# Test bank accounting management 11e chapter 21 CAPITAL BUDGETING AND COST ANALYSIS

## Test bank Finance Management chapter 09 the cost of capital

... b The cost of debt used to calculate the weighted average cost of capital is based on an average of the cost of debt already issued by the firm and the cost of new debt c One problem with the ... measure of the before-tax cost of capital b Typically the after-tax cost of debt financing exceeds the after-tax cost of equity financing c The WACC measures the marginal after-tax cost of capital ... WACC represents the cost of capital based on historical averages In that sense, it does not represent the marginal cost of capital e The cost of retained earnings exceeds the cost of issuing new...
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## Test bank Finance Management chapter 10 the basics of capital budgeting

... cash flows of \$5,000,000 at the end of each of the next years However, the facility will have to be repaired at a cost of \$6,000,000 at the end of the second year Thus, at the end of Year there will ... cash flows of \$500,000 at the end of each of the next 20 years However, repairs that will cost \$1,000,000 must be incurred at the end of the 10th year Thus, at the end of Year 10 there will be ... internal rate of return of 18 percent, while Project B has an internal rate of return of 30 percent The two projects have the same risk, the same cost of capital, and the timing of the cash flows...
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## Test bank Finance Management chapter 12 other topics in capital budgeting

... earnings of \$100,000 and pays out 50% or \$50,000 in dividends, then it will retain earnings of \$50,000 The retained earnings breakpoint is \$50,000/0.4 = \$125 ,000 Since it will require financing in ... a An increase in the time remaining until the real option must exercised b An increase in the volatility of the underlying source of risk c An increase in the risk-free rate d An increase in the ... \$4.1 million NPVL = -\$5 + \$2/(1 .12) 1 + \$2/(1 .12) 2 + \$2/(1 .12) 3 + \$2/ (1 .12) 4 \$2/(1 .12) 5 + \$1.5/(1 .12) 6 + \$1.5/(1 .12) 7 + \$1.5/(1 .12) 8 + \$1.5/(1 .12) 9 + \$1.5/(1 .12) 10 NPVL = -\$5 + \$1.786 + \$1.594...
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## Test bank Finance Management chapter 13 capital structure and leverage

... 15.60% 13. 64% Chapter 13 - Page 14 Optimal capital structure and Hamada equation 48 Answer: d Diff: T Aaron Athletics is trying to determine its optimal capital structure The company’s capital structure ... EPS between capital structure A and capital structure B is \$6.04 - \$3.17 = \$2.87 56 Capital structure, leverage, and WACC Answer: d Diff: T N You need to find the beta with no debt and the new ... are correct Leverage and capital structure 10 which earnings per share (EPS) cost of debt (kd) risk cost of equity (ks) weighted average cost of capital (WACC) Leverage and capital structure with...
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## Test bank Finance Management chapter 01 overview of financial management

... of the statements above are correct e None of the statements above is correct Medium: Business ethics 21 Diff: M Which of the following is an example of an area of business in which the use of ... capital in part because of the other disadvantages of the partnership form of business, including impermanence of the organization e A major disadvantage of a partnership as a form of business organization ... additional shares of the company’s stock c The board of directors has become more vigilant in its oversight of the company’s management d Statements b and c are correct e All of the statements...
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## Test bank Finance Management chapter 02 financial statements, cash flows and taxes

... DEP and AMORT, but OCF would go up by DEP and AMORT, so the net change to OCF would be: DEP and AMORT – (DEP and AMORT)(1 - T) = DEP and AMORT – (DEP and AMORT) + (DEP and AMORT)(T) = (DEP and ... declined The company had an increase in its noncash revenues Statements a and b are correct Statements b and c are correct Net cash flow, free cash flow, and cash Diff: E Holmes Aircraft recently announced ... 2001 and 2 002 b Glenn issued common stock in 2 002 c Glenn had positive net income in both 2001 and 2 002, but the company’s net income in 2 002 was lower than it was in 2001 d Statements b and c...
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## Test bank Finance Management chapter 03 analysis of financial statements

... have a higher net income than Company B All of the statements above are correct None of the statements above is correct Chapter - Page Financial statement analysis 12 Company A has a higher Company ... earning power ratio d All of the statements above are correct e Statements a and c are correct Financial statement analysis 22 Answer: a Diff: M Which of the following statements is most correct? ... company’s EVA will be positive whenever the cost of equity exceeds the ROE d All of the statements above are correct e None of the statements above is correct Chapter - Page ROE and EVA Devon is much...
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## Test bank Finance Management chapter 04 the financial environment markets, institutions, and interest rates

