Week 11 – Chapter 15, 16, 17, and 18 Quiz

Question 1
2 out of 2 points

Correct
Ningbo Shipping, which has an average tax rate of 40 percent, would like to estimate the after-tax cost of debt for a 15-year, 12 percent, $1,000 par value bond, selling at $950. Based on this information, the after-tax cost of debt is:

Answers:
7.7%.

12.0%.

12.8%.

15%.

Question 2
2 out of 2 points

Correct
If a firm has net sales of $400,000, annual cost of goods sold of $315,000, an inventory turnover of 4.5 times a year, and an accounts receivable turnover of five times a year, the combined investment in inventories and accounts receivable would be:

Answers:
$64,500

$92,000

$122,500

$150,000

Question 3
2 out of 2 points

Correct
The internal rate of return concept is best explained by which of the following?

Answers:
rate where NPV is equal to zero

point where initial investment has been returned

marginal cost of capital

average book value

Question 4
2 out of 2 points

Correct
Of the components shown below, which is least likely to be of value in calculating the cost of preferred stock?

Answers:
flotation costs per share

book value of a preferred share

dividends per share

market price per share

Question 5
2 out of 2 points

Correct
In the case of mutually exclusive projects:

Answers:
the financial manager is responsible for choosing the average of these alternatives since only one can be chosen; selecting one project requires the selection of the other.

they are to be evaluated based on their expected effect on shareholder wealth; all such projects that enhance shareholder wealth should be included in the firm’s capital budget.

the financial manager is responsible for choosing the best of these alternatives since only one can be chosen; selecting one project precludes the other from being undertaken.

they are to be evaluated based on their past effect on shareholder wealth; all such projects that enhance shareholder wealth should be included in the firm’s capital budget.

Question 6
2 out of 2 points

Correct
A decrease in contractual managers’ salaries will result in:

Answers:
an increase in the degree of financial leverage

a decrease in the degree of financial leverage

no change in the degree of financial leverage

an increase in operational leverage

Question 7
0 out of 2 points

Incorrect
Which of the following statements is correct?

Answers:
Capital budgeting analysis is not a framework for evaluating all business decisions; it is only a tool for the “financial” types.

Proper analysis will identify irrelevant cash flows and an appropriate discount rate to reflect the risk of the strategy and will compare the benefits and costs of the project without considering the time value of money.

Whether the investment is one in a business strategy, building a new warehouse, seeking fuel efficient methods of doing business, upgrading information technology systems, or investing in human resources, we should not try to quantify the benefits and cost of these choices in order to evaluate them properly.

To achieve success over time, a firm’s managers must identify and invest in projects that provide positive net present values to maximize shareholder wealth.

Question 8
2 out of 2 points

Correct
MIRR is a three-step process. Which of the following is not one of those steps.

Answers:
Find the present value (PV) of all cash outflows

Compute the future value (FV) of each cash inflow

Compute the present value (PV) of each cash inflow

Find the discount rate that equates the PV of the outflows and the terminal value

Question 9
0 out of 2 points

Incorrect
When a project’s net present value (NPV) exceeds zero, then:

Answers:
the project should be accepted

the project will be acceptable using the payback period method

the IRR should be calculated to ensure that the project’s IRR exceeds the cost of capital

the payback period is always less than one year

Question 10
2 out of 2 points

Correct
A (n) ________ in current liabilities ________ net working capital, thereby ________ the risk of technical insolvency.

Answers:
decrease; increases; increasing

decrease; decreases; reducing

increase; decreases; increasing

increase; increases; reducing

Question 11
2 out of 2 points

Correct
Your company owns land in a busy shopping district. If the chair of the company’s board of directors thinks they can build a plant on that land and that the land will incur no additional cost, the chair fails to take into account:

Answers:
capital expenditures

opportunity costs

sunk costs

depreciation

Question 12
2 out of 2 points

Correct
Which one of the following activities is not a major component of the operating cycle?

Answers:
manufacturing process

selling effort

collection period

asset investment decisions

Question 13
2 out of 2 points

Correct
Business firms hold cash and marketable securities for which of the following reasons or motives?

Answers:
transactions, precautionary, and goodwill motives

precautionary, speculative, and goodwill motives

transactions, precautionary, and speculative motives

precautionary, goodwill, and transactions motives

Question 14
0 out of 2 points

Incorrect
A commercial finance company:

Answers:
has a bank charter

may not discount accounts receivable

may make loans secured by chattel mortgages

none of the above

Question 15
0 out of 2 points

Incorrect
A company with a DCL of 12 and a DFL of 2 has a DOL of?

Answers:
24

14

6

3

Question 16
2 out of 2 points

Correct
All of the following statements is correct except

Answers:
The financial crisis and recession of 2007–2009 had strong effects on the ability of borrower firms to obtain short-term financing and for firms with surplus funds to invest in short-term instruments.

During the 2007-2009 financial crisis and recession, major spikes in the risk premium between commercial paper and T-bills indicate major stresses to the financial system—both for issuers and investors.

During the 2007-2009 financial crisis and recession, major spikes in the risk premium between commercial paper and T-bills indicate periods of investors fleeing investments of perceived risk (commercial paper) and placing funds in the safest assets (T-Bills).

During the 2007-2009 financial crisis and recession, major spikes in the risk premium between commercial paper and T-bills indicate periods of investors fleeing investments of perceived risk (T-Bills) and placing funds in the safest assets (corporate bonds).

Question 17
2 out of 2 points

Correct
Delays in processing incoming payments from customers by the receiving firm.

Answers:
Float

Transmission float

Processing float

Clearing float

Question 18
2 out of 2 points

Correct
Assume that Ningbo Steel borrows $1,000,000 for one year under a line of credit with a stated interest rate of 7.5 percent and a 15 percent compensating balance and that the firm keeps no money on deposit in its checking account. Based on this information, the effective annual interest rate on the loan is

Answers:
8.8%.

15.0%.

22.5%.

8.2%.

Question 19
2 out of 2 points

Correct
Factoring accounts receivable has all of the following characteristics except:

Answers:
the borrower sells the receivable

accounts receivable balances are removed from the balance sheet

the customer payment is made to the factor

the firm makes the collection efforts

Question 20
2 out of 2 points

Correct
If a firm has current earnings before interest and taxes of $100,000 and interest expense of $10,000, its degree of financial leverage would be:

Answers:
10

1.11

.10

1.10