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FIN 370T Assignment Week 1 Apply Exercise(All
Possible Questions/Answers)
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FIN 370T ASSIGNMENT Week 1 Apply: Week 1 Exercise
Review the Week 1 “Knowledge Check” in Connect® in preparation for
this Assignment .
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FIN 370T Assignment Week 1 Apply: Finance and
Financial Statement Analysis Homework(All Possible
Questions/Answers)

FIN 370T ASSIGNMENT Week 1 Apply: Finance and Financial
Statement Analysis Homework
Review the Week 1 “Practice: Finance and Financial Statement Analysis
Quiz” in Connect®.
Complete the Week 1 “Apply: Finance and Financial Statement Analysis
Homework” in Connect®.
Note: You have only one attempt available to complete this Assignment
. Grades must be transferred manually to eCampus by your instructor.
Don’t worry, this might happen after your due date.
===============================================
FIN 370T Assignment Week 1 Practice: Finance and
Financial Statement Analysis Quiz(All Possible
Questions/Answers)

FIN 370T ASSIGNMENT Week 1 Practice: Finance and Financial
Statement Analysis Quiz
Complete the Week 1 “Practice: Finance and Financial Statement
Analysis Quiz” in Connect®.
Note: You have unlimited attempts available to complete practice
Assignment s. The highest scored attempt will be recorded.
These Assignment s have earlier due dates, so plan accordingly.
Grades must be transferred manually to eCampus by your instructor.
===============================================

this Assignment .
Complete the Week 2 “Exercise” in Connect®.

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FIN 370T Assignment Week 2 Apply: Time Value of
Money Homework(All Possible Questions/Answers)
FIN 370T ASSIGNMENT Week 2 Apply: Time Value of Money
Homework
Review the Week 2 “Practice: Time Value of Money Quiz” in
Connect®.
Complete the Week 2 “Apply: Time Value of Money Homework” in
Connect®.
Note: You have only one attempt available to complete Assignment s.

===============================================
FIN 370T Assignment Week 2 Practice Time Value of
Money Quiz(All Possible Questions/Answers)
FIN 370T ASSIGNMENT Week 2 Practice Time Value of Money Quiz
Complete the Week 2 “Practice: Time Value of Money Quiz” in
Connect®.
===============================================

FIN 370TAssignment Week 3 Apply: Bond Valuation and
Stock Valuation Homework(All Possible
Questions/Answers)
FIN 370T ASSIGNMENT Week 3 Apply: Bond Valuation and Stock
Valuation Homework
Review the Week 3 “Practice: Bond Valuation and Stock Valuation
Complete the Week 3 “Apply: Bond Valuation and Stock Valuation
Homework” in Connect®.

Determine the interest payment for the following three bonds: 4 percent
coupon corporate bond (paid semi-annually), 4.75 percent coupon
Treasury note, and a corporate zero coupon bond maturing in 15 years.
(Assume a $1,000 par value.)
===============================================
Determine the interest payment for the following three bonds: 4 percent
coupon corporate bond (paid semi-annually), 4.75 percent coupon
Treasury note, and a corporate zero coupon bond maturing in 15 years.
(Assume a $1,000 par value.)
Multiple Choice

$20.00, $23.75, $150, respectively
$4.00, $4.75, $0, respectively
$40.00, $47.50, $0, respectively
===============================================
FIN 370T Assignment Week 3 Practice: Bond Valuation
and Stock Valuation Quiz(All Possible
Questions/Answers)
FIN 370T ASSIGNMENT Week 3 Practice: Bond Valuation and Stock
Valuation Quiz
Complete the Week 3 “Practice: Bond Valuation and Stock Valuation

make all the payments.
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this Assignment .

Which of the following is correct?
Multiple Choice
All of the statements are correct.
In some years, long-term Treasury bonds performed better than stocks.
Over a long time frame, stocks have performed better than long-term
Treasury bonds.
Average stock returns are not an indication of what an investor may earn
in any one year.

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FIN 370T Assignment Week 4 Apply: Risk and the Cost
of Capital Homework(All Possible Questions/Answers)
FIN 370T ASSIGNMENT Week 4 Apply: Risk and the Cost of Capital
Homework
Review the Week 4 “Practice: Risk and the Cost of Capital Quiz” in
Connect®.
Complete the Week 4 “Apply: Risk and the Cost of Capital Homework”
in Connect®.

===============================================
FIN 370TAssignment Week 4 Practice: Risk and the Cost
of Capital Quiz(All Possible Questions/Answers)
FIN 370T ASSIGNMENT Week 4 Practice: Risk and the Cost of
Capital Quiz
Complete the Week 4 “Practice: Risk and the Cost of Capital Quiz” in
Connect®.

