a.

                   Shipping and installation costs.


                   b.

                   Cannibalization effects.


                   c.

                   Opportunity costs.


                   d.

                   Sunk costs that have been expensed for tax purposes.


                   e.

                   Changes in net working capital.


                   Project X

                   Project Y

                   Expected NPV

                   $500,000

                   $500,000

                   Standard deviation (s_NPV)

                   $200,000

                   $250,000

                   Project beta (vs. market)

                   1.4

                   0.8

                   a.

                   Project X has more corporate (or within-firm) risk than Project Y.


                   b.

                   Project X has more market risk than Project Y.


                   c.

                   Project X has the same level of corporate risk as Project Y.


                   d.

                   Project X has less market risk than Project Y.


                   e.

                   Project X has more stand-alone risk than Project Y.


                   Sales revenues

                   $13,000

                   Depreciation

                   $4,000

                   Other operating costs

                   $5,000

                   Tax rate

                   30.0%

                   a.

                   $5,950


                   b.

                   $6,099


                   c.

                   $6,350


                   d.

                   $6,400


                   e.

                   $6,800


                   Sales revenues

                   $22,250

                   Depreciation

                   $8,000

                   Other operating costs

                   $12,000

                   Tax rate

                   30.0%

                   a.

                   $8,903


                   b.

                   $9,179


                   c.

                   $9,463


                   d.

                   $9,575


                   e.

                   $9,663


                   a.

                   1.20


                   b.

                   1.26


                   c.

                   1.32


                   d.

                   1.36


                   e.

                   1.42


                   a.

                   Commercial paper is a form of short-term financing that is primarily used by large, strong, financially stable companies.


                   b.

                   Short-term debt is favored by firms because, while it is generally more expensive than long-term debt, it exposes the borrowing firm to less risk than long-term debt.


                   c.

                   Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.


                   d.

                   Commercial paper is typically offered at a long-term maturity of at least five years.


                   e.

                   Trade credit is provided only to relatively large, strong firms.


                   Inventory conversion period =

                   40 days

                   Average collection period =

                   18 days

                   Payables deferral period =

                   20 days

                   a.

                   33 days


                   b.

                   37 days


                   c.

                   38 days


                   d.

                   42 days


                   e.

                   49 days


                   a.

                   $335,616


                   b.

                   $352,397


                   c.

                   $369,863


                   d.

                   $389,836


                   e.

                   $407,944


                   11.7 days


                   13.0 days


                   14.4 days


                   15.2 days


                   16.7 days


                   a.

                   Cash proceeds from selling one of its divisions.


                   b.

                   Accrued interest on zero coupon bonds that it issued.


                   c.

                   New shares issued in a stock split.


                   d.

                   New shares issued in a stock dividend.


                   e.

                   Its monthly depreciation expense.


                   a.

                   Depreciate against the U.S. dollar.


                   b.

                   Remain unchanged against the U.S. dollar.


                   c.

                   Appreciate against other major currencies.


                   d.

                   Appreciate against the dollar and other major currencies.


                   e.

                   Appreciate against the U.S. dollar.


                   a.

                   0.50


                   b.

                   0.71


                   c.

                   1.23


                   d.

                   1.41


                   e.

                   2.81


                   a.

                   155.5 yen


                   b.

                   149.8 yen


                   c.

                   133.5 yen


                   d.

                   78.0 yen


                   e.

                   72.0 yen


                   a.

                   155.5 yen


                   b.

                   149.8 yen


                   c.

                   133 yen


                   d.

                   78.0 yen


                   e.

                   72.0 yen


                   a.

                   0.43


                   b.

                   0.86


                   c.

                   1.41


                   d.

                   1.64


                   e.

                   2.27


                   a.

                   Increases the liquidity of the firm’s stock.


                   b.

                   Makes it easier to obtain new equity capital.


                   c.

                   Establishes a market value for the firm.


                   d.

                   Makes it easier for owner-managers to engage in profitable self-dealings.


                   e.

                   Facilitates stockholder diversification.


                   a.

                   A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates.


                   b.

                   The flotation costs associated with issuing new bonds rise.


                   c.

                   The firm’s CFO believes that interest rates are likely to decline in the future.


                   d.

                   The firm’s CFO believes that corporate tax rates are likely to be increased in the future.


                   e.

                   The yield to maturity on the company’s outstanding bonds increases due to a weakening of the firm’s financial situation.


                   a.

                   If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market.


                   b.

                   Listing a large firm’s stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional costs to the firm.


                   c.

                   Stockholders have the right to elect the firm’s directors, who in turn select the officers who manage the business. If stockholders are dissatisfied with management’s performance, an outside group may ask the stockholders to vote for it in an effort to take control of the business. This action is called a tender offer.


                   d.

                   The announcement of a large issue of new stock could cause the stock price to fall. This loss is called “market pressure,” and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue.


                   e.

                   The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue.


                   a.

                   Any firm can be listed on the NYSE as long as it pays the listing fee.


                   b.

                   Listing provides a company with some “free” advertising, and it may enhance the firm’s prestige and help it do more business.


                   c.

                   Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC.


                   d.

                   The OTC is the second largest market for listed stock, and it is exceeded only by the NYSE.


                   e.

                   Listing is a decision of more significance to a firm than going public.


                   a.

                   “Going public” establishes a firm’s true intrinsic value and ensures that a liquid market will always exist for the firm’s shares.


                   b.

                   Publicly owned companies have sold shares to investors who are not associated with management, and they must register with and report to a regulatory agency such as the SEC.


                   c.

                   When stock in a closely held corporation is offered to the public for the first time, the transaction is called “going public,” and the market for such stock is called the new issue market.


                   d.

                   It is possible for a firm to go public and yet not raise any additional new capital.


                   e.

                   When a corporation’s shares are owned by a few individuals who own most of the stock or are part of the firm’s management, we say that the firm is “closely, or privately, held.”


                   a.

                   The purchase price of inventory items decreases by 50 percent.


                   b.

                   The carrying price of an item decreases (as a percent of purchase price).


                   c.

                   The sales forecast is revised downward by 10 percent.


                   d.

                   Interest rates fall.


                   e.

                   Fixed order costs double.


                   a.

                   $6,928


                   b.

                   $173


                   c.

                   $3,464


                   d.

                   $346


                   e.

                   $748


                   a.

                   If the annual sales, in units, increases by 20%, then EOQ will increase by 20%.


                   b.

                   If the average inventory increases by 20%, then the total carrying costs will increase by 20%.


                   c.

                   If the average inventory increases by 20% the total order costs will increase by 20%.


                   d.

                   The EOC is the same for all companies.


                   e.

                   If the fixed per order cost increases by 20%, then EOQ will increase by 20%.