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Question 1 Higher flotation costs will result in all of the following EXCEPT
Correct
Select one:
Mark 1.00 out of
1.00 A. higher cost of retained earnings.
B. higher aftertax cost of debt.
C. higher cost of common equity when new common shares are sold.
B. 5.29%
C. 4.45%
D. 3.74%
Question 3 The firm's cost of capital may also be referred to as the firm's opportunity cost of capital.
Incorrect
Select one:
Mark 0.00 out of
1.00 True
False
False
Question 5 A reasonable estimate of the market risk premium based on historical data and expert opinion is between 5% and 7%.
Correct
Select one:
Mark 1.00 out of
1.00 True
False
B. 8.23%
C. 7.45%
D. 4.70%
Question 7 The average cost of capital is the appropriate rate to use when evaluating new investments, even though the new
Incorrect investments may be in a higher risk class.
Question 9 The net present value always provides the correct decision provided that
Incorrect
Select one:
Mark 0.00 out of
1.00 A. the required rate of return is greater than the internal rate of return.
Question 11 A project with a payback period of four years is acceptable as long as the company's target payback period is greater
Incorrect than or equal to four years.
False
Question 12 The profitability index can be helpful when a financial manager encounters a situation where capital rationing is
Correct required.
False
Question 14 IRR should not be used to choose between mutually exclusive projects.
Correct
Select one:
Mark 1.00 out of
1.00 True
False
Question 15 Finance theory suggests that the IRR criterion is the most favorable capital budgeting decision tool.
Incorrect
Select one:
Mark 0.00 out of
1.00 True
False
Question 17 Two projects that have the same cost and the same expected cash flows will have the same net present value.
Incorrect
Select one:
Mark 0.00 out of
1.00 True
False
Question 18 Both the profitability index (PI) and net present value (NPV) are based on the present value of all future free cash
Incorrect flows, but the PI is a relative measure while the NPV is an absolute measure of a project's desirability.
C. financial leverage.
D. operating leverage.
Question 20 Business risk refers to the relative dispersion (variability) of a company's net income.
Incorrect
Select one:
Mark 0.00 out of
1.00 True
False
Question 21 The breakeven model assumes that selling price per unit and variable cost per unit of output are constant over the
Correct relevant range of output.
False
Question 23 Operating leverage contributes ultimately to the variability of a firm's earnings per share.
Incorrect
Select one:
Mark 0.00 out of
1.00 True
False
Question 24 Financial leverage is typically more under the control of management than is operating leverage because the nature
Correct of the product often dictates the type of production process needed.
False
Question 26 Other things equal, individuals in highincome tax brackets should have a preference for firms that retain their
Incorrect earnings rather than pay dividends.
Question 27 If John owns 5% of XYZ corporation before its 2 for 1 stock split, John will own 5% of XYZ corporation after the stock
Correct split as well.
False
Question 29 A firm's stock price may decline by less than 50% after a 2 for 1 stock split if the reduction in price moves the stock
Correct into its optimal trading range.
False
Question 30 Shareholders may prefer a share repurchase program to dividends because dividends are subject to taxation and
Incorrect increasing value per share due to repurchase programs is tax deferred.
False
False
Question 32 Financial forecasting is the process of attempting to estimate a firm's future financing requirements.
Correct
Select one:
Mark 1.00 out of
1.00 True
False
Question 33 The percent of sales method assumes that all assets and all liabilities increase proportionally with sales, but retained
Correct earnings does not.
False
Question 35 If the sales growth rate is greater than zero, then the discretionary financing needed will also be greater than zero.
Incorrect
Select one:
Mark 0.00 out of
1.00 True
False
False
False
Question 38 Two advantages of financing with current liabilities are flexibility and lower interest cost.
Correct
Select one:
Mark 1.00 out of
1.00 True
False
Question 39 Higher liquidity (holding larger cash and marketable securities balances) generally results in a lower return on equity.
Correct
Select one:
Mark 1.00 out of
1.00 True
False
False
Question 41 A company decreases the risk of insolvency by financing longterm assets with shortterm debt.
Incorrect
Select one:
Mark 0.00 out of
1.00 True
False
False
Question 44 The cash conversion cycle is equal to the days of sales outstanding plus the days of sales in inventory plus the days
Incorrect of payables outstanding.
False
Question 45 The cash conversion cycle is a measure of a firm's effectiveness in managing its working capital.
Correct
Select one:
Mark 1.00 out of
1.00 True
False
False
Question 47 Accrued wages and taxes are secured sources of financing because companies are obligated to make these payments
Incorrect before they make payments on any other loans or pay dividends.
Question 48 Factoring accounts receivable is the sale of a firm's receivables while pledging accounts receivable is the use of
Correct accounts receivable as collateral for a loan.
False
Question 50 Credit terms of 2/10, net 30 have a lower effective cost than credit terms of 2/10, net 60 because in the first case
Incorrect the loan will be repaid sooner.
False