Cedar Computer Systems Inc has two projects under consideration and a WACC of 10%. Project Alpha has a hurdle rate of 12% while project Beta has a hurdle rate of 8%. If project Alpha has an expected return of 11% and project Beta has an expected return of 11%, which project(s), if any, should the […]
Date: September 19th, 2020
Within a firm, the WACC is the most appropriate required rate of return for all projects. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
The major attraction of a line of credit from the bank’s point of view is that it eliminates the need to examine the creditworthiness of a customer each time it borrows money within the year. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Calculate the profitability index for the cash flows provided in the table below. Note: The negative cash flow for year 0 is the initial investment for the project. Assume a required rate of return of 9.00% Year Cash Flow 0 -$90,000 1 $32,000 2 $32,000 3 $32,000 A) 0.85 B) 0.90 C) 1.00 D) 1.11 […]
Date: September 19th, 2020
Operating leverage is concerned with the relationship between a firm’s sales revenue and its financial expenses. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
How is the profitability index calculated? A) The present value of the net cash flows minus the initial investment. B) The present value of the net cash flows /plus the initial investment. C) The present value of the net cash flows divided by the initial investment. D) The initial investment divided by the present value […]
Date: September 19th, 2020
A firm’s balance sheet shows the following changes over the most recent quarter: Cash increases by $1,000,000, long-term assets increase by $3,000,000, accounts payable increase by $750,000, long-term-debt increases by $1,000,000, retained earnings increase by $1,250,000, and new equity increases by $1,000,000. Which of the following statements must be TRUE? A) Cash was a $1,000,000 […]
Date: September 19th, 2020
Financial leverage is concerned with the relationship between a firm’s earnings after interest and taxes and its common stock earnings per share. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
If a firm increases the amount of debt that it has this could lead to an increase in: A) financial risk. B) the cost of equity. C) both the cost of equity and the financial risk. D) None of the above. ANSWER C
Date: September 19th, 2020
All of the following are important factors in the economy EXCEPT: A) technology. B) interest rates. C) financial markets. D) credit conditions. ANSWER A
Date: September 19th, 2020
