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 […]
What average annual proportion of the total number of public U.S. nonfinancial firms at year-end 1980 exited over the years 1981-2000 (i.e., the average attrition rate)? a. 5.9% b. 15.9% c. 25.9% d. 35.9% ANSWER A
Which category of liabilities & equities had the smallest proportion in every year from 1980- 2000? a. current liabilities b. debt c. other non-current liabilities d. common stock e. preferred stock ANSWER E
Acme, Inc. is considering a four-year project that has an initial outlay or cost of $80,000. The respective future cash inflows for years 1, 2, 3 and 4 are: $40,000, $40,000, $30,000 and $30,000. Acme uses the discounted payback period method and has a discount rate of 12%. Will Acme accept the project if it’s […]
Factoring accounts receivable is relatively an expensive source of unsecured short-term funds. Indicate whether the statement is true or false ANSWER FALSE
The initial outlay or cost is $1,000,000 for a four-year project. The respective future cash inflows for years 1, 2, 3 and 4 are: $500,000, $300,000, $300,000 and $300,000. What is the payback period without discounting cash flows? A) About 2.50 years B) About 2.67 years C) About 3.67 years D) About 4.50 years […]
The ________ model determines at what point in time cash outflow is recovered by the corresponding future cash inflow. A) NPV B) buyback C) net present value D) payback period ANSWER Answer: D
In pledging accounts receivable, the percentage advanced against the adjusted collateral is determined by the borrower based on its overall evaluation on the quality of the acceptable receivables and the expected cost of the liquidation. Indicate whether the statement is true or false ANSWER FALSE
The initial outlay or cost for a four-year project is $1,000,000. The respective cash inflows for years 1, 2, 3 and 4 are: $500,000, $300,000, $300,000 and $300,000. What is the discounted payback period if the discount rate is 10%? A) About 2.67 years B) About 3.35 years C) About 3.67 years D) About 4.50 […]
For public U.S. nonfinancial firms in composite, the fractions of liabilities (current plus non- current), and equities (all in book values, year-end 2000) are approximately: Liabilities Equities a. 1/3 2/3 b. 1/2 1/2 c. 2/3 1/3 ANSWER C
