If all projects are assigned the same discount rate for purposes of evaluation, which of the following could occur? A) Low-risk projects could be rejected when in fact they are good investment choices. B) High-risk projects could be accepted when in fact they are poor investment choices. C) High-risk projects could be accepted when in […]
Takelmer Industries has a different WACC for each of three types of projects. Low-risk projects have a WACC of 8.00%, average-risk projects a WACC of 10.00%, and high-risk projects a WACC of 12%. Which of the following projects do you recommend the firm accept? Project Level of Risk IRR A Low 9.50% B Average 8.50% […]
The ________ of an asset or liability is its cost carried on the balance sheet. A) market value B) book value C) hybrid value D) theoretical value ANSWER Answer: B
The cash conversion cycle is the total number of days in the operating cycle less the average payment period for inputs to production. Indicate whether the statement is true or false ANSWER TRUE
By efficiently managing a firm’s operating and cash conversion cycles, the financial manager can maintain a high level of cash investment and thereby contribute toward maximization of share value. Indicate whether the statement is true or false ANSWER FALSE
When possible, investors and analysts prefer to use book value to market value for estimating the WACC. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: When possible, investors and analysts prefer to use MARKET value to BOOK value for estimating the WACC.
A typical involves changing some aspect the firm’s internal corporate governance, such as the structure or composition of a firm’s board of directors. a. proxy contest b. shareholder-initiated proposal c. initiation procedure d. takeover contest ANSWER B
The formula for the adjusted WACC = × Rd + × Rps + × Re × (1 – Tc). Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: The formula for the adjusted WACC = × Rd × (1 – Tc) + × Rps + × Re.
The following information comes from the balance sheet of Roamer Enterprises. The value of common stock is $60,000, retained earnings equal $40,000, total common equity equals $100,000, preferred stock has a value of $10,000 and long-term debt totals $120,000. For purposes of estimating the firm’s WACC, what are the weights of long-term debt, preferred stock, […]
To estimate the market value of a publicly traded bond that has a broad market with frequent trading, it is usually best to multiply the number of bonds outstanding by the bond par value. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: To estimate the market value of a […]
