Fin 370 questions I need assistance with.8) According to the agency problem, _________ represent the principals of a corporation. A. shareholders B. employees C. managers D. suppliers 9) Difficulty in finding profitable projects is due to: A. social responsibility. B. ethical dilemmas. C. competitive markets. D. opportunity costs. 10) Marshall Networks, Inc. has a total asset turnover of 2.5% and a net profit margin of 3.5%. The firm has a return on equity of 17.5%. Calculate Marshall’s debt ratio. A. 30% B. 50% C. 40% D. 60% 11) Which of the following financial ratios is the best measure of the operating effectiveness of a firm’s management? A. Current ratio B. Return on investment C. Quick ratio D. Gross profit margin 12) Another name for the acid test ratio is the: A. current ratio. B. average collection period. C. inventory turnover ratio. D. quick ratio. 13) Suppose that you wish to save for your child’s college education by opening up an educational IRA. You plan to deposit $100 per month into the IRA for the next 18 years. Assume that you will be able to earn 10%, compounded monthly, on your investment. How much will you have accumulated at the end of 18 years? A. $21,600 B. $85,920 C. $33,548 D. $54,719 E. $60,056 14) If you are an investor, which of the following would you prefer? A. Earnings on funds invested would compound annually. B. Earnings on funds invested would compound quarterly. C. Earnings on funds invested would compound monthly. D. Earnings on funds invested would compound daily. 15) When George Washington was president of the United States in 1797, his salary was $25,000. If you assume an annual rate of inflation of 2.5%, how much would his salary have been in 1997? A. $1,025,000 B. $4,085,920 C. $2,525,548 D. $954,719 E. $3,489,097 16) Which of the following is NOT a basic function of a budget? A. Budgets indicate the need for future financing. B. Budgets allow for performance evaluation. C. Budgets compare historical costs of the firm with its current cost performance. D. Budgets provide the basis for corrective action when actual figures differ from the budgeted figures. 17) The primary purpose of a cash budget is to: A. determine the level of investment in current and fixed assets. B. determine the estimated income tax for the year. C. provide a detailed plan of future cash flows. D. determine accounts payable. 18) Which of the following statements about the percent-of-sales method of financial forecasting is true? A. It is the least commonly used method of financial forecasting. B. It projects all liabilities as a fixed percentage of sales. C. It involves estimating the level of an expense, asset, or liability for a future period as a percent of the forecast for sales revenues. D. It is a much more precise method of financial forecasting than a cash budget would be. 19) The break-even model enables the manager of a firm to: A. calculate the minimum price of common stock for certain situations. B. determine the optimal amount of debt financing to use. C. determine the quantity of output that must be sold to cover all operating costs. D. set appropriate equilibrium thresholds. 20) A plant can remain operating when sales are depressed: A. if the selling price per unit exceeds the variable cost per unit. B. unless variable costs are zero when production is zero. C. in an effort to cover at least some of the variable cost. D. to help the local economy. 21) Which of the following is a non-cash expense? A. Depreciation expenses B. Administrative salaries C. Packaging costs D. Interest expense 22) At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years? A. 6% B. 8% C. 7% D. 5% 23) How long will it take $750 to double at 8% compounded annually? A. 6.5 years B. 12 years C. 9 years D. 48 months 24) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years? A. $3,525.62 B. $2,465.78 C. $3,408.88 D. $5,008.76 25) Which of the following is considered to be a spontaneous source of financing? A. Operating leases B. Accounts receivable C. Inventory D. Accounts payable 26) A toy manufacturer following the hedging principle will generally finance seasonal inventory build-up prior to the Christmas season with: A. common stock. B. selling equipment. C. trade credit. D. preferred stock. 27) Which of the following is NOT considered a permanent source of financing? A. Corporate bonds B. Common stock C. Preferred stock D. Commercial paper 28) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%. Initial outlay = $450 Cash flows: Year 1 = $325 Year 1 = $ 65 Year 3 = $100 A. 3.43 years B. 3.17 years C. 2.88 years D. 2.6 years 29) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________. A. less than zero, greater than the required return B. greater than zero, greater than one C. greater than one, greater than zero D. greater than zero, less than one 30) Artie’s Soccer Ball Company is considering a project with the following cash flows: Initial outlay = $750,000 Incremental after-tax cash flows from operations Years 1–4 = $250,000 per year Compute the NPV of this project if the company’s discount rate is 12%. A. $9,337 B. $4,337 C. $7,758 D. $2,534 31) Which of the following statements about the MIRR is false? A. The MIRR has the same reinvestment assumption as the IRR. B. The MIRR has the same reinvestment assumption as the NPV. C. If a project’s MIRR exceeds the firm’s discount rate, the project is acceptable. D. A project’s MIRR could be lower than a project’s IRR. 32) Which of the following is considered to be a deficiency of the IRR? A. It fails to properly rank capital projects. B. It fails to utilize the time value of money. C. It could produce more than one rate of return. D. It is not useful in accounting for risk in capital budgeting. 