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
The expected returns on the debt and equity of a levered firm are rE=15% and rD=7%, and the current market value of the debt and equity are E=66 and D=44, respectively. What is the firm’s weighted average cost of capital (WACC)? a. 7.8% b. 9.8% c. 11.8% d. 13.8% FORMULA: WACC=rD(D/V)+rLE(E/V) ANSWER C
Date: September 19th, 2020
When the Profitability Index (PI) is greater than 1, the benefits exceed the costs. Indicate whether the statement is true or false. ANSWER Answer: TRUE Explanation: Ranking projects by PI with different costs levels CAN STILL LEAD to selection problems.
Date: September 19th, 2020
Which method is designed to give the dollar amount of return for every $1.00 invested in the project in terms of current dollars? A) Profitability Index Method B) Internal Rate of Return Method C) Net Present Value Method D) Discounted Payback Period Method ANSWER Answer: A
Date: September 19th, 2020
A firm is considering four projects with the following PIs, NPVs, and Costs. Project A: PI of 1.3, NPV of $3,600, and cost of $12,000; Project B: PI of 1.4, NPV of $5,600, and cost of $14,000; Project C: PI of 1.5, NPV of $5,000, and cost of $10,000; Project D: PI of 2.1, NPV […]
Date: September 19th, 2020
