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Cost Per Output/Cost Per Outcome

Business / Economics

5/3/12

Opening Offer: $5.00
Posted by: rkrepp
Date Posted: 5/3/12 7:54 AM
Due Date: 12/31/69

CheckPoint: Cost Per Output/Cost Per Outcome Response

 

Why are cost per output and cost per outcome calculations valuable to a human service agency? What might happen if a human service agency did not determine the cost per output/cost per outcome? 

ECO 365 Final Exam

Business / Economics

5/3/12

Opening Offer: $25.00
Posted by: argument
Date Posted: 5/3/12 8:13 AM
Due Date: 12/31/69

1) An economist who is studying the relationship between the money supply, interest rates, and the rate of inflation is engaged in

A. microeconomic research

B. macroeconomic research

C. theoretical research, because there is no data on these variables

D. empirical research, because there is no economic theory related to these variables

2) A basic difference between microeconomics and macroeconomics is that microeconomics

A. focuses on the choices of individual consumers, while macroeconomics considers the behavior of large businesses

B. focuses on financial reporting by individuals, while macroeconomics focuses on financial reporting by large firms

C. examines the choices made by individual participants in an economy, while macroeconomics considers the economy's overall performance

D. focuses on national markets, while macroeconomics concentrates on international markets

3) The distinction between supply and the quantity supplied is best made by saying that

A. the quantity supplied is represented graphically by a curve and supply as a point on that curve associated with a particular price

B. supply is represented graphically by a curve and the quantity supplied as a point on that curve associated with a particular price

C. the quantity supplied is in direct relation with prices, whereas supply is in inverse relation

D. the quantity supplied is in inverse relation with prices, whereas supply is in direct relation

4) After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside the Organization of Petroleum Exporting Countries (OPEC). OPEC, during this time, was unable to restrain output among members in its effort to lift oil prices. What best describes these events?

A. The rise in demand shifted the demand for oil to the right. OPEC actions shifted the demand for oil back to the left.

B. The rise in demand shifted the demand for oil to the right. As price rose, the supply of oil also rose.

C. The rise in demand shifted the demand for oil to the right. As price rose, the quantity of oil supplied rose.

D. The rise in demand reflects a movement down along the demand curve as supply shifted to the right when suppliers produced more oil.

5) Price elasticity of demand is the:

A. change in the quantity of a good demanded divided by the change in the price of that good

B. change in the price of a good divided by the change in the quantity of that good demanded

C. percentage change in price of that good divided by the percentage change in the quantity of that good demanded

D. percentage change in quantity demanded of a good divided by the percentage change in the price of that good

6) If average movie ticket prices rise by about 5 percent and attendance falls by about 2 percent, other things being equal, the elasticity of demand for movie tickets is about:

A. 0.0

B. 0.4

C. 0.6

D. 2.5

7) When labor is the variable input, the average product equals the

A. marginal product divided by the number of workers

B. marginal product multiplied by the number of workers

C. number of workers divided by the quantity of output

D. quantity of output divided by the number of workers

8) The increase in output obtained by hiring an additional worker is known as

A. the average product

B. the marginal product

C. the total product

D. value added

9) Which of the following is the best example of a long-run decision?

A. An automobile manufacturing company is considering whether or not to invest in robotic equipment to develop a more cost-effective production technique.

B. An automobile manufacturing company is considering whether or not to expand its existing workforce, while keeping the same factory and equipment.

C. A business consulting firm is considering whether or not to hire interns to assist with research and data processing.

D. A business consulting firm is considering whether or not to add new computers while maintaining the same number of employees.

10) Other things being equal, when average productivity falls,

A. average fixed cost must rise

B. marginal cost must rise

C. average total cost must rise

D. average variable cost must rise

11) According to economist Colin Camerer of the California Institute of Technology, many New York taxi drivers decide when to finish work by setting an income goal for themselves. If this is true, then on busy days when the effective hourly wage is higher, taxi drivers will

A. work the same number of hours as they will on slower days

B. work fewer hours than they will on slower days

C. work more hours than they will on slower days

D. not work any hours

12) A firm's demand for labor is derived from the

A. opportunity costs associated with labor and leisure

B. desires and needs of the entrepreneur

C. cost of labor inputs

D. demand for its output

13) Owen runs a delivery business and currently employs three drivers. He owns three vans that employees use to make deliveries, but he is considering hiring a fourth driver. If he hires a fourth driver, he can schedule breaks and lunch hours so all three vans are in constant use, allowing him to increase deliveries per day from 60 to 75. This will cost an additional $75 per day to hire the fourth driver. The marginal cost per delivery of increasing output beyond 60 deliveries per day

A. is $0 because Owen does not have to purchase another van

B. is $5

C. is $75

D. cannot be calculated without knowing Owen's total fixed costs

14) Expected economic profit per unit is equal to

A. expected price

B. expected average total cost

C. the difference between expected average price and expected average total cost

D. the difference between expected total revenue and expected total cost

15) If a firm in a perfectly competitive market experiences a technological breakthrough,

A. other firms would find out about it eventually

B. other firms would find out about it immediately

C. other firms would not find out about it

D. some firms would find out about it, but others would not

16) A significant difference between monopoly and perfect competition is that

A. free entry and exit is possible in a monopolized industry, but impossible in a competitive industry

B. competitive firms control market supply, but monopolies do not

C. the monopolist's demand curve is the industry demand curve, while the competitive firm's demand curve is perfectly elastic

D. profits are driven to zero in a monopolized industry, but may be positive in a competitive industry.

17) A monopoly firm is different from a competitive firm in that

A. there are many substitutes for a monopolist's product while there are no substitutes for a competitive firm's product

B. a monopolist's demand curve is perfectly inelastic while a competitive firm's demand curve is perfectly elastic

C. a monopolist can influence market price while a competitive firm cannot

D. a competitive firm has a U-shaped average cost curve while a monopolist does not

18) The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a

A. horizontal demand curve and price equals marginal cost in equilibrium

B. horizontal demand curve and price exceeds marginal cost in equilibrium

C. downward-sloping demand curve and price equals marginal cost in equilibrium

D. downward-sloping demand curve and price exceeds marginal cost in equilibrium

19) As long as marginal cost is below marginal revenue, a perfectly competitive firm should

A. increase production

B. hold production constant

C. decrease production

D. reconsider past production decisions

20) Because a monopolistic competitor has some monopoly power, advertising to increase that monopoly power makes sense as long as the marginal

A. benefit of advertising is positive

B. cost of advertising is positive

C. benefit of advertising exceeds the marginal cost of advertising

D. cost of advertising exceeds the marginal benefit of advertising

21) In the Flint Hills area of Kansas, proposals to build wind turbines to generate electricity have pitted environmentalist against environmentalist. Members of the Kansas Sierra Club support the turbines as a way to reduce fossil fuel usage, while local chapters of the Nature Conservancy say they will befoul the landscape. The Sierra Club argues that wind turbines

A. are a source of negative externalities

B. reduce negative externalities elsewhere in the economy

C. create a free-rider problem

D. are a way of solving a free-rider problem

22) When negative externalities are present, market failure often occurs because

A the marginal external cost resulting from the activity is not reflected in the market price

B. the marginal external cost resulting from the activity is reflected in the market price

C. the existence of imports from foreign countries takes jobs and income away from U.S. citizen

D. consumers will consume the good at a level where their individual marginal benefits exceed the marginal costs borne by the firm producing the good

23) A merger between a textile mill and a clothing manufacturing company would be considered a

A. horizontal merger

B. vertical merger

C. conglomerate merger

D. diagonal merger

24) A merger between a baby food company and a life insurance company would be considered a

A. horizontal merger

B. vertical merger

C. conglomerate merger

D. diagonal merger

25) From the point of view of consumer and producer surplus, what problem may be created when a country subsidizes the cost of energy to consumers to help alleviate the burden of higher energy costs?

A. It hurts the poor and benefits the rich.

B. It leads to less fuel being used than the amount that maximizes consumer surplus.

C. It encourages the consumption of too much fuel at the expense of other goods.

D. It has no effect; consumers gain a surplus, but taxpayers lose the same amount because they must finance the subsidy.

26) Suppose people freely choose to spend 40 percent of their income on health care, but the government decides to tax 40 percent of a person's income to provide the same level of coverage as before. What can be said about deadweight loss in each case?

A. Taxing income results in deadweight loss, while purchasing health care on one's own does not result in deadweight loss.

B. Taxing income results in less deadweight loss, because government knows better what health care coverage is good for society.

C. There is no difference because the goods are purchased in the market in either case.

D. There is no difference because the total spending remains the same and the health care purchased remains the same.

27) The U.S. textile industry is relatively small because the US imports most of its clothing. A clear result of the importation of clothing is

A. there is less variety available than there would be without imports

B. the quality of clothing is lower than it would be without imports

C. the price of clothing is higher than it would be without imports

D. the price of clothing is lower than it would be without imports

28) Countries can expect to gain from international trade as long as they

A. keep production diversified

B. specialize according to their comparative advantage

C. produce only those goods for which they have a relatively high opportunity cost

D. use trade restrictions to reduce competition for domestic producers

29) Which of the following is an example of the law of one price?

A. Exchange rates tend to have equivalent values. For example, one Italian lire equals one U.S. dollar.

B. Because people have essentially the same basic needs wherever they live, they tend to buy the same bundle of goods.

C. Because wages are so much lower in China, eventually all U.S. jobs will be outsourced to China, leaving the US to import all goods at one price.

D. Because their countries have similar institutions, the price paid for a computer in Germany and the United States are about the same when converted into the same currency.

30) The fact that U.S. managers' salaries are substantially greater than those of comparable managers in Japan may be related to

A. an increase in the demand for CEOs

B. an increase in the supply of CEOs

C. the comparatively greater competitive markets in Japan

D. the greater number of public goods provided in the United States

FIN 534 Quiz 1 Week 1

Business / Economics

5/4/12

Opening Offer: $12.00
Posted by: argument
Date Posted: 5/4/12 4:39 PM
Due Date: 12/31/69

Question 1
You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction?

1) This is an example of an exchange of physical assets.
2) This is an example of a primary market transaction.
3) This is an example of a direct transfer of capital.
4) This is an example of a money market transaction.
5) This is an example of a derivatives market transaction.

Question 2
Which of the following statements is CORRECT?

1) While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties
2) A liquid security is a security whose value is derived from the price of some other "underlying" asset
3) Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks.
4) Money markets are markets for long-term debt and common stocks.
5) The NYSE operates as an auction market, whereas the Nasdaq is a dealer market

Question 3
Which of the following statements is CORRECT?

1) The NYSE does not exist as a physical location; rather it represents a loose collection of
dealers who trade stock electronically.
2) An example of a primary market transaction would be your uncle transferring 100 shares of
Wal-Mart stock to you as a birthday gift.
3) Capital market instruments include both long-term debt and common stocks.
4) If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in
Los Angeles, this would be a primary market transaction.
5) While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

Question 4
Which of the following statements is CORRECT?

1) It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship
2) Corporate shareholders are exposed to unlimited liability.
3) Corporations generally face fewer regulations than sole proprietorships.
4) Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation.
5) There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small
Question 5
Which of the following statements is CORRECT?

1) One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners
2) There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of new asset investments a firm makes
3) Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns
4) Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns
5) Relative to sole proprietorships, corporations generally face fewer regulations, and this makes it easier for corporations to raise capital

Question 6
Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

1) Prices and interest rates would both rise.
2) Prices would rise and interest rates would decline.
3) Prices and interest rates would both decline.
4) There would be no changes in either prices or interest rates.
5) Prices would decline and interest rates would rise.

Question 7
Which of the following statements is CORRECT?

1) Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies, including the Securities and Exchange Administration, even if they are not publicly owned
2) In a regular partnership, liability for the firm's debts is limited to the amount a particular partner has invested in the business
3) A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company
4) Partnerships have difficulty attracting capital in part because of their unlimited liability, the lack of impermanence of the organization, and difficulty in transferring ownership
5) A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation

Question 8
Which of the following statements is CORRECT?

1) In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business
2) Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests
3) A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company
4) In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business. Also, the limited partners are individually responsible, on a pro rata basis, for the firm's debts in the event of bankruptcy.
5) A major disadvantage of all partnerships relative to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself

Question 9
Which of the following statements is CORRECT?

1) If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction.
2) If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.
3) The NYSE is an example of an over-the-counter market.
4) Only institutions, and not individuals, can engage in derivative market transactions.
5) As they are generally defined, money market transactions involve debt securities with maturities of less than one year

Question 10
Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

1) Households reduce their consumption and increase their savings
2) The Federal Reserve decides to try to stimulate the economy.
3) There is a decrease in expected inflation
4) The economy falls into a recession
5) Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs

Question 11
Which of the following statements is CORRECT?

1) Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States
2) Hedge funds have more in common with commercial banks than with any other type of financial institution
3) Hedge funds have more in common with investment banks than with any other type of financial institution
4) Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia
5) The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator

Question 12
Which of the following statements is CORRECT?

1) The New York Stock Exchange is an auction market with a physical location
2) Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks
3) If an investor sells shares of stock through a broker, then this would be a primary market transaction.
4) Consumer automobile loans are evidenced by legal documents called "promissory notes," and these individual notes are traded in the money market
5) Consumer automobile loans are evidenced by legal documents called "promissory notes," and these individual notes are traded in the money market

Question 13
Which of the following statements is CORRECT?

1) The corporate bylaws are a standard set of rules established by the state of incorporation. These rules are identical for all corporations in the state, and their purpose is to ensure that the firm's managers run the firm in accordance with state laws
2) The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to ensure that the firm's managers run the firm in accordance with state laws. Procedures for electing corporate directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter.
3) Companies must establish a home office, or domicile, in a particular state, and that state must be the one in which most of their business (sales, manufacturing, and so forth) is conducted
4) Attorney fees are generally involved when a company develops its charter and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have either a charter or bylaws
5) The corporate charter is concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors

Question 14
Which of the following statements is CORRECT?

1) If expected inflation increases, interest rates are likely to increase
2) If individuals in general increase the percentage of their income that they save, interest rates are likely to increase
3) If companies have fewer good investment opportunities, interest rates are likely to increase
4) Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities
5) Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills

Question 15
The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to ____

1) maximize its expected total corporate income
2) maximize its expected EPS
3) minimize the chances of losses
4) maximize the stock price per share over the long run, which is the stock's intrinsic value
5) maximize the stock price on a specific target date

FIN 534 quiz 2 week 3

Business / Economics

5/4/12

Opening Offer: $12.00
Posted by: argument
Date Posted: 5/4/12 4:41 PM
Due Date: 12/31/69

 Question 1

Which of the following statements is CORRECT?

a. Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies’ debt ratios to be lower than they would be if interest and dividends were both deductible.

b. Interest paid to an individual is counted as income for tax purposes and taxed at the individual’s regular tax rate, which in 2008 could go up to 35%, but dividends received were taxed at a maximum rate of 15%.

c. The maximum federal tax rate on corporate income in 2008 was 50%.

d. Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings.  The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock.  Both of these costs are deductible from income when calculating income for tax purposes.

d. The maximum federal tax rate on personal income in 2008 was 50%.

 

 

Question 2

Which of the following statements is CORRECT?

 

The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of retained earnings.
The balance sheet gives us a picture of the firm’s financial position at a point in time.
The income statement gives us a picture of the firm’s financial position at a point in time.
The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.
The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year.

 

Question 3

For managerial purposes, i.e., making decisions regarding the firm's operations, the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations. Related to these modifications, which of the following statements is CORRECT?

 

The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.

The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period.  However, for valuation purposes we need to discount cash flows, not accounting income.  Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions’ performance, not that of the entire firm, information that focuses on the divisions is needed.  These factors have led to the development of information that is focused on cash flows and the operations of individual units.

The standard statements provide useful information on the firm’s individual operating units, but management needs more information on the firm’s overall operations than the standard statements provide.

The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP.

The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm.  Thus, under GAAP, there is no room for accountants to “adjust” the results to make earnings look better.

 

 

Question 4

On its 2010 balance sheet, Barngrover Books showed $510 million of retained earnings, and exactly that same amount was shown the following year.  Assuming that no earnings restatements were issued, which of the following statements is CORRECT?

 

a. If the company lost money in 2010, they must have paid dividends.

b. The company must have had zero net income in 2010.

c. The company must have paid out half of its earnings as dividends.

d. The company must have paid no dividends in 2010.

e. Dividends could have been paid in 2010, but they would have had to equal the earnings for the year.

 

 

Question 5

Other things held constant, which of the following actions would increase the amount of cash on a company’s balance sheet?                         

           

The company repurchases common stock.

The company pays a dividend.

The company issues new common stock.

The company gives customers more time to pay their bills.

The company purchases a new piece of equipment.

 

 

Question 6

The CFO of Shalit Industries plans to have the company issue $300 million of new common stock and use the proceeds to pay off some of its outstanding bonds.  Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. Which of the following would occur?                                 

The company’s taxable income would fall.

The company’s interest expense would remain constant.

The company would have less common equity than before.

The company’s net income would increase.

The company would have to pay less taxes.                         

 

 

Question 7

Which of the following factors could explain why Dellva Energy had a negative net cash flow last year, even though the cash on its balance sheet increased?                                

 a. The company sold a new issue of bonds.

b. The company made a large investment in new plant and equipment.

c. The company paid a large dividend.

d. The company had high amortization expenses.

e. The company repurchased 20% of its common stock.     

Question 8

Which of the following statements is CORRECT?                          

           

Since depreciation is a source of funds, the more depreciation a company has, the larger its retained earnings will be, other things held constant.

A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments.

Common equity includes common stock and retained earnings, less accumulated depreciation.

The retained earnings account as shown on the balance sheet shows the amount of cash that is available for paying dividends.

If a firm reports a loss on its income statement, then the retained earnings account as shown on the balance sheet will be negative.                            

 

 

Question 9

Below is the common equity section (in millions) of Teweles Technology’s last two year-end balance sheets:

                                               2009                2008   

Common stock                       $2,000             $1,000

Retained earnings                  2,000              2,340

Total common equity             $4,000             $3,340

 

 Teweles has never paid a dividend to its common stockholders.  Which of the following statements is CORRECT?

                                                                      

a. The company’s net income in 2009 was higher than in 2008.

b. Teweles issued common stock in 2009.

c. The market price of Teweles' stock doubled in 2009.

d. Teweles had positive net income in both 2008 and 2009, but the company’s net income in 2009 was lower than it was in 2008.

e. The company has more equity than debt on its balance sheet.

                         

 

 Question 10  

Assume that Congress recently passed a provision that will enable Bev's Beverages Inc. (BBI) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or tax rate. Prior to the new provision, BBI’s net income after taxes was forecasted to be $4 million. Which of the following best describes the impact of the new provision on BBI’s financial statements versus the statements without the provision?  Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

                       

The provision will reduce the company’s net cash flow.

The provision will increase the company’s tax payments.

Net fixed assets on the balance sheet will increase.

The provision will increase the company’s net income.

Net fixed assets on the balance sheet will decrease.                       

 

 

Question 11     

A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change?                                

                                     

a. The firm’s operating income (EBIT) would increase.

b. The firm’s taxable income would increase.

c. The firm’s net cash flow would increase.

d. The firm’s tax payments would increase.

e. The firm’s reported net income would increase.

 

 

Question 12

Which of the following statements is CORRECT?  

 

The income of certain small corporations that qualify under the Tax Code is completely exempt from corporate income taxes.  Thus, the federal government receives no tax revenue from these businesses.

All businesses, regardless of their legal form of organization, are taxed under the Business Tax Provisions of the Internal Revenue Code.

Small businesses that qualify under the Tax Code can elect not to pay corporate taxes, but then their owners must report their pro rata shares of the firm’s income as personal income and pay taxes on that income.

Congress recently changed the tax laws to make dividend income received by individuals exempt from income taxes. Prior to the enactment of that law, corporate income was subject to double taxation, where the firm was first taxed on the income and stockholders were taxed again on the income when it was paid to them as dividends.

All corporations other than non-profit corporations are subject to corporate income taxes, which are 15% for the lowest amounts of income and 35% for the highest amounts of income.

 

 

Question 13

Which of the following statements is CORRECT?

 

a. One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital.

b. If a firm reports positive net income, its EVA must also be positive.

c. One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free.

d. One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital.

e. Actions that increase reported net income will always increase net cash flow.

 

 

Question 14

Which of the following statements is CORRECT?

 

The more depreciation a firm reports, the higher its tax bill, other things held constant.

People sometimes talk about the firm’s net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line.”

Depreciation reduces a firm’s cash balance, so an increase in depreciation would normally lead to a reduction in the firm’s net cash flow.

Net cash flow (NCF) is often defined as follows:

Net Cash Flow = Net Income + Depreciation and Amortization Charges.

Depreciation and amortization are not cash charges, so neither of them has an effect on a firm’s reported profits.

 

 

Question 15

Which of the following items is NOT included in current assets?

 

Accounts receivable.

Inventory.

Bonds.

Cash.

Short-term, highly liquid, marketable securities.

 

 

Question 16

A firm’s new president wants to strengthen the company’s financial position.  Which of the following actions would make it financially stronger?

 

a. Increase accounts receivable while holding sales constant.

b. Increase EBIT while holding sales constant.

c. Increase accounts payable while holding sales constant.

d. Increase notes payable while holding sales constant.

e. Increase inventories while holding sales constant.

 

 

Question 17

Which of the following statements is CORRECT?

 

a. Borrowing by using short-term notes payable and then using the proceeds to retire long-term debt is an example of “window dressing.” Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is another example of “window dressing.”

b. Borrowing on a long-term basis and using the proceeds to retire short-term debt would improve the current ratio and thus could be considered to be an example of “window dressing.”

c. Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is an example of “window dressing.”

d. Using some of the firm’s cash to reduce long-term debt is an example of “window dressing.”

e. “Window dressing” is any action that improves a firm’s fundamental, long-run position and thus increases its intrinsic value.

 to be an example of “window dressing.”

 

Question 18

Which of the following statements is CORRECT?

 

a. If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.

b. If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.

c. Other things held constant, the higher a firm’s expected future growth rate, the lower its P/E ratio is likely to be.

d. The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MVA).

e. If a firm has a history of high Economic Value Added (EVA) numbers each year, and if investors expect this situation to continue, then its market/book ratio and MVA are both likely to be below average.

 

 

Question 19

Which of the following statements is CORRECT?

 

a. If a security analyst saw that a firm’s days’ sales outstanding (DSO) was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength.

b. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days’ sales outstanding (DSO) will increase.

c. There is no relationship between the days’ sales outstanding (DSO) and the average collection period (ACP).  These ratios measure entirely different things.

d. A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.

e. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days’ sales outstanding will decline.

 

 

Question 20

Taggart Technologies is considering issuing new common stock and using the proceeds to reduce its outstanding debt.  The stock issue would have no effect on total assets, the interest rate Taggart pays, EBIT, or the tax rate.  Which of the following is likely to occur if the company goes ahead with the stock issue?

 

 a. The ROA will decline.

b. Taxable income will decrease.

c. The tax bill will increase.

d. Net income will decrease.

e. The times interest earned ratio will decrease.                     

                                     

 

Question 21

Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable.  This action had no effect on the company’s total assets or operating income.  Which of the following effects would occur as a result of this action?

 

a. The company’s current ratio increased.

b. The company’s times interest earned ratio decreased.

c. The company’s basic earning power ratio increased.

d. The company’s equity multiplier increased.

e. The company’s debt ratio increased.

 

 

 

 

 

 

Question 22

Which of the following statements is CORRECT?

 

a. If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be the same.

b. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the same.

c. If Firms X and Y have the same earnings per share and market-to-book ratio, they must have the same price earnings ratio.

d. If Firm X’s P/E ratio exceeds that of Firm Y, then Y is likely to be less risky and also to be expected to grow at a faster rate.

e. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their market-to-book ratios must also be the same.

