A firm can spend its reported profits. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: A firm can only spend cash. Profits are an accounting measure of performance during a specific period of time.
Date: September 19th, 2020
The revenue is $24,000, the cost of goods sold is $12,000, other expenses (from selling and administration) are $6,000, and depreciation is $2,000. What is the EBIT? A) $12,000 B) $6,000 C) $4,000 D) $2,000 ANSWER Answer: C Explanation: C) EBIT = Revenue – Cost of Goods Sold – Other Expenses – Depreciation […]
Date: September 19th, 2020
To get the operating cash flow, given the net income, we add back ________. A) cost of goods sold B) depreciation C) taxes D) EBIT ANSWER Answer: B
Date: September 19th, 2020
Lenders recognize that by having an interest in collateral they can reduce losses if the borrowing firm defaults, ________. A) and the presence of collateral reduces the risk of default B) but the presence of collateral has no impact on the risk of default C) therefore lenders prefer to lend to customers from whom they […]
Date: September 19th, 2020
According to an academic survey of large and small U.S. businesses, the IRR method of capital budgeting is slightly preferred over NPV by the survey respondents. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
The discounted payback method, net present value method (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI) are all consistent with the time value of money. Indicate whether the statement is true or false. ANSWER Answer: TRUE Explanation: The IRR method is used by 75.61% of […]
Date: September 19th, 2020
Calculating IRR, NPV, or MIRR is easy and efficient using a spreadsheet once you know the relevant cash flow, the timing of the cash flow, the cost of capital, and the reinvestment rate. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
A floating inventory lien is a lender’s claim on the borrower’s general inventory as collateral for a secured loan. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Describe three of the six decision models used in capital budgeting decision-making and briefly evaluate their effectiveness. What will be an ideal response? ANSWER Answer: Payback Period is simple and fast but economically unsound. It ignores all cash flow after the cutoff date and it ignores the time value of money. Discounted Payback […]
Date: September 19th, 2020
An individual investor has either sufficient wealth or sufficient borrowing capacity to purchase or sell a substantial proportion of a given firm’s securities, so that investor’s trades may affect the market value of these securities. This is an example of the violation of which of the assumptions of an ideal capital market? a. Capital Markets […]
Date: September 19th, 2020
