Finance Test Bank

Chapter 9 Multiple excerpt Identify the choice that best completes the statement or answers the question. _e___1. Schalheim Sisters Inc. has always paid out solely of its moolah as dividends hence, the firm has no retained earnings. This same situation is judge to persist in the future. The telephoner uses the CAPM to calculate its cost of equity, and its fair game with child(p) structure consists of common stock, preferred stock, and debt. Which of the succeeding(a) events would REDUCE its WACC? a. The trade take chances premium declines. b. The flotation be associated with issuing new common stock growth. . The associations beta amplifys. d. pass judgment inflation increases. e. The flotation be associated with issuing preferred stock increase. __c__2. Duval Inc. uses only equity expectant, and it has two equally-sized divisions. component part As cost of capital is 10. 0%, course Bs cost is 14. 0%, and the corpo charge per unit (composite) WACC is 12. 0%. All of atom As ciphers ar equally risky, as are all of Division Bs projects. However, the projects of Division A are less(prenominal) risky than those of Division B. Which of the following projects should the firm accept? a. A Division B project with a 13% return. . A Division B project with a 12% return. c. A Division A project with an 11% return. d. A Division A project with a 9% return. e. A Division B project with an 11% return. 2010 Fall Chapter 10 ___b_3. You are considering two mutually exclusive, equally risky, projects. two sport IRRs that exceed the WACC. Which of the following statements is CORRECT? Assume that the projects have normal property flows, with one making water followed by a series of inflows. a. If the two projects NPV profiles do not cross, indeed there get out be a sharp conflict as to which one should be selected. . If the cost of capital is greater than the carrefour rate, then the IRR and the NPV criteria lead not result in a conflict in the midst of the projects. The same project will rank higher by both(prenominal) criteria. c. If the cost of capital is less than the crossover rate, then the IRR and the NPV criteria will not result in a conflict between the projects. The same project will rank higher by both criteria. d. For a conflict to exist between NPV and IRR, the initial investment cost of one project must exceed the cost of the other. e.For a conflict to exist between NPV and IRR, one project must have an increasing stream of cash flows over time patch the other has a decreasing stream. If both sets of cash flows are increasing or decreasing, then it would be impossible for a conflict to exist, even if one project is larger than the other. 2010 Fall, FIN 6100, Chapter 11, iClicker Questions __e__1. Which of the following is non a relevant cash flow and thus should not be conjectureed in the analysis of a capital budgeting project? a. Changes in net working capital. b. Shipping and installation costs. c. Canniba lization effects. . Opportunity costs. e. Sunk costs that have been expensed for tax purposes. __a__3. Which of the following should be considered when a comp any estimates the cash flows used to analyze a proposed project? a. The new project is expected to reduce sales of one of the companys existing products by 5%. b. Since the firms director of capital budgeting washed-out some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the projects initial cost. c. The company has spent and expensed $1 one thousand zillion on R associated with the new project. d.The company spent and expensed $10 million on a selling study before its current analysis regarding whether to accept or reject the project. e. The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1. 5 million per year. __c__4. Dalrymple Inc. is considering turnout of a new product. In evaluating whether to go a head with the project, which of the following items should non be explicitly considered when cash flows are estimated? a. The company will produce the new product in a vacant twist that was used to produce another product until last year.The building could be sold, leased to another company, or used in the future to produce another of the firms products. b. The project will utilize some equipment the company currently owns only when is not now using. A used equipment dealer has offered to buy the equipment. c. The company has spent and expensed for tax purposes $3 million on research related to the new detergent. These funds cannot be recovered, but the research may benefit other projects that might be proposed in the future. d. The new product will cut into sales of some of the firms other products. . If the project is accepted, the company must invest $2 million in working capital. However, all of these funds will be recovered at the end of the projects life. __e__7. A firm is considering a new project whose risk is greater than the risk of the firms sightly project, based on all methods for assessing risk. In evaluating this project, it would be reasonable for management to do which of the following? a. Increase the estimated IRR of the project to reflect its greater risk. b. Increase the estimated NPV of the project to reflect its greater risk. c.Reject the project, since its acceptance would increase the firms risk. d. Ignore the risk differential if the project would arrive to only a small fraction of the firms original assets. e. Increase the cost of capital used to evaluate the project to reflect its higher-than-average risk. Chapter 12 iClicker Questions __b__1. Which of the following assumptions is embodied in the AFN equation? a. none of the firms symmetrys will change. b. Accounts payable and accruals are bind directly to