Practice+final+questions

Practice+final+questions - Practice Questions for MGMT 109...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Practice Questions for MGMT 109 Final. These are practice questions. Don't take any focus or lack thereof as an indication of the material covered in the final. 1. You purchase a machine for $20,000, depreciated straight-line to a book value of 5,000 over its five year life. If the machine is sold at the end of the third year for $10,000, what is the after tax salvage value, assuming your tax rate is 34%? ______________________________ 2. Which of the following is NOT correct? a) Unsystematic risk is essentially eliminated by diversification b) Both systematic and unsystematic risk matter to a well-diversified investor c) The amount of systematic risk in an asset relative to the market is measured by beta d) Spreading an investment across a number of assets will eliminate part of the total risk e) On average, standard deviation of a portfolio declines as the number of assets in the portfolio is increased, but there is a limit below which the standard deviation will not fall 3. Which of the following is true about trying to estimate a firm's cost of equity capital? A. We have no model that will provide reasonable estimates B. It is relatively easy to compute the firm's cost of debt and then back the cost of equity out of it C. The cost of equity is equal to the weighted average cost of capital D. The cost of equity depends on the total risk of the firm's equity E. There is no way to directly observe the return required by the firm's equity investors 4. Which of the following is NOT true regarding a firm's cost of debt? A. The cost of debt is the return the firm's creditors demand on new borrowing B. The firm's cost of debt based on its past borrowing is known as its embedded debt cost C. It is possible to determine a firm's cost of debt by using the SML D. The coupon rate on outstanding debt is not necessarily the firm's current cost of debt E. A firm's cost of equity is generally easier to calculate than the firm's cost of debt 5. Calculation of the weighted average cost of capital requires all of the following EXCEPT ___________ . A. determination of the total market value of a firm's debt by determining the number of bonds outstanding and the current par value per bond B. determination of the market value of bonds outstanding relative to total market value of the firm C. determination of the corporate tax rate D. determination of the current market value of a firm's equity by finding the total number of shares and the market value per share E. determination of the market value of equity outstanding relative to total market value of the firm 6. A firm that uses its WACC as a cutoff without considering the risk involved in a project will I. tend to become less risky over time II. tend to accept negative NPV projects over time III. likely see its WACC rise over time A. II only B. I and II only
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 08/16/2011 for the course MGMT 109 taught by Professor Zheng during the Winter '11 term at UC Irvine.

Page1 / 8

Practice+final+questions - Practice Questions for MGMT 109...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online