Capital Structure Theory in general assumes that: · [removed] A firm’s value is determined by ca

STUCK with your assignment? When is it due? Hire our professional essay experts who are available online 24/7 for an essay paper written to a high standard at a reasonable price.


Order a Similar Paper Order a Different Paper

Capital Structure Theory in general assumes that:

·         [removed]

A firm's value is determined by capitalizing (discounting) the firm's expected net income by the firm's cost of equity.

·         [removed]

A firm's cost of capital rises as a firm uses more financial leverage.

·         [removed]

A firm's value is determined by discounting the firm's expected cash flows by the WACC.

·         [removed]

 

A firm's cash flows will grow indefinitely at a constant rate.

Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?

·         [removed]

Quick ratio

·         [removed]

Return on investment

·         [removed]

Current ratio

·         [removed]

Gross profit margin

 

 

 

 

 

The Securities Investor Protection Corporation protects individuals from 

·         [removed]

other investors who fail to make delivery

·         [removed]

fraud by corporations

·         [removed]

making poor investment decisions

·         [removed]

brokerage firm failures

 

 

 

A company collects 60% of its sales during the month of the sale, 30% one month after the sale, and 10% two months after the sale. The company expects sales of $10,000 in August, $20,000 in September, $30,000 in October, and $40,000 in November. How much money is expected to be collected in October?

·         [removed]

$25,000

·         [removed]

$35,000

·         [removed]

$45,000

·         [removed]

$15,000

 

 

 

Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500,000 and has a NPV of $150,000. The projects involve unrelated new product lines. What is your evaluation of these two projects?

·         [removed]

The company should look at other investment criteria, not just NPV.

·         [removed]

Only project Delta should be accepted. Alpha's NPV is too low for the investment.

·         [removed]

Both projects should be accepted because they have positive NPV's

·         [removed]

Neither project should be accepted because they might compete with one another

 

 

Which of the following is not part of the underwriting process?

·         [removed]

the prospectus

·         [removed]

the Securities and Exchange Commission

·         [removed]

the syndicate

·         [removed]

the Federal Reserve

 

 

 

 

 

 

When the impact of taxes is considered, as the firm takes on more debt

·         [removed]

the weighted average cost of capital will increase.

·         [removed]

there will be no change in total cash flows.

·         [removed]

both taxes and total cash flow to stockholders and bondholders will decrease.

·         [removed]

cash flows will increase because taxes will decrease.

 

 

Metals Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Metals Corp.'s after-tax cost of debt is 5.25%, preferred stock has a cost of 6.35%, and newly issued common stock has a cost of 14.05%. What is Metals Corp.'s weighted average cost of capital? 

·         [removed]

12.78%

·         [removed]

8.32%

·         [removed]

6.56%

·         [removed]

10.84%

 

 

 

 

Given an accounts receivable turnover of 8 and annual credit sales of $362,000, the average collection period (360-day year) is 

·         [removed]

60 days.

·         [removed]

45 days.

·         [removed]

75 days

·         [removed]

90 days.

 

 

Accounting break-even analysis solves for the level of sales that will result in:

·         [removed]

Free cash flow = $0.00.

·         [removed]

NPV = $0.00.

·         [removed]

IRR=Cost of Capital.

·         [removed]

net income = $0.00.

 

 

 

 

 

 

Buying and selling in more than one market to make a riskless profit is called: 

·         [removed]

profit maximization.

·         [removed]

arbitrage.

·         [removed]

international trading.

·         [removed]

globalization

 

 

Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects? 

·         [removed]

Cash flows are more stable than accounting profits.

·         [removed]

Cash flows reflect the timing of benefits and costs more accurately than accounting profits.

·         [removed]

Cash flows have a greater present value than accounting profits.

·         [removed]

Cash flows improve the tax position of a firm more than accounting profits.

 

 

 

 

 

Which of the following could offset the higher risk exposure a company would face if it’s current ratio and net working capital were relatively low?

·         [removed]

It could buy back some of its shares in the open market in order to reduce its equity.

·         [removed]

Its current assets would need to be highly liquid.

·         [removed]

It could offer no discounts for early payment by its customers.

·         [removed]

Its accounts receivable collection policy could increase the average collection period.

 

 

 

Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?

·         [removed]

Cash flows are more stable than accounting profits.

·         [removed]

Cash flows have a greater present value than accounting profits.

·         [removed]

Cash flows reflect the timing of benefits and costs more accurately than accounting profits.

·         [removed]

            Cash flows improve the tax position of a firm more than accounting profits.

 

 

 

 

Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%.

Initial outlay = $450

Cash flows:       Year 1 = $325

                          Year 2 = $65

                          Year 3 = $100

·         [removed]

3.43 years

·         [removed]

3.17 years

·         [removed]

2.88 years

·         [removed]

2.6 years

 

 

The Oviedo Thespians are planning to present performances of their Florida Revue on 2 consecutive nights in January. It will cost them $5,000 per night for theater rental, event insurance and professional musicians. The theater will also take 10% of gross ticket sales. How many tickets must they sell at $10.00 per ticket to raise $1,000 for their organization?