 

 

Question 23

Companies HD and LD have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power.  Both companies have positive net incomes.  Company HD has a higher debt ratio and, therefore, a higher interest expense.  Which of the following statements is CORRECT?

 

a. Company HD pays less in taxes.

b. Company HD has a lower equity multiplier.

c. Company HD has a higher ROA.

d. Company HD has a higher times interest earned (TIE) ratio.

e. Company HD has more net income.

 

 

Question 24

You observe that a firm’s ROE is above the industry average, but its profit margin and debt ratio are both below the industry average.  Which of the following statements is CORRECT?

 

a. Its total assets turnover must be above the industry average.

b. Its return on assets must equal the industry average.

c. Its TIE ratio must be below the industry average.

d. Its total assets turnover must be below the industry average.

e. Its total assets turnover must equal the industry average.

 

 

Question 25

Which of the following would indicate an improvement in a company’s financial position, holding other things constant?

 

a. The inventory and total assets turnover ratios both decline.

b. The debt ratio increases.

c. The profit margin declines.

d. The EBITDA coverage ratio declines.

e. The current and quick ratios both increase.

 

 

 

 

Question 26

A firm wants to strengthen its financial position.  Which of the following actions would increase its quick ratio?

 

a. Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2)lead to an increase in accounts receivable.

b. Issue new common stock and use the proceeds to increase inventories.

c. Speed up the collection of receivables and use the cash generated to increase inventories.

d. Use some of its cash to purchase additional inventories.

e. Issue new common stock and use the proceeds to acquire additional fixed assets.

 

 

Question 27

If a bank loan officer were considering a company’s request for a loan, which of the following statements would you consider to be CORRECT?

 

a. The lower the company’s EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm.

b. Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm.

c. Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.

d. The lower the company’s TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm.

e. Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm.

 

 

Question 28

Companies HD and LD are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM). However, Company HD has the higher debt ratio.  Which of the following statements is CORRECT?

 

a. Company HD has a lower total assets turnover than Company LD.

b. Company HD has a lower equity multiplier than Company LD.

c. Company HD has a higher fixed assets turnover than Company B.

d. Company HD has a higher ROE than Company LD.

e. Company HD has a lower operating income (EBIT) than Company LD.

 

 

Question 29

Which of the following statements is CORRECT?

 

a. Suppose a firm’s total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.  Under these conditions, the ROE will increase.

b. Suppose a firm’s total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.  Without additional information, we cannot tell what will happen to the ROE.

c. The modified Du Pont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE.

d. Other things held constant, an increase in the debt ratio will result in an increase in the profit margin on sales.

e. Suppose a firm’s total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%.  Under these conditions, the ROE will decrease.

 

 

Question 30

Considered alone, which of the following would increase a company’s current ratio?

 

a. An increase in net fixed assets.

b. An increase in accrued liabilities.

c. An increase in notes payable.

d. An increase in accounts receivable.

e. An increase in accounts payable.

FIN 534 Quiz 3 Week 4

Business / Economics

5/4/12

Opening Offer: $18.00
Posted by: argument
Date Posted: 5/4/12 4:46 PM
Due Date: 12/31/69

1. Which of the following statements is CORRECT?

1) A time line is not meaningful unless all cash flows occur annually

2) Time lines are useful for visualizing complex problems prior to doing actual calculations

3) Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly

4) Time lines can only be constructed for annuities where the payments occur at the ends of the periods, i.e., for ordinary annuities

5) Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity

2. Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?

1) The monthly payments will decline over time.

2) A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment

3) The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity

4) The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.

5) Exactly 10% of the first monthly payment represents interest

3. A Treasury bond promises to pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

1) The periodic interest rate is greater than 3%

2) The periodic rate is less than 3%

3) The present value would be greater if the lump sum were discounted back for more periods

4) The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually

5) The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity

4. You are analyzing the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?

1) The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000

2) The discount rate increases

3) The riskiness of the investment's cash flows decreases

4) The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years

5) The discount rate decreases

5. You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

1) A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ.

2) The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD.

3) The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE.

4) The present value of ORD exceeds the present value of DUE, while the future value of DUE exceeds the future value of ORD.

5) If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant.

6. Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?

1) The monthly payments will decline over time

2) A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment

3) The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity.

4) The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%

5) Exactly 10% of the first monthly payment represents interest

7. A $150,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?

1) The annual payments would be larger if the interest rate were lower.

2) If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan.

3) The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.

4) The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.

5) The proportion of interest versus principal repayment would be the same for each of the 7 payments.

8. Which of the following statements is CORRECT?

1) A time line is not meaningful unless all cash flows occur annually.

2) Time lines are not useful for visualizing complex problems prior to doing actual calculations.

3) Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.

4) Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.

5) Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

9. Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.

1) Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).

2) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).

3) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).

4) Investment D pays $2,500 at the end of 10 years (just one payment).

5) Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments).

10. Which of the following statements is CORRECT?

The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity.

If a loan has a nominal annual rate of 8%, then the effective rate can never be greater than 8%.

If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different.

The proportion of the payment that goes toward interest on a fully amortized loan increases over time.

An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%

11. Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

1) The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.

2) Because the outstanding balance declines over time, the monthly payments will also decline over time.

3) Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.

4) The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.

5) The outstanding balance declines at a faster rate in the later years of the loan's life

12. Which of the following bank accounts has the highest effective annual return?

1) An account that pays 8% nominal interest with monthly compounding

2) An account that pays 8% nominal interest with annual compounding.

3) An account that pays 7% nominal interest with daily (365-day) compounding

4) An account that pays 7% nominal interest with monthly compounding

5) An account that pays 8% nominal interest with daily (365-day) compounding

13. A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

1) The periodic interest rate is greater than 3%.

2) The periodic rate is less than 3%.

3) The present value would be greater if the lump sum were discounted back for more periods.

4) The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually.

5) The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.

14. Which of the following statements is CORRECT?

1) If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.

2) If you have a series of cash flows, and CF0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.

3) To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is, essentially, a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.

4) If you solve for I and get a negative number, then you must have made a mistake.

5) If CF0 is positive and all the other CFs are negative, then you cannot solve for I.

15. You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

1) The present value of ORD must exceed the present value of DUE, but the future value of ORD may be less than the future value of DUE.

2) The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD.

3) The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE.

4) The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD.

5) If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant.

16. Amram Inc. can issue a 20-year bond with a 6% annual coupon. This bond is not convertible, is not callable, and has no sinking fund. Alternatively, Amram could issue a 20-year bond that is convertible into common equity, may be called, and has a sinking fund. Which of the following most accurately describes the coupon rate that Amram would have to pay on the convertible, callable bond?

1.

Exactly equal to 6%.

2.

It could be less than, equal to, or greater than 6%.

3.

Greater than 6%.

4.

Exactly equal to 8%.

5.

Less than 6%.

17. A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following statements is CORRECT?

1 The bond has a current yield greater than 8 percent.

2 The bond sells at a price above par.

3. If the yield to maturity remains constant, the price of the bond is expected to fall over time.

4. Statements b and c are correct.

5 All of the statements above are correct.

18. Which of the following bonds has the greatest interest rate price risk?

1) A 10-year $100 annuity.

2) All 10-year bonds have the same price risk since they have the same maturity.

3) A 10-year, $1,000 face value, zero coupon bond.

4) A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.

5) A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments

19. Which of the following statements is CORRECT?

A time line is not meaningful unless all cash flows occur annually.

Time lines are not useful for visualizing complex problems prior to doing actual calculations.

Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.

Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.

Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

20. Which of the following statements is CORRECT?

All else equal, senior debt generally has a lower yield to maturity than subordinated debt.

An indenture is a bond that is less risky than a mortgage bond.

The expected return on a corporate bond will generally exceed the bond's yield to maturity.

If a bond's coupon rate exceeds its yield to maturity, then its expected return to investors exceeds the yield to maturity.

Under our bankruptcy laws, any firm that is in financial distress will be forced to declare bankruptcy and then be liquidated.

21. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT?

1. The bond's yield to maturity is greater than its coupon rate.

2. If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850.

3. The bond's current yield is equal to its coupon rate.

4. The bond's current yield exceeds its yield to maturity.

5. The bond's coupon rate exceeds its current yield.

22. Which of the following statements is CORRECT?

1) Sinking fund provisions never require companies to retire their debt; they only establish "targets" for the company to reduce its debt over time.

2) A sinking fund provision makes a bond more risky to investors at the time of issuance.

3) Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if interest rates decline after the bond was issued.

4) Most sinking funds require the issuer to provide funds to a trustee, who holds the money so that it will be available to pay off bondholders when the bonds mature.

5) If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price.

23. Assume that all interest rates in the economy decline from 10% to 9%. Which of the following bonds would have the largest percentage increase in price?

1. A 10-year bond with a 10 percent coupon.

2. An 8-year bond with a 9 percent coupon.

3. A 10-year zero coupon bond.

4. A 1-year bond with a 15 percent coupon.

24. A 12-year bond has an annual coupon rate of 9%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 7%. Which of the following statements is CORRECT?

1. The bond is currently selling at a price below its par value.

2. If market interest rates decline today, the price of the bond will also decline today.

3. If market interest rates remain unchanged, the bond's price one year from now will be lower than it is today.

4. All of the statements above are correct.

5. None of the statements above is correct.

25. A 10-year bond pays an annual coupon. The bond has a yield to maturity of 8 percent. The bond currently trades at a premium--its price is above the par value of $1,000. Which of the following statements is CORRECT?

1. If the yield to maturity remains at 8 percent, then the bond's price will decline over the next year.

2. The bond's current yield is less than 8 percent.

3. If the yield to maturity remains at 8 percent, then the bond's price will remain the same over the next year.

4. The bond's coupon rate is less than 8 percent.

5. If the yield to maturity increases, then the bond's price will increase.

26. Which of the following statements is CORRECT?

One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it until it matures or is sold.

Long-term bonds have less interest rate price risk but more reinvestment rate risk than short-term bonds.

If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less interest rate risk.

Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment rate risk.

Long-term bonds have less interest rate price risk and also less reinvestment rate risk than short-term bonds.

27. Which of the following statements is CORRECT?

A zero coupon bond's current yield is equal to its yield to maturity.

If a bond's yield to maturity exceeds its coupon rate, the bond will sell at par.

All else equal, if a bond's yield to maturity increases, its price will fall.

If a bond's yield to maturity exceeds its coupon rate, the bond will sell at a premium over par.

All else equal, if a bond's yield to maturity increases, its current yield will fall.

28. A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT?

1. If the yield to maturity remains constant, the bond's price one year from now will be higher than its current price.

2. The bond is selling below its par value.

3. The bond is selling at a discount.

4. If the yield to maturity remains constant, the bond's price one year from now will be lower than its current price.

5. The bond's current yield is greater than 9%.

29. A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is CORRECT?

a. The bond s expected capital gains yield is zero.

b. The bond s yield to maturity is above 9%.

c. The bond s current yield is above 9%.

d. If the bond s yield to maturity declines, the bond will sell at a discount.

e. The bond s current yield is less than its expected capital gains yield.

30. If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would probably observe an immediate increase in bond prices.

The total yield on a bond is derived from dividends plus changes in the price of the bond.

Bonds are riskier than common stocks and therefore have higher required returns.

Bonds issued by larger companies always have lower yields to maturity (less risk) than bonds issued by smaller companies.

The market value of a bond will always approach its par value as its maturity date approaches, provided the bond's required return remains constant.

FIN 534 quiz 4 Week 5

Business / Economics

5/4/12

Opening Offer: $17.00
Posted by: argument
Date Posted: 5/4/12 4:48 PM
Due Date: 12/31/69

1) Which of the following statements is CORRECT?

Answer

a)A two-stock portfolio will always have a lower standard deviation than a one-stock portfolio.

b)A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.

c)A two-stock portfolio will always have a lower beta than a one-stock portfolio.

d)If portfolios are formed by randomly selecting stocks, a 10-stock portfolio will always have a lower beta than a one-stock portfolio.

e)A stock with an above-average standard deviation must also have an above-average beta.

2 points

Question 2

Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, betas of 1.6, and standard deviations of 30%. The returns of the two stocks are independent, so the correlation coefficient between them, rXY, is zero. Which of the following statements best describes the characteristics of your 2-stock portfolio?

Answer

a)Your portfolio has a standard deviation of 30%, and its expected return is 15%.

b)Your portfolio has a standard deviation less than 30%, and its beta is greater than 1.6.

c)Your portfolio has a beta equal to 1.6, andits expected return is 15%.

d)Your portfolio has a beta greater than 1.6, and its expected return is greater than 15%.

e)Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6.

Question 3

Assume that in recent years both expected inflation and the market risk premium (rM− rRF) have declined. Assume also that all stocks have positive betas. Which of the following would be most likely to have occurred as a result of these changes?

Answer

The required returns on all stocks have fallen, but the decline has been greater for stocks with lower betas.

The required returns on all stocks have fallen, but the fall has been greater for stocks with higher betas.

The average required return on the market, rM, has remained constant, but the required returns have fallen for stocks that have betas greater than 1.0.

Required returns have increased for stocks with betas greater than 1.0 but have declined for stocks with betas less than 1.0.

The required returns on all stocks have fallen by the same amount

Question 4

1. Which of the following statements is CORRECT?

Answer

The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.

If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio.

The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. One could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta. However, this historical beta may differ from the beta that exists in the future.

The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.

It is theoretically possible for a stock to have a beta of 1.0. If a stock did have a beta of 1.0, then, at least in theory, its required rate of return would be equal to the risk-free (default-free) rate of return, rRF.

2 points

Question 5

1. Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?

Answer

Variance; correlation coefficient.

Standard deviation; correlation coefficient.

Beta; variance.

Coefficient of variation; beta.

Beta; beta.

2 points

Question 6

1. Bob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%. Becky also has a $50,000 portfolio, but it has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%. The correlation coefficient, r, between Bob's and Becky's portfolios is zero. If Bob and Becky marry and combine their portfolios, which of the following best describes their combined $100,000 portfolio?

Answer

The combined portfolio's expected return will be less than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.

The combined portfolio's beta will be equal to a simple weighted average of the betas of the two individual portfolios, 1.0; its expected return will be equal to a simple weighted average of the expected returns of the two individual portfolios, 10.0%; and its standard deviation will be less than the simple average of the two portfolios' standard deviations, 25%.

The combined portfolio's expected return will be greater than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.

The combined portfolio's standard deviation will be greater than the simple average of the two portfolios' standard deviations, 25%.

The combined portfolio's standard deviation will be equal to a simple average of the two portfolios' standard deviations, 25%.

2 points

Question 7

1. Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be true, according to the CAPM?

Answer

If you invest $50,000 in Stock X and $50,000 in Stock Y, your 2-stock portfolio would have a beta significantly lower than 1.0, provided the returns on the two stocks are not perfectly correlated.

Stock Y's realized return during the coming year will be higher than Stock X's return.

If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should increase by the same amount.

Stock Y's return has a higher standard deviation than Stock X.

If the market risk premium declines, but the risk-free rate is unchanged, Stock X will have a larger decline in its required return than will Stock Y.

Question 8

1. Which of the following statements is CORRECT?

Answer

A large portfolio of randomly selected stocks will always have a standard deviation of returns that is less than the standard deviation of a portfolio with fewer stocks, regardless of how the stocks in the smaller portfolio are selected.

Diversifiable risk can be reduced by forming a large portfolio, but normally even highly-diversified portfolios are subject to market (or systematic) risk.

A large portfolio of randomly selected stocks will have a standard deviation of returns that is greater than the standard deviation of a 1-stock portfolio if that one stock has a beta less than 1.0.

A large portfolio of stocks whose betas are greater than 1.0 will have less market risk than a single stock with a beta = 0.8.

If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio.

2 points

Question 9

1. Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true about these securities? (Assume market equilibrium.)

Answer

When held in isolation, Stock A has more risk than Stock B.

Stock B must be a more desirable addition to a portfolio than A.

Stock A must be a more desirable addition to a portfolio than B.

The expected return on Stock A should be greater than that on B.

The expected return on Stock B should be greater than that on A.

2 points

Question 10

1. Which of the following statements is CORRECT?

Answer

A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only that one stock.

If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless.

The required return on a firm's common stock is, in theory, determined solely by its market risk. If the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return.

Portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio.

A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock.

2 points

Question 11

1. During the coming year, the market risk premium (rM − rRF), is expected to fall, while the risk-free rate, rRF, is expected to remain the same. Given this forecast, which of the following statements is CORRECT?

Answer

The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.

The required return on all stocks will remain unchanged.

The required return will fall for all stocks, but it will fall more for stocks with higher betas.

The required return for all stocks will fall by the same amount.

The required return will fall for all stocks, but it will fall less for stocks with higher betas.

2 points

Question 12

1. Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2. Portfolio P has equal amounts invested in each of the three stocks. Each of the stocks has a standard deviation of 25%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume that there is an increase in the market risk premium, but the risk-free rate remains unchanged. Which of the following statements is CORRECT?

Answer

The required return of all stocks will remain unchanged since there was no change in their betas.

The required return on Stock A will increase by less than the increase in the market risk premium, while the required return on Stock C will increase by more than the increase in the market risk premium.

The required return on the average stock will remain unchanged, but the returns of riskier stocks (such as Stock C) will increase while the returns of safer stocks (such as Stock A) will decrease.

The required returns on all three stocks will increase by the amount of the increase in the market risk premium.

The required return on the average stock will remain unchanged, but the returns on riskier stocks (such as Stock C) will decrease while the returns on safer stocks (such as Stock A) will increase.

Question 13

1. Inflation, recession, and high interest rates are economic events that are best characterized as being

Answer

systematic risk factors that can be diversified away.

company-specific risk factors that can be diversified away.

among the factors that are responsible for market risk.

risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers.

irrelevant except to governmental authorities like the Federal Reserve.

2 points

Question 14

1. Which of the following statements is CORRECT?

Answer

If a company with a high beta merges with a low-beta company, the best estimate of the new merged company's beta is 1.0.

Logically, it is easier to estimate the betas associated with capital budgeting projects than the betas associated with stocks, especially if the projects are closely associated with research and development activities.

The beta of an "average stock," which is also "the market beta," can change over time, sometimes drastically.

If a newly issued stock does not have a past history that can be used for calculating beta, then we should always estimate that its beta will turn out to be 1.0. This is especially true if the company finances with more debt than the average firm.

During a period when a company is undergoing a change such as increasing its use of leverage or taking on riskier projects, the calculated historical beta may be drastically different from the beta that will exist in the future.

2 points

Question 15

1. Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE?

Answer

The fact that a security or project may not have a past history that can be used as the basis for calculating beta.

Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different from the "true" or "expected future" beta.

The beta of an "average stock," or "the market," can change over time, sometimes drastically.

Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.

All of the statements above are true.

2 points

Question 16

1. If a stock's dividend is expected

to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

Answer

The expected return on the stock is 5% a year.

The stock's dividend yield is 5%.

The price of the stock is expected to decline in the future.

The stock's required return must be equal to or less than 5%.

The stock's price one year from now is expected to be 5% above the current price.

2 points

Question 17

1. Which of the following statements is CORRECT, assuming stocks are in equilibrium?

Answer

The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

Assume that the required return on a given stock is 13%. If the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well.

A stock's dividend yield can never exceed its expected growth rate.

A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.

Other things held constant, the higher a company's beta coefficient, the lower its required rate of return.

Question 18

1. Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of

the following statements is CORRECT?

X Y

Price $30 $30

Expected growth (constant) 6% 4%

Required return 12% 10%

Answer

Stock X has a higher dividend yield than Stock Y.

Stock Y has a higher dividend yield than Stock X.

One year from now, Stock X's price is expected to be higher than Stock Y's price.

Stock X has the higher expected year-end dividend.

Stock Y has a higher capital gains yield.

2 points

Question 19

1. Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT?

Answer

All common stocks fall into one of three classes: A, B, and C.

All common stocks, regardless of class, must have the same voting rights.

All firms have several classes of common stock.

All common stock, regardless of class, must pay the same dividend.

Some class or classes of common stock are entitled to more votes per share than other classes.

2 points

Question 20

1. The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?

Answer

If the market is in equilibrium, and if Stock Y has the lower expected dividend yield, then it must have the higher expected growth rate.

If Stock Y and Stock X have the same dividend yield, then Stock Y must have a lower expected capital gains yield than Stock X.

If Stock X and Stock Y have the same current dividend and the same expected dividend growth rate, then Stock Y must sell for a higher price.

The stocks must sell for the same price.

Stock Y must have a higher dividend yield than Stock X.

2 points

Question 21

1. Which of the following statements is CORRECT?

Answer

The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.

If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.

The stock valuation model, P0 = D1/(rs - g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.

The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.

The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.

2 points

Question 22

1. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A B

Required return 10% 12%

Market price $25 $40

Expected growth 7% 9%

Answer

These two stocks should have the same price.

These two stocks must have the same dividend yield.

These two stocks should have the same expected return.

These two stocks must have the same expected capital gains yield.

These two stocks must have the same expected year-end dividend.

Question 23

1. The preemptive right is important to shareholders because it

Answer

allows managers to buy additional shares below the current market price.

will result in higher dividends per share.

is included in every corporate charter.

protects the current shareholders against a dilution of their ownership interests.

protects bondholders, and thus enables the firm to issue debt with a relatively low interest rate.

2 points

Question 24

1. Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?

Answer

The two stocks must have the same dividend per share.

If one stock has a higher dividend yield, it must also have a lower dividend growth rate.

If one stock has a higher dividend yield, it must also have a higher dividend growth rate.

The two stocks must have the same dividend growth rate.

The two stocks must have the same dividend yield.

2 points

Question 25

1. The expected return on Natter Corporation's stock is 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

Answer

The stock's dividend yield is 7%.

The stock's dividend yield is 8%.

The current dividend per share is $4.00.

The stock price is expected to be $54 a share one year from now.

The stock price is expected to be $57 a share one year from now.

2 points

Question 26

1. If in the opinion of a given investor a stock's expected return exceeds its required return, this suggests that the investor thinks

Answer

the stock is experiencing supernormal growth.

the stock should be sold.

the stock is a good buy.

management is probably not trying to maximize the price per share.

dividends are not likely to be declared.

2 points

Question 27

1. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A B

Price $ 25 $40

Expected growth 7% 9%

Expected return 10% 12%

Answer

The two stocks should have the same expected dividend.

The two stocks could not be in equilibrium with the numbers given in the question.

A's expected dividend is $0.50.

B's expected dividend is $0.75.

A's expected dividend is $0.75 and B's expected dividend is $1.20.

2 points

Question 28

1. Which of the following statements is CORRECT?

Answer

If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights.

The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.

The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.

The stock valuation model, P0= D1/(rs - g), cannot be used for firms that have negative growth rates.

The stock valuation model, P0= D1/(rs - g), can be used only for firms whose growth rates exceed their required returns.

Question 29

1. For a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then

Answer

the expected future return must be less than the most recent past realized return.

The past realized return must be equal to the expected return during the same period.

the required return must equal the realized return in all periods.

the expected return must be equal to both the required future return and the past realized return.

the expected future returns must be equal to the required return.

2 points

Question 30

1. If markets are in equilibrium, which of the following conditions will exist?

Answer

Each stock's expected return should equal its realized return as seen by the marginal investor.

Each stock's expected return should equal its required return as seen by the marginal investor.

All stocks should have the same expected return as seen by the marginal investor.

The expected and required returns on stocks and bonds should be equal.

All stocks should have the same realized return during the coming year.

FIN 534 quiz 5 Week 6

Business / Economics

5/4/12

Opening Offer: $18.00
Posted by: argument
Date Posted: 5/4/12 4:51 PM
Due Date: 12/31/69

Question 1

Which of the following statements is CORRECT?

Answer

If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.

Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.

Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.

Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

2 points

Question 2

Call options on XYZ Corporation's common stock trade in the market. Which of the following statements is most correct, holding other things constant?

Answer

The price of these call options is likely to rise if XYZ's stock price rises.

The higher the strike price on XYZ's options, the higher the option's price will be.

Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months.

If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase.