===============================================
this Assignment .

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FIN 370TAssignment Week 5 Apply: Project Cash Flows
and Capital Budgeting Homework(All Possible
Questions/Answers)
FIN 370T ASSIGNMENT Week 5 Apply: Project Cash Flows and
Capital Budgeting Homework
Review the Week 5 “Practice: Project Cash Flows and Capital
Budgeting Quiz” in Connect®.
Complete the Week 5 “Apply: Project Cash Flows and Capital
Budgeting Homework” in Connect®.

Don’t worry, this might happen after your due date
===============================================
FIN 370T Assignment Week 5 Practice: Project Cash
Flows and Capital Budgeting Quiz(All Possible
Questions/Answers)
FIN 370T ASSIGNMENT Week 5 Practice: Project Cash Flows and
Capital Budgeting Quiz
Complete the Week 5 “Practice: Project Cash Flows and Capital
Budgeting Quiz” in Connect®.

Effects that arise from a new product or service that increase sales of the
firm’s existing products or services are referred to as:
Multiple Choice
sunk effects.
substitutionary effects.
complementary effects.
marginal effects.

A new project would require an immediate increase in raw materials in
the amount $17,000. The firm expects that accounts payable will
automatically increase $7,000. How much must the firm expect its
investment in net working capital to increase if they accept this project?
Multiple Choice
$7,000
$10,000
$24,000
$17,000
the amount of $12,000. The firm expects that accounts payable will
investment in net working capital to change if they accept this project?
Multiple Choice
−$20,500

All of the following can be included in the depreciable basis of an asset
EXCEPT:
Multiple Choice
sales tax.
variable costs.
freight charges.
installation fees.
he options.
complementary costs.

incremental cash flow.
sunk cost.
Which of these is used as a measure of the total amount of available cash
flow from a project?
Multiple Choice
Investment in operating capital
Free cash flow
Sunk cash flow
Operating cash flow
was purchased for $45,000 plus $2,000 in freight charges. Installation
costs were $1,500 and sales tax totaled $1,000. Hiring a special
consultant to provide advice during the selection of the equipment cost
$3,000. What is this asset’s depreciable basis?

Multiple Choice
$48,500
$51,500
$49,500
$52,500
Suppose you sell a fixed asset for $10,000 when its book value is
$2,000. If your company’s marginal tax rate is 35 percent, what will be
the effect on cash flows of this sale (i.e., what will be the after-tax cash
flow of this sale)?
Multiple Choice
$6,500
$7,200

$5,200
$2,800
As new capital budgeting projects arise, we must estimate:
Multiple Choice
when such projects will require cash flows.
the cost of the stock being sold for the specific project.
the float costs for financing the project.
the cost of the loan for the specific project.
Company just commissioned a firm to identify if an unused portion of
their mine contains any silver or gold at a cost of $125,000.This is an
example of a(n):

Multiple Choice
sunk cost.
opportunity cost.
relevant cash flow.
incremental cash flow.
Effects that arise from a new product or service that decrease sales of the
firm’s existing products or services are referred to as:
Multiple Choice
complementary effects.
marginal effects.
sunk effects.

substitutionary effects.
To correctly project cash flows, we need to consider all of the factors
EXCEPT:
Multiple Choice
use of assets or employees already employed by the firm.
All of the options are factors that need to be considered.
the likely impact that the new service or product will have on the firm’s
existing products’ cost and revenues.
the new product’s or service’s costs and revenues.
costs were $1,500 and sales tax totaled $1,000. Hiring a special
consultant to provide advice during the selection of the equipment cost
$3,000. What is this asset’s depreciable basis?

Multiple Choice
$58,000
$55,000
$57,000
$51,000
Multiple Choice
−$4,000

+$6,000
−$6,000
+$4,000
An asset’s cost plus the amounts you paid for items such as sales tax,
freight charges, and installation and testing fees is referred to as the:
___________________.
Multiple Choice
sunk cost
opportunity cost
asset costing reference
depreciable basis

If a firm has already paid an expense or is obligated to pay one in the
future, regardless of whether a particular project is undertaken, that
expense is a(n):
Multiple Choice
expensible item.
opportunity cost.
sunk cost.
incremental cash outflow.
flow of this sale)?
Multiple Choice

$48,750
$80,000
$76,750
$5,000
flow of this sale)?
Multiple Choice
$5,000
$3,000
$95,000

$92,000
expense is a:
Multiple Choice
obligated cost.
sunk cost.
committed cost.
complementary cost.
process of estimating expected future cash flows of a project using only
the relevant parts of the balance sheet and income statements?
Multiple Choice

Substitutionary analysis
Pro forma analysis
Incremental cash flows
Cash flow analysis
With regard to depreciation, the time value of money concept tells us
that:
Multiple Choice
delaying the depreciation expense is sometimes better.
taking the depreciation expense sooner is always better.
delaying the depreciation expense is always better.
taking the depreciation expense sooner is sometimes better.

