CHAPTER 13: RISK, COST OF CAPITAL, AND CAPITAL BUDGETING
Answers to Questions
1. No. The cost of capital depends on the risk of the project, not the source of the money.
2. Interest expense is tax-deductible. There is no difference between pretax and afte
End of Chapter Solutions Corporate Finance: Core Principles and Applications 3rd edition Ross, Westerfield, Jaffe, and Jordan Updated 09-28-2010
Prepared by Joe Smolira Belmont University
CHAPTER 1 INTRODUCTION TO CORPORATE FINANCE
Answers to Concept Ques
UNIVERSITY OF MALAYA
MID-SEMESTER EXAM
SEMESTER II 2004/2005 SESSION
15 JANUARY 2005
CBEB 3104 CORPORATE FINANCE
1 HOUR 30 MINUTES ONLY
This paper contains 30 multiple choice questions. Answer all questions. Choose the best
answer.
1. A firm purchases a n
Chapter 01 - Introduction to Corporate Finance
Chapter 01
Introduction to Corporate Finance
Multiple Choice Questions
1. The person generally directly responsible for overseeing the tax management, cost
accounting, financial accounting, and information sy
Chapter 02
Reviewing Financial Statements
Multiple Choice Questions
1. Which financial statement reports a firm's assets, liabilities, and equity at a particular point in time?
A. Balance Sheet
B. Income Statement.
C. Statement of Retained Earnings.
D. St
Chapter 05 - Discounted Cash Flow Valuation
Chapter 05 Discounted Cash Flow Valuation
Multiple Choice Questions
1. Travis is buying a car and will finance it with a loan which requires monthly payments of $265 for the next 4 years. His car payments can be
Chapter 2
1. _ is calculated by adding back noncash expenses to net income and adjusting for changes in
current assets and liabilities.
a. Total cash flow
b. Capital spending
c. Net working capital
d. Cash flow from operations
e. Cash flow to creditors
An
Chapter 8
1. All of the following are anticipated effects of a proposed project. Which of these should be
included in the initial project cash flow related to net working capital?
I. an inventory decrease of $5,000
II. an increase in accounts receivable o
Solutions to Homework 1, Chapters 1, 2 & 3
1 The division of profits and losses among the members of a partnership is formalized in the:
A. indemnity clause.
B. indenture contract.
C. statement of purpose.
*D. partnership agreement.
E. group charter.
2. A
Chapter 01 - Introduction to Financial Management
Chapter 01
Introduction to Financial Management
Multiple Choice Questions
1. Tim has been promoted and is now in charge of all fixed asset purchases. In other words,
Tim is in charge of:
A. capital structu
Chapter 8
1. All of the following are anticipated effects of a proposed project. Which of these should be
included in the initial project cash flow related to net working capital?
I. an inventory decrease of $5,000
II. an increase in accounts receivable o
Chapter 1
1. A business created as a distinct legal entity composed of one or more individuals or entities is
called a:
a. corporation.
b. sole proprietorship.
c. general partnership.
d. limited partnership.
e. unlimited liability company.
Answer: a
Diffi
1. If a project has a net present value equal to zero, then:
I. the present value of the cash inflows exceeds the initial cost of the project.
II. the project produces a rate of return that just equals the rate required to accept the project.
III. the pro
Chapter 05 - Discounted Cash Flow Valuation
Chapter 05
Discounted Cash Flow Valuation
Multiple Choice Questions
1. Travis is buying a car and will finance it with a loan which requires monthly payments of
$265 for the next 4 years. His car payments can be
Chapter 5
Problem Solutions
Fall 2011
18.
Orange Corporation would like to transfer excess cash to its sole shareholder, DE C I S ION MAKING
Danielle, who is also an employee. Danielle is in the 28% tax bracket, and Orange is in the 34% bracket.
Because D
CHAPTER 12
Risk, Cost of Capital, and Capital Budgeting
Multiple Choice Questions:
I.
DEFINITIONS
WACC
e
1.
a.
b.
c.
d.
e.
The weighted average of the firms costs of equity, preferred stock, and after tax debt is
the:
reward to risk ratio for the firm.
ex
Chapter 01 - Introduction to Financial Management
Chapter 01 Introduction to Financial Management
Multiple Choice Questions
1. Tim has been promoted and is now in charge of all fixed asset purchases. In other words, Tim is in charge of: A. capital structu
Chapter 14
1. The Modigliani-Miller Proposition I without taxes states:
*A. A firm cannot change the total value of its outstanding securities by changing its capital
structure proportions.
B. When new projects are added to the firm the firm value is the
CHAPTER 12
RISK, COST OF CAPITAL, AND
CAPITAL BUDGETING
Solutions to Questions and Problems
NOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require
multiple steps. Due to space and readability constraints, when these inter
CHAPTER 9
Net Present Value and Other Investment Criteria
I.
DEFINITIONS
NET PRESENT VALUE
a
1. The difference between the present value of an investment and its cost is the:
a. net present value.
b. internal rate of return.
c. payback period.
d. profitab
CHAPTER 12 RISK, COST OF CAPITAL, AND CAPITAL BUDGETING
Answers to Concepts Review and Critical Thinking Questions 1. 2. 3.
No. The cost of capital depends on the risk of the project, not the source of the money. Interest expense is tax-deductible. There
CHAPTER 10
RISK AND RETURN: THE CAPITAL
ASSET PRICING MODEL (CAPM)
Answers to Concepts Review and Critical Thinking Questions
1.
Some of the risk in holding any asset is unique to the asset in question. By investing in a variety of
assets, this unique por
CHAPTER 7 MAKING CAPITAL INVESTMENT DECISIONS
Answers to Concepts Review and Critical Thinking Questions 1.
In this context, an opportunity cost refers to the value of an asset or other input that will be used in a project. The relevant cost is what the a
CHAPTER 6
NET PRESENT VALUE AND OTHER
INVESTMENT CRITERIA
Answers to Concepts Review and Critical Thinking Questions
1.
Assuming conventional cash flows, a payback period less than the projects life means that the NPV
is positive for a zero discount rate,
CHAPTER 4 DISCOUNTED CASH FLOW VALUATION
Answers to Concepts Review and Critical Thinking Questions 1.
Assuming positive cash flows and interest rates, the future value increases and the present value decreases. Assuming positive cash flows and interest r
CHAPTER 3 LONG-TERM FINANCIAL PLANNING AND GROWTH
Answers to Concepts Review and Critical Thinking Questions 1. Time trend analysis gives a picture of changes in the company's financial situation over time. Comparing a firm to itself over time allows the
CHAPTER 18 SHORT-TERM FINANCE AND PLANNING
Answers to Concepts Review and Critical Thinking Questions 1. These are firms with relatively long inventory periods and/or relatively long receivables periods. Thus, such firms tend to keep inventory on hand, an
CHAPTER 15 Capital Structure: Basic Concepts
Multiple Choice Questions: I. DEFINITIONS
HOMEMADE LEVERAGE a 1. The use of personal borrowing to change the overall amount of financial leverage to which an individual is exposed is called: a. homemade leverag
CHAPTER 12
Risk, Cost of Capital, and Capital Budgeting
Multiple Choice Questions:
I.
DEFINITIONS
WACC
e
1.
a.
b.
c.
d.
e.
The weighted average of the firms costs of equity, preferred stock, and after tax debt is
the:
reward to risk ratio for the firm.
ex
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