Northwest Co. purchases an asset for $6,000. This asset qualifies as a seven-year recovery asset under MACRS. Benson has a tax rate of 30%. The seven-year expense percentages for years 1, 2, 3, 4, 5, and 6 are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, and 8.93%, respectively. If the asset is sold at the end of […]
Date: September 19th, 2020
Once the operations for a new project are up and running, we need to estimate the cash flow from ________. A) sunk costs B) flotation costs C) depreciation D) operations ANSWER Answer: D
Date: September 19th, 2020
We assume no ________ costs for a project if a competitor is also introducing a competing product. A) sunk B) buyback C) erosion D) corrosion ANSWER Answer: C
Date: September 19th, 2020
In general, the greater a firm’s current assets relative to its short-term obligations, the better able it will be to pay its bills as they come due. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Too much investment in current assets reduces firm’s profitability, whereas too little investment in current assets increases the risk of not being able to pay debts as they come due. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
To mitigate deadweight costs associated with the shareholder-management principal-agent conflict, some investors become major shareholders and attempt to influence management to act in the best interest of shareholders. This is an example of: a. a takeover. b. shareholder activism. c. packing the board. d. principal intervention. ANSWER B
Date: September 19th, 2020
A firm is said to be insolvent when its total assets is less than its total liabilities and stockholders’ equity. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
When computing the total cash outflow needed to start a project, we must include ________. A) any change in net income B) any change in working capital C) any change in dividends D) any change in earnings ANSWER Answer: B
Date: September 19th, 2020
Compute the present value of the tax shield generated when Smith Company issues $100 mn. in perpetual debt with an 8% coupon rate, and uses the proceeds to retire equity. The corporate tax rate is 34%. a. $2.72 mn. b. $8 mn. c. $34 mn. d. 272 mn. ANSWER C
Date: September 19th, 2020
Financial institutions (such as commercial banks and finance companies) play an important role in mitigating information asymmetry problems in financial markets because: a. they require a potential borrower to disclose confidential information about their project to the public before they are approved for a loan. b. they regularly receive private information from the firm about […]
Date: September 19th, 2020
