The ________ rule states that a firm should accept any project with a present value of cash inflows greater than the present value of cash outflows. A) internal rate of return B) payback C) modified internal rate of return D) net present value ANSWER D
Date: September 19th, 2020
If a firm reports $25 million of retained earnings on its balance sheet, could the board of directors declare a $25 million cash dividend without any concerns? Explain why or why not What will be an ideal response? ANSWER The retained earnings on a firm’s balance sheet represents the accumulation of net income […]
Date: September 19th, 2020
Dividends paid to a firm’s stockholders, both preferred and common stockholders, are tax-deductible to the paying company. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
To estimate the after-tax cost of preferred stock you must: A) multiply the cost of preferred by (1 – the tax rate). B) multiply the cost of preferred by (1 + the tax rate). C) multiply the cost of preferred by (the tax rate). D) None of the above because preferred dividend payments are not […]
Date: September 19th, 2020
The cost of giving up a cash discount is the implied rate of interest paid in order to delay payment of an account payable for an additional number of days. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
A firm has current after-tax earnings of $1,000,000 and has declared a cash dividend of $400,000. The firm’s dividend payout ratio is ________. A) 2.5 percent B) 2.0 percent C) 4.0 percent D) 40 percent ANSWER D
Date: September 19th, 2020
Generally speaking, a higher financial leverage ratio will result in an increase in a firms ROE and also reduce risk to shareholders. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Explain how depreciation generates actual cash flows for the firm. What will be an ideal response? ANSWER Because depreciation is a non cash expense, it generates cash flows for the firm by reducing the amount of taxable income without actually incurring a cash expense.
Date: September 19th, 2020
If a firm has any long-term debt then its ROE will exceed its ROA. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
For purposes of pricing, preferred shares are considered a form of perpetuity. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
