Q2P1) There are several disadvantages to the payback method, among them: (Points: 4) payback ignores the time value of money.


Q2P1)There are several disadvantages to the payback method, among them: (Points: 4)payback ignores the time value of money.payback can be used in conjunction with time adjusted methods of evaluation.payback is easy to use and to understand.none of the above is a disadvantage.Q4P1)(TCO 3 and 4) Portman’s is considering adding a new product to its lineup. This product is expected to generate sales for three years, after which time the product will be discontinued. What is the project’s net present value, if the firm wants to earn a 12 percent rate of return? 3$40,340 (Points: 4)$7,611.08$6,795.61$1,084.41$4,862.07$9,682.26Q5P1)(TCO 4) The Inventive Co. is considering a new project. This project requires an initial cash investment of $70,000. The project will generate cash inflows of $10,500 in the first year. Then, the project will do nothing for two years, after which time cash inflows of $25,000 will be generated for four years. How long will it take the Inventive Co. to recover its $70,000 investment? (Points: 4)5.16 years5.38 years6.11 years6.62 years6.94 yearsQ6P1)(TCO 4) The postponement of a project until conditions are more favorable: (Points: 4)is not a valuable referred to as the option to extend.could cause a negative net present value project to become a positive net present value project.will generally cause the internal rate of return for a project to decline.Q7P1)(TCO 4) The situation that exists when the units within a business are allotted a fixed amount of money for capital budgeting, is referred to as: (Points: 4)soft rationing.hard rationing.unit capital rationing.allocated planning.strategic planning.Q9P1) (TCO 4) Assume Company X plans to invest $60,000 in new computers. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the first year depreciation amount under MACRS? (Points: 4)$12,000$8,575$19,800None of the aboveQ11P1)(TCO 8) Which of the following statements is true regarding systematic risk? (Points: 4)is diversifiableis the total risk associated with surprise eventsit is not project or firm specificit is measured by standard deviationQ13P1)The stock of Uptown Men’s Wear is expected to produce the following returns, given the various states of the economy. What is the expected return on this stock?Rate ofReturn-.10.14.22(Points: 4)9.6 percent10.4 percent12.8 percent13.6 percent15.3 percentQ1P2)Weak form market efficiency states that the value of a security is based on: (Points: 4)all public and private information.historical information only.all publicly available information.all publicly available information, plus any data that can be gathered from insider trading.random information with no clear distinction as to the source of that information.Q5P2)Which of the following is not true regarding the cost of retained earnings? (Points: 4)it is relevant to the WACCdoes not require new funds to be raisedhas associated flotation costshas a cost, which is the opportunity cost associated with stockholder fundsQ6P2)A project has the following cash flows. What is the internal rate of return? 3$75,300 (Points: 4)less than 5%between 5 and 15%between 15 and 18%more than 21%Q7P2)(TCO 5, 6 and 7) Which one of the following is a correct statement regarding a firm’s weighted average cost of capital (WACC)? (Points: 4)the WACC can be used as the required return for all new projects.the WACC of a leveraged firm will decrease when the tax rate increase in the market risk premium will tend to decrease a firm’s WACC.the WACC is a starting point for the subjective approach to setting discount rates.a reduction in the risk level of a firm will tend to increase the firm’s WACC.Q13P2)(TCO 2) All else constant, a decrease in the accounts receivable period will: (Points: 4)lengthen the accounts payable period.shorten the inventory period.lengthen the operating cycle.shorten the cash cycle.shorten the accounts payable period.Q14P2)The Yellow Box has the following estimated quarterly sales for next year. The accounts receivable period is 45 days. What is the expected accounts receivable balance at the end of the third quarter? Assume each month has 30 days. Q4$1,700 (Points: 4)$600$750$900$1,050$1,200Q15P2)Why is maximization of the current value per share a more appropriate financial management goal than profit maximization? (Points: 4)Because by maximizing the current stock value, you also maximize the company’s profit for the year.Because this criterion is non-ambiguous.Because financial managers always act in the best interest of shareholders.Because it creates short-term gains in the financial statements.Q1P3)Which one of the following activities best exemplify working capital management? (Points: 4)Sale long-term bonds to raise funds for a new machine.Determine the return of a potential project.Calculate the cash flows for a project.Manage payments to suppliers.Q3P3) Use the following tax table to answer this question:Tax Rate15%25%34%39%34%John has taxable income of $389,745. What is John’s average tax rate? (Points: 4)33%34%36%37%38%Q6P3)You want to have $15,000 for a down payment on a house five years from now. If you can earn 13 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal? (Points: 4)$7,858.11$8,141.40$9,803.58$12,464.28$14,213.25Q8P3)John borrowed $5,500 four years ago at an annual interest rate of 10 percent. The loan term is seven years. Since he borrowed the money, Sonny has been making annual payments of $550 to the bank. Which type of loan does John have? (Points: 4)interest-onlypure discountcompoundedamortizedcomplexQ9P3)Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond if the YTM is 16 percent? Assume annual payments. (Points: 4)$1315$1300$756$100Q10P3)Which of the following is true regarding the primary market? (Points: 4)it is the market where the largest number of shares are traded on a daily is the market in which the largest number of issues are is the market with the largest number of is the market where new securities are is the market where shareholders trade most frequently with each other.Q12P3) (TCO 3) SmithKline Company’s bonds are currently selling for $1,157.75 per $1000 par-value bond. The bonds have a 10 percent coupon rate and will mature in 10 years. What is the approximate yield to maturity? (Points: 4)6.96%7.69%11.0%12.1%Q15P3)A sinking fund is an account managed by a bond trustee for the sole purpose of: (Points: 4)paying interest payments on a semi-annual basis.redeeming bonds early.repaying the face value at maturity.paying the expenses required to reissue outstanding bonds.paying the “balloon payment” at maturity.Q2P4)The term debenture refers to (Points: 4)long-term, secured debt.long-term, unsecured debt.the after-acquired property clause.a document covering the specific terms of the debt issue.Company A has a bond outstanding with $90 annual interest payment, a market price of $820 and a maturity date in five years. Assume the par value to be $1,000. What is the bond’s coupon rate and current yield, respectively? (Points: 4)11% and 9%9% and 11%9% and 14%Cannot be determinedNone of the above4. (TCO 2) Which of the following does not reduce collection float? (Points: 4)consolidate all lockboxes into one lockbox, located near the home office. consolidate all lockboxes into one lockbox, located far from the home office. make sure all checks it receives are properly dated and signed.utilize the benefits of the Check Clearing Act for the 21st Century.5. (TCO 2) Storage and tracking costs, insurance and taxes, and losses due to theft are examples of: (Points: 4)Inventory depletion costsSunk costsInventory costsNone of the above6. (TCO 1) Recent announcements of massive layoffs have increased stock prices for certain companies. Critics argue that this reaction encourages companies to fire employees. Do you agree or disagree? (Points: 10)7. (TCO 4) What is an opportunity cost? Provide two real-life examples of opportunity costs for a project. Should opportunity costs be included in the project analysis process? Why or why not? Explain your rationale. (Points: 10)8. (TCO 8) What is the difference between business risk and financial risk? If Company A has a higher business risk than Company B, should its cost of capital be higher? Why or why not? Explain your rationale. (Points: 10) 10.Do you believe that it is appropriate for some industries to be more leveraged than others? Explain your rationale. (Points: 10)