Finance Test Bank

Chapter 9 Multiple woof Identify the choice that take up completes the statement or answers the question. _e___1. Schalheim Sisters Inc. has always paid out all of its toleratement as dividends hence, the pissed has no retained earnings. This same situation is anticipate to persist in the future. The party uses the CAPM to calculate its cost of equity, and its manoeuver groovy structure consists of common pack, pet stock, and debt. Which of the chase events would REDUCE its WACC? a. The market attempt premium declines. b. The flotation costs associated with issuing racewayting common stock increase. . The telephoners beta increases. d. Expected inflation increases. e. The flotation costs associated with issuing preferred stock increase. __c__2. Duval Inc. uses only equity crownwork, and it has two equally-sized divisions. fraction As cost of enceinte is 10. 0%, cleavage Bs cost is 14. 0%, and the corporate (composite) WACC is 12. 0%. sum of m whizzyly of Divisio n As controls be equally put on the liney, as are all of Division Bs vagabonds. However, the pictures of Division A are less risky than those of Division B. Which of the by-line get words 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. Both constitute IRRs that overhaul the WACC. Which of the following(a) statements is clear? tire out that the projects ingest normal cash flows, with one outflow followed by a series of inflows. a. If the two projects NPV profiles do not cross, then there go forth be a sharp mesh as to which one should be selected. . If the cost of jacket is greater than the crossover rate, then the IRR and the NPV criteria provide not result in a conflict betwixt the projects. The same project suspend for graze higher by both criteria. c. If the cost of cracking 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 sign dowerment cost of one project must exceed the cost of the separate. e.For a conflict to exist between NPV and IRR, one project must have an increasing stream of cash flows over magazine while 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 bounceed in the analysis of a heavy(p) budgeting project? a. Changes in enlighten working dandy. b. Shipping and installation costs. c. Ca nnibalization effects. . Opportunity costs. e. Sunk costs that have been expensed for tax purposes. __a__3. Which of the following should be considered when a company estimates the cash flows use to analyze a proposed project? a. The mod project is expected to sink sales of one of the companys existing products by 5%. b. Since the firms director of gravid budgeting fatigued some of her time destination year to evaluate the spick-and-span 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 million on R associated with the crude project. d.The company spent and expensed $10 million on a selling study before its current analysis regarding whether to accept or resist the project. e. The firm would borrow all the money used to finance the red-hot(a) project, and the interest on this debt would be $1. 5 million per year. __c__4. Dalrymple Inc. is considering production of a new product. In evalu ating whether to go ahead with the project, which of the following items should NOT be explicitly considered when cash flows are estimated? a. The company will mystify the new product in a va quite a littlet building that was used to produce another(prenominal) 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 but is not straightway 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 assnot 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 a t 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 average project, found on all methods for assessing risk. In evaluating this project, it would be reasonable for focusing 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 derived function if the project would amount to only a small fraction of the firms total 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 ratios will change. b. Accounts payable and accruals are tied directly to sales. c. Common stock and long debt are tied directly to sales. d. Fixed a ssets, 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 surplus funds needed (AFN) is generally defined as follows a. Funds 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 mandatory per dollar of sales. d. The amount of internally generated cash in a presumptuousness year minus the amount of cash needed to acquire the new assets needed to support growth. . A forecasting approach in which the forecasted contribution of sales for each balance sheet account is held unvarying. _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 previo usly thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity. b. The company increases its dividend payout ratio. c. The company begins to pay employees monthly kind of than weekly. . The companys profit margin increases. e. The company decides to stop taking discounts on purchased materials. Chapter 13 iClicker Questions Multiple Choice Identify the choice that scoop 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 take return on equity. c. The corporate valuation model can be used to find the value of a division. . An important step in applying the corporate valuation model is forecasting the firms pro forma fiscal statements. e. openhanded cash flows are assumed to grow at a constant rate beyond a specified date in enounce to find the horizon, or terminal, value. __a__2. Which of the following does NOT always increase a companys market value? a. change magnitude the expected growth rate of sales. b. Increasing the expected operating profitability (NOPAT/Sales). c. Decreasing the capital requirements (Capital/Sales). d. Decreasing the burden 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 barrier to contrasted takeovers? a. Abnormally high executive compensation. b. Targeted packet repurchases. c. Shareholder rights provisions. d. Restricted take 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 influence a firms dividend indemnity decision? a. The firms ability to accelerate or delay investment projects . . A strong preference by most shareholders for current cash income versus capital gains. c. Constraints imposed by the firms bond indenture. d. The fact that much of the firms equipment has been leased quite an 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 likely 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 remainder 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 statemen t 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 focussing. c. 1 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 power (BEP). . If a firm lowered its fixed costs while increasing its variable costs, place total costs at the present level of sales constant, this would go down its operating leverage. c. The debt ratio that maximizes EPS generally exceeds 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 make 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. fortune management can increase debt capacity. b. Risk management can assist 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 allow managers to defer receipt of their bonuse s and thus postpone tax payments.