Which statement is true regarding cost-cutting proposals?
Multiple Choice
The main benefits come from the change in sales due to the response
from the cost-cutting proposal.
The main benefits come only from changes in costs.
The main benefits come only from changes in sales.
The main benefits are from changes in sales and changes in costs.
$14,841.29
$15,017.54

$13,607.52
$16,997.13
Accelerated depreciation allows firms to:
Multiple Choice
receive more of the dollars of depreciation earlier in the asset’s life.
receive more of the dollars of depreciation later in the asset’s life.
not pay any taxes during an asset’s life.
receive less of the dollars of depreciation earlier in the asset’s life.
You are trying to pick the least expensive car for your new delivery
service. You have two choices: the Scion xA, which will cost $13,000 to

purchase and which will have OCF of −$1,200 annually throughout the
vehicle’s expected life of three years as a delivery vehicle; and the
Toyota Prius, which will cost $23,000 to purchase and which will have
OCF of −$550 annually throughout that vehicle’s expected five-year
life. Both cars will be worthless at the end of their life. If you intend to
replace whichever type of car you choose with the same thing when its
life runs out, again and again out into the foreseeable future, and if your
business has a cost of capital of 12 percent, what is the difference in the
EAC of the two cars?
Multiple Choice
$413.25
$317.88
$310.38
$361.13
Multiple Choice

it does not reflect the time value of money.
it does not give an indication of the project’s riskiness.
it does not consider cash flows beyond the payback period.
All of the options are disadvantages of payback.
Compute the MIRR statistic for Project I and note whether to accept or
reject the project with the cash flows shown as follows if the appropriate
cost of capital is 15 percent.
Project I
Multiple Choice
Net present value

Profitability index
Discounted payback
Payback
the firm should accept or reject the project with the cash flows shown as
follows if the appropriate cost of capital is 10 percent and the maximum
allowable discounted payback is three years.
Time: 0 1 2 3 4 5
Cash flow: −1,000 500 480 400 300 150
Multiple Choice
3.49 years, reject
4.98 years, reject

2.98 years, accept
2.49 years, accept
Compute the NPV for Project X and accept or reject the project with the
cash flows shown as follows if the appropriate cost of capital is 10
percent.
Time: 0 1 2 3 4 5
Cash flow: −75 −75 0 100 75 50
Multiple Choice
$14.22
$136.90

$12.93
$62.07
the NPV statistic for Project X given the following cash flows if the
appropriate cost of capital is 10 percent.
Project X
Time 0 1 2 3 4
Cash Flow –$ 100,000 –$ 36,000 $
200,000 $ 210,000 –$ 10,000
________________________________________
Multiple Choice

$183,507.96
$262,622.77
$248,962.50
$247,410.67
Which of these describe groups or pairs of projects where you can
accept one but not all?
Multiple Choice
Dependent
Mutually exclusive

Mutually dependent
Independent
Which of these are sets of cash flows where all the initial cash flows are
negative and all the subsequent ones are either zero or positive?
Multiple Choice
Non-normal cash flows
Time line cash flows
Normal cash flows
Expected cash flows

and associated methodology for converting the NPV statistic into a rate-
based metric is referred to as:
Multiple Choice
MIRR.
NPV.
profitability index.
discounted payback.
statistic for Project Z and advise the firm whether to accept or reject the
project with the cash flows shown as follows if the appropriate cost of
capital is 10 percent.
Project Z

Time 0 1 2 3 4 5
Cash Flow –$ 1,000 $ 350 $ 380 $
420 $ 300 $ 100
________________________________________
Multiple Choice
The project’s PI is 21.48 percent and the project should be accepted.
The project’s PI is 8.48 percent and the project should be rejected.

