate assessment of the valuation.
• The weighted average cost of capital is calculated on a before-tax basis.
Which of the following is a true statement?

Multiple Choice
• To estimate the before-tax cost of debt, we use the average rate on the firm's existing debt.
• To estimate the before-tax cost of debt, we need to solve for the Yield to Call (YTC) on the
firm's existing debt.
• To estimate the before-tax cost of debt, we use the coupon rate on the firm's existing debt.
• To estimate the before-tax cost of debt, we need to solve for the Yield to Maturity (YTM) on
the firm's existing debt.
When calculating the weighted average cost of capital, weights are based on:
Multiple Choice
• book weights.
• market betas.
• market values.
• book values.
When firms use multiple sources of capital, they need to calculate the appropriate discount rate for
valuing their firm's cash flows as:
Multiple Choice
• a weighted average of the capital components costs.
• a simple average of the capital components costs.
• they apply to each asset as they are purchased with their respective forms of debt or equity.
• a sum of the capital components costs.
Any debt and preferred stock components of capital should:

Multiple Choice
• not be issued.
• use firmwide, not project-specific, WACC figures.
• use project-specific figures.
• use project-specific, not firmwide, WACC figures.
Oberon Inc. has a $20 million ($1,000 face value) 10-year bond issue selling for 99 percent of par
that pays an annual coupon of 7.25 percent. What would be Oberon's before-tax component cost
of debt?
Multiple Choice
• 8.15 percent
• 6.12 percent
• 7.02 percent
• 7.40 percent
Which of these makes this a true statement? When determining the appropriate weights used in
calculating a WACC, it should reflect:
Multiple Choice
• the relative sizes of the total book capitalizations for each kind of security that the firm
issues.
• the relative sizes of the total market capitalizations for each kind of security that the firm
issues.
• only the market after-tax cost of equity.
• only the market after-tax cost of debt.
Which statement makes this a false statement? When a firm pays commissions to underwriting
firms that float the issuance of new stock:
Multiple Choice
• the component cost will need to be integrated to figure project WACCs.
• the component cost will need to be integrated only for the firm's WACC.
• the firm can increase the project's WACC to incorporate the flotation costs' impact.
• the firm can leave the WACC alone and adjust the project's initial investment upwards.

Which of the following is NOT included when calculating the depreciable basis for real property?
Multiple Choice
• Freight charges for item
• Sales tax paid for item
• Financing fees
• Installation and testing fees
A new project would require an immediate increase in raw materials in the amount $6,000. The
firm expects that accounts payable will automatically increase $2,000. How much must the firm
expect its investment in net working capital to increase if they accept this project?
Multiple Choice
• −$6,000
• −$4,000
• +$4,000
• +$6,000
Suppose you sell a fixed asset for $99,000 when its book value is $129,000. If your company's
marginal tax rate is 39 percent, what will be the effect on cash flows of this sale (i.e., what will be
the after-tax cash flow of this sale)?
Multiple Choice
• $80,700
• $110,700
• $77,300
• $84,800
Concerning incremental project cash flow, which of these is a cost one would never count as an
expense of the project?
Multiple Choice
• Initial investment
• Taxes paid
• Operating expenses of the project
• Financing costs
If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether
a particular project is undertaken, that expense is a(n):
Multiple Choice
• incremental cash outflow.
• opportunity cost.
• sunk cost.
• expensible item.
Effects that arise from a new product or service that decrease sales of the firm's existing products
or services are referred to as:
Multiple Choice
• complementary effects.
• substitutionary effects.
• sunk effects.
• marginal effects.
Your company is considering a new project that will require $2,000,000 of new equipment at the
start of the project. The equipment will have a depreciable life of 10 years and will be depreciated
to a book value of $250,000 using straight-line depreciation. The cost of capital is 12 percent, and
the firm's tax rate is 39 percent. Estimate the present value of the tax benefits from depreciation.
Multiple Choice
• $68,250
• $106,750
• $175,000
• $385,628
Your company is considering a new project that will require $100,000 of new equipment at the
Multiple Choice
• $14,865.93
• $14,030.79
• $15,017.25
• $15,997.13
Your company is considering a new project that will require $10,000 of new equipment at the start
of the project. The equipment will have a depreciable life of five years and will be depreciated to a
book value of $3,000 using straight-line depreciation. The cost of capital is 9 percent, and the
firm's tax rate is 34 percent. Estimate the present value of the tax benefits from depreciation.
Multiple Choice
• $476
• $924
• $1,400
• $1,851
You are trying to pick the least expensive car for your new delivery service. You have two choices:
the Scion xA, which will cost $13,000 to purchase and which will have OCF of −$1,200 annually
throughout the vehicle's expected life of three years as a delivery vehicle; and the Toyota Prius,
which will cost $23,000 to purchase and which will have OCF of −$550 annually throughout that
vehicle's expected five-year life. Both cars will be worthless at the end of their life. If you intend
to replace whichever type of car you choose with the same thing when its life runs out, again and
again out into the foreseeable future, and if your business has a cost of capital of 12 percent, what
is the difference in the EAC of the two cars?
Multiple Choice
• $317.88
• $310.38
• $413.25
• $361.13
A capital budgeting technique that generates a decision rule and associated metric for choosing
projects based on the total discounted value of their cash flows is referred to as:
Multiple Choice
• PI.
• IRR.
• NPV.
• MIRR.
All of the following are strengths of payback EXCEPT:

Multiple Choice
• its benchmark is not determined by a relevant external constraint.
• it incorporates the time value of money.
• it uses a conservative reinvestment rate.
• none of the options.
Compute the NPV statistic for Project Y given the following cash flows and if the appropriate cost
of capital is 12 percent.
Project Y
Time 0 1 2 3 4 5
Cash Flow –$ 10,000 $ 3,000 $ 4,000 $
1,000 $ 2,000 $ 500
________________________________________
Multiple Choice
• $18,133,88
• −$1,366.99
• −$1,539.14
• −$1,866.12
Which of these are sets of cash flows where all the initial cash flows are negative and all the
subsequent ones are either zero or positive?
Multiple Choice
• Expected cash flows
• Time line cash flows
• Non-normal cash flows
• Normal cash flows
Compute the NPV statistic for Project U given the following cash flows if the appropriate cost of
capital is 9 percent.
Project U
Time 0 1 2 3 4 5
Cash Flow –$ 1,000 $ 350 $ 1,480 –$ 520
$ 400 –$ 100
________________________________________
Multiple Choice
• $201.69
• $273.82
• $383.63
The net present value decision technique uses a statistic denominated in:
Multiple Choice
• years.
• currency.
• a percentage.
• time lines
Which of these is a capital budgeting technique that generates decision rules and associated
metrics for choosing projects based upon the implicit expected geometric average of a project's
rate of return?
Multiple Choice
• Discounted payback
• Net present value
• Internal rate of return
• Profitability index
Which of the following best describes the NPV profile?

Multiple Choice
• A graph of a project's NPV as a function of possible IRRs.
• A graph of a project's NPV over time.
• A graph of a project's NPV as a function of possible capital costs.
• None of the statements are correct.
Compute the IRR statistic for Project X and note whether the firm should accept or reject the
project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.
Time: 0 1 2 3 4 5
Cash flow: −75 −75 0 100 75 50
Multiple Choice
• 10 percent, accept
• 10 percent, reject
• 13.26 percent, accept
• 13.26 percent, reject
Compute the PI statistic for Project Z and advise the firm whether to accept or reject the project
with the cash flows shown as follows if the appropriate cost of capital is 10 percent.
Project Z
Time 0 1 2 3 4 5
Cash Flow –$ 1,000 $ 350 $ 380 $ 420
$ 300 $ 100
________________________________________
Multiple Choice
• The project's PI is 8.48 percent and the project should be accepted.
• The project's PI is 8.48 percent and the project should be rejected.