If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend.

2 points

Question 3

Which of the following statements is CORRECT?

Answer

If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.

Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.

Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.

Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

2 points

Question 4

Which of the following statements is CORRECT?

Answer

An option's value is determined by its exercise value, which is the market price of the stock less its striking price. Thus, an option can't sell for more than its exercise value.

As the stock's price rises, the time value portion of an option on a stock increases because the difference between the price of the stock and the fixed strike price increases.

Issuing options provides companies with a low cost method of raising capital.

The market value of an option depends in part on the option's time to maturity and also on the variability of the underlying stock's price.

The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin gets bigger.

2 points

Question 5

An option that gives the holder the right to sell a stock at a specified price at some future time is

Answer

a call option.

a put option.

an out-of-the-money option.

a naked option.

a covered option.

2 points

Question 6

Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the

Answer

Strike price.

Variability of the stock price.

Option's time to maturity.

All of the above.

None of the above.

2 points

Question 7

Suppose you believe that Delva Corporation's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $85 per share. If you bought this option for $510.25 and Delva's stock price actually dropped to $60, what would your pre-tax net profit be?

Answer

-$510.25

$1,989.75

$2,089.24

$2,193.70

$2,303.38

2 points

Question 8

Which of the following statements is CORRECT?

Answer

Put options give investors the right to buy a stock at a certain strike price before a specified date.

Call options give investors the right to sell a stock at a certain strike price before a specified date.

Options typically sell for less than their exercise value.

LEAPS are very short-term options that were created relatively recently and now trade in the market.

An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend.

2 points

Question 9

Deeble Construction Co.'s stock is trading at $30 a share. Call options on the company's stock are also available, some with a strike price of $25 and some with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options?

Answer

The options with the $25 strike price will sell for $5.

The options with the $25 strike price will sell for less than the options with the $35 strike price.

The options with the $25 strike price have an exercise value greater than $5.

The options with the $35 strike price have an exercise value greater than $0.

If Deeble's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.

2 points

Question 10

Warner Motors' stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?

Answer

The price of the call option will increase by $2.

The price of the call option will increase by more than $2.

The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%.

The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%.

The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10%.

2 points

Question 11

Which of the following statements is CORRECT?

Answer

If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock's price exceeds the strike price by about 10%, because this permits the option holder to lock in an immediate profit.

Call options generally sell at a price less than their exercise value.

If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.

Call options generally sell at prices above their exercise value, but for an in-the-money option, the greater the exercise value in relation to the strike price, the lower the premium on the option is likely to be.

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

2 points

Question 12

The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binominal model, what is the option's value?

Answer

$2.43

$2.70

$2.99

$3.29

$3.62

2 points

Question 13

Suppose you believe that Johnson Company's stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $310.25 you can buy a 5-month call option giving you the right to buy 100 shares at a price of $25 per share. If you buy this option for $310.25 and Johnson's stock price actually rises to $45, what would your pre-tax net profit be?

Answer

-$310.25

$1,689.75

$1,774.24

$1,862.95

$1,956.10

2 points

Question 14

GCC Corporation is planning to issue options to its key employees, and it is now discussing the terms to be set on those options. Which of the following actions would decrease the value of the options, other things held constant?

Answer

GCC's stock price suddenly increases.

The exercise price of the option is increased.

The life of the option is increased, i.e., the time until it expires is lengthened.

The Federal Reserve takes actions that increase the risk-free rate.

GCC's stock price becomes more risky (higher variance).

2 points

Question 15

An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?

Answer

In-the-money

Put

Naked

Covered

Out-of-the-money

2 points

Question 16

Which of the following statements is CORRECT?

Answer

The bond-yield-plus-risk-premium approach to estimating the cost of common equity involves adding a risk premium to the interest rate on the company's own long-term bonds. The size of the risk premium for bonds with different ratings is published daily in The Wall Street Journal.

The WACC is calculated using a before-tax cost for debt that is equal to the interest rate that must be paid on new debt, along with the after-tax costs for common stock and for preferred stock if it is used.

An increase in the risk-free rate is likely
to reduce the marginal costs of both debt and equity.

The relevant WACC can change depending on the amount of funds a firm raises during a given year. Moreover, the WACC at each level of funds raised is a weighted average of the marginal costs of each capital component, with the weights based on the firm's target capital structure.

Beta measures market risk, which is generally
the most relevant risk measure for a publicly-owned firm that seeks to maximize its intrinsic value. However, this is not true unless all of the firm's stockholders are well diversified.

2 points

Question 17

Which of the following statements is CORRECT?

Answer

The WACC is calculated using before-tax
costs for all components.

The after-tax cost of debt usually exceeds
the after-tax cost of equity.

For a given firm, the after-tax cost of debt is always more expensive than the after-tax cost of non-convertible preferred stock.

Retained earnings that were generated in the past and are reported on the firm's balance sheet are available to finance the firm's capital budget during the coming year.

The WACC that should be used in capital budgeting is the firm's marginal, after-tax cost of capital.

2 points

Question 18

For a typical firm, which of the following sequences is CORRECT? All rates are after taxes, and assume that the firm operates
at its target capital structure.

Answer

rs> re > rd > WACC.

re> rs > WACC > rd.

WACC > re > rs> rd.

rd> re > rs > WACC.

WACC > rd > rs > re.

2 points

Question 19

Which of the following statements is CORRECT?

Answer

The WACC as used in capital budgeting is an estimate of a company's before-tax cost of capital.

The percentage flotation cost associated with issuing new common equity is typically smaller than the flotation cost for new debt.

The WACC as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets.

There is an "opportunity cost" associated with using retained earnings, hence they are not "free."

The WACC as used in capital budgeting would
be simply the after-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year.

2 points

Question 20

The MacMillen Company has equal amounts of low-risk, average-risk, and high-risk projects. The firm's overall WACC is 12%. The CFO believes that this is the correct WACC for the company's average-risk projects, but that a lower rate should be used for lower-risk projects and a higher rate for higher-risk projects. The CEO disagrees, on the grounds that even though projects have different risks, the WACC used to evaluate each project should be the same because the company obtains capital for all projects from the same sources. If the CEO's position is accepted, what is likely to happen over time?

Answer

The company will take on too many high-risk projects and reject too many low-risk projects.

The company will take on too many low-risk projects and reject too many high-risk projects.

Things will generally even out over time, and, therefore, the firm's risk should remain constant over time.

The company's overall WACC should decrease
over time because its stock price should be increasing.

The CEO's recommendation would maximize the
firm's intrinsic value.

2 points

Question 21

Which of the following statements is CORRECT?

Answer

Since the costs of internal and external
equity are related, an increase in the flotation cost required to sell a new issue of stock will increase the cost of retained earnings.

Since its stockholders are not directly
responsible for paying a corporation's income taxes, corporations should focus on before-tax cash flows when calculating the WACC.

An increase in a firm's tax rate will increase the component cost of debt, provided the YTM on the firm's bonds is not affected by the change in the tax rate.

When the WACC is calculated, it should reflect the costs of new common stock, retained earnings, preferred stock, long-term debt, short-term bank loans if the firm normally finances with bank debt, and accounts payable if the firm normally has accounts payable on its balance sheet.

If a firm has been suffering accounting losses that are expected to continue into the foreseeable future, and therefore its tax rate is zero, then it is possible for the after-tax cost of preferred stock to be less than the after-tax cost of debt.

2 points

Question 22

Which of the following statements is CORRECT? Assume that the firm is a publicly-owned corporation and is seeking to maximize shareholder wealth.

Answer

If a firm has a beta that is less than 1.0, say 0.9, this would suggest that the expected returns on its assets are negatively
correlated with the returns on most other firms' assets.

If a firm's managers want to maximize the value of their firm's stock, they should, in theory, concentrate on project risk as measured by the standard deviation of the project's expected future cash flows.

If a firm evaluates all projects using the same cost
of capital, and the CAPM is used to help determine that cost, then its risk as measured by beta will probably decline over time.

Projects with above-average risk typically have higher
than average expected returns. Therefore, to maximize a firm's intrinsic value, its managers should favor high-beta projects over those with lower betas.

Project A has a standard deviation of expected returns
of 20%, while Project B's standard deviation is only 10%. A's returns are negatively correlated with both the firm's other assets and the returns on most stocks in the economy, while B's returns are positively correlated. Therefore, Project A is less risky to a firm and should be evaluated with a lower cost of capital.

2 points

Question 23

Which of the following statements is CORRECT?

Answer

A change in a company's target capital
structure cannot affect its WACC.

WACC calculations should be based on the before-tax costs of all the individual capital components.

Flotation costs associated with issuing new common stock normally reduce the WACC.

If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.

An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.

2 points

Question 24

Which of the following statements is CORRECT?

Answer

In the WACC calculation, we must adjust the cost of preferred stock (the market yield) to reflect the fact that 70% of the dividends received by corporate investors are excluded from their taxable income.

We should use historical measures of the component costs from prior financings that are still outstanding when estimating a company's WACC for capital budgeting purposes.

The cost of new equity (re) could possibly be lower than the cost of retained earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.

A firm's cost of retained earnings is the rate of return stockholders require on a firm's common stock.

The component cost of preferred stock is expressed as rp(1 - T), because preferred stock dividends are treated as
fixed charges, similar to the treatment of interest on debt.

2 points

Question 25

Firm M's earnings and stock price tend to move up and down with other firms in the S&P 500, while Firm W's earnings and stock price move counter cyclically with M and other S&P companies. Both M and W estimate their costs of equity using the CAPM, they have identical market values, their standard deviations of returns are identical, and they both finance only with common equity. Which of the following statements is CORRECT?

Answer

M should have the lower WACC because it is like most other companies, and investors like that fact.

M and W should have identical WACCs because their risks as measured by the standard deviation of returns are identical.

If M and W merge, then the merged firm MW should have a WACC that is a simple average of M's and W's WACCs.

Without additional information, it is impossible to predict what the merged firm's WACC would be if M and W merged.

Since M and W move counter cyclically to one another, if they merged, the merged firm's WACC would be less than the simple average of the two firms' WACCs.

2 points

Question 26

Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A's projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept?

Answer

A Division B project with a 13% return.

A Division B project with a 12% return.

A Division A project with an 11% return.

A Division A project with a 9% return.

A Division B project with an 11% return.

2 points

Question 27

Schalheim Sisters Inc. has always paid out all of its earnings as dividends; hence, the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?

Answer

The market risk premium declines.

The flotation costs associated with issuing new common stock increase.

The company's beta increases.

Expected inflation increases.

The flotation costs associated with issuing preferred stock increase.

2 points

Question 28

Norris Enterprises, an all-equity firm, has a beta of 2.0. The chief financial officer is evaluating a project with an expected
return of 14%, before any risk adjustment. The risk-free rate is 5%, and the market risk premium is 4%. The project being evaluated is riskier than an average project, in terms of both its beta risk and its total risk. Which of the following statements is CORRECT?

Answer

The project should definitely be accepted because its expected return (before any risk adjustments) is greater than its required return.

The project should definitely be rejected because its expected return (before risk adjustment) is less than its required return.

Riskier-than-average projects should have their expected returns increased to reflect their higher risk. Clearly, this would make the project acceptable regardless of the amount of the adjustment.

The accept/reject decision depends on the firm's risk-adjustment policy. If Norris' policy is to increase the required return on a riskier-than-average project to 3% over rS, then it should reject the project.

Capital budgeting projects should be evaluated solely on the basis of their total risk. Thus, insufficient information has been provided to make the accept/reject decision.

2 points

Question 29

For a company whose target capital structure calls for 50% debt and 50% common equity, which of the following statements is CORRECT?

Answer

The interest rate used to calculate the WACC is the average after-tax cost of all the company's outstanding debt as shown on its balance sheet.

The WACC is calculated on a before-tax basis.

The WACC exceeds the cost of equity.

The cost of equity is always equal to or greater than the cost of debt.

The cost of retained earnings typically exceeds the cost of new common stock.

2 points

Question 30

Which of the following statements is CORRECT?

Answer

The discounted cash flow method of estimating the cost
of equity cannot be used unless the growth rate, g, is expected to be constant forever.

If the calculated beta underestimates the firm's true investment risk--i.e., if the forward-looking beta that investors think exists exceeds the historical beta--then the CAPM method based on the historical beta will produce an estimate of rs and thus WACC that is too high.

Beta measures market risk, which is, theoretically, the most relevant risk measure for a publicly-owned firm that seeks to maximize its intrinsic value. This is true even if not all of the firm's stockholders are well diversified.

An advantage shared by both the DCF and CAPM methods when they are used to estimate the cost of equity is that they
are both "objective" as opposed to "subjective," hence little or no judgment is required.

The specific risk premium used in the CAPM is the same as the risk premium used in the bond-yield-plus-risk-premium approach.

FIN 534 quiz 6 week 7

Business / Economics

5/4/12

Opening Offer: $18.00
Posted by: argument
Date Posted: 5/4/12 4:55 PM
Due Date: 12/31/69

Question 1

Which of the following statements is CORRECT?

Answer

One advantage of the NPV over the IRR is that NPV takes account of cash flows over a project's full life whereas IRR does not.

One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at the IRR. The NPV assumption is generally more appropriate.

One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project's full life whereas MIRR does not.

One advantage of the NPV over the MIRR method is that NPV discounts cash flows whereas the MIRR is based on undiscounted cash flows.

Since cash flows under the IRR and MIRR are both discounted at the same rate (the WACC), these two methods always rank mutually exclusive projects in the same order.

2 points

Question 2

Westchester Corp. is considering two equally risky, mutually exclusive projects, both of which have normal cash flows. Project A has an IRR of 11%, while Project B's IRR is 14%. When the WACC is 8%, the projects have the same NPV. Given this information, which of the following statements is CORRECT?

Answer

If the WACC is 13%, Project A's NPV will be higher than Project B's.

f the WACC is 9%, Project A's NPV will be higher than Project B's.

If the WACC is 6%, Project B's NPV will be higher than Project A's.

If the WACC is greater than 14%, Project A's IRR will exceed Project B's.

If the WACC is 9%, Project B's NPV will be higher than Project A's.

Question 3

Four of the following statements are truly disadvantages of the regular payback method, but one is not a disadvantage of this method. Which one is NOT

a disadvantage of the payback method?

Answer

Lacks an objective, market-determined benchmark for making decisions.

Ignores cash flows beyond the payback period.

Does not directly account for the time value of money.

Does not provide any indication regarding a project's liquidity or risk.

Does not take account of differences in size among projects.

2 points

Question 4

Projects S and L are equally risky, mutually exclusive, and have normal cash flows. Project S has an IRR of 15%, while Project L's IRR is 12%. The two projects have the same NPV when the WACC is 7%. Which of the following statements is CORRECT?

Answer

If the WACC is 10%, both projects will have positive NPVs.

If the WACC is 6%, Project S will have the higher NPV.

If the WACC is 13%, Project S will have the lower NPV.

If the WACC is 10%, both projects will have a negative NPV.

Project S's NPV is more sensitive to changes in WACC than Project L's.

Question 5

Assume that the economy is enjoying a strong boom, and as a result interest rates and money costs generally are relatively high. The WACC for two mutually exclusive projects that are being considered is 12%. Project S has an IRR of 20% while Project L's IRR is 15%. The projects have the same NPV at the 12% current WACC. However, you believe that the economy will soon fall into a mild recession, and money costs and thus your WACC will soon decline. You also think that the projects will not be funded until the WACC has decreased, and their cash flows will not be affected by the change in economic conditions. Under these conditions, which of the following statements is CORRECT?

Answer

You should reject both projects because they will both have negative NPVs under the new conditions.

You should delay a decision until you have more information on the projects, even if this means that a competitor might come in and capture this market.

You should recommend Project L, because at the new WACC it will have the higher NPV.

You should recommend Project S, because at the new WACC it will have the higher NPV.

You should recommend Project L because it will have both a higher IRR and a higher NPV under the new conditions.

2 points

Question 6

Which of the following statements is CORRECT?

Answer

The MIRR and NPV decision criteria can never conflict.

The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be.

One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.

The higher the WACC, the shorter the discounted payback period.

The MIRR method assumes that cash flows are reinvested at the crossover rate.

Question 7

Which of the following statements is CORRECT?

Answer

The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects.

For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods.

Multiple IRRs can exist, but not multiple MIRRs. This is one reason some people favor the MIRR over the regular IRR.

If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years.

The percentage difference between the MIRR and the IRR is equal to the project's WACC.

2 points

Question 8

Which of the following statements is CORRECT?

Answer

The shorter a project's payback period, the less desirable the project is normally considered to be by this criterion.

One drawback of the regular payback is that this method does not take account of cash flows beyond the payback period.

If a project's payback is positive, then the project should be accepted because it must have a positive NPV.

The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.

One drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback.

Question 9

Which of the following statements is CORRECT?

Answer

The IRR method appeals to some managers because it gives an estimate of the rate of return on projects rather than a dollar amount, which the NPV method provides.

The discounted payback method eliminates all of the problems associated with the payback method.

When evaluating independent projects, the NPV and IRR methods often yield conflicting results regarding a project's acceptability.

To find the MIRR, we discount the TV at the IRR.

A project's NPV profile must intersect the X-axis at the project's WACC.

2 points

Question 10

Which of the following statements is CORRECT?

Answer

The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR.

The NPV method assumes that cash flows will be reinvested at the risk-free rate, while the IRR method assumes reinvestment at the IRR.

The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the risk-free rate.

The NPV method does not consider all relevant cash flows, particularly cash flows beyond the payback period.

The IRR method does not consider all relevant cash flows, particularly cash flows beyond the payback period.

Question 11

Assume that the economy is in a mild recession, and as a result interest rates and money costs generally are relatively low. The WACC for two mutually exclusive projects that are being considered is 8%. Project S has an IRR of 20% while Project L's IRR is 15%. The projects have the same NPV at the 8% current WACC. However, you believe that the economy is about to recover, and money costs and thus your WACC will also increase. You also think that the projects will not be funded until the WACC has increased, and their cash flows will not be affected by the change in economic conditions. Under these conditions, which of the following statements is CORRECT?

Answer

You should reject both projects because they will both have negative NPVs under the new conditions.

You should delay a decision until you have more information on the projects, even if this means that a competitor might come in and capture this market.

You should recommend Project L, because at the new WACC it will have the higher NPV.

You should recommend Project S, because at the new WACC it will have the higher NPV.

You should recommend Project S because it has the higher IRR and will continue to have the higher IRR even at the new WACC.

2 points

Question 12

Which of the following statements is CORRECT?

Answer

One defect of the IRR method is that it does not take account of cash flows over a project's full life.

One defect of the IRR method is that it does not take account of the time value of money.

One defect of the IRR method is that it does not take account of the cost of capital.

One defect of the IRR method is that it values a dollar received today the same as a dollar that will not be received until sometime in the future.

One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.

Question 13

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Answer

A project's NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting the TV at the IRR to find its PV.

The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.

If a project's NPV is greater than zero, then its IRR must be less than the WACC.

If a project's NPV is greater than zero, then its IRR must be less than zero.

The NPVs of relatively risky projects should be found using relatively low WACCs.

2 points

Question 14

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Answer

The longer a project's payback period, the more desirable the project is normally considered to be by this criterion.

One drawback of the regular payback for evaluating projects is that this method does not properly account for the time value of money.

If a project's payback is positive, then the project should be rejected because it must have a negative NPV.

The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.

If a company uses the same payback requirement to evaluate all projects, say it requires a payback of 4 years or less, then the company will tend to reject projects with relatively short lives and accept long-lived projects, and this will cause its risk to increase over time.

Question 15

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

Answer

A project's regular IRR is found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting this TV at the WACC.

A project's regular IRR is found by discounting the cash inflows at the WACC to find the present value (PV), then compounding this PV to find the IRR.

If a project's IRR is greater than the WACC, then its NPV must be negative.

To find a project's IRR, we must solve for the discount rate that causes the PV of the inflows to equal the PV of the project's costs.

To find a project's IRR, we must find a discount rate that is equal to the WACC.

2 points

Question 16

Which of the following statements is CORRECT?

Answer

An externality is a situation where a project would have an adverse effect on some other part of the firm's overall operations. If the project would have a favorable effect on other operations, then this is not an externality.

An example of an externality is a situation where a bank opens a new office, and that new office causes deposits in the bank's other offices to increase.

The NPV method automatically deals correctly with externalities, even if the externalities are not specifically identified, but the IRR method does not. This is another reason to favor the NPV.

Both the NPV and IRR methods deal correctly with externalities, even if the externalities are not specifically identified. However, the payback method does not.

Identifying an externality can never lead to an increase in the calculated NPV.

Question 17

Which of the following statements is CORRECT?

Answer

A sunk cost is any cost that must be expended in order to complete a project and bring it into operation.

A sunk cost is any cost that was expended in the past but can be recovered if the firm decides not to go forward with the project.

A sunk cost is a cost that was incurred and expensed in the past and cannot be recovered if the firm decides not to go forward with the project.

Sunk costs were formerly hard to deal with but now that the NPV method is widely used, it is possible to simply include sunk costs in the cash flows and then calculate the PV of the project.

A good example of a sunk cost is a situation where Home Depot opens a new store, and that leads to a decline in sales of one of the firm's existing stores.

2 points

Question 18

Which of the following statements is CORRECT?

Answer

An example of a sunk cost is the cost associated with restoring the site of a strip mine once the ore has been depleted.

Sunk costs must be considered if the IRR method is used but not if the firm relies on the NPV method.

A good example of a sunk cost is a situation where a bank opens a new office, and that new office leads to a decline in deposits of the bank's other offices.

A good example of a sunk cost is money that a banking corporation spent last year to investigate the site for a new office, then expensed that cost for tax purposes, and now is deciding whether to go forward with the project.

If sunk costs are considered and reflected in a project's cash flows, then the project's calculated NPV will be higher than it otherwise would be.

Question 19

Which of the following statements is CORRECT?

Answer

In a capital budgeting analysis where part of the funds used to finance the project would be raised as debt, failure to include interest expense as a cost when determining the project's cash flows will lead to an upward

bias in the NPV.

In a capital budgeting analysis where part of the funds used to finance the project would be raised as debt, failure to include interest expense as a cost when determining the project's cash flows will lead to a downward

bias in the NPV.

The existence of any type of "externality" will reduce the calculated NPV versus the NPV that would exist without the externality.

If one of the assets to be used by a potential project is already owned by the firm, and if that asset could be sold or leased to another firm if the new project were not undertaken, then the net after-tax proceeds that could be obtained should be charged as a cost to the project under consideration.

If one of the assets to be used by a potential project is already owned by the firm but is not being used, then any costs associated with that asset is a sunk cost and should be ignored.

2 points

Question 20

Which of the following statements is CORRECT?

Answer

Sensitivity analysis is a good way to measure market risk because it explicitly takes into account diversification effects.

One advantage of sensitivity analysis relative to scenario analysis is that it explicitly takes into account the probability of specific effects occurring, whereas scenario analysis cannot account for probabilities.

Well-diversified stockholders do not need to consider market risk when determining required rates of return.

Market risk is important, but it does not have a direct effect on stock prices because it only affects beta.

Simulation analysis is a computerized version of scenario analysis where input variables are selected randomly on the basis of their probability distributions.

Question 21

Which of the following factors should be included in the cash flows used to estimate a project's NPV?

Answer

All costs associated with the project that have been incurred prior to the time the analysis is being conducted.

Interest on funds borrowed to help finance the project.

The end-of-project recovery of any working capital required to operate the project.

Cannibalization effects, but only if those effects increase the project's projected cash flows.

Expenditures to date on research and development related to the project, provided those costs have already been expensed for tax purposes.

2 points

Question 22

Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project?

Answer

The new project is expected to reduce sales of one of the company's existing products by 5%.

Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the project's initial cost.

The company has spent and expensed $1 million on R&D associated with the new project.

The company spent and expensed $10 million on a marketing study before its current analysis regarding whether to accept or reject the project.

The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year.