·         [removed]

1000 tickets

·         [removed]

1,314 tickets

·         [removed]

1,223 tickets

·         [removed]

1,112 tickets

 

 

Which of the following is true regarding Investment Banks?

·         [removed]

As a result of the financial crisis of 2008, all stand-alone Investment banks either failed, were merged into commercial banks, or became commercial banks.

·         [removed]

When Glass-Steagal was repealed in 1999, commercial banks and Investment banks had to be separate entities.

·         [removed]

As of 2010, stand alone Investment banks are numerous.

·         [removed]

Under the Glass-Steagal act, commercial banks were allowed to operate as Investment banks.

 

 

 

If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should:

·         [removed]

            maximize sales revenues

·         [removed]

increase the market value of the firm's common stock.

·         [removed]

positively affect profits.

·         [removed]

either increase or have no effect on the value of the firm's common stock.

 

 

 

Which of the following is true about bonds?

·         [removed]

They are obligations from the investor to the corporation.

·         [removed]

They have a fixed maturity, and they pay an amount equal to the maturity value times the coupon rate each year.

·         [removed]

At maturity of the bond, the investor receives the market price of the bond.

·         [removed]

Their interest rate always varies with the Consumer Price Index

 

 

Which of the following is most likely to occur if a firm over-invests in net working capital? 

·         [removed]

The current ratio will be lower than it should be.

·         [removed]

The return on investment will be lower than it should be.

·         [removed]

The quick ratio will be lower than it should be.

·         [removed]

 

 

 

 

 

 

 

 

 

 

 

The times interest earned ratio will be lower than it should be.

 

Which of the following goals is in the best long-term interest of stockholders? 

·         [removed]

Profit maximization

·         [removed]

Maximizing sales revenues

·         [removed]

Maximizing of the market value of the existing shareholders' common stock

·         [removed]

Risk minimization

 

 

Apple Two Enterprises expects to generate sales of $5,950,000 for fiscal 2014; sales were $3,450,000 in fiscal 2013. Assume the following figures for the fiscal year ending 2013: cash $70,000; accounts receivable $250,000; inventory $400,000; net fixed assets $520,000; accounts payable $235,000; and accruals $155,000. Use the percent-of-sales method to forecast cash for the fiscal year ending 2014.

·         [removed]

$216,418

·         [removed]

$120,725

·         [removed]

$319,604

·         [removed]

$75,003

 

 

 

 

Which of the following statements best represents what finance is about? 

·         [removed]

Maximizing profits

·         [removed]

Creation and maintenance of economic wealth

·         [removed]

How political, social, and economic forces affect corporations

·         [removed]

Reducing risk  

 

 

 

If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years? 

·         [removed]

$3,525.62

·         [removed]

$5,008.76

·         [removed]

$2,465.78

·         [removed]

$3,408.88

 

 

 

 

 

Long-term financial plans typically encompass:

·         [removed]

5 to 10 years.

·         [removed]

about 5 years.

·         [removed]

6 to 12 months.

·         [removed]

the entire lifecycle of the corporation.

 

 

When calculating the weighted average cost of capital, which of the following has to be adjusted for taxes?

·         [removed]

Common stock

·         [removed]

Retained earnings

·         [removed]

Preferred stock

·         [removed]

Debt

 

 

 

 

 

 

 

 

We compute the profitability index of a capital-budgeting proposal by Initial outlay = $1,748.80

·         [removed]

           dividing the present value of the annual after-tax cash flows by the cost of capital.

·         [removed]

multiplying the cash inflow by the IRR.  

·         [removed]

multiplying the IRR by the cost of capital.

·         [removed]

dividing the present value of the annual after-tax cash flows by the cost of the project.  

 

 

You just purchased a parcel of land for $10,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years?

·         [removed]

$25,000

·         [removed]

$38,720

·         [removed]

$39,720

·         [removed]

$31,060

 

 

 

 

Aspects of demand risk controllable by the firm include:

·         [removed]

interest rates.

·         [removed]

entry of external competitors.

·         [removed]

status of the regional and national economy.

·         [removed]

product quality.

 

 

 

Delta Inc. is considering the purchase of a new machine which is expected to increase sales by $10,000 in addition to increasing non-depreciation expenses by $3,000 annually. Due to the sales increase, Delta expects its working capital to increase $1,000 during the life of the project. Delta will depreciate the machine using the straight-line method over the project's five year life to a salvage value of zero. The machine's purchase price is $20,000. The firm has a marginal tax rate of 34 percent, and its required rate of return is 12 percent. The machine's initial cash outflow is:

·         [removed]

$21,000.

·         [removed]

$23,000.

·         [removed]

$27,000.

·         [removed]

$20,000.

Writerbay.net

Everyone needs a little help with academic work from time to time. Hire the best essay writing professionals working for us today!

Get a 15% discount for your first order


Order a Similar Paper Order a Different Paper