Northwest Outdoor Store will have cash receipts of $83,000 in December and cash disbursements of $78,000 for this month. If its beginning cash is $5,000 and its desired reserve is $4,000, what will its excess be for December? A) There is no excess but a shortfall. B) $6,000 C) $9,000 D) $13,000 ANSWER […]
Date: September 19th, 2020
The cost of equity increases with increasing financial leverage in order to compensate the stockholders for the higher degree of financial risk. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Under an aggressive funding strategy, a firm funds its seasonal requirements with short-term debt and its permanent requirements with long-term debt. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The price of GE stock is $38, and its latest annual earnings per share was $1.37 . If the appropriate discount rate for GE stock is rE=10%, what is the present value of GE’s profitable future investment opportunities (PVPFIO)? a. $14.30 b. $19.30 c. $24.30 d. $34.30 FORMULA: PVPFIO=V-Et/r ANSWER C
Date: September 19th, 2020
Your firm has $4,000,000 available for investment in capital projects. Which combination of projects is the best, given this budget constraint? Project Initial Investment NPV A $1,000,000 $150,000 B $500,000 $200,000 C $1,500,000 $175,000 D $1,750,000 $135,000 A) A, B, C B) A, B, D C) A, C, D D) B, C, D […]
Date: September 19th, 2020
Unused capital budget funds are assumed to earn the same rate of return as the average cost of capital for the firm. In other words they may be invested in $0.0 NPV projects. (Or, alternatively, excess funds may be returned to creditors and shareholders.) Indicate whether the statement is true or false. ANSWER […]
Date: September 19th, 2020
On a practical basis a, manager should always accept all positive NPV projects even if this means exceeding a limited budget. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: On a practical basis, a manager should accept the combination of positive NPV projects that maximizes the total NPV while […]
Date: September 19th, 2020
An increase in fixed operating and financial cost results in an increase in risk, since the firm will have to achieve a higher level of sales just to break even. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
If a firm’s sales are constant, its investment in operating assets should also be constant, and the firm will have only a permanent funding requirement. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
With an unlimited amount of funds, a firm could accept all positive NPV projects. However, with limited budgets, managers are forced to accept some positive NPV projects while rejecting others. What overall financial rule should managers follow when choosing the portfolio of projects to accept? Why? What will be an ideal response? ANSWER […]
Date: September 19th, 2020