Question 23

The relative risk of a proposed project is best accounted for by which of the following procedures?

Answer

Adjusting the discount rate upward if the project is judged to have above-average risk.

Adjusting the discount rate downward if the project is judged to have above-average risk.

Reducing the NPV by 10% for risky projects.

Picking a risk factor equal to the average discount rate.

Ignoring risk because project risk cannot be measured accurately.

2 points

Question 24

Rowell Company spent $3 million two years ago to build a plant for a new product. It then decided not to go forward with the project, so the building is available for sale or for a new product. Rowell owns the building free and clear--there is no mortgage on it. Which of the following statements is CORRECT?

Answer

Since the building has been paid for, it can be used by another project with no additional cost. Therefore, it should not be reflected in the cash flows for any new project.

If the building could be sold, then the after-tax proceeds that would be generated by any such sale should be charged as a cost to any new project that would use it.

This is an example of an externality, because the very existence of the building affects the cash flows for any new project that Rowell might consider.

Since the building was built in the past, its cost is a sunk cost and thus need not be considered when new projects are being evaluated, even if it would be used by those new projects.

If there is a mortgage loan on the building, then the interest on that loan would have to be charged to any new project that used the building.

Question 25

Suppose Tapley Inc. uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Tapley accept, assuming that the company uses the NPV method when choosing projects?

Answer

Project A, which has average risk and an IRR = 9%.

Project B, which has below-average risk and an IRR = 8.5%.

Project C, which has above-average risk and an IRR = 11%.

Without information about the projects' NPVs we cannot determine which project(s) should be accepted.

All of these projects should be accepted.

2 points

Question 26

Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?

Answer

Using some of the firm's high-quality factory floor space that is currently unused to produce the proposed new product. This space could be used for other products if it is not used for the project under consideration.

Revenues from an existing product would be lost as a result of customers switching to the new product.

Shipping and installation costs associated with a machine that would be used to produce the new product.

The cost of a study relating to the market for the new product that was completed last year. The results of this research were positive, and they led to the tentative decision to go ahead with the new product. The cost of the research was incurred and expensed for tax purposes last year.

It is learned that land the company owns and would use for the new project, if it is accepted, could be sold to another firm.

Question 27

Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?

Answer

A firm has a parcel of land that can be used for a new plant site or be sold, rented, or used for agricultural purposes.

A new product will generate new sales, but some of those new sales will be from customers who switch from one of the firm's current products.

A firm must obtain new equipment for the project, and $1 million is required for shipping and installing the new machinery.

A firm has spent $2 million on R&D associated with a new product. These costs have been expensed for tax purposes, and they cannot be recovered regardless of whether the new project is accepted or rejected.

A firm can produce a new product, and the existence of that product will stimulate sales of some of the firm's other products.

2 points

Question 28

A company is considering a new project. The CFO plans to calculate the project's NPV by estimating the relevant cash flows for each year of the project's life (i.e., the initial investment cost, the annual operating cash flows, and the terminal cash flow), then discounting those cash flows at the company's overall WACC. Which one of the following factors should the CFO be sure to INCLUDE in the cash flows when estimating the relevant cash flows?

Answer

All sunk costs that have been incurred relating to the project.

All interest expenses on debt used to help finance the project.

The investment in working capital required to operate the project, even if that investment will be recovered at the end of the project's life.

Sunk costs that have been incurred relating to the project, but only if those costs were incurred prior to the current year.

Effects of the project on other divisions of the firm, but only if those effects lower the project's own direct cash flows.

Question 29

When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT:

Answer

Changes in net working capital attributable to the project.

Previous expenditures associated with a market test to determine the feasibility of the project, provided those costs have been expensed for tax purposes.

The value of a building owned by the firm that will be used for this project.

A decline in the sales of an existing product, provided that decline is directly attributable to this project.

The salvage value of assets used for the project that will be recovered at the end of the project's life.

2 points

Question 30

Which of the following statements is CORRECT?

Answer

Using accelerated depreciation rather than straight line would normally have no effect on a project's total projected cash flows but it would affect the timing of the cash flows and thus the NPV.

Under current laws and regulations, corporations must use straight-line depreciation for all assets whose lives are 5 years or longer.

Corporations must use the same depreciation method (e.g., straight line or accelerated) for stockholder reporting and tax purposes.

Since depreciation is not a cash expense, it has no effect on cash flows and thus no effect on capital budgeting decisions.

Under accelerated depreciation, higher depreciation charges occur in the early years, and this reduces the early cash flows and thus lowers a project's projected NPV.

FIN 534 quiz 7 week 8

Business / Economics

5/4/12

Opening Offer: $18.00
Posted by: argument
Date Posted: 5/4/12 4:58 PM
Due Date: 12/31/69

A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase?

Answer

The company previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.

The company increases its dividend payout ratio.

The company begins to pay employees monthly rather than weekly.

The company's profit margin increases.

The company decides to stop taking discounts on purchased materials.

Which of the following statements is CORRECT?

Answer

Once a firm has defined its purpose, scope, and objectives, it must develop a strategy or strategies for achieving its goals. The statement of corporate strategies sets forth detailed plans rather than broad approaches for achieving a firm's goals.

A firm's corporate purpose states the general philosophy of the business and provides managers with specific operational objectives.

Operating plans provide management with detailed implementation guidance, consistent with the corporate strategy, to help meet the corporate objectives. These operating plans can be developed for any time horizon, but many companies use a 5-year horizon.

A firm's mission statement defines its lines of business and geographic area of operations.

The corporate scope is a condensed version of the entire set of strategic plans.

Last year Wei Guan Inc. had $350 million of sales, and it had $270 million of fixed assets that were used at 65% of capacity. In millions, by how much could Wei Guan's sales increase before it is required to increase its fixed assets?

Answer

$170.09

$179.04

$188.46

$197.88

$207.78

Last year Godinho Corp. had $250 million of sales, and it had $75 million of fixed assets that were being operated at 80% of capacity. In millions, how large could sales have been if the company had operated at full capacity?

Answer

$312.5

$328.1

$344.5

$361.8

$379.8

The term "additional funds needed (AFN)" is generally defined as follows:

Answer

Funds that are obtained automatically from routine business transactions.

Funds that a firm must raise externally from non-spontaneous sources, i.e., by borrowing or by selling new stock to support operations.

The amount of assets required per dollar of sales.

The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth.

A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant.

Spontaneous funds are generally defined as follows:

Answer

Assets required per dollar of sales.

A forecasting approach in which the forecasted percentage of sales for each item is held constant.

Funds that a firm must raise externally through short-term or long-term borrowing and/or by selling new common or preferred stock.

Funds that arise out of normal business operations from its suppliers, employees, and the government, and they include immediate increases in accounts payable, accrued wages, and accrued taxes.

The amount of cash raised in a given year minus the amount of cash needed to finance the additional capital expenditures and working capital needed to support the firm's growth.

Which of the following statements is CORRECT?

Answer

Any forecast of financial requirements involves determining how much money the firm will need, and this need is determined by adding together increases in assets and spontaneous liabilities and then subtracting operating income.

The AFN equation for forecasting funds requirements requires only a forecast of the firm's balance sheet. Although a forecasted income statement may help clarify the results, income statement data are not essential because funds needed relate only to the balance sheet.

Dividends are paid with cash taken from the accumulated retained earnings account, hence dividend policy does not affect the AFN forecast.

A negative AFN indicates that retained earnings and spontaneous liabilities are far more than sufficient to finance the additional assets needed.

If the ratios of assets to sales and spontaneous liabilities to sales do not remain constant, then the AFN equation will provide more accurate forecasts than the forecasted financial statements method.

Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)?

Answer

A sharp increase in its forecasted sales.

A switch to a just-in-time inventory system and outsourcing production.

The company reduces its dividend payout ratio.

The company switches its materials purchases to a supplier that sells on terms of 1/5, net 90, from a supplier whose terms are 3/15, net 35.

The company discovers that it has excess capacity in its fixed assets.

Which of the following is NOT a key element in strategic planning as it is described in the text?

Answer

The mission statement.

The statement of the corporation's scope.

The statement of cash flows.

The statement of corporate objectives.

The corporation's strategies.

Which of the following statements is CORRECT?

Answer

Since accounts payable and accrued liabilities must eventually be paid off, as these accounts increase, AFN as calculated by the AFN equation must also increase.

Suppose a firm is operating its fixed assets at below 100% of capacity, but it has no excess current assets. Based on the AFN equation, its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets.

If a firm retains all of its earnings, then it cannot require any additional funds to support sales growth.

Additional funds needed (AFN) are typically raised using a combination of notes payable, long-term debt, and common stock. Such funds are non-spontaneous in the sense that they require explicit financing decisions to obtain them.

If a firm has a positive free cash flow, then it must have either a zero or a negative AFN.

Which of the following statements is CORRECT?

Answer

When we use the AFN equation, we assume that the ratios of assets and liabilities to sales (A0*/S0 and L0*/S0) vary from year to year in a stable, predictable manner.

When fixed assets are added in large, discrete units as a company grows, the assumption of constant ratios is more appropriate than if assets are relatively small and can be added in small increments as sales grow.

Firms whose fixed assets are "lumpy" frequently have excess capacity, and this should be accounted for in the financial forecasting process.

For a firm that uses lumpy assets, it is impossible to have small increases in sales without expanding fixed assets.

There are economies of scale in the use of many kinds of assets. When economies occur the ratios are likely to remain constant over time as the size of the firm increases. The Economic Ordering Quantity model for establishing inventory levels demonstrates this relationship.

Which of the following is NOT one of the steps taken in the financial planning process?

Answer

Forecast the funds that will be generated internally. If internal funds are insufficient to cover the required new investment, then identify sources from which the required external capital can be raised.

Monitor operations after implementing the plan to spot any deviations and then take corrective actions.

Determine the amount of capital that will be needed to support the plan.

Develop a set of forecasted financial statements under alternative versions of the operating plan in order to analyze the effects of different operating procedures on projected profits and financial ratios.

Consult with key competitors about the optimal set of prices to charge, i.e., the prices that will maximize profits for our firm and its competitors.

Last year Handorf-Zhu Inc. had $850 million of sales, and it had $425 million of fixed assets that were used at only 60% of capacity. What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

Answer

54.30%

57.16%

60.17%

63.33%

66.67%

Which of the following assumptions is embodied in the AFN equation?

Answer

None of the firm's ratios will change.

Accounts payable and accruals are tied directly to sales.

Common stock and long-term debt are tied directly to sales.

Fixed assets, but not current assets, are tied directly to sales.

Last year's total assets were not optimal for last year's sales.

Which of the following statements is CORRECT?

Answer

The sustainable growth rate is the maximum achievable growth rate without the firm having to raise external funds. In other words, it is the growth rate at which the firm's AFN equals zero.

If a firm's assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firm's AFN to be negative.

If a firm increases its dividend payout ratio in anticipation of higher earnings, but sales and earnings actually decrease, then the firm's actual AFN must, mathematically, exceed the previously calculated AFN.

Higher sales usually require higher asset levels, and this leads to what we call AFN. However, the AFN will be zero if the firm chooses to retain all of its profits, i.e., to have a zero dividend payout ratio.

Dividend policy does not affect the requirement for external funds based on the AFN equation.

Which of the following statements is NOT CORRECT?

Answer

The corporate valuation model can be used both for companies that pay dividends and those that do not pay dividends.

The corporate valuation model discounts free cash flows by the required return on equity.

The corporate valuation model can be used to find the value of a division.

An important step in applying the corporate valuation model is forecasting the firm's pro forma financial statements.

Free cash flows are assumed to grow at a constant rate beyond a specified date in order to find the horizon, or terminal, value.

Leak Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 11% and FCF is expected to grow at a rate of 5% after Year 2, what is the Year 0 value of operations, in millions? Assume that the ROIC is expected to remain constant in Year 2 and beyond (and do not make any half-year adjustments).

Year: 1 2

Free cash flow: -$50 $100

Answer

$1,456

$1,529

$1,606

$1,686

$1,770

Akyol Corporation is undergoing a restructuring, and its free cash flows are expected to be unstable during the next few years. However, FCF is expected to be $50 million in Year 5, i.e., FCF at t = 5 equals $50 million, and the FCF growth rate is expected to be constant at 6% beyond that point. If the weighted average cost of capital is 12%, what is the horizon value (in millions) at t = 5?

Answer

$719

$757

$797

$839

$883

Based on the corporate valuation model, the value of a company's operations is $900 million. Its balance sheet shows $70 million in accounts receivable, $50 million in inventory, $30 million in short-term investments that are unrelated to operations, $20 million in accounts payable, $110 million in notes payable, $90 million in long-term debt, $20 million in preferred stock, $140 million in retained earnings, and $280 million in total common equity. If the company has 25 million shares of stock outstanding, what is the best estimate of the stock's price per share?

Answer

$23.00

$25.56

$28.40

$31.24

$34.36

Suppose Leonard, Nixon, & Shull Corporation's projected free cash flow for next year is $100,000, and FCF is expected to grow at a constant rate of 6%. If the company's weighted average cost of capital is 11%, what is the value of its operations?

Answer

$1,714,750

$1,805,000

$1,900,000

$2,000,000

$2,100,000

Based on the corporate valuation model, Bernile Inc.'s value of operations is $750 million. Its balance sheet shows $50 million of short-term investments that are unrelated to operations, $100 million of accounts payable, $100 million of notes payable, $200 million of long-term debt, $40 million of common stock (par plus paid-in-capital), and $160 million of retained earnings. What is the best estimate for the firm's value of equity, in millions?

Answer

$429

$451

$475

$500

$525

Zhdanov Inc. forecasts that its free cash flow in the coming year, i.e., at t = 1, will be -$10 million, but its FCF at t = 2 will be $20 million. After Year 2, FCF is expected to grow at a constant rate of 4% forever. If the weighted average cost of capital is 14%, what is the firm's value of operations, in millions?

Answer

$158

$167

$175

$184

$193

Which of the following does NOT always increase a company's market value?

Answer

Increasing the expected growth rate of sales.

Increasing the expected operating profitability (NOPAT/Sales).

Decreasing the capital requirements (Capital/Sales).

Decreasing the weighted average cost of capital.

Increasing the expected rate of return on invested capital.

Based on the corporate valuation model, the value of a company's operations is $1,200 million. The company's balance sheet shows $80 million in accounts receivable, $60 million in inventory, and $100 million in short-term investments that are unrelated to operations. The balance sheet also shows $90 million in accounts payable, $120 million in notes payable, $300 million in long-term debt, $50 million in preferred stock, $180 million in retained earnings, and $800 million in total common equity. If the company has 30 million shares of stock outstanding, what is the best estimate of the stock's price per share?

Answer

$24.90

$27.67

$30.43

$33.48

$36.82

Simonyan Inc. forecasts a free cash flow of $40 million in Year 3, i.e., at t = 3, and it expects FCF to grow at a constant rate of 5% thereafter. If the weighted average cost of capital is 10% and the cost of equity is 15%, what is the horizon value, in millions at t = 3?

Answer

$840

$882

$926

$972

$1,021

Based on the corporate valuation model, Hunsader's value of operations is $300 million. The balance sheet shows $20 million of short-term investments that are unrelated to operations, $50 million of accounts payable, $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. The company has 10 million shares of stock outstanding. What is the best estimate of the stock's price per share?

Answer

$13.72

$14.44

$15.20

$16.00

$16.80

A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?

Year: 1 2 3

Free cash flow: -$15 $10 $40

Answer

$315

$331

$348

$367

$386

Suppose Yon Sun Corporation's free cash flow during the just-ended year (t = 0) was $100 million, and FCF is expected to grow at a constant rate of 5% in the future. If the weighted average cost of capital is 15%, what is the firm's value of operations, in millions?

Answer

$948

$998

$1,050

$1,103

$1,158

Which of the following is NOT normally regarded as being a good reason to establish an ESOP?

Answer

To increase worker productivity.

To enable the firm to borrow at a below-market interest rate.

To make it easier to grant stock options to employees.

To help prevent a hostile takeover.

To help retain valued employees.

Which of the following is NOT normally regarded as being a barrier to hostile takeovers?

Answer

Abnormally high executive compensation.

Targeted share repurchases.

Shareholder rights provisions.

Restricted voting rights.

Poison pills.

FIN 534 quiz 8 week 9

Business / Economics

5/4/12

Opening Offer: $18.00
Posted by: argument
Date Posted: 5/4/12 5:04 PM
Due Date: 12/30/12

Question 1

Which of the following statements is correct?

Answer

One advantage of dividend reinvestment plans is that they enable investors to avoid paying taxes on the dividends they receive.

If a company has an established clientele of investors who prefer a high dividend payout, and if management wants to keep stockholders happy, it should not

follow the strict residual dividend policy.

If a firm follows a strict residual dividend policy, then, holding all else constant, its dividend payout ratio will tend to rise whenever the firm's investment opportunities improve.

If Congress eliminates taxes on capital gains but leaves the personal tax rate on dividends unchanged, this would motivate companies to increase their dividend payout ratios.

Despite its drawbacks, following the residual dividend policy will tend to stabilize actual cash dividends, and this will make it easier for firms to attract a clientele that prefers high dividends, such as retirees.

2 points

Question 2

In the real world, dividends

Answer

are usually more stable than earnings.

fluctuate more widely than earnings.

tend to be a lower percentage of earnings for mature firms.

are usually changed every year to reflect earnings changes, and these changes are randomly higher or lower, depending on whether earnings increased or decreased.

are usually set as a fixed percentage of earnings, e.g., at 40% of earnings, so if EPS = $2.00, then DPS will equal $0.80. Once the percentage is set, then dividend policy is on "automatic pilot" and the actual dividend depends strictly on earnings.

2 points

Question 3

Which of the following statements is correct?

Answer

Firms with a lot of good investment opportunities and a relatively small amount of cash tend to have above average payout ratios.

One advantage of the residual dividend policy is that it leads to a stable dividend payout, which investors like.

An increase in the stock price when a company decreases its dividend is consistent with signaling theory as postulated by MM.

If the "clientele effect" is correct, then for a company whose earnings fluctuate, a policy of paying a constant percentage of net income will probably maximize the stock price.

Stock repurchases make the most sense at times when a company believes its stock is undervalued.

2 points

Question 4

If a firm adheres strictly to the residual dividend policy, the issuance of new common stock would suggest that

Answer

the dividend payout ratio has remained constant.

the dividend payout ratio is increasing.

no dividends were paid during the year.

the dividend payout ratio is decreasing.

the dollar amount of investments has decreased.

2 points

Question 5

You own 100 shares of Troll Brothers' stock, which currently sells for $120 a share. The company is contemplating a 2-for-1 stock split. Which of the following best describes what your position will be after such a split takes place?

Answer

You will have 200 shares of stock, and the stock will trade at or near $120 a share.

You will have 200 shares of stock, and the stock will trade at or near $60 a share.

You will have 100 shares of stock, and the stock will trade at or near $60 a share.

You will have 50 shares of stock, and the stock will trade at or near $120 a share.

You will have 50 shares of stock, and the stock will trade at or near $60 a share.

2 points

Question 6

If a firm adheres strictly to the residual dividend policy, then if its optimal capital budget requires the use of all earnings for a given year (along with new debt according to the optimal debt/total assets ratio), then the firm should pay

Answer

no dividends except out of past retained earnings.

no dividends to common stockholders.

dividends only out of funds raised by the sale of new common stock.

dividends only out of funds raised by borrowing money (i.e., issue debt).

dividends only out of funds raised by selling off fixed assets.

2 points

Question 7

Which of the following statements is correct?

Answer

Under the tax laws as they existed in 2008, a dollar received for repurchased stock must be taxed at the same rate as a dollar received as dividends.

One nice feature of dividend reinvestment plans (DRIPs) is that they reduce the taxes investors would have to pay if they received cash dividends.

Empirical research indicates that, in general, companies send a negative signal to the marketplace when they announce an increase in the dividend, and as a result share prices fall when dividend increases are announced. The reason is that investors interpret the increase as a signal that the firm has relatively few good investment opportunities.

If a company wants to raise new equity capital rather steadily over time, a new stock dividend reinvestment plan would make sense. However, if the firm does not want or need new equity, then an open market purchase dividend reinvestment plan would probably make more sense.

Dividend reinvestment plans have not caught on in most industries, and today about 99% of all companies with DRIPs are utilities.

2 points

Question 8

Which of the following would be most likely to lead to a decrease in a firm's dividend payout ratio?

Answer

Its earnings become more stable.

Its access to the capital markets increases.

Its R&D efforts pay off, and it now has more high-return investment opportunities.

Its accounts receivable decrease due to a change in its credit policy.

Its stock price has increased over the last year by a greater percentage than the increase in the broad stock market averages.

2 points

Question 9

Firm M is a mature firm in a mature industry. Its annual net income and net cash flows are both consistently high and stable. However, M's growth prospects are quite limited, so its capital budget is small relative to its net income. Firm N is a relatively new firm in a new and growing industry. Its markets and products have not stabilized, so its annual operating income fluctuates considerably. However, N has substantial growth opportunities, and its capital budget is expected to be large relative to its net income for the foreseeable future. Which of the following statements is correct?

Answer

Firm M probably has a lower debt ratio than Firm N.

Firm M probably has a higher dividend payout ratio than Firm N.

If the corporate tax rate increases, the debt ratio of both firms is likely to decline.

The two firms are equally likely to pay high dividends.

Firm N is likely to have a clientele of shareholders who want to receive consistent, stable dividend income.

2 points

Question 10

Which of the following statements is correct?

Answer

One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company.

One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account.

Stock repurchases can be used by a firm that wants to increase its debt ratio.

Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are aware of these investment opportunities.

One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding.

2 points

Question 11

Which of the following should not influence a firm's dividend policy decision?

Answer

The firm's ability to accelerate or delay investment projects.

A strong preference by most shareholders for current cash income versus capital gains.

Constraints imposed by the firm's bond indenture.

The fact that much of the firm's equipment has been leased rather than bought and owned.

The fact that Congress is considering changes in the tax law regarding the taxation of dividends versus capital gains.

2 points

Question 12

Which of the following statements is correct?

Answer

If a firm repurchases some of its stock in the open market, then shareholders who sell their stock for more than they paid for it will be subject to capital gains taxes.

An open-market dividend reinvestment plan will be most attractive to companies that need new equity and would otherwise have to issue additional shares of common stock through investment bankers.

Stock repurchases tend to reduce financial leverage.

If a company declares a 2-for-1 stock split, its stock price should roughly double.

One advantage of adopting the residual dividend policy is that this makes it easier for corporations to meet the requirements of Modigliani and Miller's dividend clientele theory.

2 points

Question 13

Which of the following statements is NOT correct?

Answer

Stock repurchases can be used by a firm as part of a plan to change its capital structure.

After a 3-for-1 stock split, a company's price per share should fall, but the number of shares outstanding will rise.

Investors can interpret a stock repurchase program as a signal that the firm's managers believe the stock is undervalued.

Companies can repurchase shares to distribute large inflows of cash, say from the sale of a division, to stockholders without paying cash dividends.

Stockholders pay no income tax on dividends if the dividends are used to purchase stock through a dividend reinvestment plan.

2 points

Question 14

Which of the following actions will best enable a company to raise additional equity capital?

Answer

Refund long-term debt with lower cost short-term debt.

Declare a stock split.

Begin an open-market purchase dividend reinvestment plan.

Initiate a stock repurchase program.

Begin a new-stock dividend reinvestment plan.

2 points

Question 15

Which of the following statements is correct?

Answer

The tax code encourages companies to pay dividends rather than retain earnings.

If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase.

The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.

Large stock repurchases financed by debt tend to increase earnings per share, but they also increase the firm's financial risk.

A dollar paid out to repurchase stock is taxed at the same rate as a dollar paid out in dividends. Thus, both companies and investors are indifferent between distributing cash through dividends and stock repurchase programs.

2 points

Question 16

Based on the information below, what is Ezzel Enterprises' optimal capital structure?

