FI515 weekly quiz answer - 1 Question Money markets are...

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Unformatted text preview: 1 Question: Money markets are markets for ______. Student foreign stocks Answer: consumer automobile loans U.S. stocks short-term debt securities long-term bonds CORRECT ANSWER Points (not graded) Received: 2 Question: Which of the following could explain why a business might choose to organize as a corporation rather than as a Student sole proprietorship or a partnership? generally face fewer regulations. A. Corporations Answer: B. Corporations generally face lower taxes. C. Corporations generally find it easier to raise CORRECT ANSWER capital. D. Corporations enjoy unlimited liability. E. Statements C and D are correct. Instructor The advantages of incorporation include unlimited life, easy transferability of ownership interest, limited liability, Explanatio and ease of raising money in the capital markets. Regulations and double taxation are disadvantages of Points (not graded) n: Received: corporations. 3 Question: Which of the following statements is true? Student One of the benefits of incorporating your business is Answer: that you become entitiledsubject to more regulations Sole proprietorships are to receive unlimited liability. than corporations. Sole proprietorships do not have to pay CORRECT ANSWER corporate tax. answers are correct. All of the above None of the above answers are correct. Instructor Sole proprietorships pay personal income tax, not corporate tax. The other statements are false. Corporations Explanatio (notsubject to limited liability, but are subject to more regulations than the other forms of business organizations. Points are graded) n: Received: 4 Question: While other things are held constant, which of the following actions would increase the amount of cash on a Student company's balance sheet? company repurchases common stock. The Answer: The company pays a dividend. The company issues new common stock. CORRECT ANSWER The company purchases a new piece of equipment. The company gives customers more time to pay their bills. Points (not graded) Received: 5 Question: Kramer Corporation recently announced that its net income was lower than last year. However, analysts Student estimate that the company's net cash flow depreciation expense could explain this discrepancy? ANSWER A. The company's increased. What factors CORRECT Answer: increased. B. The company's interest expense declined. C. The company had an increase in its noncash revenues. A and B are correct. D. Answers E. Answers B and C are correct. Points (not graded) Received: 6 Question: Which of the following statements is most correct? Student A. Actions that increase net income will always Answer: increase net to increase EVA is to maintain the B. One way cash flow. CORRECT ANSWER same operating income as a performance measure C. One drawback of EVA with less capital. is.that it mistakenly assumes that equity capital is D Answers A and B are correct. free. E. Answers A and C are correct. Instructor EVA = EBIT(1-T) - (after-tax cost of capital) (total capital). Therefore, if less capital is used with the same Explanatio (not graded) Points operating income, EVA will be increased. n: Received: 1 Question: Branch Corp's total assets at the end of last year were $315,000 and its net income after taxes was Student $22,750. What was its return on total assets? 7.22% CORRECT ANSWER Answer: 7.58% 7.96% 8.36% 8.78% Points (not graded) Received: 2 Question: Nikko Corp's total common equity at the end of last year was $305,000 and its net income after taxes was Student $60,000. What was its ROE? 16.87% Answer: 17.75% 18.69% 19.67% CORRECT ANSWER 20.66% Points (not graded) Received: 3 Question: You have a chance to buy an annuity that pays $1,000 at the end of each year for three years. You could investments Student earn 5.5% on your money in other $2,697.93 with equal risk. What isANSWER you should pay for the CORRECT the most Answer: annuity? $2,775.79 $2921.86 $3,075.64 $3,237.52 Instructor The answer represents the present value of the cash flows discounted by 5.5% over three years. Explanatio (not graded) Points n: Received: 4 Question: How much would $5,000 due in 50 years be worth today if the discount rate was 7.5%? Student $109.51 Answer: $115.27 $121.34 $127.72 $134.45 CORRECT ANSWER Instructor PV of receiving $5000 if N=50 and i= 7.5% Explanatio (not graded) Points n: Received: 5 Question: What is the present value of the following cash flow stream at a rate of 12.0%? Years: Student Answer: Points (not graded) Received: 1 2 3 4 | CFs: 0 | | | | $0 $1,500 $9,699 $10,210 $10,747 $11,284 $11,849 $3,000 $4,500 CORRECT ANSWER $6,000 1 Question: Which of the following bonds would have the greatest percentage increase in value if all interest rates fell by 1%? 