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Ans: True
Q. "Real"
”Real" activities create cash for a business, while "financial"
”financial" activities distribute cash within the
company.
Ans:
Ans: True
True
Q. GoodTimes, Inc. has asset turnover of 0.5 times, a net profit margin of 10% and average total assets
of $100, what is its net income (assuming no unusal items)?
Ans: (c) $5
Ans: True
Q. Which of the following expresses the value of a levered firm (VL) in the Static Tradeoff model of
(VL)
optimal capital structure? [Note: VU denotes the value of the unlevered firm, CFD denotes expected
costs of financial distress; and PV denotes present value.]
VLL = V
Ans: (c) V VUU + PV(Tax Shield) - PV(CFD)
Q. A company has net working capital of $0, current liabilities of $25 and total assets equal to $100.
What is its current ratio?
Ans: (b) Maximizing firm value and minimizing the cost of capital
Ans: True
Q. Share repurchases and dividend payouts are most likely to differ in their
Ans: True
Q. A firm is all equity financed, with 10,000 outstanding shares with a market value of $20 each. Its net
income was $30,000, and it decides to pay a cash dividend of $2,000. Calculate the value of each share
after the dividend payout.
Ans: (c) risky; the shareholders have little to lose and might win if successful
Q. The Static Tradeoff Theory of capital structure implies that firms with higher business risk should have
lower leverage.
Ans: True
Q. The sustainable growth rate is the maximum growth rate achievable over an extended period of time.
Ans: False
Ans: True
Ans: False
Q. What is the present value of a growing perpetuity that makes a payment of $100 in the first year,
which thereafter grows at 3% per year? Apply a discount rate of 7%.
Q. You are trying to decide whether to accept or reject a one-year project. The project is estimated to
generate $5,000 in incremental gross profit, which includes $200 in depreciation. Incremental SG&A
expense is $400. At a 35% tax rate, the after-tax incremental cash flow is:
Q. The higher the opportunity cost of capital the higher the NPV.
Ans: False
Q. If you invest $2,000 today for three years at 5% interest paid annually, you will earn a total of
$_______
$ in interest. Assume you re-invest all interest.
Ans: False
Ans: True
Q. Which of the following are sources of funds in a statement of sources and uses?
Ans: False
Q. The cost of capital for an all-equity-financed company that pays no dividends is zero.
Ans: False
Ans: (a) Projected total assets - (projected liabilities + projected net worth)
Ans: True
Q. A company has net income of $20,000 and a tax rate of 35 percent, its totall debt is $25,000, with
principal payments of $5,000 due at the end of each year and an annual interest rate of 8%. What will be
the company's interest tax shield in the upcoming year?
Q. Grandma's Applesauce, Inc. has a 0.60 probability of a good year with operating cash flow of $50,000;
and 0.40 probability of a bad year with operating cash flow of $30,000. The Company has a debt of
$35,000 with 8 operations, and a 0% tax rate, which of the following is true?
Q. The cash cycle measures the days required to produce finished goods or delivered services.
Ans: False
Q. Which of the following actions, all else being equal, will increase the sustainable growth rate?
Ans: True
Q. Analysis of a company's financial statements: Below are simplified versions of the balance sheet and
income statements for Toys by Tom, Inc. Use this information to answer the following question.
If sales in 2003 were $10,000, what is the compounded average growth rate?
Q. A project with an internal rate of return greater than the cost of capital should always be accepted.
Ans: False