Answer

Debt = 40%; Equity = 60%; EPS = $2.95; Stock price = $26.50.

Debt = 50%; Equity = 50%; EPS = $3.05; Stock price = $28.90.

Debt = 60%; Equity = 40%; EPS = $3.18; Stock price = $31.20.

Debt = 80%; Equity = 20%; EPS = $3.42; Stock price = $30.40.

Debt = 70%; Equity = 30%; EPS = $3.31; Stock price = $30.00.

2 points

Question 17

Which of the following events is likely to encourage a company to raise its target debt ratio, other things held constant?

Answer

An increase in the corporate tax rate.

An increase in the personal tax rate.

An increase in the company's operating leverage.

The Federal Reserve tightens interest rates in an effort to fight inflation.

The company's stock price hits a new high.

2 points

Question 18

If debt financing is used, which of the following is CORRECT?

Answer

The percentage change in net operating income will be greater than a given percentage change in net income.

The percentage change in net operating income will be equal to a given percentage change in net income.

The percentage change in net income relative to the percentage change in net operating income will depend on the interest rate charged on debt.

The percentage change in net income will be greater than the percentage change in net operating income.

The percentage change in sales will be greater than the percentage change in EBIT, which in turn will be greater than the percentage change in net income.

2 points

Question 19

Which of the following statements is CORRECT? As a firm increases the operating leverage used to produce a given quantity of output, this will

Answer

normally lead to an increase in its fixed assets turnover ratio.

normally lead to a decrease in its business risk.

normally lead to a decrease in the standard deviation of its expected EBIT.

normally lead to a decrease in the variability of its expected EPS.

normally lead to a reduction in its fixed assets turnover ratio.

2 points

Question 20

Business risk is affected by a firm's operations. Which of the following is NOT associated with (or does not contribute to) business risk?

Answer

Demand variability.

Sales price variability.

The extent to which operating costs are fixed.

The extent to which interest rates on the firm's debt fluctuate.

Input price variability.

2 points

Question 21

Firms U and L each have the same amount of assets, and both have a basic earning power ratio of 20%. Firm U is unleveraged, i.e., it is 100% equity financed, while Firm L is financed with 50% debt and 50% equity. Firm L's debt has a before-tax cost of 8%. Both firms have positive net income. Which of the following statements is CORRECT?

Answer

The two companies have the same times interest earned (TIE) ratio.

Firm L has a lower ROA than Firm U.

Firm L has a lower ROE than Firm U.

Firm L has the higher times interest earned (TIE) ratio.

Firm L has a higher EBIT than Firm U.

2 points

Question 22

Which of the following statements is CORRECT, holding other things constant?

Answer

Firms whose assets are relatively liquid tend to have relatively low bankruptcy costs, hence they tend to use relatively little debt.

An increase in the personal tax rate is likely to increase the debt ratio of the average corporation.

If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.

An increase in the company's degree of operating leverage is likely to encourage a company to use more debt in its capital structure.

An increase in the corporate tax rate is likely to encourage a company to use more debt in its capital structure.

2 points

Question 23

Which of the following statements is CORRECT?

Answer

Since debt financing raises the firm's financial risk, increasing a company's debt ratio will always increase its WACC.

Since debt financing is cheaper than equity financing, raising a company's debt ratio will always reduce its WACC.

Increasing a company's debt ratio will typically reduce the marginal cost of both debt and equity financing. However, this action still may raise the company's WACC.

Increasing a company's debt ratio will typically increase the marginal cost of both debt and equity financing. However, this action still may lower the company's WACC.

Since a firm's beta coefficient it not affected by its use of financial leverage, leverage does not affect the cost of equity.

2 points

Question 24

Volga Publishing is considering a proposed increase in its debt ratio, which would also increase the company's interest expense. The plan would involve issuing new bonds and using the proceeds to buy back shares of its common stock. The company's CFO thinks the plan will not change total assets or operating income, but that it will increase earnings per share (EPS). Assuming the CFO's estimates are correct, which of the following statements is CORRECT?

Answer

Since the proposed plan increases Volga's financial risk, the company's stock price still might fall even if EPS increases.

If the plan reduces the WACC, the stock price is also likely to decline.

Since the plan is expected to increase EPS, this implies that net income is also expected to increase.

If the plan does increase the EPS, the stock price will automatically increase at the same rate.

Under the plan there will be more bonds outstanding, and that will increase their liquidity and thus lower the interest rate on the currently outstanding bonds.

2 points

Question 25

The firm's target capital structure should be consistent with which of the following statements?

Answer

Maximize the earnings per share (EPS).

Minimize the cost of debt (rd).

Obtain the highest possible bond rating.

Minimize the cost of equity (rs).

Minimize the weighted average cost of capital (WACC).

2 points

Question 26

Which of the following statements is CORRECT?

Answer

If corporate tax rates were decreased while other things were held constant, and if the Modigliani-Miller tax-adjusted tradeoff theory of capital structure were correct, this would tend to cause corporations to decrease their use of debt.

A change in the personal tax rate should not affect firms' capital structure decisions.

"Business risk" is differentiated from "financial risk" by the fact that financial risk reflects only the use of debt, while business risk reflects both the use of debt and such factors as sales variability, cost variability, and operating leverage.

The optimal capital structure is the one that simultaneously (1) maximizes the price of the firm's stock, (2) minimizes its WACC, and (3) maximizes its EPS.

If changes in the bankruptcy code make bankruptcy less costly to corporations, then this would likely reduce the debt ratio of the average corporation.

2 points

Question 27

Companies HD and LD have identical tax rates, total assets, and basic earning power ratios, and their basic earning power exceeds their before-tax cost of debt, rd. However, Company HD has a higher debt ratio and thus more interest expense than Company LD. Which of the following statements is CORRECT?

Answer

Company HD has a higher net income than Company LD.

Company HD has a lower ROA than Company LD.

Company HD has a lower ROE than Company LD.

The two companies have the same ROA.

The two companies have the same ROE.

2 points

Question 28

Which of the following statements is CORRECT?

Answer

As a rule, the optimal capital structure is found by determining the debt-equity mix that maximizes expected EPS.

The optimal capital structure simultaneously maximizes EPS and minimizes the WACC.

The optimal capital structure minimizes the cost of equity, which is a necessary condition for maximizing the stock price.

The optimal capital structure simultaneously minimizes the cost of debt, the cost of equity, and the WACC.

The optimal capital structure simultaneously maximizes stock price and minimizes the WACC.

2 points

Question 29

Which of the following would increase the likelihood that a company would increase its debt ratio, other things held constant?

Answer

An increase in costs incurred when filing for bankruptcy.

An increase in the corporate tax rate.

An increase in the personal tax rate.

The Federal Reserve tightens interest rates in an effort to fight inflation.

The company's stock price hits a new low.

2 points

Question 30

Which of the following statements is CORRECT?

Answer

The capital structure that maximizes expected EPS also maximizes the price per share of common stock.

The capital structure that minimizes the interest rate on debt also maximizes the expected EPS.

The capital structure that minimizes the required return on equity also maximizes the stock price.

The capital structure that minimizes the WACC also maximizes the price per share of common stock.

The capital structure that gives the firm the best credit rating also maximizes the stock price.

FIN 534 quiz 9 week 10

Business / Economics

5/4/12

Opening Offer: $12.00
Posted by: argument
Date Posted: 5/4/12 5:07 PM
Due Date: 12/31/69

1. Which of the following statement completions is CORRECT? If the yield curve is upward sloping, then the marketable securities held in a firm's portfolio, assumed to be held for emergencies, should

Answer

consist mainly of long-term securities because they pay higher rates.

consist mainly of short-term securities because they pay higher rates.

consist mainly of U.S. Treasury securities to minimize interest rate risk.

consist mainly of short-term securities to minimize interest rate risk.

be balanced between long- and short-term securities to minimize the adverse effects of either an upward or a downward trend in interest rates.

2 points

Question 2

A lockbox plan is most beneficial to firms that

have suppliers who operate in many different parts of the country.

have widely dispersed manufacturing facilities.

have a large marketable securities portfolio and cash to protect.

receive payments in the form of currency, such as fast food restaurants, rather than in the form of checks.

have customers who operate in many different parts of the country.

2 points

Question 3

Which of the following actions would be likely to shorten the cash conversion cycle?

Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days.

Change the credit terms offered to customers from 3/10 net 30 to 1/10 net 50.

Begin to take discounts on inventory purchases; we buy on terms of 2/10 net 30.

Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days.

Change the credit terms offered to customers from 2/10 net 30 to 1/10 net 60.

2 points

Question 4

Which of the following statements is CORRECT?

Other things held constant, the higher a firm's days sales outstanding (DSO), the better its credit department.

If a firm that sells on terms of net 30 changes its policy to 2/10 net 30, and if no change in sales volume occurs, then the firm's DSO will probably increase.

If a firm sells on terms of 2/10 net 30, and its DSO is 30 days, then the firm probably has some past-due accounts.

If a firm sells on terms of net 60, and if its sales are highly seasonal, with a sharp peak in December, then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in January than in July.

If a firm changed the credit terms offered to its customers from 2/10 net 30 to 2/10 net 60, then its sales should increase, and this should lead to an increase in sales per day, and that should lead to a decrease in the DSO.

2 points

Question 5

Which of the following statements is NOT CORRECT?

A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year.

Credit policy has an impact on working capital because it influences both sales and the time before receivables are collected.

The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans.

If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10 net 30 to net 60.

Managing working capital is important because it influences financing decisions and the firm's profitability.

2 points

Question 6

Which of the following statements is CORRECT?

Net working capital is defined as current assets minus the sum of payables and accruals, and any increase in the current ratio automatically indicates that net working capital has increased.

Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks associated with using short-term financing.

If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt.

Net working capital is defined as current assets minus the sum of payables and accruals, and any decrease in the current ratio automatically indicates that net working capital has decreased.

If a company follows a policy of "matching maturities," this means that it matches its use of short-term debt with its use of long-term debt.

2 points

Question 7

Other things held constant, which of the following will cause an increase in net working capital?

Cash is used to buy marketable securities.

A cash dividend is declared and paid.

Merchandise is sold at a profit, but the sale is on credit.

Long-term bonds are retired with the proceeds of a preferred stock issue.

Missing inventory is written off against retained earnings.

2 points

Question 8

Which of the following statements is CORRECT?

Accruals are an expensive but commonly used way to finance working capital.

A conservative financing policy is one where the firm finances part of its fixed assets with short-term capital and all of its net working capital with short-term funds.

If a company receives trade credit under terms of 2/10 net 30, this implies that the company has 10 days of free trade credit.

One cannot tell if a firm has a conservative, aggressive, or moderate current asset financing policy without an examination of its cash budget.

If a firm has a relatively aggressive current asset financing policy vis-à-vis other firms in its industry, then its current ratio will probably be relatively high.

2 points

Question 9

Which of the following statements is CORRECT?

Under normal conditions, a firm's expected ROE would probably be higher if it financed with short-term rather than with long-term debt, but using short-term debt would probably increase the firm's risk.

Conservative firms generally use no short-term debt and thus have zero current liabilities.

A short-term loan can usually be obtained more quickly than a long-term loan, but the cost of short-term debt is normally higher than that of long-term debt.

If a firm that can borrow from its bank at a 6% interest rate buys materials on terms of 2/10 net 30, and if it must pay by Day 30 or else be cut off, then we would expect to see zero accounts payable on its balance sheet.

If one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but it will not have an adverse financial impact on your firm if the customer periodically pays off its entire balance.

2 points

Question 10

Which of the following statements is NOT CORRECT?

Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.

Accruals are "free" in the sense that no explicit interest is paid on these funds.

A conservative approach to working capital management will result in most if not all permanent current operating assets being financed with long-term capital.

The risk to a firm that borrows with short-term credit is usually greater than if it borrowed using long-term debt. This added risk stems from the greater variability of interest costs on short-term debt and possible difficulties with rolling over short-term debt.

Bank loans generally carry a higher interest rate than commercial paper.

2 points

Question 11

Firms generally choose to finance temporary current operating assets with short-term debt because

Answer

matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital.

short-term interest rates have traditionally been more stable than long-term interest rates.

a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term.

the yield curve is normally downward sloping.

short-term debt has a higher cost than equity capital.

2 points

Question 12

Which of the following statements is CORRECT?

Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation), hence depreciation is set forth on a separate line in the cash budget.

If cash inflows from collections occur in equal daily amounts but most payments must be made on the 10th of each month, then a regular monthly cash budget will be misleading. The problem can be corrected by using a daily cash budget.

Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales.

If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10 net 30 to net 60.

If a firm sells on terms of net 90, and if its sales are highly seasonal, with 80% of its sales in September, then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in October than in August.

2 points

Question 13

A lockbox plan is

used to protect cash, i.e., to keep it from being stolen.

used to identify inventory safety stocks.

used to slow down the collection of checks our firm writes.

used to speed up the collection of checks received.

used primarily by firms where currency is used frequently in transactions, such as fast food restaurants, and less frequently by firms that receive payments as checks.

2 points

Question 14

Which of the following statements is most consistent with efficient inventory management? The firm has a

below average inventory turnover ratio.

low incidence of production schedule disruptions.

below average total assets turnover ratio.

relatively high current ratio.

relatively low DSO.

2 points

Question 15

Other things held constant, which of the following would tend to reduce the cash conversion cycle?

Carry a constant amount of receivables as sales decline.

Place larger orders for raw materials to take advantage of price breaks.

Take all discounts that are offered.

Continue to take all discounts that are offered and pay on the net date.

Offer longer payment terms to customers.

FIN 534 quiz 10 week 11

Business / Economics

5/4/12

Opening Offer: $12.00
Posted by: argument
Date Posted: 5/4/12 5:08 PM
Due Date: 12/31/69

Question 1

2 out of 2 points

Suppose 6 months ago a Swiss investor bought a 6-month U.S. Treasury bill at a price of $9,708.74, with a maturity value of $10,000. The exchange rate at that time was 1.420 Swiss francs per dollar. Today, at maturity, the exchange rate is 1.324 Swiss francs per dollar. What is the annualized rate of return to the Swiss investor?

Question 2

2 out of 2 points

Suppose hockey skates sell in Canada for 105 Canadian dollars, and 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?

Question 3

2 out of 2 points

A box of candy costs 28.80 Swiss francs in Switzerland and $20 in the United States. Assuming that purchasing power parity (PPP) holds, what is the current exchange rate?

Question 4

2 out of 2 points

Which of the following statements is NOT CORRECT?

Question 5

2 out of 2 points

Suppose a foreign investor who holds tax-exempt Eurobonds paying 9% is considering investing in an equivalent-risk domestic bond in a country with a 28% withholding tax on interest paid to foreigners. If 9% after-tax is the investor's required return, what before-tax rate would the domestic bond need to pay to provide the required after-tax return?

Question 6

2 out of 2 points

If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will

Question 7

2 out of 2 points

If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy?

Question 8

2 out of 2 points

Suppose 90-day investments in Britain have a 6% annualized return and a 1.5% quarterly (90-day) return. In the U.S., 90-day investments of similar risk have a 4% annualized return and a 1% quarterly (90-day) return. In the 90day forward market, 1 British pound equals $1.65. If interest rate holds, what parity is the spot exchange rate?

Question 9

2 out of 2 points

If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar?

Question 10 2 out of 2 points

Suppose one year ago, Hein Company had inventory in Britain valued at 240,000 pounds. The exchange rate for dollars to pounds was 1 = 2 U.S. dollars. This year the exchange rate is 1 = 1.82 U.S. dollars. The inventory in Britain is still valued at 240,000 pounds. What is the gain or loss in inventory value in U.S. dollars as a result of the change in exchange rates?

Question 11

2 out of 2 points

Suppose 144 yen could be purchased in the foreign exchange market for one U.S. dollar today. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow?

Question 12

2 out of 2 points

Suppose the exchange rate between U.S. dollars and Swiss francs is SF 1.41 = $1.00, and the exchange rate between the U.S. dollar and the euro is $1.00 = 1.64 euros. What is the cross-rate of Swiss francs to euros?

Question 13

2 out of 2 points

Suppose in the spot market 1 U.S. dollar equals 1.60 Canadian dollars. 6-month Canadian securities have an annualized return of 6% (and thus a 6-month periodic return of 3%). 6month U.S. securities have an annualized return of 6.5% and a periodic return of 3.25%. If interest rate parity holds, what is the U.S. dollar-Canadian dollar exchange rate in the 180-day forward market?

Question 14

2 out of 2 points

Suppose one British pound can purchase 1.82 U.S. dollars today in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 12.0% against the pound over the next 30 days. How many dollars will a pound buy in 30 days?

Question 15

2 out of 2 points

Suppose that currently, 1 British pound equals 1.62 U.S. dollars and 1 U.S. dollar equals 1.62 Swiss francs. What is the cross exchange rate between the pound and the franc?

1) Northwest Airlines

Business / Economics

5/7/12

Opening Offer: $2.00
Posted by: kingsirbyrd
Date Posted: 5/7/12 12:09 AM
Due Date: 5/6/12

1) Northwest Airlines applied mathematical models to determine which customers in its database were currently responsible for most of its profitability and which customers were not currently profitable but had similar characteristics to the most profitable customers. Northwest Airlines utilized _____ to identify these customers.1) Northwest Airlines applied mathematical models to determine which customers in its database were currently responsible for most of its profitability and which customers were not currently profitable but had similar characteristics to the most profitable customers. Northwest Airlines utilized _____ to identify these customers.


STR 581 Final Exam A+ GUARANTEED..

Business / Economics

5/7/12

Opening Offer: $35.00
Posted by: argument
Date Posted: 5/7/12 7:40 AM
Due Date: 12/30/12

1) 3M, Hewlett-Packard, Lego, and other companies use the ________ to manage the innovation process.

2) A ________ is a set of procedures and sources managers use to obtain everyday information about developments in the marketing environment.

3) A(n) ________ is any good, service, or idea that is perceived by someone as new.

4) A company can take several steps to improve the quality of its marketing intelligence. If the company purchases competitive products for study, attends open houses and trade shows, and reads competitors' published reports and stockholder information, the company is using ________ to improve the quality of its marketing intelligence.

5) ________ consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers.

6) Most established companies focus on ________ when it comes to innovation.

7) ________ is the difference between the prospective customer's evaluation of all the benefits and all the costs of an offering and the perceived alternatives.

8) ________ is the result of a concentrated effort by designers, engineers, and purchasing agents to reduce the product's overall costs.

9) In ________ marketing, the seller engages in the mass production, mass distribution, and mass promotion of one product for all buyers.

10) Marketers usually identify niches by ________.

11) Which of the following is generally considered to be the last step in the marketing research process?

12) ________ is the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company.

13) With respect to the sampling plan, three decisions must be made. The decisions are: the sampling unit—who is to be surveyed? Sample size—how many people should be surveyed? And ________.

14) The marketing communications mix consists of six major modes of communications. Which of the following is NOT one of these modes?

15) Marketing communications can contribute to brand equity by establishing the brand in memory and to________ (in)a brand image.

16) ________ communicates a company's intended value positioning of its product or brand to the market.

17) To reach Generation Y, rock band Foo Fighters created a digital street team that sends targeted e-mail messages to members who "get the latest news, exclusive audio/video sneak previews, tons of chances to win great Foo Fighters prizes, and become part of the Foo Fighters Family." Which of the following techniques for reaching Generation Y are the Foo Fighters using?

18) New-to-the- world products are ________.

19) Following the ________ approach to target market selection encompasses a strong knowledge of the segment's needs, a strong market presence, and operating economies through specializing in production, distribution, and promotion.

20) Price has operated as the major determinant of buyer choice among poorer nations, among poorer groups, and with ________ products.

21) Some intermediaries use the following: strategic planning, advanced information systems, sophisticated marketing tools, measure performance on a return-on-investment basis, segment their markets, improve their target marketing and positioning, and ________.

22) "Power prices" use price as a key strategic tool. These "power prices" have discovered the highly ________ effect of price on the bottom line.

23) A company can add new products through acquisition or development. The acquisition route can take three forms. The company can buy other companies, it can acquire patents from other companies, or it can buy a ________ or _________ from another company.

24) John Kotter's view argues that management focuses on coping with complexity, whereas leadership focuses on coping with _____.

25) Leadership is best defined as _____.

26) Which of the following is NOT included in the definition of conflict?

27) Negotiation can be defined as a process in which two or more parties exchange goods or services and attempt to agree upon _____.

28) _____ bargaining is negotiation that seeks to divide a "fixed pie."

29) Which of the following statements about leadership is true?

30) Danielle wants to become a surgeon, not only because achieving this goal will give her self-respect and autonomy, but also because she wants a job with high status and recognition from others. Which of Maslow's needs is Danielle trying to fill?

31) _____ can be used to increase the perception that employees are treated fairly.

32) Examples of off-the-job training include all of the following except _____.

33) Training employees how to be better listeners falls under which of the following training categories?

34) Which type of skill training has become increasingly important in organizations?

35) According to a recent survey, about ___ percent of employees working in the 1,000 largest U.S. corporations receive ethics training.

36) Organizational structure has six key elements. Which of the following is not one of these elements?

37) Which of the following is not a primary force for change in organizations?

38) The "realistic" personality from Holland's typology of personality and congruent occupations would be well suited for which of the following jobs?

39) What term is used for the tendency of an individual to attribute his own successes to internal factors while putting the blame for failures on external factors?

40) A task that is subdivided into many separate jobs is considered to have _____.

41) Under exponential smoothing, if we want our forecast to be responsive to recent demand, the value of alpha should be:

42) Which of the following would NOT be classified as a time-series technique?

43) According to David Maister, the most complex projects requiring innovation and creativity are called _________.

45) If the system contains a bottleneck, the _______ is the best place for control. If there is no bottleneck, the __________ is the best place for control.

46) "Hard" capital rationing refers to the rationing __________.

47) __________ says to look for opportunities to invest in positive-NPV projects in foreign markets or to develop derivatives or design arrangements that enable firms to cope better with the risks they face in their foreign operations.

48) __________ says to recognize the value of hidden options in a situation, such as the foreign exchange options in some derivative instruments.

49) Under capital rationing, given the choice among several equally attractive investments, the best tool to use is the __________.

50) An all-equity-financed firm would __________.

51) __________ says to seek out investments that offer the greatest expected risk-adjusted real return.

52) A checking account is __________.

53) Due to asymmetric information, the market fears that a firm issuing securities will do so when the stock is _________.

54) Which of the following statements is true?

55) Which of the following statements is true?

56) __________ says to recognize the value of options contained in derivatives.

57) __________ says to use derivatives to pay others to take risks.

58) The conversion price (for a convertible security) is usually adjusted __________.

59) The investment decision best addresses which of the following questions?

60) Dimensions of risk include __________.

61) According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for __________.

62) You do a study and find out that, on average, stock prices for firms decrease 3% for every 5% decrease in inside ownership. You are watching the nightly business report and find out that Magic Tape's stock has announced that insiders have sold 10% of their holdings. You are concerned because you own 1,000 shares of Magic Tape and it had closed the day before unchanged at $30 per share. If markets are at least semi-strong form efficient, what would you expect?

63) Which of the following is not an advantage of going public?

64) Which of the following is not an advantage of going public?

65) Undertaker Corporation has a joint process that produces three products: P, G, and A. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year amount to $25,000. Other relevant data are as follows:
Product Sales Value at Split-off Processing Costs after Split-off Sales Value at Completion
P $62,000 $5,000 $88,000
G 12,500 6,500 19,000
A 9,400 5,000 12,000
Product G _____.

66) Baden Company manufactures a product with a unit variable cost of $50 and a unit sales price of $88. Fixed manufacturing costs were $240,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $70 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

67) Transfer-pricing systems exist to _____.

68) Which one of the following managerial accounting approaches attempts to allocate manufacturing overhead in a more meaningful fashion?

69) The opportunity cost of an alternate course of action that is relevant to a make-or-buy decision is

70) Which of the following does not appear as a separate section on the cash budget?