The benchmark for the profitability index (PI) is the:
Multiple Choice
zero or anything larger than zero.
managers’ maximum number of years.
cost of capital.
zero or anything less than zero.
Compute the IRR statistic for Project X and note whether the firm
should accept or reject the project with the cash flows shown as follows
if the appropriate cost of capital is 10 percent.
Time: 0 1 2 3 4 5

Cash flow: −75 −75 0 100 75 50
Multiple Choice
10 percent, reject
13.26 percent, reject
13.26 percent, accept
10 percent, accept
Which of these is a capital budgeting technique that generates a decision
rule and associated metric for choosing projects based on the total
discounted value of their cash flows?
Multiple Choice
Net present value

Profitability index
Internal rate of return
Discounted payback
Which of these is a capital budgeting technique that generates decision
rules and associated metrics for choosing projects based upon the
implicit expected geometric average of a project’s rate of return?
Multiple Choice
Profitability index
Internal rate of return
Net present value
Discounted payback

Which of the following best describes the NPV profile?
Multiple Choice
A graph of a project’s NPV as a function of possible IRRs.
A graph of a project’s NPV over time.
A graph of a project’s NPV as a function of possible capital costs.
None of the statements are correct.
All of the following are strengths of NPV EXCEPT:
Multiple Choice
it works equally well for independent and mutually exclusive projects.

managers have a preference for using a statistic that is in percent instead
of dollars.
it uses a conservative reinvestment rate assumption.
these are all strengths of the NPV statistic.
===============================================
FIN 370T Entire Course
FIN 370 Week 1 Practice: Week 1 Knowledge Check
FIN 370 Week 1 Apply: Week 1 Exercise
FIN 370 Week 1 Apply: Finance and Financial Statement Analysis
Homework

FIN 370 Week 1 Practice: Finance and Financial Statement Analysis
Quiz
FIN 370 Week 2 Apply: Time Value of Money Homework
FIN 370 Week 2 Practice Time Value of Money Quiz
FIN 370 Week 3 Practice: Bond Valuation and Stock Valuation Quiz
FIN 370 Week 3 Apply: Bond Valuation and Stock Valuation
Homework
FIN 370 Week 4 Practice: Risk and the Cost of Capital Quiz
FIN 370 Week 4 Apply: Risk and the Cost of Capital Homework
FIN 370 Week 5 Practice Knowledge Check
FIN 370 Week 5 Practice: Project Cash Flows and Capital Budgeting
Quiz
FIN 370 Week 5 Apply: Project Cash Flows and Capital Budgeting
Homework
===============================================

FIN 370T Week 1 Practice Knowledge Check(All
FIN 370T ASSIGNMENT Week 1 Practice: Week 1 Knowledge Check
Complete the Week 1 “Knowledge Check” in Connect®.
Note: You have unlimited attempts available to complete this practice
Assignment . The highest scored attempt will be recorded. These
Assignment s have earlier due dates, so plan accordingly. Grades must
be transferred manually to eCampus by your instructor. Don’t worry,
this might happen after your due date.
MC Qu. 1-14 Which of the following managers would…
Which of the following managers would NOT use finance?

Multiple Choice
human resource managers
marketing managers
operational managers
all of these choices are .
MC Qu. 1-11 Which of the following is defined…
Which of the following is defined as a group of securities that exhibit
similar characteristics, behave similarly in the marketplace, and are
subject to the same laws and regulations?
Multiple Choice
market instruments

investments
financial markets
asset classes
MC Qu. 1-63 An angel investor differs from a…
An angel investor differs from a venture capitalist because of the
Multiple Choice
size of investment.
voting rights.
type of investment.
investment time frame.

MC Qu. 1-18 This type of business organization is…
This type of business organization is entirely legally independent from
its owners.
Multiple Choice
hybrid organizations
partnership
sole proprietorship
public corporations
MC Qu. 1-67 Which of these is the system…

Which of these is the system of incentives and monitors that tries to
overcome the agency problem?
-19 Which of the following is…
Which of the following is NOT considered a hybrid organization?
Multiple Choice
limited liability partnership
limited liability company
limited partnership
all of these choices are .
S corporation

MC Qu. 1-1 The increase in oil production in…
The increase in oil production in the United States characterizes which
of the following key financial concepts presented in this book?
Multiple Choice
MC Qu. 1-59 All of the following are an…
All of the following are an example of a fiduciary relationship EXCEPT
Multiple Choice
a financial advisor advises her clients.
MC Qu. 3-85 Which ratio assesses how efficiently a…
Which ratio assesses how efficiently a firm uses its fixed assets?
Multiple Choice

capital intensity ratio
MC Qu. 3-90 A firm reported working capital of…
A firm reported working capital of $5.5 million and fixed assets of $20
million. Its fixed asset turnover was 1.2 times. What was the firm’s sales
to working capital ratio?
Which ratio measures the number of dollars of operating cash available
to meet each dollar of interest and other fixed charges that the firm
owes?
Multiple Choice
fixed-charge coverage ratio
cash coverage ratio

