The essence of Modigliani and Miller’s irrelevance theory is that A) increasing operating leverage will maximize EPS. B) shareholders prefer to invest in firms with a high degree of financial leverage. C) altering a firm’s capital structure will increase its value. D) utilizing more debt will increase a firm’s value. E) the value of the […]
Harry Starr, a college student, earned $4,000 and claimed one personal exemption. Harry’s father still can claim Harry as a dependent and also take the exemption. Indicate whether the statement is true or false ANSWER FALSE
Windy City Kite Company has prepared sales forecasts for the first quarter of Year 3 as shown in the top row of the table. Half of Windy City’s kite sales are cash and the other half are credit. Windy City collects credit sales the month following the credit sale. How much of the total January […]
Windy City Kite Company has prepared sales forecasts for the beginning of Year 3 as shown in the top row of the table. Half of Windy City’s kite sales are cash and the other half are credit. Windy City collects credit sales the month following the credit sale. What are Windy City’s total cash inflows […]
The cost of equity for a firm is: A) determined by directly observing the rate of return required by equity investors. B) based on estimates derived from financial models. C) equivalent to a leveraged firm’s cost of capital. D) equal to the risk-free rate of return plus the market risk premium. E) equal to the […]
The standard deduction is indexed to inflation. Indicate whether the statement is true or false ANSWER TRUE
The modified internal rate of return corrects which problem inherent in IRR? A) Adjustments for scale differences B) Difficulty in ranking projects C) Differing risk attributes of projects D) Incorporates the time value of money E) It allows for reinvestment of cash inflows from the project at the firm’s cost of capital. ANSWER […]
A project costs $1,000 today and is expected to produce cash inflows of $800 at the end of each of the next two years. If the firm’s cost of capital is 10%, what is the modified internal rate of return? Round answer to the nearest whole percent. A) 30% B) 23% C) 13% D) 21% […]
You will buy a lottery ticket. If you win, you have a choice of receiving $995,000 now or three equal end-of-year payments of $400,000. You should take the payments A) because $1,200,000 is greater than $995,000. B) if you earn 20% or more on your investments. C) if you earn 11% or more on your […]
An ordinary annuity assumes ________-of-period payments, while an annuity due assumes ________-of-period payments. A) end; beginning B) beginning; end C) end; middle D) beginning; middle ANSWER A