A new project would require an immediate increase in raw materials in the amount of $1,000. The
firm expects that accounts payable will automatically increase $800. How much must the firm
expect its investment in net working capital to change if they accept this project?
Multiple Choice
• −$200
• −$1,800
• +$1,800
• +$200
Coke is planning on marketing a new drink called Very Berry Coke which is a mixture of
raspberry and blackberry flavors blended to perfection and added to the highly secret Coca-Cola
formula. This new product is expected to reduce the sales of their existing product, Cherry Coke,
by $10 million per year. This is an example of a:
Multiple Choice
• complementary effect.
• substitutionary effect.
• opportunity effect.
• pro forma effect
The research chemists at MegaClean created a new cleaner that keeps car and truck tires shiny and
clean for one year. They believe that this product will be highly successful and will attract
customers to purchase their existing line of household cleaning products. This is an example of:
Multiple Choice
• sunk cost.
• opportunity effect.
• complementary effect.
• substitutionary effect.
marginal tax rate is 39 percent, what is the gain or loss on the sale of the asset?
Multiple Choice
• $24,000
• $14,640
• $11,600
• $10,300
Effects that arise from a new product or service that decrease sales of the firm's existing products
or services are referred to as:
Multiple Choice
• marginal effects.
• substitutionary effects.
• complementary effects.
• sunk effects.
Multiple Choice
• $112,000
• $0
• $34,720
• $68,320
Multiple Choice
• +$4,000
• −$6,000
• −$4,000
• +$6,000
Multiple Choice
• $7,000
• $10,000
• $17,000
• $24,000
Multiple Choice
• $80,000
• $5,000
• $48,750
• $76,750
AB Mining Company just commissioned a firm to identify if an unused portion of their mine
contains any silver or gold at a cost of $125,000. This is an example of a(n):
Multiple Choice
• incremental cash flow.
• opportunity cost.
• sunk cost.
• relevant cash flow.
Section 179 allows a business, with certain restrictions, to do which of the following?
Multiple Choice
• Expense the asset using double declining balance depreciation during the life of the asset.
• Offset the tax liability with the cost of the asset in the year of purchase.
• Expense the asset immediately in the year of purchase.
• Get a government grant to purchase the asset.
Your company is considering a new project that will require $10,000 of new equipment at the start
of the project. The equipment will have a depreciable life of five years and will be depreciated to a
book value of $3,000 using straight-line depreciation. The cost of capital is 9 percent, and the
firm's tax rate is 34 percent. Estimate the present value of the tax benefits from depreciation.
Multiple Choice
• $1,400
• $924
• $1,851
• $476
Your company is considering a new project that will require $100,000 of new equipment at the
Multiple Choice
• $14,865.93
• $14,030.79
• $15,017.25
• $15,997.13
You are trying to pick the least expensive car for your new delivery service. You have two choices:
the Scion xA, which will cost $13,000 to purchase and which will have OCF of −$1,200 annually
throughout the vehicle's expected life of three years as a delivery vehicle; and the Toyota Prius,
which will cost $23,000 to purchase and which will have OCF of −$550 annually throughout that
vehicle's expected five-year life. Both cars will be worthless at the end of their life. If you intend
to replace whichever type of car you choose with the same thing when its life runs out, again and
again out into the foreseeable future, and if your business has a cost of capital of 16 percent, what
is the difference in the EAC of the two cars?
Multiple Choice
• $381.36
• $586.07
• $601.51
• $428.04
Compute the discounted payback statistic for Project Y and recommend whether the firm should
accept or reject the project with the cash flows shown as follows if the appropriate cost of capital
is 12 percent and the maximum allowable discounted payback is three years.
Time: 0 1 2 3 4 5
Cash flow: −5,000 500 2,000 3,000 1,500 500
Multiple Choice
• 3.86 years, accept
• 3.45 years, accept
• 3.86 years, reject
• 3.45 years, reject
Compute the NPV statistic for Project X given the following cash flows if the appropriate cost of
Project X
Time 0 1 2 3 4
Cash Flow –$ 100,000 –$ 36,000 $ 200,000 $
210,000 –$ 10,000
________________________________________
Multiple Choice
• $262,622.77
• $248,962.50
• $247,410.67
• $183,507.96
Compute the NPV statistic for Project Y given the following cash flows and if the appropriate cost
of capital is 12 percent.
Project Y
Time 0 1 2 3 4 5
Cash Flow –$ 10,000 $ 3,000 $ 4,000 $
1,000 $ 2,000 $ 500
________________________________________
Multiple Choice
• −$1,866.12
• −$1,539.14
• $18,133,88
• −$1,366.99
Compute the MIRR statistic for Project I and note whether to accept or reject the project with the
cash flows shown as follows if the appropriate cost of capital is 15 percent.
Project I
Time 0 1 2 3 4 5
Cash Flow –$ 1,000 $ 400 $ 300 $ 200
$ 300 $ 50
________________________________________
Multiple Choice
• The project's MIRR is 18.19 percent and the project should be accepted.
• The project's MIRR is 12.67 percent and the project should be rejected.
• The project's MIRR is 10.29 percent and the project should be rejected.
• The project's MIRR is 17.17 percent and the project should be accepted.
We accept projects with a positive NPV because it means that:
Multiple Choice
• we have recovered all our costs.
• we are creating wealth for shareholders.
• the project's expected return exceeds the cost of capital.
• all of the options.
Compute the NPV for Project X with the cash flows shown as follows if the appropriate cost of
Time 0 1 2 3 4
Cash Flow –$ 100,000 $ 36,000 $ 200,000 $
210,000 $ 10,000
________________________________________
Multiple Choice
• $248,962.50
• $247,410.67
• $183,507.96
• $262,622.77
Compute the NPV statistic for Project X given the following cash flows if the appropriate cost of
Project X
Time 0 1 2 3 4
Cash Flow –$ 15,000 $ 6,000 $ 10,000 $
12,000 –$ 1,000
________________________________________
Multiple Choice
• $6,234.93
• $7,505.96
• $8,417.80
• $37,505.96
When choosing between two mutually exclusive projects using the payback period method for
evaluating capital projects, one would choose:
Multiple Choice
• the project that pays back the soonest if it is equal to or less than managers' maximum
payback period.
• the project that pays back the soonest.
• either project if they both are more than managers' maximum payback period.
• neither project if they both are less than managers' maximum payback period.
Compute the NPV statistic for Project Y given the following cash flows if the appropriate cost of
Project Y
Time 0 1 2 3 4
Cash Flow –$ 8,000 $ 3,350 $ 4,180 $
1,520 $ 2,000
________________________________________
Multiple Choice
• $964.72
• $993.97
• $1,008.03
• $894.37

