Which of the statements below is TRUE of the payback period method? A) It ignores the cash flow after the initial outflow has been recovered. B) It is biased against projects with early-term payouts. C) It incorporates time-value-of-money principles. D) It focuses on cash flows after the initial outflow has been recovered. ANSWER […]
A firm has EBIT of $375,000, interest expense of $75,000, preferred dividends of $6,000 and a tax rate of 40 percent. The firm’s degree of financial leverage at a base EBIT level of $375,000 is ________. A) 0.97 B) 1.29 C) 1.27 D) 1.09 ANSWER B
Throughout the period 1980-2000, the composite proportion of the TA of U.S. nonfinancial firms accounted for by net PP&E generally (i)_, and the proportion of TA financed by equity (ii) fairly steadily. (i) (ii) a. decreased increased b. increased decreased c. increased also increased d. decreased also decreased ANSWER B
A company usually establishes a short, arbitrary cutoff date for handling the initial screening of many small-dollar opportunities. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Consider the following four-year project. The initial outlay or cost is $180,000. The respective cash inflows for years 1, 2, 3 and 4 are: $100,000, $80,000, $80,000 and $20,000. What is the discounted payback period if the discount rate is 11%? A) About 1.667 years B) About 2.000 years C) About 2.135 years D) About […]
Acme, Inc. is considering a four-year project that has initial outlay or cost of $100,000. The respective cash inflows for years 1, 2, 3 and 4 are: $50,000, $40,000, $30,000 and $20,000. Acme uses the discounted payback period method, and has a discount rate of 11.50%. Will Acme accept the project if it’s payback period […]
________ leverage is concerned with the relationship between sales revenue and earnings per share. A) Financial B) Operating C) Variable D) Total ANSWER D
The pledging cost of accounts receivable is normally 2 to 5 percent above the prime rate. Indicate whether the statement is true or false ANSWER TRUE
Identify and describe the shortcomings of the payback period model or method (without discounting). What will be an ideal response? ANSWER Answer: The payback period method ignores cash inflows after the initial outflow has been recovered. Thus, this method is biased toward those projects that have higher cash inflows in earlier years and […]
Pledges of accounts receivable are never made on a notification basis because the lender does not trust the borrower to collect the pledged account receivable and remit these payments as they are received. Indicate whether the statement is true or false ANSWER FALSE
