QUESTION Sandwich State Bank has followed the practice of capitalizing certain marketing costs and amortizing these costs over their expected life. In the current year, the bank determined that the future benefits from these costs were doubtful. Consequently, the bank adopted the policy of expensing these costs as incurred. How should the bank report this […]
QUESTION ?oThe cost of capital always depends on the risk of the project being evaluated. Therefore the company cost of capital is useless.?? Do you agree? ting the company cost of capital for the risk complexion of the projects and their capital structure. The projects that have the same risk complexion as the current projects […]
QUESTION Nancy Castle Company purchased a computer system for $60,000 on January 1, 2006. It was depreciated based on a 7-year life and an $18,000 salvage value. On January 1, 2008, Castle revised these estimates to a total useful life of 4 years and a salvage value of $10,000. Prepare Castles entry to record 2008 […]
QUESTION You buy 100 shares of Tidepool Co. for $40 each and 200 shares of Madfish, Inc., for $15 each. What are the weights in your portfolio? Calculation of portfolio weights Number of shares of Tidepool Co. = 100 Price of a share of Tidepool Co.= $40 Value of the shares in Tidepool Co.= $40*100 […]
QUESTION Dektronik Corporation manufactures electrical test equipment. The companys board of directors authorized a bond issue on January 1, 2009, with the following terms:Maturity (par) value: $800,000Interest: 8 percent per annum payable each December 31.Maturity date: December 31, 2013.Effective-interest rate when sold: 12 percent.Required:1. Compute the bond issue price. Explain why both the stated and […]
QUESTION What is the sign of the risk premium of a negative-beta stock? Explain. (Assume the risk premium of the market portfolio is positive.) CAPM equation: E(ra)=Rf (E(rm)-Rf)a Where: E(ra) = Expected return on stock a Rf = Risk free rate of return E(rm) = Expected return on the market portfolio a = Beta of […]
QUESTION (Multiple Choice)1. Annual interest expense for a single bond issue continues to increase over the life of the bonds. Which of the following explains this?a. The market rate of interest has increased since the bonds were sold.b. The coupon rate of interest has increased since the bonds were sold.c. The bonds were sold at […]
QUESTION It has been argued that shareholder wealth maximization is not a realistic normative goal for the firm, given the social responsibility activities that the firm is ?oexpected?? to engage in (such as contributing to the arts, education, etc.). Explain why these social responsibility activities are not necessarily inconsistent with shareholder wealth maximization. Shareholder wealth […]
QUESTION In what sense is the WACC an average cost A marginal cost? d average cost of capital changes as the volume of finance increases. As the volume of financing increases the cost of different types of financing also increases. This is because the increase of debt in the capital structure increases the financial risk […]
QUESTION If you bought a share of stock, what would you expect to receive, when would you expect to receive it, and would you be certain that your expectations would be met? owth with the expectations to benefit from the capital appreciation.The investor can never be cent percent certain of his expectations being met because […]
