Firms are able to reduce financing costs or increase the funds available for expansion by maximizing the amount of funds tied up in working capital. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The advantage of straight-line depreciation over MACRS depreciation is that you can write off ________. A) more of your total capital costs B) your capital costs in fewer years C) a larger percentage of your capital costs earlier D) None of the above ANSWER Answer: D
Date: September 19th, 2020
The advantage of MACRS over straight-line depreciation is that you can write off more of your capital costs in the ________ years. A) middle B) last C) later D) earlier ANSWER Answer: D
Date: September 19th, 2020
A firm is considering purchasing two assets. Asset A will have a useful life of 12 years and cost $4 million; it will have installation costs of $300,000 and a salvage or residual value of $400,000. Asset B will have a useful life of 8 years and cost $3.5 million; it will have installation costs […]
Date: September 19th, 2020
The annual straight-line depreciation expense is the total value (cost plus installation) minus any anticipated salvage value divided by the number of years of service (life) of the machine. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
According to the finance literature related to informational asymmetry, one of the most important roles of an investment-banking firm (in terms of assisting a firm in issuing securities to the public) is to vouch for the value of the security, after it has obtained confidential information from the firm’s management about its business strategy. This […]
Date: September 19th, 2020
Termination is the process of “expiring” the cost of a long-term tangible asset over its useful life. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Depreciation is the process of “expiring” the cost of a long-term tangible asset over its useful life.
Date: September 19th, 2020
Continuing with the numbers from the previous question, compute new value of the firm’s levered equity, , after the following actions by the firm’s management: Management issues additional pure-discount debt which has a promised payment of X’=621 at T=3 and has the same priority as the firm’s original debt. The firm receives total proceeds of […]
Date: September 19th, 2020
Name and describe three issues that can affect the incremental cash flow of a new project. What will be an ideal response? ANSWER Answer: Examples of issues that can affect the incremental cash flow of a new project are: Sunk Costs, Opportunity Costs, Erosion Costs, Synergy Gains, Working Capital, Capital Expenditures, and Depreciation […]
Date: September 19th, 2020
A shift toward more fixed costs increases business risk, which in turn causes earnings before interest and taxes to increase by less for a given increase in sales. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