Multiple Choice
• A weakness of both payback and discounted payback is that neither accounts for cash flows
received after the payback.Correct
• Discounted payback uses a more aggressive reinvestment rate assumption than payback.
• Neither payback nor discounted payback uses time value of money concepts.
Compute the IRR statistic for Project X and note whether the firm should accept or reject the
project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.
Time: 0 1 2 3 4 5
Cash flow: −75 −75 0 100 75 50
Multiple Choice
• 10 percent, reject
• 10 percent, accept
• 13.26 percent, accept
• 13.26 percent, reject
Which of the following is a capital budgeting technique that converts a project's cash flows using
a more consistent reinvestment rate prior to applying the Internal Rate of Return, IRR, decision
rule?
Multiple Choice
• Modified internal rate of return
A decision rule and associated methodology for converting the NPV statistic into a rate-based
metric is referred to as:
Multiple Choice
• profitability index.
• MIRR.
• NPV.
• discounted payback.
Which of the following best describes the NPV profile?

Multiple Choice
• A graph of a project's NPV as a function of possible IRRs.
• A graph of a project's NPV over time.
• A graph of a project's NPV as a function of possible capital costs.
How many possible IRRs could you find for the following set of cash flows?
Time 0 1 2 3 4
Cash Flow –$ 15,000 $ 6,000 $ 10,000 $
12,000 $ 1,000
________________________________________
Multiple Choice
• 2
• 3
• Unable to determine unless we have the cost of capital.
• 1
Which of these is a capital budgeting technique that generates decision rules and associated
metrics for choosing projects based upon the implicit expected geometric average of a project's
rate of return?
Multiple Choice
• Internal rate of return

FIN 370T WK 1 - Apply Homework HTTPS://WWW - Hwtutorial.com/category/fin-370

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

FIN 370T WK 1 - Apply Homework HTTPS://WWW - Hwtutorial.com/category/fin-370

Uploaded by

Copyright:

Available Formats

FIN/370T

Finance For Business

FIN 370T Wk 1 – Practice: Ch. 1 and 3 Knowledge Check

The most common type of business in the United States is the

Corporate stakeholders include all of the following EXCEPT

Which of the following statements is ?

The biggest disadvantage of the sole proprietorship is

Which of these is NOT considered a coverage ratio?