operating coverage ratio
times interest earned
the balance sheet…
You are evaluating the balance sheet for Blue Jays Corporation. From
the balance sheet you find the following balances: cash and marketable
securities = $200,000, accounts receivable = $800,000, inventory =
$1,000,000, accrued wages and taxes = $250,000, accounts payable =
$400,000, and notes payable = $300,000. What are Blue Jays’ current
ratio, quick ratio, and cash ratio, respectively?
Multiple Choice
3.07692, 1.53846, 0.30769
1.05263, 1.05263, 0.21053
2.10526, 1.05263, 0.21053

3.07692, 1.05263, 0.30769
Which of the following ratios measure how efficiently a firm uses its
assets, as well as how efficiently the firm manages its accounts payable?
Multiple Choice
quick or acid-test
cash
internal-growth
asset management
MC Qu. 3-20 For publicly traded firms, which of…
For publicly traded firms, which of these ratios measure what investors
think of the company’s future performance and risk?

Multiple Choice
profitability ratios
liquidity ratios
The maximum growth rate that can be achieved by financing asset
growth with internal financing or retained earnings is called the
Multiple Choice
internal growth rate.
sustainable growth rate.
retention rate.

MC Qu. 3-22 Which of the following is the…
Which of the following is the maximum growth rate that can be
achieved by financing asset growth with new debt and retained
earnings?
Multiple Choice
weighted growth rate
internal growth rate
sustainable growth rate
retained earnings growth rate

MC Qu. 3-23 To interpret financial ratios, managers, analysts,…
To interpret financial ratios, managers, analysts, and investors use which
of the following type of benchmarks?
Multiple Choice
time series analysis
cross-industry analysis
time-industry analysis
competitive analysis

MC Qu. 3-42 Last year Poncho Villa Corporation had…
Last year Poncho Villa Corporation had an ROA of 16 percent and a
dividend payout ratio of 25 percent. What is the internal growth rate?
Multiple Choice
13.64 percent
33.33 percent
25.40 percent

1.19 percent
===============================================
Materials
Learn: McGraw-Hill Connect® Access

MC Qu. 4-16 What is the future value of…
What is the future value of $1,000 deposited for one year earning 5
percent interest rate annually?
MC Qu. 4-5 We call the process of earning…
We call the process of earning interest on both the original deposit and
on the earlier interest payments
Multiple Choice
discounting.
computing.
A deposit of $500 earns 5 percent the first year, 6 percent the second
year, and 7 percent the third year. What would be the third year future
value?
Multiple Choice

$615.62
MC Qu. 4-9 With regard to money deposited in…
With regard to money deposited in a bank, future values are
Multiple Choice
smaller than present values.
are completely independent of present values.
equal to
MC Qu. 4-17 What is the future value of…
What is the future value of $2,000 deposited for one year earning 6
percent interest rate annually?

Multiple Choice
$4,120
$2.000
MC Qu. 4-10 A dollar paid (or received) in…
A dollar paid (or received) in the future is
Multiple Choice
not comparable to a dollar paid (or received) today.
worth as much as a dollar paid (or received) today.
worth more than a dollar paid (or received) today.

MC Qu. 4-7 The interest rate, i, which we…
The interest rate, i, which we use to calculate present value, is often
referred to as the
Multiple Choice
compound rate.
dividend.
multiplier.
discount rate.
MC Qu. 4-73 What is the present value of…

What is the present value of a $600 payment in one year when the
discount rate is 8 percent?
Multiple Choice
$525.87
$575.09
$555.56
$498.61
MC Qu. 4-78 Approximately what rate is needed to…

Approximately what rate is needed to double an investment over five
years?
Multiple Choice
12.2 percent
8 percent
15.8 percent
14.4 percent
MC Qu. 4-79 Determine the interest rate earned on…

Determine the interest rate earned on an $800 deposit when $808 is paid
back in one year.
Multiple Choice
100 percent
15 percent
MC Qu. 4-109 You double your money in 5…
You double your money in five years. The reason your return is not 20
percent per year is because:
Multiple Choice

it is probably a “fad” investment.u. 5-22 What is the future value of…
What is the future value of a $1,000 annuity payment over 4 years if the
interest rates are 8 percent?
will increase…
Which of the following will increase the present value of an annuity?
Multiple Choice
The effective rate is calculated over fewer years.
The amortization schedule decreases.
MC Qu. 5-30 If the future value of an…