10-year, zero coupon bond Student Answer: 20-year, 10% coupon bond 20-year, 5% coupon bond 1-year, 10% coupon bond 20-year, zero coupon bond CORRECT ANSWER Points (not graded) Received: 2 Question: Which of the following statements is most correct? Student Characteristic line is another name for the security Answer: market line. The characteristic line is the regression line that results from plotting the returnsline a particular stock The slope of the characteristic on is the stock's versus the returns on a stock from athe characteristic standard deviation. plot points from different industry. The distance of the line is a measurethethe stock's market the The distance of of plot points from risk. characteristic line is a measure of the stock's diversifiable risk. Points (not graded) Received: 3 Question: Which of the following statements is most correct? Student A. Tests have shown that the betas of individual Answer: stocks are unstable argued that it is notthe betas of B. Richard Roll has over time, but that even possible large portfoliosshown that the risk/return relationship to. test the CAPM toreasonablycorrect.over time. C Tests have are see if it is stable a . Statements A and B are correct. Dppears to be linear, but the slope of the relationship is. less than thatA, B, and C are correct. E Statements predicted by the CAPM. CORRECT ANSWER CORRECT ANSWER Points (not graded) Received: 4 Question: One of the basic relationships in interest rate theory is that, other things held constant, for a given change in the required A. longer; smaller Student rate of return, the _______ the time is to maturity, the _______ the change in price. Answer: B. shorter; larger C. longer; greater D. shorter; smaller E. Answers C and D are correct. CORRECT ANSWER Points (not graded) Received: 5 Question: Which of the following statements is most correct? Student A. All else equal, long-term bonds have more interest Answer: rate risk than short-term coupon bonds have more B. All else equal, higher bonds. reinvestment risk short-term bonds bonds. C. All else equal, than low coupon have more reinvestment riskand Clong-term bonds. D. Statements A than are correct. E. All of the statements above are correct. Points (not graded) Received: CORRECT ANSWER 1 Question: A stock expects to pay a year-end dividend of $2 a share (i.e., D1 = $2; assume that last year's dividend has already been Student paid). The dividend is expected to fall 5%stock price is $10. g = -5%). The company's expected and required rate of return is A. The company's a year forever (i.e., Answer: 15%. Which of the following statements is most correct? B. The company's expected dividend yield 5 years from now will be 20%. 5 years from now C. The company's stock price is.expected to be B and C are correct. D Both answers $7.74. E. All of the above answers are correct. CORRECT ANSWER Instructor Statement E is the correct choice; all the statements are correct. Statement A is correct; Po = $2/(.15+.05) = $10. Statement B Explanatio is correct; Div yields = D6/P5 or ($2(.95)to the 5th power) = $1.547562/$7.74 = 20%. Statement C is correct; ($10(.95)to the 5th Points (not graded) n: Received: power) = $7.74. 2 Question: Which of the following statements is most correct? Student A. If a stock's beta increased but its growth rate Answer: remained the same, says the new actual realized B. Market efficiency then that the equilibrium price of on all stocks will be equal to the expected returns the stock will be higher (assuming of C. An implication of the semistrong form CORRECT ANSWER dividends continue to grow at the constant you rhe efficient markets hypothesis is that growth tates of return. A and B are correct. D. Statements rate). consistently benefit from trading on cannot E. All of the statements above are correct. information reported in the Wall Street Instructor Statement C is correct; The other statements are false. If beta increased but g remained the same, the new stock price would Journal. Explanatio (not graded) Points be lower. Market efficiency says nothing abut the relationship between expected and realized rates of return. n: Received: 3 Question: Which of the following statements is most correct? Student A. If the stock market is weak-form efficient, this Answer: m.eans you cannot use