Dakota, Inc. is currently considering an eight-year project that has an initial outlay or cost of $140,000. The cash inflows from its project for years 1 through 8 are the same at $35,000. Dakota has a discount rate of 12%. Because there is a shortage of funds to finance all good projects, Dakota wants to […]
Date: September 19th, 2020
The primary source of secured short-term loans to businesses are ________. A) commercial banks and commercial finance companies B) lines of credit and revolving lines of credit C) commercial paper dealers and investment bankers D) life insurance companies and government securities brokers ANSWER A
Date: September 19th, 2020
Transaction costs and personal taxes may affect investors’ ability to undertake arbitrage. Also, a firm’s earnings are taxed, and interest payments are deductible while dividends are not. These are examples of the violation of which of the assumptions of an ideal capital market? a. Capital Markets are frictionless b. Homogeneous expectations c. Atomistic competition d. […]
Date: September 19th, 2020
Project A has an NPV of $20,000 and a PI of 1.2. Project B has an NPV of $10,000 and a PI of 1.3. Both projects have equal lives. Which project should be preferred if we are NOT concerned with capital rationing (that is, we are NOT concerned with being short of funds)? A) We […]
Date: September 19th, 2020
The present value of the benefits and costs needed to calculate Profitability Index (PI) is the same information one finds when computing the NPV. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Pledges of accounts receivable are made on ________ basis, respectively. A) a nonrecourse and a notification B) a nonnotification and a notification C) a notification and a recourse D) a notification and a nonrecourse ANSWER B
Date: September 19th, 2020
In general, low times interest earned ratio and fixed-payment coverage ratio are associated with a high degree of financial leverage. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Variation in personal tax rates and transaction costs across both investors and securities may differentially affect the values of corporate securities. Also a firm faces substantial transaction costs in issuing securities, which may inhibit its ability to undertake otherwise profitable capital investments. These are examples of the violation of which of the assumptions of an […]
Date: September 19th, 2020
________ is a modification of NPV to produce the ratio of the present value of the benefits (future cash inflow) to the present value of the costs (initial investment). A) Modified Internal Rate of Return Method B) Profitability Index (PI) C) Payback Period Method D) Discounted Cash Flow Method ANSWER Answer: B
Date: September 19th, 2020
Birdman, Inc. is currently considering an eight-year project that has an initial outlay or cost of $80,000. The future cash inflows from its project for years 1 through 8 are the same at $30,000. Birdman has a discount rate of 13%. Because of concerns about funds being short to finance all good projects, Birdman wants […]
Date: September 19th, 2020