33) Most firms use the payback period as a secondary capital-budgeting technique, which, in a sense, allows them to control for risk. A. True B. False 34) The NPV assumes cash flows are reinvested at the: A. IRR. B. real rate of return. C. NPV. D. cost of capital. 35) The firm should accept independent projects if: A. the payback is less than the IRR. B. the IRR is positive. C. the profitability index is greater than 1.0. D. the NPV is greater than the discounted payback. 36) ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. (Round your answer to the nearest $1.) A. $1,056 B. $7,621 C. $4,568 D. $6,577 37) Cost of capital is: A. the coupon rate of debt. B. the average cost of the firm’s assets. C. the rate of return that must be earned on additional investment if firm value is to remain unchanged. D. a hurdle rate set by the board of directors. 38) The average cost associated with each additional dollar of financing for investment projects is: A. the incremental return. B. beta. C. risk-free rate. D. the marginal cost of capital. 39) PepsiCo uses 30-year Treasury bonds to measure the risk-free rate because: A. these bonds are essentially free of business risk. B. they capture the long-term inflation expectations of investors associated with investments in long-term assets. C. these bonds are essentially free of interest rate risk. D. none of the above. 40) The XYZ Company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required rate of return on debt is 9%, and the required rate of return on equity is 14%. If the company is in the 40% tax bracket, what is the marginal cost of capital? A. 14.0% B. 11.5% C. 10.6% D. 9.0% 41) J & B, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently, the yield to maturity on these bonds is 14%. If the firm’s tax rate is 40%, what is the cost of debt to J & B? A. 12.0% B. 5.6% C. 8.4% D. 14.0% 42) The expected dividend is $2.50 for a share of stock priced at $25. What is the cost of retained earnings if the long-term growth in dividends is projected to be 8%? A. 10% B. 18% C. 25% D. 8% 43) Lever Brothers has a debt ratio (debt to assets) of 20%. Management is wondering if its current capital structure is too conservative. Lever Brothers’s present EBIT is $3 million, and profits available to common shareholders are $1,680,000, with 457,143 shares of common stock outstanding. If the firm were to instead have a debt ratio of 40%, additional interest expense would cause profits available to stockholders to decline to $1,560,000, but only 342,857 common shares would be outstanding. What is the difference in EPS at a debt ratio of 40% versus 20%? A. $2.12 B. $0.88 C. $1.16 D. $1.95 44) Lever Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if its current capital structure is too conservative. Lever Brothers’s present EBIT is $3 million, and profits available to common shareholders are $1,560,000, with 342,857 shares of common stock outstanding. If the firm were to instead have a debt ratio of 60%, additional interest expense would cause profits available to stockholders to decline to $1,440,000, but only 228,571 common shares would be outstanding. What is the difference in EPS at a debt ratio of 60% versus 40%? A. $1.75 B. $4.50 C. $3.25 D. $2.00 45) Zybeck Corp. projects operating income of $4 million next year. The firm’s income tax rate is 40%. Zybeck presently has 750,000 shares of common stock which have a market value of $10 per share, no preferred stock, and no debt. The firm is considering two alternatives to finance a new product: (a) the issuance of $6 million of 10% bonds, or (b) the issuance of 60,000 new shares of common stock. If Zybeck issues common stock this year, what will projected EPS be next year? A. $2.10 B. $1.67 C. $2.33 D. $2.96 46) Capital markets in foreign countries: A. offer lower returns than those obtainable in the domestic capital markets. B. provide international diversification. C. in general are becoming less integrated due to the widespread availability of interest rate and currency swaps. D. all of the choices. 47) _________ risk is generally considered only a paper gain or loss. A. Transaction B. Financial C. Translation D. Economic 48) A bond sold simultaneously in several different foreign capital markets, but denominated in a currency different from the country in which the bond is issued, is called a(n): A. world bond. B. Eurobond. C. international capital bond. D. floating bond. 49) The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the: A. purchasing power parity theory. B. arbitrage markets theory. C. balance of payments quantum theory. D. interest rate parity theory. 50) A spot transaction occurs when one currency is: A. deposited in a foreign bank. B. traded for another at an agreed-upon future price. C. immediately exchanged for another currency. D. exchanged for another currency at a specified price. 51) If the quote for a forward exchange contract is greater than the computed price, the forward contract is: A. overvalued. B. at equilibrium. C. undervalued. D. a good buy. 52) An important (additional) consideration for a direct foreign investment is: A. political risk. B. maximizing the firm’s profits. C. attaining a high international P/E ratio. D. all of the above. 53) Buying and selling in more than one market to make a riskless profit is called: A. profit maximization. B. cannot be determined from the above information. C. arbitrage. D. international trading. 54) One reason for international investment is to reduce: A. portfolio risk. B. beta risk. C. price-earnings (P/E) ratios. D. advantages in a foreign country