private information to B If the stock market is semistrong-form efficient, outperform themarket is semistrong-form and this means expected C. If the stock market. return on stocks bfficient, this means that high beta stocks should eonds should B the C are D. Statementsbe and same. correct. have the of the expected return as low beta E. None same statements above are correct. CORRECT ANSWER stocks. Instructor Statement E is correct; the other statements are false. If the stock market is weak-form efficient, you could use private Explanatio information to outperform the market. Semistrong-form efficiency means that current market prices reflect all publicly available Points (not graded) n: Received: information. 4 Question: Which of the following statements is most correct? Student The CAPM approach to estimating a firm's cost Answer: of common approach is gives a better estimate The CAPM stock never typically used to estimate than riskcost of preferred stock. a he the premium used in the bond yield plus risk T firm's DCF application. premium method is the sametheory),one used in In practice (as opposed to in as the the DCF the CAPM method. method and the CAPM method false. produce The statements above are all usually exactly the same estimate for rs. CORRECT ANSWER Points (not graded) Received: 5 Question: In applying the CAPM to estimate the cost of equity capital, which of the following elements is not subject to dispute or Student controversy? The expected rate of return on the market (rm) Answer: The stock's beta coefficient, b1 The risk-free rate (r rf) The market risk premium (RPm) All of the above are subject to dispute. CORRECT ANSWER Points (not graded) Received: 1 Question: Which of the following statements is incorrect? Student Assuming a project has normal cash flows, the NPV will be positive Answer: if the multipleless than than the cost of capital. I the IRR is IRR problem does not exist, any independent project a IRR= r (the the of capital), the NPV = 0. Ifcceptable bycost NPV method will also be acceptable by the IRR method. be negative if the IRR is positive. NPV can The NPV method is not affected by the multiple IRR problem. Instructor The first statement is the incorrect statement. NPV is positive if IRR is greater than the cost of capital. Explanatio (not graded) Points n: Received: CORRECT ANSWER 2 Question: Which of the following statements is most correct? Student A. If a project with normal cash flows has an IRR that exceeds the CORRECT ANSWER Answer: costthe capital, then theexceeds the IRR of project B, then project A B. If of IRR of project A project must have a positive NPV. m The modified internal NPV. C.ust also have a higher rate of return (MIRR) can never exceed the IRR. D. Answers A and C are correct. E. None of the answers above are correct. Instructor The correct answer is A; the other statements are false. The IRR is the discount rate at which a project's NPV is zero. If a project's IRR Explanatio (not graded)firm's cost of capital, then its NPV must be positive since NPV is calculated using the firm's cost of capital to discount project Points exceeds the n: Received: cash flows. 3 Question: Which of the following statements is most correct? Student A. The MIRR method will always arrive at the same conclusion as the Answer: N. The MIRR method can overcome the multiple IRR problem and the B PV method. NPV method cannot. uses a more reasonable assumption about C. The MIRR method CORRECT ANSWER reinvestment rates than the IRR method. D. Statements A and C are correct. E. All of the above statements are correct. Instructor Statement C is correct; the other statements are false. MIRR and NPV can conflict for mutually exclusive projects if the projects differ in Explanatio size. graded) not suffer from the multiple IRR problem. Points (not NPV does n: Received: 4 Question: Which of the following statements is most correct? Student A. The rate of depreciation will often affect operating cash flows, even Answer: though depreciation is not a account for sunk costs when making B. Corporations should fully cash expense. investment decisions. fully account for opportunity costs when making C. Corporations should investment decisions.above are correct. D. All of the answers E. Answers A and C are correct. Points (not graded) Received: 5 Question: Which of the following statements is most correct? A. Sunk costs should be incorporated into capital budgeting decisions. Student Answer: B. Opportunity costs should be incorporated into capital budgeting decisions. externalities should be