71) Important factors considered by sales forecasters include all of the following except _____.

72) Effectiveness is indicated by _____.

73) Beginning cash balance plus total receipts

74) A cost which remains constant per unit at various levels of activity is a

75) A variable cost is a cost that

76) A company has total fixed costs of $120,000 and a contribution margin ratio of 20%. The total sales necessary to break even are

77) For an activity base to be useful in cost behavior analysis,

78) Identify which statement about "currently attainable standards" is NOT true.

79) Joint costs are incurred _____.

80) The last step in activity-based costing is to

81) In a process cost system,

82) The proprietorship form of business organization

83) Identify which one of the following statements is false.

84) A local retail shop has been operating as a sole proprietorship. The business is growing and now the owner wants to incorporate. Which of the following is not a reason for this owner to incorporate?

85) _____ are sections of the balance sheet.

86) Although the U.S. has had a longstanding agreement with ___________, after the passage of NAFTA, _________ became the United States' second largest trading partner.

87) Diversity training programs are generally intended to provide a vehicle for _____.

88) Which country does the text describe as becoming the largest producer and consumer of many of the world's goods?

89) Which of the following is not one of the Caux Round Table Principles for International Business?

90) One study found that manufacturing labor costs about ___ an hour in China, compared to ____ dollars in the United States.

91) Which of the following is correct about litigating commercial disputes?

92) Which article of the United States Constitution deals with the judicial power of the federal government?

93) When an economist says that the demand for a product has increased, this means that:

94) When movie ticket prices increase, families tend to spend less time watching movies and more time at home watching videos instead. This best reflects:

95) The costs of delivering products in the _____ channel are much higher than delivering products in the _____ channel.

96) Which of the following is NOT a function of functional area information systems?

97) The Global, Web-Based Platform enables individuals to do which of the following?

98) Companies normally budget marketing research at ________ percent of company sales.

99) The assignment of numbers or symbols to a property of objects according to value or magnitude is called _____.

100) A ________ has been defined as being a coordinated collection of data, systems, tools, and techniques with supporting software and hardware by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action.

LAW 421 Final Exam

Business / Economics

5/8/12

Opening Offer: $27.00
Posted by: argument
Date Posted: 5/8/12 4:23 AM
Due Date: 12/31/69

1) Which of the following does not result in a decision rendered by the hearing officer?

A. Arbitration

B. Mediation

C. Med-arb

D. Using expert evaluators

2) Jurisprudence is defined as

A. adjudication of law suits

B. the enactment of laws by a government body

C. the science and philosophy of law

D. the duties and obligations owed by a citizen

3) The state of Kansas has enacted a new law requiring all commercial trucks driving on Kansas roads to have special mud flaps installed. These mud flaps have been proven to make driving in the rain significantly safer due to reduced mist created by trucks driving in the rain, although data regarding accidents and injuries has not yet been determined. Any truck entering Kansas must have these flaps installed or will be subject to a significant fine and delay. The cost for purchase and installation of these flaps is $1,000 per truck. In short, trucks must have these flaps or go around the state. This Kansas law

A. is valid because it only applies to Kansas roads and such a law is entirely intrastate

B. is valid because Kansas's right to protect its citizens under its police powers will override any outside challenges to this law

C. is invalid because this law is intended to regulate interstate commerce, an enumerated federal power

D. is invalid because although on its face it's an intrastate law, this statute will have a significant economic effect on interstate commerce causing an undue burden

4) The power of preemption is derived from

A. the power of judicial review

B. the Commerce Clause

C. the Necessary and Proper Clause

D. the Supremacy Clause

5) What is the main problem with international courts?

A. Finding judges who understand the complexities of international law

B. Creating a body of law that reflects multiple legal systems

C. Enforcing a ruling on sovereign nations is difficult

D. Lack of recognition from the U.N. and WTO

6) Under the U.S. legal system, subject to some exceptions, costs of litigation regarding both the plaintiff and defendant

A. are all paid by the loser

B. are all paid by the winner

C. are paid for by each side with the plaintiff and defendant paying for their own legal costs

D. are totaled by the court and then for fairness, split in half with each side paying an equal amount

7) Generally, torts law is governed by

A. state statutory law

B. state common law

C. federal statutory law

D. constitutional law

8) Assumption of risk is a defense to

A. conversion

B. negligence

C. defamation

D. battery

9) The three stripes on Adidas clothing represents a

A. trademark

B. trade dress

C. trade secret

D. patent

10) The color or shape of an item, if distinctive, is a

A. trademark

B. trade dress

C. copyright

D. patent

11) Cybersquatting describes the practice of

A. registering multiple domain names and then selling them back to companies at inflated prices

B. hacking into a company's website to install a virus or Trojan horse designed to steal information but allow the site to continue operation

C. using mechanical devises to access a company's website multiple times to the point that traffic to the site is slowed or blocked

D. hacking into a company's website to install a virus designed to cause the company's website to totally cease operation

12) The Digital Millennium Copyright Act (1998) provided each of the following protections EXCEPT

A. manufacturers of CD-Writers were required to pay 2% of their sales into a fund to be distributed to copyright holders because the CD-Writers could easily copy music and other copyrighted works

B. civil and criminal penalties were established for those who sell or manufacture products or services that circumvent antipiracy software

C. restrictions were placed on analog recorders and camcorders that lack antipiracy features

D. ISPs were relieved of liability for copyright infringement by their users as long as the ISP had no knowledge of the infringement

13) When Maria comes home from work, she finds that her yard has been mowed and trimmed. An hour later, a man comes to her door to collect payment for the yard work. Maria refuses to pay him because she has never seen him before nor had she hired him to do the work. Which of the following is accurate?

A. This is an implied, unilateral contract, so she must pay.

B. Maria has received unjust enrichment so a quasi contract is formed, so she must pay.

C. The court would make Maria pay the reasonable cost of the work to be fair to both parties.

D. Maria would not have to pay anything.

14) Where a promise can only be accepted by the performance of the person to whom it is offered is an example of a/an

A. bilateral contract

B. unilateral contract

C. implied contract

D. quasi contract

15) Each of the following is a discharge by mutual consent EXCEPT

A. accord and satisfaction

B. novation

C. rescission

D. frustration of purpose

16) Harry sees an AK-47 automatic assault rifle in a gun shop window. He inquires about the price and is told that it is $2,500. Harry signs a contract promising to pay the $2,500 on Friday, taking possession of the rifle when payment is made. On Thursday, a law is enacted making the ownership, sale, or possession of an automatic rifle illegal. This contract

A. automatically terminates due to impossibility

B. automatically terminates due to impracticability

C. automatically terminates due to frustration of purpose

D. is enforceable and not affected by the new law because it was entered into before the law took effect

17) Which of the following is rarely awarded in contracts cases?

A. Consequential damages

B. Compensatory damages

C. Punitive damages

D. Liquidated damages

18) Which of the following is classified as an equitable remedy?

A. Consequential damages

B. Reformation

C. Restitution

D. Liquidated damages

19) Which of the following would not be considered tangible?

A. A car

B. Oxygen

C. The right of ownership

D. The pen or pencil you are using

20) With regard to consideration in a sales contract, the UCC differs from the common law in that

A. consideration in a sales contract may be modified without additional consideration

B. consideration exchanged must be equal or very closely equal in sales contracts

C. consideration is not required in sales contracts

D. consideration in a sales contract may be modified as long as additional consideration is provided

21) The UCC will permit an incomplete or slightly ambiguous contract to be enforced using each of the following criteria EXCEPT

A. past commercial conduct

B. industry standards or norms

C. judicial input of any terms necessary to maintain fairness

D. correspondence or verbal exchanges between the parties

22) Two merchant companies have entered into a contract for the sale of goods but have had no prior dealings, which would establish a course of conduct between them. The UCC will allow gap fillers to apply to their contract regarding missing terms in each of the following situations EXCEPT

A. they have failed to specify when payment for the goods is to be made

B. they have failed to specify where delivery of the goods is to be made

C. they have failed to specify the quality or grade of the goods to be delivered

D. they have failed to specify the price of the goods to be delivered

23) When a buyer rejects nonconforming goods and purchases the appropriate goods from a different seller, this is an example of which of the following:

A. Cover

B. Specific Performance

C. Lawsuit for Money Damages

D. Revoking Acceptance

24) Which of these is not a requirement for disclaiming a warranty?

A. Statutory authorization

B. A conspicuous writing

C. Explaining why the warranty is being disclaimed

D. Including the word merchantability if merchantability is to be disclaimed

25) "What if everyone took these same actions" is a question sometimes called the

A. universalization approach

B. utilitarian approach

C. functionality approach

D. morality approach

26) The utilitarian approach to moral philosophy was founded by

A. Jeremy Bentham

B. Immanuel Kant

C. Cicero

D. Kenneth Lay

27) Stan is an investment manager. He has received money from various investors with a promise of very high returns on their investments. The invested money is not supplying enough capital in order to pay the returns promised, so he has started using new investor's money to pay older investors. By advertising and by word of mouth, people are anxious to invest with Stan because of the money being paid, and with the influx of new investors, he is able to continue operating. Stan is

A. operating an insider trading operation

B. racketeering

C. guilty of conspiracy to defraud

D. operating a Ponzi scheme

28) Ben is the manager of a branch of a large bank. He has regularly taken money from customer's accounts for his own use and changed the bank records to cover his actions. Ben is guilty of

A. a conspiracy

B. a Ponzi scheme

C. racketeering

D. embezzlement

29) The Sarbanes-Oxley Act (2002) imposed stricter regulations on how corporations do business through regulations in each of the following areas EXCEPT

A. tax compliance

B. financial reporting

C. corporate governance

D. auditing

30) Joan is the CFO of Para Corp. and is a year from retirement. In order to guarantee herself a very substantial bonus and to boost her retirement package, she knowingly certifies false financial reports making the company appear to be much more profitable than it really is. She further takes steps to assure that the financial report was not reviewed through internal controls maintained by Para Corp. Under the provisions of the Sarbanes-Oxley Act (2002), if her fraud is NOT part of a larger scheme, what criminal penalties are possible for Joan?

A. $1 million in fines and up to 10 years in prison

B. $2 million in fines and up to 12 years in prison

C. $5 million in fines and up to 15 years in prison

D. $10 million in fines and up to 20 years in prison

fin370

Business / Economics

5/8/12

Opening Offer: $30.00
Posted by: justhelpstudent
Date Posted: 5/8/12 12:52 PM
Due Date: 5/8/12

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Business / Economics

5/8/12

Opening Offer: $30.00
Posted by: justhelpstudent
Date Posted: 5/8/12 1:00 PM
Due Date: 12/31/69

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str581 final

Business / Economics

5/8/12

Opening Offer: $30.00
Posted by: justhelpstudent
Date Posted: 5/8/12 1:11 PM
Due Date: 12/31/69

STR581 FINAL SOLUTIONS WITH 500 ANSWERS

fin370 final

Business / Economics

5/8/12

Opening Offer: $30.00
Posted by: justhelpstudent
Date Posted: 5/8/12 1:16 PM
Due Date: 12/31/69

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Business / Economics

5/8/12

Opening Offer: $30.00
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Date Posted: 5/8/12 1:19 PM
Due Date: 12/31/69

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fin370 final

Business / Economics

5/9/12

Opening Offer: $30.00
Posted by: justhelpstudent
Date Posted: 5/9/12 1:39 PM
Due Date: 12/31/69

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MKT 571 Complete Test Bank with over 1..

Business / Economics

5/9/12

Opening Offer: $29.99
Posted by: shonatutes
Date Posted: 5/9/12 2:05 PM
Due Date: 12/31/69

MKT 571 Complete Test Bank with over 1000 MCQ's FULL SCORE A marketing information system (MIS) consists of _______________. a.) the set of procedures and sources used by managers to obtain everyday information and relevant developments in the marketing environment b.) the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation c.) an organized collection of comprehensive data about individual customers, prospects, or suspects that is currently accessible for marketing purposes d.) the people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute necessary accurate information in a timely fashion to marketers e.) the coordination of the collection of data, systems, tools, and techniques with supporting software and hardware by which an organization gathers and interprets information from the business environment 22. When Molly’s parents retired, they decided they wanted to travel. They found an ideal job that allows them to travel for free, but the only catch is they have to stay at Holiday Inns. During each stay, they test all the amenities offered by the motel and evaluate each. The evaluation forms are sent to the motel headquarters where it becomes part of the motel’s _______________ system. a.) sales reporting b.) marketing research c.) experiential research data d.) accountability information system (AIS) e.) marketing intelligence 23. Which of the following is not a step that might be used to improve the quality of a firm’s marketing intelligence? a.) setting up a consumer panel b.) collecting competitive intelligence by buying a competitor’s products c.) watching how the stock market reacts to interest rate changes d.) motivating distributors to pass along important intelligence from the marketplace e.) purchasing information from outside suppliers 24. The systematic collection, analysis, and reporting of data relevant to specific problems is the task of _______________. a.) the sales reporting system b.) marketing research c.) marketing intelligence d.) the sales force e.) top management 25. Small companies can engage in marketing research in a number of creative and inexpensive ways, including _______________. a.) setting up their own Web site b.) hiring an independent marketing research firm c.) buying information from database companies like A.C. Nielsen d.) using its own internal marketing research department e.) using an online information service such as the Internet 26. All of the following are steps in the marketing research process EXCEPT _________________. a.) define the problem and research objectives b.) develop the research plan c.) collect the information d.) compare data to government sources e.) present the findings The step in the marketing research process that includes determining who will be sampled is _________________. a.) define the problem and research objectives b.) develop the research plan c.) collect the information d.) make decision based on the project outcomes e.) present the findings 28. The second step in the marketing research process is the _______________. a.) development of the research plan b.) definition of the problem and research objectives c.) survey of stakeholders to determine if problems exist d.) decision regarding the research tools and target group e.) collection of the available sources for needed information 29. Which of the following is not a consideration when preparing a sampling plan? a.) Who is to be surveyed? b.) How many are to be surveyed? c.) How will the sample respondents be paid? d.) Should a probability sample be used or not? e.) How should respondents be chosen? 30. Rita Jenkins, president of a local Chamber of Commerce, had difficulty getting members to assist in running the organization. She felt it was because of lack of commitment to the Chamber. Her vice-president felt it was due to having too many meetings. The organization’s secretary felt it was because there were several other professional organizations to which the members also belonged. If Rita wants to do research to determine the real reason why members do not want to run for office, she should begin by _______________. a.) determining the optimum number of meetings b.) evaluating the advantages the Chamber offers over other similar organizations c.) defining the problem d.) developing the marketing research plan that she would employ e.) holding focus groups of members of similar organizations to determine whether the problems the Chamber is facing are universal or local 31. After working for a roofing contractor for ten years, Cameron Gomez finally established his own operation. Unfortunately, Cameron’s first six months have been disappointing. He decided to conduct a marketing research study to gather preliminary data to shed light on the nature of the problem and suggest some new ideas. He needs to conduct _______________ research. a.) exploratory b.) causal c.) secondary d.) descriptive e.) observational 32. Which of the following is a type of causal research project that would be used by a company that publishes custom memory books that are used as fundraisers for churches, colleges, and civic groups? a.) a study to determine the types of fundraising most commonly used by church groups b.) a survey of previous customers to see if they are interested in a new edition c.) a study to see if more people buy the custom memory book if the cover has a picture relating to the group selling it rather than just a generic cover d.) a study to determine the price range for an average-sized cookbook e.) an industrial study of what similar publishing companies are doing to better serve their customers 33. _______________ data is data that was gathered for another purpose and already exists. a.) Primary b.) Descriptive c.) Causal d.) Secondary e.) Observational 34. Which of the following is an example of primary data that would be used by Topps card company to determine the popularity if its hologram baseball card series? a.) data gathered by a card collectors club b.) an article on baseball card collecting found in Parade, the Sunday magazine found in many newspapers c.) product sales figures made available by QVC d.) responses to a mail survey by National Family Opinion on how likely someone is to buy a collectible card e.) observing how individuals react to the cards when they first see them 35. Which of the following is an example of primary data that would be used by the Topps card company to determine the popularity of its new hologram baseball card series? a.) input from a focus group that was put together specifically to discuss their perception of the popularity of the hologram card series b.) an article about the hologram cards in a recent issue of Sport Illustrated c.) sales records for baseball cards gathered by the industry’s trade council d.) a survey that noted that cards were the most often collected item by males between the ages of 10 and 35 e.) data from the sales records kept by the exclusive dealers of the Topps hologram series 36. Which of the following is not typical of a focus group? a.) 14-18 participants spend a few hours together. b.) A skilled moderator guides the discussion. c.) The discussion centers on a product, service, or marketing entity. d.) They can gauge consumer reaction to product features or design. e.) They can give quick consumer feedback to new ideas. 37. Which of the following is an example of how ACE Crafts, a manufacturer of acrylic paints used in arts and crafts, would use observational research to gather primary data? a.) Survey current users to find out ways the paint could be improved. b.) Watch how members of a class learning to paint unfinished crafts use the paint. c.) Ask users of other brands of paint to list the most important attributes for acrylic paint. d.) Conduct a focus group of current users to determine how ACE is positioned in their minds when it is compared to similar products. e.) Include a mail survey with each bottle of paint sold. 38. A(n) _______________ is a gathering of 6 to 10 people who spend a few hours with a skilled moderator to discuss a product, service, or other marketing entity. a.) focus group b.) intermediary team c.) agent group d.) consolidated group e.) grouped dataset 39. _______________ are best suited for descriptive research such as learning about people’s knowledge, beliefs, preferences, and satisfaction, and measuring these magnitudes in the general population. a.) Observational research methods b.) Focus groups c.) Surveys d.) In-depth interviews e.) Qualitative research methods 40. A catalog retailer wants to know more about the buying habits of people who order more than once a month from its pages. The catalog retailer will use its database to examine _______________ data. a.) observation b.) survey c.) primary d.) experimental e.) behavioral 41. The manufacturer of Babylok brand sewing sergers wants to know the effect rebates have on sales. It plans on dividing its retailers into three regions. One group will offer consumers who buy a Babylok serger a $25 cash rebate. One will offer buyers of the machine $50 worth of “free” machine accessory parts. A third region will offer buyers a $40 store credit. The results of this market research will provide Babylok with _______________ data. a.) observation b.) survey c.) primary d.) experimental e.) descriptive 42. A(n) _______________ consists of a set of questions presented to respondents for their answers. a.) questionnaire b.) focus group c.) data set d.) database e.) observation 43. _______________ prespecify all of the possible answers, so they are easy to interpret and tabulate. a.) Open-end questions b.) Closed-end questions c.) Galvanometers d.) Audiometers e.) Samplings 44. _______________ allow respondents to answer in their own words. a.) Open-end questions b.) Closed-end questions c.) Galvanometers d.) Audiometers e.) Samplings 45. Which of the following statements about probability sampling is true? a.) Probability sampling is the least expensive type of sampling to use. b.) Probability sampling is the simplest and least difficult type of sampling to generate. c.) Researchers who use probability sampling can choose from a judgment or quota sample. d.) Probability sampling does not allow researchers to measure sampling error. e.) Researchers who use probability sampling can calculate their confidence in the accuracy of their findings. 46. The contact method that minimizes interviewer bias is _______________. a.) mail b.) telephone c.) intercept interview d.) focus group e.) personal interview 47. The best contact method to use to determine how many people saw the ad for the new Volkswagen Beetle that ran last night during the 6:00 p.m. news would be _______________. a.) mail b.) Internet c.) telephone d.) focus group e.) personal interview 48. If reducing the cost of data gathering is the most important criterion for a marketing research project, the preferred contact method to avoid is _______________. a.) intercept interview b.) telephone c.) focus group d.) personal interview e.) mail 49. Which is typically the most expensive step of marketing research process? a.) problem definition b.) developing the research plan c.) information collection d.) information analysis e.) questionnaire design 50. The last step in the marketing research process is to _______________. a.) create a database using the research results b.) determine the best solution to the problem c.) present the findings d.) analyze the information e.) remove all jargon and technical language from the report


MKT 571 Complete Test Bank with over 1000 MCQ's FULL SCORE

  A marketing information system (MIS) consists of _______________.

a.)    the set of procedures and sources used by managers to obtain everyday information and relevant developments in the marketing environment

b.)    the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation

c.)    an organized collection of comprehensive data about individual customers, prospects, or suspects that is currently accessible for marketing purposes

d.)    the people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute necessary accurate information in a timely fashion to marketers 

e.)    the coordination of the collection of data, systems, tools, and techniques with supporting software and hardware by which an organization gathers and interprets information from the business environment

 

22.  When Molly’s parents retired, they decided they wanted to travel.  They found an ideal job that allows them to travel for free, but the only catch is they have to stay at Holiday Inns.  During each stay, they test all the amenities offered by the motel and evaluate each.  The evaluation forms are sent to the motel headquarters where it becomes part of the motel’s  _______________ system.

a.)    sales reporting

b.)    marketing research

c.)    experiential research data

d.)    accountability information system (AIS)

e.)    marketing intelligence 

 

23.  Which of the following is not a step that might be used to improve the quality of a firm’s marketing intelligence?

a.)    setting up a consumer panel

b.)    collecting competitive intelligence by buying a competitor’s products

c.)    watching how the stock market reacts to interest rate changes

d.)    motivating distributors to pass along important intelligence from the marketplace

e.)    purchasing information from outside suppliers

 

24.  The systematic collection, analysis, and reporting of data relevant to specific problems is the task of _______________.

a.)    the sales reporting system

b.)    marketing research

c.)    marketing intelligence

d.)    the sales force

e.)    top management

 

25.  Small companies can engage in marketing research in a number of creative and inexpensive ways, including _______________.

a.)    setting up their own Web site

b.)    hiring an independent marketing research firm

c.)    buying information from database companies like A.C. Nielsen

d.)    using its own internal marketing research department

e.)    using an online information service such as the Internet

 

26.  All of the following are steps in the marketing research process EXCEPT _________________.

a.)    define the problem and research objectives

b.)    develop the research plan

c.)    collect the information

d.)    compare data to government sources

e.)    present the findings

 

The step in the marketing research process that includes determining who will be sampled is _________________.

a.)    define the problem and research objectives

b.)    develop the research plan

c.)    collect the information

d.)    make decision based on the project outcomes

e.)    present the findings

 

28.  The second step in the marketing research process is the _______________.

a.)    development of the research plan

b.)    definition of the problem and research objectives

c.)    survey of stakeholders to determine if problems exist

d.)    decision regarding the research tools and target group

e.)    collection of the available sources for needed information

 

29.  Which of the following is not a consideration when preparing a sampling plan?

a.)    Who is to be surveyed?

b.)    How many are to be surveyed?

c.)    How will the sample respondents be paid?

d.)    Should a probability sample be used or not?

e.)    How should respondents be chosen?