sales. c. Common stock and long-term debt are tied directly to sales. d. Fixed assets, but not urrent assets, are tied directly to sales. e. Last years total assets were not optimal for last years sales. __b__2. The term additional funds needed (AFN) is generally defined as follows a. cash that are obtained automatically from routine business transactions. b. Funds that a firm must raise externally from non-spontaneous sources, i. e. , by borrowing or by selling new stock to support operations. c. The amount of assets call for per dollar of sales. d. The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth. . A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant. _b___4. A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase? a. The company previously thought its fixed assets were being operated at f ull capacity, but now it learns that it very has excess capacity. b. The company increases its dividend payout ratio. c. The company begins to pay employees monthly rather than weekly. . The companys profit margin increases. e. The company decides to abandon taking discounts on purchased materials. Chapter 13 iClicker Questions Multiple Choice Identify the choice that best completes the statement or answers the question. __b__1. Which of the following statements is NOT CORRECT? a. The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends. b. The corporate valuation model discounts free cash flows by the required return on equity. c. The corporate valuation model can be used to get word the value of a division. . An important step in applying the corporate valuation model is forecasting the firms pro forma financial statements. e. Free cash flows are assumed to grow at a constant rate beyond a specified date in order to fin d the horizon, or terminal, value. __a__2. Which of the following does NOT always increase a companys market value? a. increase the expected growth rate of sales. b. Increasing the expected operational profitability (NOPAT/Sales). c. Decreasing the capital requirements (Capital/Sales). d. Decreasing the weighted average cost of capital. e.Increasing the expected rate of return on invested capital. _a___3. Which of the following is NOT normally regarded as being a hindrance to hostile takeovers? a. Abnormally high executive compensation. b. Targeted share repurchases. c. Shareholder rights provisions. d. Restricted voting rights. e. Poison pills. Chapter 14 iClicker Questions Multiple Choice Identify the choice that best completes the statement or answers the question. __d__1. Which of the following should not form a firms dividend policy decision? a. The firms ability to accelerate or delay investment projects. . A weapons-grade preference by most shareholders for current cash i ncome versus capital gains. c. Constraints imposed by the firms bond indenture. d. The feature that much of the firms equipment has been leased rather than bought and owned. e. The fact that Congress is considering changes in the tax law regarding the taxation of dividends versus capital gains. __a__2. Trenton Publishing follows a strict residual dividend policy. All else equal, which of the following factors would be most credibly to lead to an increase in the firms dividend per share? a. The firms net income increases. b.The company increases the percentage of equity in its target capital structure. c. The number of profitable potential projects increases. d. Congress lowers the tax rate on capital gains. The conclusion of the tax code is not changed. e. Earnings are unchanged, but the firm issues new shares of common stock. Chapter 15 iClicker Questions Multiple Choice Identify the choice that best completes the statement or answers the question. _b___1. Which of the following statements is CORRECT? a. A firms business risk is determined solely by the financial characteristics of its industry. b.The factors that affect a firms business risk are affected by industry characteristics and economic conditions. Unfortunately, these factors are generally beyond the control of the firms management. c. adept of the benefits to a firm of being at or near its target capital structure is that this eliminates any risk of bankruptcy. d. A firms financial risk can be minimized by diversification. e. The amount of debt in its capital structure can under no circumstances affect a companys business risk. __c__2. Which of the following statements is CORRECT? a. Increasing financial leverage is one way to increase a firms basic earning queen (BEP). . If a firm lowered its fixed costs while increasing its variable costs, holding total costs at the present level of sales constant, this would decrease its operating leverage. c. The debt ratio that maximizes EPS generally exc eeds the debt ratio that maximizes share price. d. If a company were to issue debt and use the money to repurchase common stock, this action would have no impact on its basic earning power ratio. (Assume that the repurchase has no impact on the companys operating income. ) e. If changes in the bankruptcy code made bankruptcy less costly to orporations, this would likely reduce the average corporations debt ratio. Chapter 23 Multiple Choice Identify the choice that best completes the statement or answers the question. __e__1. Which of the following are NOT ways risk management can be used to increase the value of a firm? a. Risk management can increase debt capacity. b. Risk management can help a firm maintain its optimal capital budget. c. Risk management can reduce the expected costs of financial distress. d. Risk management can help firms minimize taxes. e. Risk management can deed over managers to defer receipt of their bonuses and thus postpone tax payments.