incorporated into capital budgeting C. Relevant decisions. D. Answers B and C are correct. E. Answers A, B, and C are correct. Points (not graded) Received: CORRECT ANSWER CORRECT ANSWER 1 Question: You work for Athens Inc. and you must estimate the Year 1 operating cash flow for a project with the following data. What is the Year 1 operating cash flow? Sales revenues: $15,000 Depreciation: $4,000 Other operating costs: $6,000 Tax rate: 35% Student $7,250 CORRECT ANSWER Answer: $7,431 $7,617 $7,807 $8,003 2 3 4 5 Points (not graded) Received: Question: Which of the following is not a cash flow and thus should not be reflected in the analysis of a Student capital budgeting project? Changes Answer: inhipping S net operating and Cannibaliz working installation ation Opportunit capital eosts y ffects costs Sunk CORRECT ANSWER costs that have Points (not graded) been Received: expensed Question: Which of the following for tax key element in strategic planning as it is described in the text? is not a Student The purposes Answer: mission The statement The CORRECT ANSWER of the statement The corporatio otatement s f cash The n's scope flows of perating corporate plan Points (not graded) objectives Received: Question: Which of the following assumptions is embodied in the AFN formula forecasting method? Student All Answer: balance Accounts CORRECT ANSWER sheet payable Common atock and s ccounts Fnd ixed are tied ccruals long-term aast Lssets, to directly are not dear's bebttied ut are yales. s irectly to durrent tied c total Points (not graded) sales. to directly assets, ssets Received: sales.not are tied were Question: How is the capital intensity ratio generally defined? dptimal to oirectly for Student Sales. s ales last year's Answer: dales. by The s ivided total ratio percentag The afof essets to o he ratio T sales (iabilities l i.e., the current of current The CORRECT ANSWER total hat assets to amount assets increase sales of assets Points (not graded) turnover spontaneo ratio) Received: r equired usly as a per dollar percentag of sales, e of sales or A*/So 1 Question: Other things held constant, which of the following will cause an increase in working capital? Student Cash is used to buy marketable securities. Answer: 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. CORRECT ANSWER Points (not graded) Received: 2 Question: Helena Furnishings wants to sharply reduce its cash conversion cycle. Which of the following steps would reduce its cash conversion cycle? Student A. The company increases its average inventory without increasing its sales. Answer: B. The company reduces its DSO. CORRECT ANSWER C. The company starts paying its bills sooner, which would reduce its average accounts payable without reducing its sales. correct. D. Statements A and B are E. All of the statements above are correct. Instructor Statement A is false; If inventory increases and sales do not, more cash is being tied up in inventory so the cash conversion cycle is increased, not reduced. Statement B is true; If Explanatio (not graded) reduces its DSO, it collects its accounts receivables more efficiently, so it reduces the cash conversion cycle. Statement C is false; If the company pays its bills sooner, Points the company n: Received: it uses its cash to pay off accounts payable, and this increases its cash conversion cycle. 3 Question: Which of the following is typically part of the cash budget? Student A. Payments lag Answer: B. Payments for plant construction C. Cumulative cash D. Statements A and C are correct. E. All of the statements above are correct. CORRECT ANSWER Instructor Explanatio (not graded) Points n: Received: 4 Question: Which of the following is not commonly regarded as being a credit policy variable? Student Credit period Answer: Collection policy Credit standards Cash discounts All of the above are credit policy variables. Instructor Explanatio (not graded) Points n: Received: 5 Question: Which of the following might be attributed to efficient inventory management? Student A. High inventory turnover ratio Answer: B. Low incidence of production schedule disruptions C. High total assets turnover D. Statements A and C are correct. E. All of the statements above are correct. Instructor Explanatio (not graded) Points n: Received: CORRECT ANSWER CORRECT ANSWER ...
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This note was uploaded on 10/10/2011 for the course FI 515 FI 515 taught by Professor Senn during the Spring '10 term at Keller Graduate School of Management.

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