 

30.  Rita Jenkins, president of a local Chamber of Commerce, had difficulty getting members to assist in running the organization.  She felt it was because of lack of commitment to the Chamber.  Her vice-president felt it was due to having too many meetings.  The organization’s secretary felt it was because there were several other professional organizations to which the members also belonged.  If Rita wants to do research to determine the real reason why members do not want to run for office, she should begin by _______________.

a.)    determining the optimum number of meetings

b.)    evaluating the advantages the Chamber offers over other similar organizations

c.)    defining the problem

d.)    developing the marketing research plan that she would employ

e.)    holding focus groups of members of similar organizations to determine whether the problems the Chamber is facing are universal or local

 

31.  After working for a roofing contractor for ten years, Cameron Gomez finally established his own operation.  Unfortunately, Cameron’s first six months have been disappointing.  He decided to conduct a marketing research study to gather preliminary data to shed light on the nature of the problem and suggest some new ideas. He needs to conduct _______________ research.

a.)    exploratory

b.)    causal

c.)    secondary

d.)    descriptive

e.)    observational

 

32.  Which of the following is a type of causal research project that would be used by a company that publishes custom memory books that are used as fundraisers for churches, colleges, and civic groups?

a.)    a study to determine the types of fundraising most commonly used by church groups

b.)    a survey of previous customers to see if they are interested in a new edition

c.)    a study to see if more people buy the custom memory book if the cover has a picture relating to the group selling it rather than just a generic cover 

d.)    a study to determine the price range for an average-sized cookbook

e.)    an industrial study of what similar publishing companies are doing to better serve their customers

 

33.  _______________ data is data that was gathered for another purpose and already exists.

a.)    Primary

b.)    Descriptive

c.)    Causal

d.)    Secondary

e.)    Observational

 

34.  Which of the following is an example of primary data that would be used by Topps card company to determine the popularity if its hologram baseball card series?

a.)    data gathered by a card collectors club

b.)    an article on baseball card collecting found in Parade, the Sunday magazine found in many newspapers

c.)    product sales figures made available by QVC

d.)    responses to a mail survey by National Family Opinion on how likely someone is to buy a collectible card

e.)    observing how individuals react to the cards when they first see them 

 

35.  Which of the following is an example of primary data that would be used by the Topps card company to determine the popularity of its new hologram baseball card series?

a.)    input from a focus group that was put together specifically to discuss their perception of the popularity of the hologram card series 

b.)    an article about the hologram cards in a recent issue of Sport Illustrated

c.)    sales records for baseball cards gathered by the industry’s trade council

d.)    a survey that noted that cards were the most often collected item by males between the ages of 10 and 35

e.)    data from the sales records kept by the exclusive dealers of the Topps hologram series

 

36.  Which of the following is not typical of a focus group?

a.)    14-18 participants spend a few hours together.

b.)    A skilled moderator guides the discussion.

c.)    The discussion centers on a product, service, or marketing entity.

d.)    They can gauge consumer reaction to product features or design.

e.)    They can give quick consumer feedback to new ideas.

 

37.  Which of the following is an example of how ACE Crafts, a manufacturer of acrylic paints used in arts and crafts, would use observational research to gather primary data?

a.)    Survey current users to find out ways the paint could be improved.

b.)    Watch how members of a class learning to paint unfinished crafts use the paint.

c.)    Ask users of other brands of paint to list the most important attributes for acrylic paint.

d.)    Conduct a focus group of current users to determine how ACE is positioned in their minds when it is compared to similar products.

e.)    Include a mail survey with each bottle of paint sold.

 

38.  A(n) _______________ is a gathering of 6 to 10 people who spend a few hours with a skilled moderator to discuss a product, service, or other marketing entity.

a.)    focus group

b.)    intermediary team

c.)    agent group

d.)    consolidated group

e.)    grouped dataset

 

39.  _______________ are best suited for descriptive research such as learning about people’s knowledge, beliefs, preferences, and satisfaction, and measuring these magnitudes in the general population.

a.)    Observational research methods

b.)    Focus groups

c.)    Surveys

d.)    In-depth interviews

e.)    Qualitative research methods

 

40.  A catalog retailer wants to know more about the buying habits of people who order more than once a month from its pages.  The catalog retailer will use its database to examine _______________ data.

a.)    observation

b.)    survey

c.)    primary

d.)    experimental

e.)    behavioral

 

41.  The manufacturer of Babylok brand sewing sergers wants to know the effect rebates have on sales.  It plans on dividing its retailers into three regions.  One group will offer consumers who buy a Babylok serger a $25 cash rebate.  One will offer buyers of the machine $50 worth of “free” machine accessory parts.  A third region will offer buyers a $40 store credit.  The results of this market research will provide Babylok with _______________ data.

a.)    observation

b.)    survey

c.)    primary

d.)    experimental

e.)    descriptive

 

42.  A(n) _______________ consists of a set of questions presented to respondents for their answers.

a.)    questionnaire

b.)    focus group

c.)    data set

d.)    database

e.)    observation

 

43.  _______________ prespecify all of the possible answers, so they are easy to interpret and tabulate.

a.)    Open-end questions

b.)    Closed-end questions

c.)    Galvanometers

d.)    Audiometers

e.)    Samplings

 

44.  _______________ allow respondents to answer in their own words. 

a.)    Open-end questions

b.)    Closed-end questions

c.)    Galvanometers

d.)    Audiometers

e.)    Samplings

 

45.  Which of the following statements about probability sampling is true?

a.)    Probability sampling is the least expensive type of sampling to use.

b.)    Probability sampling is the simplest and least difficult type of sampling to generate.

c.)    Researchers who use probability sampling can choose from a judgment or quota sample.

d.)    Probability sampling does not allow researchers to measure sampling error.

e.)    Researchers who use probability sampling can calculate their confidence in the accuracy of their findings. 

 

46.  The contact method that minimizes interviewer bias is _______________.

a.)    mail

b.)    telephone

c.)    intercept interview

d.)    focus group

e.)    personal interview         

 

47.  The best contact method to use to determine how many people saw the ad for the new Volkswagen Beetle that ran last night during the 6:00 p.m. news would be _______________.

a.)    mail

b.)    Internet

c.)    telephone

d.)    focus group

e.)    personal interview

 

48.  If reducing the cost of data gathering is the most important criterion for a marketing research project, the preferred contact method to avoid is _______________.

a.)    intercept interview

b.)    telephone

c.)    focus group

d.)    personal interview

e.)    mail

 

49.  Which is typically the most expensive step of marketing research process?

a.)    problem definition

b.)    developing the research plan

c.)    information collection

d.)    information analysis

e.)    questionnaire design

 

50.  The last step in the marketing research process is to _______________.

a.)    create a database using the research results

b.)    determine the best solution to the problem

c.)    present the findings

d.)    analyze the information

e.)    remove all jargon and technical language from the report

FIN 571 final exam A+ Answes (2 Sets )

Business / Economics

5/9/12

Opening Offer: $29.99
Posted by: shonatutes
Date Posted: 5/9/12 2:08 PM
Due Date: 12/31/69

FIN 571 final exam A+ Answes (2 Sets )

 Which of the following statements is true? A. A security is a claim issued by a firm that pays owners interest, not dividends. B. A call option analyzes conflicts of interest and behavior in a principal-agent relationship. C. An agent-manager can never make bad decisions. D. The difference between the value of one action and the value of the best alternative is called an opportunity cost. 2) Book value, or net book value, refers to A. the statement of a firm's financial position at one point in time, including its assets and the claims on those assets by creditors and owners B. the price for which something could be bought or sold in a reasonable length of time, where reasonable length of time is defined in terms of the item's liquidity C. an agent-manager never making bad decisions D. the net of assets less liabilities shown in the accounting statements 3) Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true? 4) If the yield to maturity for a bond is less than the bond's coupon rate, the market value of the bond is __________. 5) For investors, the proper measure of a stock's risk is its __________. A. nondiversifiable risk B. specific risk C. nonsystematic risk D. standard deviation 6) A company's beta is -1.5. If the overall stock market decreases by 5%, what is the expected change in the firm's stock price? 7) Which of these investments would you expect to have the highest rate of return for the next 20 years? 9) One problem with using negative values for the proportion invested in the riskless asset to represent a borrowed amount is that the implied borrowing rate of interest is the same as the __________. 10) If you were willing to bet that the overall stock market was heading up on a sustained basis, it would be logical to invest in 11) Stony Products has an inventory conversion period (ICP) of about 70 days. The receivables collection period (RCP) is 30 days. The payables deferral period (PDP) is about 40 days. What is Stony's cash conversion cycle (CCC)? 12) The main source of short-term operating capital is _________. 13) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true? 14) An all-equity-financed firm would __________. A. not pay any income taxes, because interest would exactly offset its taxable income. B. pay corporate income taxes, because it would have interest expense. C. not pay corporate income taxes, because it would have no interest expense. D. pay corporate income taxes if its taxable income is positive. 15) If a firm wants to lower its weighted average cost of capital (WACC), one way to do so would be to 16) Boeing® is a world leader in commercial aircraft. In the face of competition, Boeing® often faces a critical __________ decision: whether to develop a new generation of passenger aircraft. 17) Ideas for capital budgeting projects come from all levels within an organization. The bottom-up process results in ideas moving __________ through the organization. 18) Which of the following statements is true? A. A mutually exclusive project can be chosen independently of other projects B. When undertaking one project prevents investing in another project, and vice versa, the projects have a positive payback. C. A conventional project has an initial cash outflow followed by one or more expected future cash inflows. D. Whenever projects are independent and conventional, the internal rate of return (IRR) and net present value (NPV) methods will disagree 19) In practice, the __________ rule is the preferred criteria to accept or reject a capital investment project. 20) The Jerome Inc. western regional branch has been looking to install a new distribution center. The analysts have run the numbers on the distribution center costs and annual inflow from the investment. The project will cost $5 million at the beginning of the first year. 21) The __________ method breaks down when evaluating projects in which the sign of the cash flow changes. 22) Studies show systematic differences in capital structures across industries. These are due primarily to differences in __________. 23) Capital structure decisions refer to the 24) Which of the following statements concerning preferred stock is true? A. Preferred stockholders have a prior claim on the income and assets of the firm, as compared to the claims of lenders. B. Preferred stock dividends per share are normally increased as the earnings of the firm increase. C. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems. D. Preferred stockholders are the ultimate owners of the firm. 25) Mortgage bonds are __________. A. secured by a lien on the issuer's general assets B. secured by the lien on the issuer's specific, real assets C. usually secured by assets such as common shares of one of the issuer's subsidiaries D. a form of unsecured debt 26) __________ says to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide. 27) From the lessee's viewpoint, the relevant discount rate for evaluating a lease versus buy decision is the __________. 28) The wholesale price for Captain John's is $0.612 per loaf, and the variable cost of production is $0.387 per loaf. Captain John's expects that expansion will allow them to sell an additional 4.5 million loaves in the next 5 years. What additional revenues minus expenses will be generated from expansion? 29) Which of the following statements is true? A. Soft capital rationing refers to the rationing imposed externally by limited funds for borrowing from outside sources. B. Hard capital rationing refers to the rationing imposed internally by the firm. C. A post audit is a set of procedures for evaluating a capital budgeting decision after the fact. D. Few firms will engage in capital rationing. 30) In efficient markets, as in theUnited States, market prices are not expected to be __________. 1) Dimensions of risk include ___________. A. the certainty of a negative outcome B. uncertainty about the future outcome C. uncertainty about yesterday’s outcome D. the impossibility of the same return 2) One problem with using negative values for w1 (the proportion invested in the riskless asset) to represent a borrowed amount is that the implied borrowing rate of interest is the same as __________. 3) The Principle of __________ implies that the expected return for an asset equals its required return. 4) __________ says to calculate the incremental after-tax cash flows connected with working capital decisions. 6) Stony Products has a payables turnover of six times. What is Stony's payables deferral period (PDP)? A. about 30.42 days B. about 56.50 days C. about 60.83 days D. none of these 7) Firms make short-term financial decisions just about every day solving such questions as __________. 8) __________ says to calculate the incremental after-tax cash flows connected with working capital decisions. 9) Main sources of short-term funds include __________. A. trade credit and commercial paper B. futures and bank loans C. bonds and trade credit D. none of these 10) Which of the following statements is (are) true? A. The "dating 120" or the "60 extra" mean that the clock does not start until 120 or 60 days after the invoice date. 11) Which (if any) of the following statements is false? A. The invoice is a written statement about goods that were ordered, along with their prices and the payment dates. 12) Most credit sales are made on an open account basis, which means __________. A. that suppliers cannot dictate the terms of the purchase. B. that customers simply purchase what they want.. 13) An all-equity-financed firm would __________. A. pay corporate income taxes if its taxable income is positive. B. not pay any income taxes because interest would exactly offset its taxable income. 14) A profitable firm would __________. A. pay corporate income taxes because it would have interest expense. 15) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true? A. Each stock in the portfolio will have a beta greater than one. B. Each stock in the portfolio has its own beta. C. Selling an 16) Boeing Corporation is a world leader in commercial aircraft. In the face of competition, Boeing often faces a critical __________ decision: whether to develop a new generation of passenger aircraft. A. dividend B. present value C. payback D. capital budgeting 17) The capital budgeting process can be broken down into five steps. These steps include which of the following? Occurs when a "follower" receives the benefit of an expenditure made by a "leader" by imitating the leader's behavior. Occurs when inaccurate information can falsely exist Refers to situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal. Remaining maturity refers to: A. the length of an asset’s life when it is issued. B. a report issued annually by a firm that includes, at a minimum, an income statement, a balance sheet, a statement of cash flows, and accompanying notes. Generally accepted accounting principles (GAAP) refers to Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true? If the yield to maturity for a bond is less than the bond's coupon rate, then the market value of the bond is According to the CAPM, the expected return for a portfolio is determined by the portfolio's. Certain countries have restrictions. In practice,U.S.investors have NOT invested very much internationally. Possible factors include According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for One problem with using negative values for w1 (the proportion invested in the riskless asset) to represent a borrowed amount is that the implied borrowing rate of interest is the same as Stony Products has an inventory conversion period (ICP) of about 60.83 days. The receivables collection period (RCP) is 36.50 days. The payables deferral period (PDP) is about 30.42 days. What is Stony's cash conversion cycle (CCC)? Stony Products has a payables turnover of six times. What is Stony's payables deferral period (PDP)? Stony Products has a receivables turnover of ten times. What is Stony’s receivables collection period (RCP)? Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes There are two important tax considerations for a capital budgeting project. These include which (if any) of the following? Ideas for capital budgeting projects come from all levels within an organization. The bottom up process results in ideas percolating through the organization. Studies show systematic differences in capital structures across industries. These are due mostly to differences in A firm cannot simply adopt the industry average debt ratio, because differences exist among firms in any particular industry with respect to Studies show systematic differences in capital structures across industries. These are due mostly to differences in There can be a variety of motives for stock repurchases including Says to look for opportunities to develop asset-based financing arrangements that offer new positive-NPV financing mechanisms. Says to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide. The wholesale price for Captain John’s is $0.612 per loaf, and the variable cost of production is $0.387 per loaf. Captain John’s is expecting that expansion will allow them to sell an additional 4.5 million loaves in the next five years. What additional revenues minus expenses will be generated from expansion? The wholesale price for Captain John’s is $1.70 per loaf, and the variable cost of production is $0.80 per loaf. What is the contribution margin? You are thinking about abandoning your business. If you do, then you will receive $168,000 on an after-tax basis from the land associated with your business. In efficient markets, as in theUnited States, you should think long and hard before you conclude that a market price is Pursuing valuable ideas is the best way Says to carefully evaluate and monitor the financial plan’s impact on the firm and its stakeholders. Says to forecast the firm’s cash flows, and analyze the incremental cash flows of alternative decisions.FIN 571 final exam A+ Answes (2 Sets )

FIN 571 final exam A+ Answes (2 Sets )
Which of the following statements is true?

A. A security is a claim issued by a firm that pays owners interest, not dividends.

B. A call option analyzes conflicts of interest and behavior in a principal-agent relationship.

C. An agent-manager can never make bad decisions.

D. The difference between the value of one action and the value of the best alternative is called an opportunity cost.

 2) Book value, or net book value, refers to

A. the statement of a firm's financial position at one point in time, including its assets and the claims on those assets by creditors and owners

B. the price for which something could be bought or sold in a reasonable length of time, where reasonable length of time is defined in terms of the item's liquidity

C. an agent-manager never making bad decisions

D. the net of assets less liabilities shown in the accounting statements

 3) Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true?

4) If the yield to maturity for a bond is less than the bond's coupon rate, the market value of the bond is __________.

5) For investors, the proper measure of a stock's risk is its __________.

A. nondiversifiable risk

B. specific risk

C. nonsystematic risk

D. standard deviation

 6) A company's beta is -1.5. If the overall stock market decreases by 5%, what is the expected change in the firm's stock price?

7) Which of these investments would you expect to have the highest rate of return for the next 20 years?

9) One problem with using negative values for the proportion invested in the riskless asset to represent a borrowed amount is that the implied borrowing rate of interest is the same as the __________.

10) If you were willing to bet that the overall stock market was heading up on a sustained basis, it would be logical to invest in

11) Stony Products has an inventory conversion period (ICP) of about 70 days. The receivables collection period (RCP) is 30 days. The payables deferral period (PDP) is about 40 days. What is Stony's cash conversion cycle (CCC)?

12) The main source of short-term operating capital is _________.

 13) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true?

14) An all-equity-financed firm would __________.

A. not pay any income taxes, because interest would exactly offset its taxable income.

B. pay corporate income taxes, because it would have interest expense.

C. not pay corporate income taxes, because it would have no interest expense.

D. pay corporate income taxes if its taxable income is positive. 

15) If a firm wants to lower its weighted average cost of capital (WACC), one way to do so would be to

16) Boeing® is a world leader in commercial aircraft. In the face of competition, Boeing® often faces a critical __________ decision: whether to develop a new generation of passenger aircraft.

17) Ideas for capital budgeting projects come from all levels within an organization. The bottom-up process results in ideas moving __________ through the organization.

18) Which of the following statements is true?

A. A mutually exclusive project can be chosen independently of other projects

B. When undertaking one project prevents investing in another project, and vice versa, the projects have a positive payback.

C. A conventional project has an initial cash outflow followed by one or more expected future cash inflows.

D. Whenever projects are independent and conventional, the internal rate of return (IRR) and net present value (NPV) methods will disagree 

19) In practice, the __________ rule is the preferred criteria to accept or reject a capital investment project.
20) The Jerome Inc. western regional branch has been looking to install a new distribution center. The analysts have run the numbers on the distribution center costs and annual inflow from the investment. The project will cost $5 million at the beginning of the first year. 

21) The __________ method breaks down when evaluating projects in which the sign of the cash flow changes.

22) Studies show systematic differences in capital structures across industries. These are due primarily to differences in __________.

23) Capital structure decisions refer to the

24) Which of the following statements concerning preferred stock is true?

A. Preferred stockholders have a prior claim on the income and assets of the firm, as compared to the claims of lenders.

B. Preferred stock dividends per share are normally increased as the earnings of the firm increase.

C. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems.

D. Preferred stockholders are the ultimate owners of the firm.

 25) Mortgage bonds are __________.

A. secured by a lien on the issuer's general assets
B. secured by the lien on the issuer's specific, real assets
C. usually secured by assets such as common shares of one of the issuer's subsidiaries
D. a form of unsecured debt 
26) __________ says to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide.
27) From the lessee's viewpoint, the relevant discount rate for evaluating a lease versus buy decision is the __________.
28) The wholesale price for Captain John's is $0.612 per loaf, and the variable cost of production is $0.387 per loaf. Captain John's expects that expansion will allow them to sell an additional 4.5 million loaves in the next 5 years. What additional revenues minus expenses will be generated from expansion?
29) Which of the following statements is true?
A. Soft capital rationing refers to the rationing imposed externally by limited funds for borrowing from outside sources.
B. Hard capital rationing refers to the rationing imposed internally by the firm.
C. A post audit is a set of procedures for evaluating a capital budgeting decision after the fact.
D. Few firms will engage in capital rationing.
30) In efficient markets, as in theUnited States, market prices are not expected to be __________.

1) Dimensions of risk include ___________. A. the certainty of a negative outcome B. uncertainty about the future outcome C. uncertainty about yesterday’s outcome D. the impossibility of the same return

 2) One problem with using negative values for w1 (the proportion invested in the riskless asset) to represent a borrowed amount is that the implied borrowing rate of interest is the same as __________. 

 3) The Principle of __________ implies that the expected return for an asset equals its required return. 

 4) __________ says to calculate the incremental after-tax cash flows connected with working capital decisions.  

6) Stony Products has a payables turnover of six times. What is Stony's payables deferral period (PDP)? A. about 30.42 days B. about 56.50 days C. about 60.83 days D. none of these 

7) Firms make short-term financial decisions just about every day solving such questions as __________. 

 8) __________ says to calculate the incremental after-tax cash flows connected with working capital decisions. 

 9) Main sources of short-term funds include __________. A. trade credit and commercial paper B. futures and bank loans C. bonds and trade credit D. none of these

 10) Which of the following statements is (are) true? A. The "dating 120" or the "60 extra" mean that the clock does not start until 120 or 60 days after the invoice date. 

 11) Which (if any) of the following statements is false? A. The invoice is a written statement about goods that were ordered, along with their prices and the payment dates. 

12) Most credit sales are made on an open account basis, which means __________. A. that suppliers cannot dictate the terms of the purchase. B. that customers simply purchase what they want..

 13) An all-equity-financed firm would __________. A. pay corporate income taxes if its taxable income is positive. B. not pay any income taxes because interest would exactly offset its taxable income. 

 14) A profitable firm would __________. A. pay corporate income taxes because it would have interest expense.

 15) An investor's risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true? A. Each stock in the portfolio will have a beta greater than one. B. Each stock in the portfolio has its own beta. C. Selling an

 16) Boeing Corporation is a world leader in commercial aircraft. In the face of competition, Boeing often faces a critical __________ decision: whether to develop a new generation of passenger aircraft. A. dividend B. present value C. payback D. capital budgeting

 17) The capital budgeting process can be broken down into five steps. These steps include which of the following? 

Occurs when a "follower" receives the benefit of an expenditure made by a "leader" by imitating the leader's behavior.

         Occurs when inaccurate information can falsely exist

           Refers to situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal.

           Remaining maturity refers to:

            A.    the length of an asset’s life when it is issued.

            B.    a report issued annually by a firm that includes, at a minimum, an income statement, a balance sheet, a statement of cash flows, and accompanying notes.

  Generally accepted accounting principles (GAAP) refers to

      Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true?

            If the yield to maturity for a bond is less than the bond's coupon rate, then the market value of the bond is    

According to the CAPM, the expected return for a portfolio is determined by the portfolio's.

 

Certain countries have restrictions. In practice,U.S.investors have NOT invested very much internationally. Possible factors include

     According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for

 One problem with using negative values for w1 (the proportion invested in the riskless asset) to represent a borrowed amount is that the implied borrowing rate of interest is the same as

         Stony Products has an inventory conversion period (ICP) of about 60.83 days. The receivables collection period (RCP) is 36.50 days. The payables deferral period (PDP) is about 30.42 days. What is Stony's cash conversion cycle (CCC)?

         Stony Products has a payables turnover of six times. What is Stony's payables deferral period (PDP)?

       Stony Products has a receivables turnover of ten times. What is Stony’s receivables collection period (RCP)?

Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes

           Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes

There are two important tax considerations for a capital budgeting project. These include which (if any) of the following?

       Ideas for capital budgeting projects come from all levels within an organization. The bottom up process results in ideas percolating through the organization.

       Studies show systematic differences in capital structures across industries. These are due mostly to differences in

            A firm cannot simply adopt the industry average debt ratio, because differences exist among firms in any particular industry with respect to         

Studies show systematic differences in capital structures across industries. These are due mostly to differences in

        There can be a variety of motives for stock repurchases including

        Says to look for opportunities to develop asset-based financing arrangements that offer new positive-NPV financing mechanisms.

       Says to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide.

         The wholesale price for Captain John’s is $0.612 per loaf, and the variable cost of production is $0.387 per loaf. Captain John’s is expecting that expansion will allow them to sell an additional 4.5 million loaves in the next five years. What additional revenues minus expenses will be generated from expansion?

       The wholesale price for Captain John’s is $1.70 per loaf, and the variable cost of production is $0.80 per loaf. What is the contribution margin?

    You are thinking about abandoning your business. If you do, then you will receive $168,000 on an after-tax basis from the land associated with your business.

           In efficient markets, as in theUnited States, you should think long and hard before you conclude that a market price is

    Pursuing valuable ideas is the best way

      Says to carefully evaluate and monitor the financial plan’s impact on the firm and its stakeholders.

Says to forecast the firm’s cash flows, and analyze the incremental cash flows of alternative decisions.

