The current value of levered firm ABC, Inc is $100 million. Its capital structure consists of equity and pure discount debt on which a payment of $80 mn. is due in 5 years. The risk-free rate is 5%. Using the Black-Scholes Option Pricing Model, the value of the firm’s equity is (i) if =20%, and […]
Date: September 19th, 2020
There are two main reasons why we need to deal with depreciation. Which of the below is one of these reasons? A) The gain but not the loss when a capital asset is disposed B) The loss but not the gain when a capital asset is disposed C) The tax flow implications from the OCF […]
Date: September 19th, 2020
________ is the process of “expiring” the cost of a long-term tangible asset over its useful life. A) Expiration B) Depreciation C) Economic recovery D) Salvaging ANSWER Answer: B
Date: September 19th, 2020
When considering fixed operating cost increases, a financial manager must weigh the increased financial risk associated with greater operating leverage against the expected increase in returns. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
A terminal warehouse is ________. A) a warehouse located beyond city limits for storing the merchandise B) a warehouse on the borrower’s premises to store the merchandise C) a central warehouse storing the merchandise of various customers D) a warehouse located near the lender’s home for storing the merchandise ANSWER C
Date: September 19th, 2020
Which of the methods below is a way to allocate depreciation? A) The allocation each year is the amount of cost as determined by the actual estimated usage for that year. B) Use the government-mandated accelerated depreciation system, which depreciates the capital asset at the minimum accelerated amount allowed each year. C) The allocation each […]
Date: September 19th, 2020
If the company had a large depreciation expense during the period, the income statement could show a loss for the period, even though the cash account may have grown during the same period. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Effective capital structure decisions can lower the cost of capital, resulting in higher NPVs and more acceptable projects, thereby increasing the value of a firm. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Profits can be defined as an accounting measure of performance during a specific period of time. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Appropriate collateral for a loan secured under a floating inventory lien is ________. A) cars B) granite slabs C) air conditioners D) paper clips ANSWER D
Date: September 19th, 2020