If the future value of an ordinary, 7-year annuity is $10,000 and interest
rates are 4 percent, what is the future value of the same annuity due?
Multiple Choice
$10,700.00
$10,000.00
$10,400.00
MC Qu. 5-31 If the future value of an…
If the future value of an ordinary, 4-year annuity is $1,000 and interest
rates are 6 percent, what is the future value of the same annuity due?
Multiple Choice

5-33 A loan is offered with monthly…
A loan is offered with monthly payments and a 6.5 percent APR. What
is the loan’s effective annual rate (EAR)?
Multiple Choice
5.69 percent
12.63 percent
7.28 percent
6.697 percent
MC Qu. 5-15 People refinance their home…

People refinance their home mortgages
Multiple Choice
when rates fall and rise.
whenever they need to, independent of rates.
when rates fall.
when rates rise.
===============================================

MC Qu. 7-67 Which of the following is NOT…
Which of the following is NOT true about EE savings bonds?
Multiple Choice
These are tax deferred investments.

Interest payments are received annually but are tax deductible.
About one in six Americans owns a savings bond.
Paper bonds sell for one-half of their face value.
MC Qu. 7-4 Which of the following is a legal…
Which of the following is a legal contract that outlines the precise terms
between the issuer and the bondholder?
Multiple Choice
Prospectus
Enforcement codes

Debenture
MC Qu. 7-125 A 4.15 percent TIPS has an…
A 4.15 percent TIPS has an original reference CPI of 182.1. If the
current CPI is 188.3, what is the par value of the TIPS?
Multiple Choice
$1,000.00
$1,004.75
MC Qu. 7-124 A 2.95 percent TIPS has an…
current CPI is 205.1, what is the current interest payment and par value

of the TIPS? (Assume semi-annual interest payments and $1,000 par
value.)
Multiple Choice
$878.60, $16.79, respectively
$1,000.00, $29.50, respectively
$1,138.18, $29.50, respectively
$1,138.18, $16.79, respectively
current CPI is 188.

MC Qu. 7-38 Calculate the price of a zero…
Calculate the price of a zero coupon bond that matures in 10 years if the
market interest rate is 6 percent. (Assume semi-annual compounding and
$1,000 par value.)
Multiple Choice
$1,000.00
$553.68
$558.66
MC Qu. 7-18 Which of the following terms means…

Which of the following terms means the chance that future interest
payments will have to be reinvested at a lower interest rate?
Multiple Choice
Credit quality risk
Interest rate risk
Reinvestment rate risk
Liquidity rate risk
MC Qu. 7-43 What’s the taxable equivalent yield on a municipal…

What’s the taxable equivalent yield on a municipal bond with a yield to
maturity of 3.9 percent for an investor in the 35 percent marginal tax
bracket?
Multiple Choice
11.
MC Qu. 7-21 Which of the following is an…
Which of the following is an important advantage to the issuer of a bond
with a call provision?
Multiple Choice
They allow for refinancing opportunities.
They are able to avoid reinvestment rate risk.

Which of the following are backed only by the reputation and financial
stability of the corporation?
Multiple Choice
Both debentures and unsecured bonds
Debentures
Which of the following terms is the chance that the bond issuer will not
be able to make timely payments?
Multiple Choice

Interest rate risk
rev: 07_10_2017_QC_CS-93259
Multiple Choice
preferred stockholders
creditors
common stockholders
Multiple Choice
Dow Jones Industrial Average.

Standard & Poor’s 500 Index.
Nasdaq Composite Index.
Mercantile 1000.
firm, it costs $9.95 per stock trade. How much money do you need to
buy 100 shares of Ralph Lauren (RL), which trades at $85.13?
Multiple Choice
$8,503.05
$8,503.00
$9,508.00
$8,522.95

A preferred stock from DLC pays $5.10 in annual dividends. If the
required return on the preferred stock is 12.1 percent, what is the value
of the stock?
Multiple Choice
$42.15
$47.25
$240.97
$6.31

At your discount brokerage firm, it costs $10.50 per stock trade. How
much money do you need to buy 100 shares of Apple (AAPL), which
trades at $202.64?
Multiple Choice
$21,314.00
$20,274.50
$20,253.50
In
$20,264.00
JPM has earnings per share of $3.75 and P/E of 47. What is the stock
price?

Multiple Choice
$185.95
$174.08
$112.98
$176.25
===============================================

correct?
Multiple Choice
If you observe a high variability in a stock’s returns you can infer that
the stock is very risky.
All of the statements are correct.
There is a positive relationship between risk and return.
Total risk is measured by the standard deviation.

