By switching to monthly cash flows, we cannot get a more accurate estimate of the discounted payback period. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: By switching to monthly cash flows, we CAN GET a more accurate estimate of the discounted payback period.
Date: September 19th, 2020
Simpson, Inc. is considering a five-year project that has an initial after-tax outlay or after-tax cost of $80,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $15,000, $25,000, $35,000, $45,000 and $55,000. Simpson uses the net present value method and has a discount rate of 9%. […]
Date: September 19th, 2020
At a base sales level of $400,000, a firm has a degree of operating leverage of 2 and a degree of financial leverage of 1.5. The firm’s degree of total leverage is ________. A) 3.5 B) 3.0 C) 0.5 D) 1.3 ANSWER B
Date: September 19th, 2020
Aviary, Inc. is considering a five-year project that has initial after-tax outlay or after-tax cost of $170,000. The future after-tax cash inflows from its project for years 1 through 5 are $45,000 for each year. Aviary uses the net present value method and has a discount rate of 11.25%. Will Aviary accept the project? A) […]
Date: September 19th, 2020
Because the degree of total leverage is multiplicative and not additive, when a firm has very high operating leverage it can moderate its total risk by ________. A) increasing sales B) using a higher level of financial leverage C) increasing EBIT D) using a lower level of financial leverage ANSWER D
Date: September 19th, 2020
In regard to the NPV method, which of the statements below is TRUE? A) In the NPV model, if two projects are being compared, the one with the highest IRR is selected. B) In the NPV model, the present cash flows are discounted at the rate r, the cost of capital. C) In the NPV […]
Date: September 19th, 2020
In the NPV model, all cash flows are stated ________. A) in future value dollars, and the total inflow is “netted” against the outflow to see if the net amount is positive or negative B) in present value or current dollars, and the outflow is “netted” against the total inflow to see if the gross […]
Date: September 19th, 2020
For public U.S. nonfinancial firms over the years 1980-2000, the composite market-to-book equity ratio generally: a. increased from 1980-2000 b. decreased from 1980-2000 c. remained stable from 1980-2000 ANSWER A
Date: September 19th, 2020
The capital budgeting decision model that utilizes all the discounted cash flow of a project is the ________ model, which is one of the single most important models in finance. A) net present value (NPV) B) internal rate of return (IRR) C) profitability index (PI) D) discounted payback period ANSWER Answer: A
Date: September 19th, 2020
The net present value of an investment is ________. A) the present value of all benefits (cash inflows) B) the present value of all benefits (cash inflows) minus the present value of all costs (cash outflows) of the project C) the present value of all costs (cash outflows) of the project D) the present value […]
Date: September 19th, 2020