... interest rates will decline Prices and interest rates will both decline Prices will decline and interest rates will rise There will be no changes in either prices or interest rates Chapter - Page Financial ... in years, and so on) a If 2-year rates exceed 1-year rates, then the market expects interest rates to rise b If 2-year rates are percent, and 3-year rates are percent, then 5-year rates must ... of money they borrow from their local a and b are correct a and c are correct Answer: c Diff: E Assume that the expectations theory describes the term structure interest rates Which of the following...
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## Test bank Finance Management chapter 05 risk and risk of returns

... decline Chapter - Page Portfolio risk and return 15 Answer: b Diff: E Stock X has a beta of 0.7 and Stock Y has a beta of 1.3 The standard deviation of each stock’s returns is 20 percent The returns ... Statements a and c are correct e Statements b and c are correct SML 29 Answer: c Stock A has a beta of 1.2 and a standard deviation of 20 percent Stock B has a beta of 0.8 and a standard deviation of 25 ... The riskiness of the portfolio is less than the riskiness of each of the stocks if each were held in isolation b The riskiness of the portfolio is greater than the riskiness of one or two of the...
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## Test bank Finance Management chapter 06 time value of money

... present value of the annuity due exceeds the present value of the ordinary annuity, while the future value of the annuity due is less than the future value of the ordinary annuity c The present value ... correct? a The present value of the ordinary annuity must exceed the present value of the annuity due, but the future value of an ordinary annuity may be less than the future value of the annuity due ... Time value concepts Answer: d Diff: E Which of the following statements is most correct? a The present value of an annuity due will exceed the present value of an ordinary annuity...
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## Test bank Finance Management chapter 07 bonds and their valuation

... perspective of the firm’s management d Chapters 11 and are the most important bankruptcy chapters for financial management purposes If a reorganization plan cannot be worked out under Chapter 11, then ... coupon bonds mature on December 31, 2022, and it is now January 1, 2003 Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk and maturity ... has bonds outstanding that will mature in 12 years The bonds pay a 12 percent semiannual coupon and have a face value of \$1,000 (that is, the bonds pay a \$60 coupon every six months) The bonds...
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## Test bank Finance Management chapter 08 stocks and their valuation

... Stock X and Stock Y have the same dividend yield So, statements a and b are incorrect That also makes statements d and e incorrect Since both stocks X and Y have the same price today, and Stock ... year from now, the two stocks are expected to trade at the same price d Statements a and b are correct e Statements a and c are correct Chapter - Page Constant growth model and CAPM 11 Diff: E N ... Stock A’s and Stock B’s required returns are 12.9% and 11.7%, respectively The required return is equal to a dividend yield and a capital gains yield Since these are constant growth stocks, their...
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## Test bank Finance Management chapter 11 cash flow estimation and risk analysis

... the analysis, while sunk costs should not be included 27 Incremental cash flows Answer: d Diff: M 28 Incremental cash flows Answer: d Diff: M 29 Cash flow estimation Answer: b Diff: M 30 Cash flow ... incremental cash flows, and therefore, relevant cash flows e None of the statements above is an example of an incremental cash flow Chapter 11 - Page Incremental cash flows 28 Answer: d Diff: ... Corporate risk Answer: b Diff: E 13 Risk analysis Answer: e Diff: E 14 Risk analysis Answer: c Diff: E Statement a is false Stand-alone risk is measured by standard deviation Therefore, since Y’s standard...
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## Test bank Finance Management chapter 14 distributions to shareholders dividends and share repurchases

... 100 shares of stock, and the stock will trade at or near 50 shares of stock, and the stock will trade at or near 50 shares of stock, and the stock will trade at or near Chapter 14 - Page Stock repurchases ... \$60 a share c You will have \$60 a share d You will have \$120 a share e You will have \$60 a share 200 shares of stock, and the stock will trade at or near 200 shares of stock, and the stock will ... key role in the decision to repurchase stock versus to pay more cash dividends b Stock dividends provide investors with additional shares of stock, not cash, yet many investors must pay cash in...
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## Test bank Finance Management chapter 15 managing current assets

... the firm’s tax rate is 40 percent With a restricted policy, current assets will be 15 percent of sales Under a relaxed policy, current assets will be 25 percent of sales What is the difference ... 1.00% 0.50% 0.33% Chapter 15 - Page 17 CHAPTER 15 ANSWERS AND SOLUTIONS Working capital Working capital Answer: c Answer: d Diff: E Diff: E N The correct answer is statement d The current ratio is ... policies:(In thousands) Current assets Fixed assets Total assets Debt Equity and retained earnings Total liabilities and equity EBIT Less: Interest (10%) EBT Less: Taxes (40%) Net income 15% of Sales Restricted...
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