Which of these is the dollar return characterized as a percentage of
money invested?
Multiple Choice
Dollar return
Market return
Percentage return
Average return
Which of the following is a measurement of the co-movement between
two variables that ranges between -1 and +1?
Multiple Choice

Standard deviation
Correlation
Coefficient of variation
Total risk
Which of these is defined as a combination of investment assets held by
an investor?
Multiple Choice
All of the options
Portfolio
Market basket
Bundle

Modern portfolio theory is:
Multiple Choice
a concept and procedure for combining securities into a portfolio to
maximize dollar return.
minimize risk.
maximize return.
maximize volatility.
Which of these is the investor’s combination of securities that achieves
the highest expected return for a given risk level?
Multiple Choice

Modern portfolio
Total portfolio
Optimal portfolio
Efficient portfolio
If the risk-free rate is 8 percent and the market risk premium is 2
percent, what is the required return for the market?
Multiple Choice
6 percent
8 percent
10 percent

2 percent
The annual return on the S&P 500 Index was 12.4 percent. The annual
T-bill yield during the same period was 5.7 percent. What was the
market risk premium during that year?
Multiple Choice
5.7 percent
12.4 percent
18.1 percent
6.7 percent
A company has a beta of 0.25. If the market return is expected to be 8
percent and the risk-free rate is 2 percent, what is the company’s
required return?
Multiple Choice

3.50 percent
4.00 percent
13.50 percent
1.50 percent
If the Japanese stock market bubble peaked at 37,500, and two and a half
years later it had fallen to 25,900, what was the percentage decline?
Multiple Choice
−10.31 percent
−30.93 percent
−27.63 percent
−69.07 percent

Whenever a set of stock prices go unnaturally high and subsequently
crash down, the market experiences what we call a(n):
Multiple Choice
irrational behavior.
financial meltdown.
none of the options.
stock market bubble.
ABC Inc. has a dividend yield equal to 3 percent and is expected to grow
at a 7 percent rate for the next seven years. What is ABC’s required
return?
Multiple Choice
5 percent

4 percent
11 percent
10 percent
A company’s current stock price is $65.40 and it is likely to pay a $2.25
dividend next year. Since analysts estimate the company will have an
11.25 percent growth rate, what is its expected return?
Multiple Choice
14.69 percent
3.61 percent
Which of the following will impact the cost of equity component in the
weighted average cost of capital?

Multiple Choice
All of the above
The risk-free rate
Expected return on the market
Beta
Apple’s 9 percent annual coupon bond has 10 years until maturity and
the bonds are selling in the market for $890. The firm’s tax rate is 36
percent. What is the firm’s after-tax cost of debt?
Multiple Choice

6.95 percent
10.86 percent
9.81 percent
FarCry Industries, a maker of telecommunications equipment, has 6
million shares of common stock outstanding, 1 million shares of
preferred stock outstanding, and 10 thousand bonds. If the common
shares are selling for $27 per share, the preferred shares are selling for
$15 per share, and the bonds are selling for 119 percent of par ($1,000),
what weight should you use for debt in the computation of FarCry’s
WACC?
Multiple Choice
5.81 percent
4.93 percent
6.30 percent

5.07 percent
Diddy Corp. stock has a beta of 1.0, the current risk-free rate is 5
percent, and the expected return on the market is 15.5 percent. What is
Diddy’s cost of equity?
Multiple Choice
14.20 percent
15.50 percent
18.50 percent
16.30 percent

ADK has 30,000 15-year 9 percent annual coupon bonds outstanding. If
the bonds currently sell for 111 percent of par and the firm pays an
average tax rate of 36 percent, what will be the before-tax and after-tax
component cost of debt?
Multiple Choice
9 percent; 5.76 percent
7.74 percent; 4.95 percent
When we adjust the WACC to reflect flotation costs, this approach:
Multiple Choice
raises only the cost of external equity.

reduces each capital source’s effective cost.
raises each capital source’s effective cost.
reduces the cost of debt.
Which of these is an estimated WACC computed using some sort of
proxy for the average equity risk of the projects in a particular division?
Multiple Choice
Divisional WACC
Pure-play WACC
Average WACC
Proxy WACC
===============================================

flow of this sale)?

Multiple Choice
$92,000
$3,000
$95,000
$5,000
expense is a:
Multiple Choice
sunk cost.

committed cost.
obligated cost.
complementary cost.
Which of the following measures the operating cash flow a project
produces minus the necessary investment in operating capital, and is as
valid for proposed new projects as it is for the firm’s current operations?
Multiple Choice
Sunk cash flow
Investment in operating capital
Operating cash flow

Concerning incremental project cash flow, which of these is a cost one
would never count as an expense of the project?
Multiple Choice
Taxes paid
Operating expenses of the project
Financing costs
Initial investment
Multiple Choice
$7,000

$17,000
$10,000
When looking at which of these types of projects, one must consider any
cash flows that arise from surrendering old equipment before the end of
its useful life?
Multiple Choice
Cost-cutting projects
Incremental projects
Replacement projects
New projects

Section 179 allows a business, with certain restrictions, to do which of
the following?
Multiple Choice
Get a government grant to purchase the asset.
Expense the asset using double declining balance depreciation during the
life of the asset.
Offset the tax liability with the cost of the asset in the year of purchase.
Expense the asset immediately in the year of purchase.
Which statement is true regarding cost-cutting proposals?
Multiple Choice
The main benefits come only from changes in costs.
The main benefits come only from changes in sales.

The main benefits come from the change in sales due to the response
from the cost-cutting proposal.
The main benefits are from changes in sales and changes in costs.
Your company is considering a new project that will require $100,000 of
new equipment at the start of the project. The equipment will have a
depreciable life of 10 years and will be depreciated to a book value of
$25,000 using straight-line depreciation. The cost of capital is 11
percent, and the firm’s tax rate is 34 percent. Estimate the present value
of the tax benefits from depreciation.
Multiple Choice
$16,997.13
$15,017.54
$14,841.29

$13,607.52
You are trying to pick the least expensive car for your new delivery
service. You have two choices: the Scion xA, which will cost $13,000 to
purchase and which will have OCF of −$1,200 annually throughout the
vehicle’s expected life of three years as a delivery vehicle; and the
Toyota Prius, which will cost $23,000 to purchase and which will have
OCF of −$550 annually throughout that vehicle’s expected five-year
life. Both cars will be worthless at the end of their life. If you intend to
replace whichever type of car you choose with the same thing when its
life runs out, again and again out into the foreseeable future, and if your
business has a cost of capital of 12 percent, what is the difference in the
EAC of the two cars?
Multiple Choice
$413.25
$317.88
$361.13

$310.38
Compute the payback statistic for Project Y and recommend whether the
firm should accept or reject the project with the cash flows shown as
follows if the appropriate cost of capital is 11 percent and the maximum
allowable payback is one year.
Time: 0 1 2 3 4 5
Cash flow: −100 75 100 300 75 200
Multiple Choice
1.25 years, reject
1.33 years, accept
1.25 years, accept

2.25 years, accept
propriate cost of capital is 10 percent.
Project Y
Time 0 1 2 3 4
Cash Flow –$ 8,000 $ 3,350 $
4,180 $ 1,520 $ 2,000
________________________________________
Multiple Choice
$964.72
$993.97

$1,008.03
$894.37
Compute the discounted payback statistic for Project Y and recommend
whether the firm should accept or reject the project with the cash flows
shown as follows if the appropriate cost of capital is 12 percent and the
maximum allowable discounted payback is three years.
Time: 0 1 2 3 4 5
Cash flow: −5,000 500 2,000 3,000 1,500 500
Multiple Choice
3.45 years, accept

3.86 years, reject
3.86 years, accept
3.45 years, reject
Compute the NPV statistic for Project X given the following cash flows
Project X
Time 0 1 2 3 4
Cash Flow –$ 15,000 $ 6,000 $
10,000 $ 12,000 –$ 1,000

________________________________________
Multiple Choice
$37,505.96
$6,234.93
$7,505.96
$8,417.80
Compute the NPV statistic for Project X given the following cash flows
Project X
Time 0 1 2 3 4

Cash Flow –$ 100,000 –$ 36,000 $
200,000 $ 210,000 –$ 10,000
________________________________________
Multiple Choice
$247,410.67
$248,962.50
$262,622.77
$183,507.96

Which of the following is a capital budgeting technique that converts a
project’s cash flows using a more consistent reinvestment rate prior to
applying the Internal Rate of Return, IRR, decision rule?
Multiple Choice
Modified internal rate of return
Discounted payback
Compute the PI statistic for Project Z and advise the firm whether to
accept or reject the project with the cash flows shown as follows if the
appropriate cost of capital is 10 percent.
Project Z

Time 0 1 2 3 4 5
Cash Flow –$ 1,000 $ 350 $ 380 $
420 $ 300 $ 100
________________________________________
Multiple Choice
The project’s PI is 8.48 percent and the project should be rejected.
The project’s PI is 8.48 percent and the
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