Brittney Cooper
ECON 6106
5 November 2015
MARGINAL ANALYSIS
An examination of the additional benefits of an activity compared to the additional costs of that
activity. Companies use marginal analysis as a decision-making tool to help them maximize their
p
Midterm Test- Eco 578- Live spring 2016
T/F (4 points each)
1. For a binomial probability experiment, with n=150 and p=.1, we can use the normal
approximation to the binomial distribution even without continuity correction. (Ch6)
2. The probability of an
BA 302: Assignment 4: Chapters: 10, and 13: Total 125 points including one point for
attempting all questions. Due by Midnight (11:59 pm), Monday, July 6th 2015
True / False Questions (2 points each)
Chapter 10
1. The further the hypothesized mean is from
11. Times-interest-earned (TIE) ratio Aa Aa
The times-interest-earned (TIE) ratio shows how well a firm can cover its interest payments with operating income.
Compare the income statements of Hackworth Co. and Initech Corp. and calculate the TIE ratio for
8. The computation and interpretation of the degree of combined leverage (DCL) A3 A3
You and your colleague Rafael are currently participating in a finance internship program at Campbell Construction
(Campbell). Your current assignment is to work together
7. The computation and interpretation of the degree of financial leverage (DFL) A3 A3
It's December 31. Last year, Water and Power Company (W&P) had sales of $120,000,000, and it forecasts that next
years sales will be $134,400,000. Its fixed costs have b
6. Computing and interpreting the degree of operating leverage (DOL) A3 A3
It's December 31. Last year, Aberdeen Petroleum Refiners Corp. had sales of $12,000,000, and it forecasts that next
years sales will be $11,160,000. Its fixed costs have been and a
2. Introduction to capital structure theory
Aa
Aa
In his private office,just down the hall from his conference room, the Chief Financial Officer (CFO) of Caberto
Chemicals is meeting with his newly hired assistant, Akiko.
CFO
Akiko
CFO
Akiko
CFO
Akiko
CFO
4. Determining the optimal capital structure A3 A3
Understanding the optimal capital structure
Review this situation: Universal Exports Inc. is trying to identify its optimal capital structure. Universal Exports Inc.
has gathered the following financial i
12. The NPV and payback period Aa Aa
What information does the payback period provide?
Suppose you are evaluating a project with the cash inflows shown in the following table. Your boss has asked you to
calculate the projects NPV. You don't know the proje
11. The payback period Aa Aa
The payback method helps firms establish and identify a maximum acceptable payback period that helps in their
capital budgeting decisions.
Consider this case:
Cold Goose Metal Works Inc. is a small firm, and several of its m
10. Cash flow patterns and the modified rate of return calculation Aa Aa
Green Moose Industries Inc. is analyzing a project with the following cash flows:
Year Cash Flow
Year 0 $1,380,000
Year 1 $375,000
Year 2 $450,000
Year 3 $540,000
Year4 $360,000
Th
7. Understanding the NPV profile
If mutually exclusive projects with normal cash ows are being analyzed, the net present value (NPV) and internal
rate of return (IRR) methods sometimes agree.
Aa
Explanation: Close A
If projects are mutually
5. Internal rate of return (IRR) Aa Aa
Walker Enterprises Co. is evaluating a proposed capital budgeting project that will require an initial investment of
$1,250,000. The project is expected to generate the following net cash flows:
$300,000
$425,000
$47
4. Net present value method Aa Aa
Darling Industries is evaluating a proposed capital budgeting project that will require an initial investment of
$136,000. The project is expected to generate the following net cash flows:
Cash Flow
$40,000
$50,900
$45,20
1. Basic concepts Aa Aa
Match the terms relating to the basic terminology and concepts of risk and rates of return on the left with the
descriptions of the terms on the right. Read each description carefully and type the letter of the description in the
A
12. Portfolio beta and weights Aa Aa
Gregory is an analyst at a wealth management firm. One of his clients holds a $10,000 portfolio that consists of four
stocks. The investment allocation in the portfolio along with the contribution of risk from each sto
11. Changes to the security market line Aa Aa
The following graph plots the current SML and indicates the return that investors require from holding stock from
Happy Corp. (HC). Based on the graph, complete the table that follows.
REQUIRED RATE OF RETUR
10. The Capital Asset Pricing Model and the security market line
Keith holds a portfolio that is invested equally in three stocks (wD = wA = m = 1/3). Each stock is described in the
following table:
Stock Beta Standard Deviation Expected Return
DET
9. Conceptual questions on portfolio and stand-alone risk A3 A3
Charlize holds a $10,000 portfolio that consists of four stocks. Her investment in each stock, as well as each stock's
beta, is listed in the following table:
Stock Investment Standard Deviat
7. Portfolio expected return and risk Aa Aa
A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a
portfolio, making portfolio risk analysis an integral part of finance. Just like stand