 

FIN 571 final exam

Business / Economics

5/9/12

Opening Offer: $14.99
Posted by: shonatutes
Date Posted: 5/9/12 2:10 PM
Due Date: 12/31/69

FIN 571 A+ Answers FIN 571 A+ Answers to the below questions: If the yield to maturity for a bond is less than the bond's coupon rate, then the market value of the bond is A. greater than the par value. B. equal to the par value. C. cannot tell D. less than the par value. According to the CAPM, the expected return for a portfolio is determined by the portfolio's. A. variance. B. beta. C. standard deviation. D. none of these Certain countries have restrictions. In practice,U.S.investors have NOT invested very much internationally. Possible factors include A. lower transaction costs. B. less political risk. C. costs of converting currencies. D. all of these According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for A. lack of diversification B. less risk C. greater risk D. diversification One problem with using negative values for w1 (the proportion invested in the riskless asset) to represent a borrowed amount is that the implied borrowing rate of interest is the same as A. the prime rate of interest B. the lending rate of interest C. the nominal rate of interest D. the current rate of interest Stony Products has an inventory conversion period (ICP) of about 60.83 days. The receivables collection period (RCP) is 36.50 days. The payables deferral period (PDP) is about 30.42 days. What is Stony's cash conversion cycle (CCC)? A. about 66 days B. about 68 days C. about 69 days D. about 67 days Stony Products has a payables turnover of six times. What is Stony's payables deferral period (PDP)? A. about 30.42 days B. about 56.50 days C. about 60.83 days D. none of these Stony Products has a receivables turnover of ten times. What is Stony’s receivables collection period (RCP)? A. about 35.42 days B. about 36.50 days C. about 40.83 days D. none of these Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes There are two important tax considerations for a capital budgeting project. These include which (if any) of the following? A. It is indeed cash flow that’s irrelevant. B. The standard cash flow estimation does not explicitly identify the financing costs. C. The Principle of Incremental Benefits reminds us that it is the incremental cash flow that’s relevant. D. none of these Ideas for capital budgeting projects come from all levels within an organization. The bottom up process results in ideas percolating through the organization. A. sideways B. downward C. upward D. any way Studies show systematic differences in capital structures across industries. These are due mostly to differences in A firm cannot simply adopt the industry average debt ratio, because differences exist among firms in any particular industry with respect to A. tax position. B. size. C. competitive position. D. all of these Studies show systematic differences in capital structures across industries. These are due mostly to differences in A. hiring and firing practices. B. the availability of tax shelter provided by things other than debt, such as accelerated depreciation, investment tax credit, and operating tax loss carryforwards. C. what the arbitrage pricing theory tells us. D. none of these Occurs when a "follower" receives the benefit of an expenditure made by a "leader" by imitating the leader's behavior. Occurs when inaccurate information can falsely exist A. moral hazard B. free-rider problem C. The Principle of Valuable Ideas D. adverse selection Refers to situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal. A. adverse selection B. zero-sum game C. moral hazard D. The Behavioral Principle Remaining maturity refers to: A. the length of an asset’s life when it is issued. B. a report issued annually by a firm that includes, at a minimum, an income statement, a balance sheet, a statement of cash flows, and accompanying notes. C. a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. D. the amount of time remaining until its maturity. Generally accepted accounting principles (GAAP) refers to A. the length of an asset’s life when it is issued. B. a report issued annually by a firm that includes, at a minimum, an income statement, a balance sheet, a statement of cash flows, and accompanying notes. C. a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. D. the extent to which something can be sold for cash quickly and easily without loss of value. Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true? A. The current yield was a lot less than 9% when the bond was first issued B. The market value of the bond is more than $1,000 C. The market value of the bond is less than $1,000 D. The current yield was a lot greater than 9% when the bond was first issued There can be a variety of motives for stock repurchases including A. a buyback of overvalued stock. B. an increase in leverage. C. a decrease in anticipated earnings. D. all of these Says to look for opportunities to develop asset-based financing arrangements that offer new positive-NPV financing mechanisms. A. The Time Value of Money Principle B. The Principle of Valuable Ideas C. The Principle of Comparative Advantage D. The Principle of Self-Interested Behavior Says to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide. A. The Capital Market Efficiency B. The Options Principle C. The Principle of Incremental Benefits D. The Principle of Comparative Advantage The wholesale price for Captain John’s is $0.612 per loaf, and the variable cost of production is $0.387 per loaf. Captain John’s is expecting that expansion will allow them to sell an additional 4.5 million loaves in the next five years. What additional revenues minus expenses will be generated from expansion? A. $912,500 B. $1,000,500 C. $1,102,000 D. $1,012,500 The wholesale price for Captain John’s is $1.70 per loaf, and the variable cost of production is $0.80 per loaf. What is the contribution margin? A. $2.50 B. $0.90 C. cannot tell D. $1.70 You are thinking about abandoning your business. If you do, then you will receive $168,000 on an after-tax basis from the land associated with your business. Abandoning your business would bring $15,000 on an after-tax basis from sale of equipment; also, you would not have to repair equipment at a cost of $10,800 per year on an after-tax basis. The before-tax cash flows from your business are $60,000 per year. Your tax rate is 25% and your required return is 12%. If you abandon your business, you will be able to spend your time earning wages that are equivalent to receiving an annuity of $16,000 per year on an after-tax basis until you retire in 12 years. At that time you could sell your land but would only realize what you could receive today. Should you abandon your business if you can make more money doing that? A. No. The NPV from abandoning is negative. B. Yes. Abandon the business. C. No. The NPV from abandoning is smaller than -$5,000 D. Yes. The NPV is greater than $100,000 In efficient markets, as in theUnited States, you should think long and hard before you conclude that a market price is A. wrong. B. fair. C. followed by many analysts. D. all of these Pursuing valuable ideas is the best way A. to restrain your spending. B. to achieve extraordinary returns. C. to avoid risk. D. to get yourself in trouble. A. The Principle of Incremental Benefits B. The Signaling Principle C. The Principle of Risk-Return Trade-Off D. The Time Value of Money Principle Says to carefully evaluate and monitor the financial plan’s impact on the firm and its stakeholders. A. The Principle of Capital Market Efficiency B. The Principle of Risk-Return Trade-Off C. The Principle of Self-Interested Behavior D. The Principle of Diversification


FIN 571 A+ Answers 

FIN 571 A+ Answers to the below questions:

If the yield to maturity for a bond is less than the bond's coupon rate, then the market value of the bond is

            A.    greater than the par value.

            B.    equal to the par value.

            C.    cannot tell

            D.    less than the par value.

According to the CAPM, the expected return for a portfolio is determined by the portfolio's.

            A.    variance.

            B.    beta.

            C.    standard deviation.

            D.    none of these

Certain countries have restrictions. In practice,U.S.investors have NOT invested very much internationally. Possible factors include

            A.    lower transaction costs.

            B.    less political risk.

            C.    costs of converting currencies.

            D.    all of these

According to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for

            A.    lack of diversification

            B.    less risk

            C.    greater risk

            D.    diversification

One problem with using negative values for w1 (the proportion invested in the riskless asset) to represent a borrowed amount is that the implied borrowing rate of interest is the same as

            A.    the prime rate of interest

            B.    the lending rate of interest

            C.    the nominal rate of interest

            D.    the current rate of interest

Stony Products has an inventory conversion period (ICP) of about 60.83 days. The receivables collection period (RCP) is 36.50 days. The payables deferral period (PDP) is about 30.42 days. What is Stony's cash conversion cycle (CCC)?

            A.    about 66 days

            B.    about 68 days

            C.    about 69 days

            D.    about 67 days

 

Stony Products has a payables turnover of six times. What is Stony's payables deferral period (PDP)?

            A.    about 30.42 days

            B.    about 56.50 days

            C.    about 60.83 days

            D.    none of these

Stony Products has a receivables turnover of ten times. What is Stony’s receivables collection period (RCP)?

            A.    about 35.42 days

            B.    about 36.50 days

            C.    about 40.83 days

            D.    none of these

Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes

 

Whenever a firm splits itself into separate units, with each unit having limited liability with respect to its financing, the capital structure of each unit becomes

 

There are two important tax considerations for a capital budgeting project. These include which (if any) of the following?

            A.    It is indeed cash flow that’s irrelevant.

            B.    The standard cash flow estimation does not explicitly identify the financing costs.

            C.    The Principle of Incremental Benefits reminds us that it is the incremental cash flow that’s relevant.

            D.    none of these

Ideas for capital budgeting projects come from all levels within an organization. The bottom up process results in ideas percolating through the organization.

            A.    sideways

            B.    downward

            C.    upward

            D.    any way

Studies show systematic differences in capital structures across industries. These are due mostly to differences in

 

A firm cannot simply adopt the industry average debt ratio, because differences exist among firms in any particular industry with respect to

            A.    tax position.

            B.    size.

            C.    competitive position.

            D.    all of these

Studies show systematic differences in capital structures across industries. These are due mostly to differences in

            A.    hiring and firing practices.

            B.    the availability of tax shelter provided by things other than debt, such as accelerated depreciation, investment tax credit, and operating tax loss carryforwards.

            C.    what the arbitrage pricing theory tells us.

            D.    none of these

 

Occurs when a "follower" receives the benefit of an expenditure made by a "leader" by imitating the leader's behavior.

 

Occurs when inaccurate information can falsely exist

            A.    moral hazard

            B.    free-rider problem

            C.    The Principle of Valuable Ideas

            D.    adverse selection

Refers to situations wherein the agent can take unseen actions for personal benefit even though such actions are costly to the principal.

            A.    adverse selection

            B.    zero-sum game

            C.    moral hazard

            D.    The Behavioral Principle

Remaining maturity refers to:

            A.    the length of an asset’s life when it is issued.

            B.    a report issued annually by a firm that includes, at a minimum, an income statement, a balance sheet, a statement of cash flows, and accompanying notes.

            C.    a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

            D.    the amount of time remaining until its maturity.

Generally accepted accounting principles (GAAP) refers to

            A.    the length of an asset’s life when it is issued.

            B.    a report issued annually by a firm that includes, at a minimum, an income statement, a balance sheet, a statement of cash flows, and accompanying notes.

            C.    a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

            D.    the extent to which something can be sold for cash quickly and easily without loss of value.

Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true?

            A.    The current yield was a lot less than 9% when the bond was first issued

            B.    The market value of the bond is more than $1,000

            C.    The market value of the bond is less than $1,000

            D.    The current yield was a lot greater than 9% when the bond was first issued

 

There can be a variety of motives for stock repurchases including

            A.    a buyback of overvalued stock.

            B.    an increase in leverage.

            C.    a decrease in anticipated earnings.

            D.    all of these

Says to look for opportunities to develop asset-based financing arrangements that offer new positive-NPV financing mechanisms.

            A.    The Time Value of Money Principle

            B.    The Principle of Valuable Ideas

            C.    The Principle of Comparative Advantage

            D.    The Principle of Self-Interested Behavior

Says to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide.

            A.    The Capital Market Efficiency

            B.    The Options Principle

            C.    The Principle of Incremental Benefits

            D.    The Principle of Comparative Advantage

The wholesale price for Captain John’s is $0.612 per loaf, and the variable cost of production is $0.387 per loaf. Captain John’s is expecting that expansion will allow them to sell an additional 4.5 million loaves in the next five years. What additional revenues minus expenses will be generated from expansion?

            A.    $912,500

            B.    $1,000,500

            C.    $1,102,000

            D.    $1,012,500

The wholesale price for Captain John’s is $1.70 per loaf, and the variable cost of production is $0.80 per loaf. What is the contribution margin?

            A.    $2.50

            B.    $0.90

            C.    cannot tell

            D.    $1.70

You are thinking about abandoning your business. If you do, then you will receive $168,000 on an after-tax basis from the land associated with your business.

Abandoning your business would bring $15,000 on an after-tax basis from sale of equipment; also, you would not have to repair equipment at a cost of $10,800 per year on an after-tax basis. The before-tax cash flows from your business are $60,000 per year. Your tax rate is 25% and your required return is 12%. If you abandon your business, you will be able to spend your time earning wages that are equivalent to receiving an annuity of $16,000 per year on an after-tax basis until you retire in 12 years. At that time you could sell your land but would only realize what you could receive today. Should you abandon your business if you can make more money doing that?

            A.    No. The NPV from abandoning is negative.

            B.    Yes. Abandon the business.

            C.    No. The NPV from abandoning is smaller than -$5,000

            D.    Yes. The NPV is greater than $100,000

In efficient markets, as in theUnited States, you should think long and hard before you conclude that a market price is

            A.    wrong.

            B.    fair.

            C.    followed by many analysts.

            D.    all of these

Pursuing valuable ideas is the best way

            A.    to restrain your spending.

            B.    to achieve extraordinary returns.

            C.    to avoid risk.

            D.    to get yourself in trouble.

            A.    The Principle of Incremental Benefits

            B.    The Signaling Principle

            C.    The Principle of Risk-Return Trade-Off

            D.    The Time Value of Money Principle

Says to carefully evaluate and monitor the financial plan’s impact on the firm and its stakeholders.

            A.    The Principle of Capital Market Efficiency

            B.    The Principle of Risk-Return Trade-Off

            C.    The Principle of Self-Interested Behavior

            D.    The Principle of Diversification

QNT 561 Final Exam

Business / Economics

5/9/12

Opening Offer: $14.99
Posted by: shonatutes
Date Posted: 5/9/12 2:12 PM
Due Date: 12/31/69

QNT 561 QNT 561 A+ Answers to the below questions: QNT 561 final quiz 1) In a set of observations, which measure of central tendency reports the value that occurs most often? A. Geometric mean B. Mean C. Median D. Mode 2) Which of the following measures of central location is affected most by extreme values? A. Geometric mean B. Median C. Mean D. Mode 3) A difference between calculating the sample mean and the population mean is: A. There are no differences. B. Only in the symbols, we use instead of µ and n instead of N. C. We divide the sum of the observations by n - 1 instead of n D. The observations are ranked and select the middle value for the population mean. 4) The difference between a random variable and a probability distribution is: A. A random variable does not include the probability of an event. B. A random variable can only assume whole numbers. C. A probability distribution can only assume whole numbers. D. None of the above. 5) Which of the following is not a requirement of a binomial distribution? A. Equally likely outcomes. B. A constant probability of success. C. Only two possible outcomes. D. A fixed number of trails. 6) Which of the following is not a requirement of a probability distribution? A. The probability of each outcome is between 0 and 1. B. The outcomes are mutually exclusive. C. Equally likely probability of a success. D. Sum of the possible outcomes is 1.00. 7) A sample A. Is part of the population. B. Has more than 30 observations. C. Is usually identified as N. D. All of these 8) The difference between the sample mean and the population mean is called the A. Sampling error. B. Standard error of the mean. C. Population mean. D. Population standard deviation. 9) Suppose a population consisted of 20 items. How many different samples of n = 3 are possible? A. 120 B. 20 C. 6840 D. 1140 10) Which of the following statements is not a characteristic of the t distribution? A. Like z there is only one t distribution. B. It is symmetrical. C. It is a continuous distribution. D. It has a mean of 0. 11) We wish to develop a confidence interval for the population mean. The population follows the normal distribution, the standard deviation of the population is 3, and we have a sample of 10 observations. We decide to use the 90% level of confidence. The appropriate value of to represent the level of confidence is A. t=1.812 B. t=1.833 C. z =1.65 D. z=1.96 12) We wish to develop a confidence interval for the population mean. The shape of the population is not known, but we have a sample of 40 observations. We decide to use the 92% level of confidence. The appropriate value of z is: A. 1.75 B. 2.58 C. 1.96 D. 1.65 13) The Special Rule of Addition is used to combine A. Events based on subjective probabilities B. Mutually exclusive events C. Independent events. D. Events that total more than one. 14) We use the General Rule of Multiplication to combine A. Events based on subjective probabilities B. Mutually exclusive events. C. Events that are not independent. D. Events that total more than 1.00. 15) Which of the following is not a type of probability? A. Classical B. Independent C. Subjective D. Relative frequency 16) Which of the following statements is true regarding a sample? A. It is a part of population. B. It must contain at least five observations. C. It refers to descriptive statistics D. All of these are correct 17) A discrete variable is A. Cannot be negative. B. Can assume only whole number values. C. An example of a qualitative variable. D. Can assume only certain clearly separated values 18) The ratio scale of measurement A. Is usually based on counting. B. Cannot assume negative values. C. Usually involves ranking. D. Has a meaningful zero point. 19) In a two-sample test of means for independent samples, the equal sign always appears in A. The null hypothesis. B. The alternate hypothesis. C. The upper tail of the test statistic. D. None of these 20) Which of the following is a requirement for a two-sample test of proportions. A. nB and n(1-B) are both greater than 5. B. Both populations are positively skewed. C. The population standard deviations are equal. D. Both samples are at least 30. 21) The alternate hypothesis A. None of these B. Is accepted if the null hypothesis is rejected. C. Will always contain the equal sign. D. Tells the value of the sample mean. 22) To conduct a nonparametric test the. A. The data must be at least interval scale. B. Population must follow the normal distribution. C. The standard deviation must be known. D. It is not necessary to make any assumption about the shape of the population. 23) Which of the following is not a characteristic of the X2 A. It approaches a normal distribution as the degrees of freedom increase. B. Its shape is based on the sample size. C. It is not negative. D. It is positively skewed. 24) In a goodness-of-fit test where the sample size is 200, there are 5 categories, and the significance level is .05. The critical value of X2 is A. 9.488 B. 11.070 C. 43.773 D. None of these 25) In the ANOVA table the value of k is A. The sum of squares total. B. The number of independent variables. C. The total number of observations D. The number of degrees of freedom. 26) A correlation matrix A. Reports the multiple regression equation. B. Shows all simple coefficients of correlation. C. Shows all possible net regression coefficients. D. Shows the correlations that are positive. 27) A dummy variable or indicator variable A. Is equal to Y B. May assume only a value of 0 or 1. C. Is another term for the dependent variable. D. Is found by (Y - Y).


QNT 561 

QNT 561  A+ Answers to the below questions: 

QNT 561 final quiz

1) In a set of observations, which measure of central tendency reports the value that occurs most often?

 

A.

 

Geometric mean

 

B.

 

Mean

 

C.

 

Median

 

D.

 

Mode


2) Which of the following measures of central location is affected most by extreme values?

 

A.

 

Geometric mean

 

B.

 

Median

 

C.

 

Mean

 

D.

 

Mode


3) A difference between calculating the sample mean and the population mean is:

 

A.

 

There are no differences.

 

B.

 

Only in the symbols, we use instead of µ and n instead of N.

 

C.

 

We divide the sum of the observations by n - 1 instead of n

 

D.

 

The observations are ranked and select the middle value for the population mean.


4) The difference between a random variable and a probability distribution is:

 

A.

 

A random variable does not include the probability of an event.

 

B.

 

A random variable can only assume whole numbers.

 

C.

 

A probability distribution can only assume whole numbers.

 

D.

 

None of the above.


5) Which of the following is not a requirement of a binomial distribution?

 

A.

 

Equally likely outcomes.

 

B.

 

A constant probability of success.

 

C.

 

Only two possible outcomes.

 

D.

 

A fixed number of trails.


6) Which of the following is not a requirement of a probability distribution?

 

A.

 

The probability of each outcome is between 0 and 1.

 

B.

 

The outcomes are mutually exclusive.

 

C.

 

Equally likely probability of a success.

 

D.

 

Sum of the possible outcomes is 1.00.

 

7) A sample

 

A.

 

Is part of the population.

 

B.

 

Has more than 30 observations.

 

C.

 

Is usually identified as N.

 

D.

 

All of these


8) The difference between the sample mean and the population mean is called the

 

A.

 

Sampling error.

 

B.

 

Standard error of the mean.

 

C.

 

Population mean.

 

D.

 

Population standard deviation.


9) Suppose a population consisted of 20 items. How many different samples of n = 3 are possible?

 

A.

 

120

 

B.

 

20

 

C.

 

6840

 

D.

 

1140


10) Which of the following statements is not a characteristic of the t distribution?

 

A.

 

Like z there is only one t distribution.

 

B.

 

It is symmetrical.

 

C.

 

It is a continuous distribution.

 

D.

 

It has a mean of 0.


11) We wish to develop a confidence interval for the population mean. The population follows the normal distribution, the standard deviation of the population is 3, and we have a sample of 10 observations. We decide to use the 90% level of confidence. The appropriate value of to represent the level of confidence is

 

A.

 

t=1.812

 

B.

 

t=1.833

 

C.

 

z =1.65

 

D.

 

z=1.96

 

 

 

12) We wish to develop a confidence interval for the population mean. The shape of the population is not known, but we have a sample of 40 observations. We decide to use the 92% level of confidence. The appropriate value of z is:

 

A.

 

1.75

 

B.

 

2.58

 

C.

 

1.96

 

D.

 

1.65

 

13) The Special Rule of Addition is used to combine

 

A.

 

Events based on subjective probabilities

 

B.

 

Mutually exclusive events

 

C.

 

Independent events.

 

D.

 

Events that total more than one.


14) We use the General Rule of Multiplication to combine

 

A.

 

Events based on subjective probabilities

 

B.

 

Mutually exclusive events.

 

C.

 

Events that are not independent.

 

D.

 

Events that total more than 1.00.


15) Which of the following is not a type of probability?

 

A.

 

Classical

 

B.

 

Independent

 

C.

 

Subjective

 

D.

 

Relative frequency

 

 

 

 

 

 

 

 

 

16) Which of the following statements is true regarding a sample?

 

A.

 

It is a part of population.

 

B.

 

It must contain at least five observations.

 

C.

 

It refers to descriptive statistics

 

D.

 

All of these are correct


17) A discrete variable is

 

A.

 

Cannot be negative.

 

B.

 

Can assume only whole number values.

 

C.

 

An example of a qualitative variable.

 

D.

 

Can assume only certain clearly separated values

 

18) The ratio scale of measurement

 

A.

 

Is usually based on counting.

 

B.

 

Cannot assume negative values.

 

C.

 

Usually involves ranking.

 

D.

 

Has a meaningful zero point.

 

19) In a two-sample test of means for independent samples, the equal sign always appears in

 

A.

 

The null hypothesis.

 

B.

 

The alternate hypothesis.

 

C.

 

The upper tail of the test statistic.

 

D.

 

None of these


20) Which of the following is a requirement for a two-sample test of proportions.

 

A.

 

nB and n(1-B) are both greater than 5.

 

B.

 

Both populations are positively skewed.

 

C.

 

The population standard deviations are equal.

 

D.

 

Both samples are at least 30.


21) The alternate hypothesis

 

A.

 

None of these

 

B.

 

Is accepted if the null hypothesis is rejected.

 

C.

 

Will always contain the equal sign.

 

D.

 

Tells the value of the sample mean.


22) To conduct a nonparametric test the.

 

A.

 

The data must be at least interval scale.

 

B.

 

Population must follow the normal distribution.

 

C.

 

The standard deviation must be known.

 

D.

 

It is not necessary to make any assumption about the shape of the population.


23) Which of the following is not a characteristic of the X2

 

A.

 

It approaches a normal distribution as the degrees of freedom increase.

 

B.

 

Its shape is based on the sample size.

 

C.

 

It is not negative.

 

D.

 

It is positively skewed.

 

 

 

24) In a goodness-of-fit test where the sample size is 200, there are 5 categories, and the significance level is .05. The critical value of X2 is

 

A.

 

9.488

 

B.

 

11.070

 

C.

 

43.773

 

D.

 

None of these

 

25) In the ANOVA table the value of k is

 

A.

 

The sum of squares total.

 

B.

 

The number of independent variables.

 

C.

 

The total number of observations

 

D.

 

The number of degrees of freedom.


26) A correlation matrix

 

A.

 

Reports the multiple regression equation.

 

B.

 

Shows all simple coefficients of correlation.

 

C.

 

Shows all possible net regression coefficients.

 

D.

 

Shows the correlations that are positive.


27) A dummy variable or indicator variable

 

A.

 

Is equal to Y

 

B.

 

May assume only a value of 0 or 1.

 

C.

 

Is another term for the dependent variable.

 

D.

 

Is found by (Y - Y).

 

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