Margarite's Enterprises is considering a new project. The project will require $325,000 for new
fixed assets, $160,000 for additional inventory and $35,000 for additional accounts receivable.
Accounts payable is expected to increase by $100,000 and long-t
Which of the following stocks has the greatest expected return and by how much?
A. A by 6%
B. B by 6%
C. A by 3%
D. B by 3%
E. A and B have the same expected return.
Learning Objective: 13-01 The calculation for expected returns and
235.A firm's cost of debt:
A. increases as the tax rate increases.
B. increases when the firm's bond rating increases.
C. is equal to the coupon rate on the firm's latest bond issue.
D. is the interest rate the firm must pay on new debt.
E. is inversely r
Chapter 20 Credit and Inventory Management Key
The terms of sale establish how the firm proposes to purchase its goods or services.
Learning Objective: 20-01 How firms manage their receivables and the basic components of a firm'
307.Building Blocks has a beginning cash balance for the quarter of $800. The firm's president
requires a minimum cash balance of $800 be maintained at all times. Further, the president has a
policy of borrowing when necessary to maintain that balance. If
Which of the following describes a short-run exposure of exchange rate risk?
I. Your firm buys plumbing products in Asia and sells them in Canada at a substantial discount
to plumbing products manufactured in Canada. However, the strengthening economi
You are looking at an investment which has an initial cost of $400,000 and a salvage value of
zero after five years. What is the average accounting return for this investment given the
following annual net incomes:
The uses of cash include:
A. $110 from notes payable.
B. $1,075 from retained earnings.
C. $840 from fixed assets.
D. $370 from inventory
E. $70 from accounts receivable.
Learning Objective: 03-01 The sources and uses of a fi
114.Which of the following have been suggested as reasons why the stockholders in acquiring firms
may not benefit to any significant degree from an acquisition?
I. The price paid for the target firm might equal that firm's total value
II. Management may h
304.Based on the payback period of _ years for this project, you should _ the project.
A. 3.27; accept
B. 3.27; reject
C. 3.42; accept
D. 3.42; reject
E. 3.51; reject
You are considering the following two mutually exclusive projects with the following cas
To determine the degree to which the projected net present value of a project is dependent
upon a single variable you should conduct _ analysis.
C. accounting break-even
D. financial break-even
E. cash break-even
The empirical evidence strongly indicates that the stockholders of the target firm realize large
wealth gains as a result of a takeover bid but the stockholders in the acquiring firm gain little, if
anything. Although there exists no definitive answe
244.The Winston Co. is considering two mutually exclusive projects with the following cash flows. The
crossover rate is _ and if the required rate is higher than the crossover rate then project
_ should be accepted.
A. 13.94 percent; A
B. 13.94 percent; B
Witherspoon, Inc. is considering purchasing a piece of equipment for $43,701. The company
has a 35% marginal tax rate and the equipment belongs in a 30% CCA class. At the end of
seven years, the company intends to sell the equipment. The estimated ma
How many Canadian dollars are needed to buy one Swedish krona?
Learning Objective: 21-02 How exchange rates are quoted; what they mean; and the difference between spot and for
Over the past five years a stock produced annual returns of 11%, 16%, 5%, 2%, and 9%,
respectively. Based on this information, what is the standard deviation for this stock?
The greater the degree of sensitivity of any one variable, the:
A. Less likely that variable is to cause potential losses if the estimated values are incorrect.
B. Higher the net present value will be with an increase in any of the variables.
A market risk factor is a risk that influences only a small number of assets.
Learning Objective: 13-03 Systematic and unsystematic risk.
Ross - Chapter 13 #5
An example of systematic risk would be if the stock
Burke Corporation is investigating a lockbox system to reduce its collection time. It has
determined that on average, there are 900 payments with an average value of $425 each. If a
lockbox system is implemented, the lockbox fee per transaction will
The costs of selling stock fall into several categories. Which of the following is not part of this
category? We look at these costs first for United States and then for Canadian equity sales.
A. The spread
B. Other direct expenses
C. Indirect expens
301.Given the following information for Groto Corp. find the WACC. Assume the company's tax rate is
30%. Bonds: 10,000 9% coupon bonds outstanding, $1,000 par value, 25 years to maturity,
selling for 98% of par; the bonds make semi-annual payments. Common
Bristol Machinery has a conventional receivables factoring arrangement with a factor. This
A. Bristol is responsible for any bad debts.
B. the money payable under the arrangement will be paid to Bristol at some agreed-upon
141.Jackson Enterprises is preparing a pro forma statement for next year. It estimates sales at
12,840 units with a selling price of $43.01. Variable costs are estimated at $21 a unit. $868,000
of fixed assets is being depreciated straight-line to zero ov
The length of time required for an investment to generate cash flows sufficient to recover its
initial cost is the:
A. Net present value.
B. Internal rate of return.
C. Payback period.
D. Profitability index.
E. Discounted payback period.
You own a stock portfolio that is invested 10% in stock A, 30% in stock B, 40% in stock C, and
20% in stock D. These stocks have betas of 1.2, .8, 1.1, and 1.5, respectively. What is the
beta of the portfolio?
The foreign currency approach to capital budgeting analysis:
I. is computationally easier to use than the home currency approach.
II. produces the same results as the home currency approach.
III. utilizes the uncovered interest parity relationship.
Ross - Chapter 05 #110
During year 2, the account earned _.
Learning Objective: 05-03 How to find the return on an investment.
Ross - Chapter 05 #111
One year ago, you invested $5,000. Today, your investment is worth $6,178.40. What rate of
interest did you earn?
Learning Objective: 05-03 How to find the return on an investment.
A firm currently has a 36 day cash cycle. Assume that the firm changes its operations such
that it decreases its receivables period by 4 days, increases its inventory period by 1 day and
decreases its payables period by 2 days. What will the length o
Shirley's Restaurants has 35,000 shares of stock outstanding with a par value of $1.00 per
share. The market value is $9 per share. The balance sheet shows $112,000 in the capital in
excess of par account, $35,000 in the common stock account and $68,
188.Which of the following actions help reduce unsystematic risk in a portfolio?
I. spreading the retail industry portion of a portfolio over five separate stocks
II. combining stocks with bonds in a portfolio
III. adding some international securities int
Calculate net working capital turnover given the following data. Total fixed assets $200,000;
long-term liabilities $55,000; total liabilities $80,000; total shareholders' equity $220,000; total
Today you earn a salary of $28,500. What will be your annual salary fifteen years from now if
you earn annual raises of 3.5%?
Learning Objective: 05-01 How to det
Which of the following describe(s) relevant cash flows for the purpose of performing capital
I. Cash flows must be incremental
II. Cash flows must be after-tax
III. NI + D
IV. Additions to net working capital
A. I and III only
The internal rate of return tends to be:
A. easier for managers to comprehend than the net present value.
B. extremely accurate even when cash flow estimates are faulty.
C. ignored by most financial analysts.
D. used primarily to differentiate betwee