Accounting
Owners equity is also referred to as...
a. retained earnings
b. profit
c. net worth
d. total value
c. net worth
Which capital budgeting technique tell you the discount rate needed to make the NPV of an investment = 0?
Internal rate of return
T/F Capital budgeting decisions are typically reversible.
False
As the discount rate _______________; the PV of benefits _________________.
a. increases; increases
b. decreases; decreases
c. increases; decreases
d. initially increases; stays constant
c. increases; decreases
The discount rate required to make the NPV of an investment = 0 is 9.2%. What is the IRR of this project?
9.2%
You have an outstanding balance at the feed store. The money you owe is called....
a. account payable
b. account receiveable
c. account charged
d. account billed
a. account payable
T/F the average rate of return methods accounts for the time value of money
False
Which of the following capital budgeting techniques account for the time value of money? (check all that apply)
payback period
average rate of return
B/C
NPV
IRR
B/C NPV and IRR
What does WACC stand for?
weighted average cost of capital
The difference between risk and uncertainty is....
a. the magnitude of losses
b. the ability to apply probabilities to outcomes
c. the time horizon of the risky prospect
d. these words can be used interchangeably
b. the ability to apply probabilities to outcomes
If beginning inventory was $250,000, inventory purchased throughout the year was $786,000, and ending inventory is $175,000. What is the cost of goods sold throughout the year?
a. $861,000
b. $361,000
c. $561,000
d. $1,211,000
e. None of the above.
a. $861,000
Suppose Investment A has a 3-year life and investment B has a 4 year life. The common termination period method would stop both investments at the end of year 3. T/F
True
A shortcoming of the payback period is that...
a. it is biased against long term projects
b. it does not account for time value of money
c. both of these
d. neither of these
c. both of these
If you have two potential investments with unequal lives, you would:
a. Select a common termination date to be able to compare them.
b. Evaluate them using a replacement cycle until projects have a common ending time.
c Do not adjust the life of the investments and compare them as they are.
d. Both a and b
e. None of the above
D. both A and B
The break even cash flow tell us....
a. maximum monthly payment we can afford for an asset
b. minimum after tax cash flow we need to hit a positive NPV
c. the salvage value we need for the NPV of an investment to = 0.
d. the minimum after tax cash flow needed for the NPV of an investment to = 0.
d. the minimum after tax cash flow needed for the NPV of an investment to = 0.
Which liquidity ratio is the ultimate test of liquidity becuase it only considers the most liquid assets?
a. current ratio
b. acid test ratio
c. quick ratio
d. all of the above
b. acid test ratio
Investment A has a payback period of 5 years. Investment B has a payback period of 4 years and 11 months. Which investment do you prefer?
A
B
Neither
Not enough information to tell
B
Suppose Investment A has a 3-year life and investment B has a 4 year life. The replacement cycle method would stop both investments in what year?
a. 9
b. 12
c. 3
d. 4
The value of the depreciation tax shield for a particular accounting period can be calculated as:
a. tax rate x accumulated depreciation expense for the period
b. tax rate x cumulative depreciation expense for that period
c. tax rate x depreciation expense for that period
d. tax rate x modified expense for that period
c. tax rate x depreciation expense for that period
Evaluating capital budgeting outcomes under various "best-case" "most likely case" and "worst case" scenarios is known as.....
a. outcome analysis
b. scenario planning
c. vertical analysis
d. benchmarking
b. scenario planning
OE = $81700
Suppose you have invested 1,500 at an annual interest rate of 5% (compounded annually) for 5 years. What is the FV of this investment?
FV = PV*(1+i)^n
$1914.42
What is capital budgeting also referred to as?
Investment appraisal
Suppose ABC corporation needs to raise $4 million dollars for an investment. They have secured $1.2 million in debt financing through the loans, with an interest rate of 4%. The remaining $2.8 million will be financed with equity acquired via selling stock. Shareholders expected an 8% return on their investment. What is the weighted average cost of borrowed capital?
6.8%
A firm has real estate debt of $50,000 with a 3% annual interest rate. They also have short term loans averaging $15,000 with a 7% interest rate. What is the firms weighted average cost of borrowed capital?