Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Fall 23 > fin 301 exam 2 > Flashcards

fin 301 exam 2 Flashcards

1
Q

You discover that a glue your company developed ten years ago can be formed into a super bouncy ball if cooked at the right temperature. How should you treat the original $125,000 of R&D expenditures that went into developing the glue in your present capital budgeting decision of whether or not to begin production of the balls?

A

As a sunk cost since that R&D expenditure has no bearing on today’s decision

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

When we evaluate a project on the basis of its incremental after-tax cash flows, we are employing…

A

the stand-alone principle

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What describes the situation in which the cash flows of a new project come at the expense of a firm’s existing projects?

A

Erosion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

You are considering investing in a process that promises to save you $75 per year (Sales - Costs). The process has an expected life of 5 years with an initial cost of $100. This cost is straight line depreciated over 5 years. Assume a 33% tax bracket and a discount rate of 15%.

What is operating cash flow in each of the four periods? Use the information above

A

56.85

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

You are considering investing in a process that promises to save you $75 per year (Sales - Costs). The process has an expected life of 5 years with an initial cost of $100. This cost is straight line depreciated over 5 years. Assume a 33% tax bracket and a discount rate of 15%.

What is the value of the tax shield in each period from the investment in the process? Use the information above.

A

$6.60

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Your company just bought a new distillation unit for $180,000 to be used in R&D. Such equipment has a 3-year MACRS classification. What is the book value of the distillation unit at the end of year 2 assuming salvage value of $0?
Modified ACRS Depreciation Allowances
Property Class 3-Year
Year Allowance
1 33.33%
2 44.44%
3 14.82%
4 7.41%

A

$40,014

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the term describing the possibility of making a bad investment decision because of errors in projected cash flows?

A

Forecasting Risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Which method of project analysis consists of computing NPV values in best-case, worst-case, and base-case situations?

A

Scenario Analysis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the contribution margin per unit is equal to?

A

unit selling price - unit variable cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the accounting break-even point? Price = $62 per unit; variable cost = $32 per unit; fixed costs = $60,000 per year; depreciation = $0

A

2,000 units

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Given the following, what is the operating cash flow at the accounting break-even point? Price = $36; variable cost = $11; fixed cost = $30,000; depreciation = $5,000; tax rate = 34%; sales = 10,000 units.

A

$5,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the cash break-even point? Ignore Taxes. Price = $127 per unit; variable cost = $57 per unit; fixed cost = $105,000 per year; depreciation = $5,000 per year

A

1,500 units

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

You purchased 200 shares of preferred stock on January 1 for $14.36 per share. The stock pays an annual dividend of $1.26 per share. On December 31, the market price is $16.69 per share. What is your percent return for the year if you hold on to the stock?

A

25.00%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Over the 1926-2019 time period, the nominal risk premium on small company stocks has averaged ______ percent per year.

A

12.9

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

If capital markets are efficient, then:

A

prices will adjust quickly to correctly reflect new information.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

You earn a 6.74% nominal return. If the inflation rate is 2%, what is your exact real rate of return?

A

4.65%

17
Q

Given the following historical returns, what is the variance? Year 1 = 9%; year 2 = -11%; year 3 = 8%; year 4 = -12%; and year 5 = -9%.

A

.0112

18
Q

Given the following historical returns, what is the standard deviation? Year 1 = 9%; year 2 = -11%; year 3 = 8%; year 4 = -12%; and year 5 = -9%

A

10.56%

19
Q

If you had to choose only one of the following criteria for evaluating proposed investments you would most likely rely on the ______________ rule since it is considered the “best” in principle.

A

NPV

20
Q

What is the decision rule for IRR?

A

Accept a project if the IRR exceeds the firm’s required rate of return

21
Q

Your firm needs one delivery truck. The CFO presents you with two analyses: one for a Ford and one for a Chevrolet. This is an example of a decision involving…

A

mutually exclusive projects.

22
Q

What is the payback period of a $45,000 investment with the following cash flows?
Year Cash Flow
1 12,000
2 27,000
3 12,000
4 10,000
5 5,000

A

2.5 years

23
Q

What is the internal rate of return for the following set of cash flows?
Year Cash Flow
0 -$60,000
1 20,000
2 20,000
3 40,000
4 40,000

A

29.5%

24
Q

Would you accept a project which is expected to pay $7,000 a year for 12 years if the initial investment is $60,000 and your required return is 10%?

A

No; the NPV is -$12,304

25
Q

ABC Corporation issues bonds with a $100 face value that make coupon payments of $3.50 every 3 months. What is the coupon rate?

A

14.00%

26
Q

The market price of a bond is $825.60, it has 15 years to maturity, a $1000 face value, and pays an annual coupon of $80. What is the yield to maturity?

A

10.34%

27
Q

Which bond would most likely possess the lowest degree of interest rate risk?

A

12% coupon rate, 5 years to maturity

28
Q

The written agreement between the corporation and its bond creditors is called a/an:

A

indenture

29
Q

What is the yield to maturity on a 12-year, zero coupon bond selling for 47.5% of face?

A

6.40%

30
Q

You earn a 6% real return. If the inflation rate is 8%, what is your exact nominal return?

A

14.48%

31
Q

The current price of BKZ Corporation stock is $65.00. Dividends are expected to grow at 5% indefinitely and the most recent dividend was $3. What is the required rate of return on BKZ’s stock?

A

9.85%

32
Q

If we solve the dividend growth model presented in the text for r, we find that total return is comprised of…

A

dividend yield and capital gains yield

33
Q

Which of the following items does NOT usually appear in a Wall Street Journal or Yahoo! Finance stock quote?

A

capital gains yield

34
Q

A grant of authority by a shareholder allowing for another individual to vote his/her shares is a __________.

A

proxy

35
Q

There is an election being held to fill 3 seats on the board of directors of a firm in which you hold stock. There are a total of 372 shares outstanding. If the election is conducted under cumulative voting and you own 84 shares, how many more shares must you buy to be assured of earning a seat on the board?

A

10

36
Q

If Specific Motors closed at $51.50 per share and the current quarterly dividend is $1.75, what % dividend yield would be reported in the Wall Street Journal?

A

13.59%

Fall 23 (18 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions