A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company’s balance sheet?
• Question 1Depreciation expense
• Question 2Which one of the following is a source of cash?
• Question 3Which one of the following is a use of cash?
• Question 4The book value of a firm is
• Question 5A company sells used equipment with a book value of $100,000 for $250,000 cash. How would this transaction affect the company’s balance sheet?
• Question 6Which of the following statements concerning a firm’s cash flows and profits is false?
• Question 7Assume you are a banker who has loaned money to a firm, but that firm is now facing increased competition and reduced cash flows. Which one of the following ratios would you most closely monitor to evaluate the firm’s ability to repay its loan?
• Question 8At the end of 2017, Stacky Corp. had $500,000 in liabilities and a debt-to-assets ratio of 0.5. For 2017, Stacky had an asset turnover of 3.0. What were annual sales for Stacky in 2017?
• Question 9 Breakers Bay Inc. has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. All else held constant, how will this accomplishment be reflected in the firm’s financial ratios?
• Question 10Ptarmigan Travelers had sales of $420,000 in 2016 and $480,000 in 2017. The firm’s current asset accounts remained constant. Given this information, which one of the following statements must be true?
• Question 11Primavera Holdings has a profit margin of 25%, an asset turnover of 0.5, and financial leverage (assets to equity) of 1.5. Primavera has $20 billion in assets, of which half, is in cash and marketable securities. Assume that Primavera earns a 3 percent after-tax return on cash and securities. What would Primavera’s return on equity be if it paid out 90% of its cash and marketable securities as a dividend to shareholders?
• Question 12Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.
• Question 13On a common-size balance sheet, all accounts are expressed as a percentage of
• Question 14A project will produce after-tax operating cash inflows of $3,200 a year for 5 years. The after-tax salvage value of the project is expected to be $2,500 in year 5. The project’s initial cost is $9,500. What is the net present value of this project if the required rate of return is 16 percent?
• Question 15EAC Nutrition offers a 9.5-percent coupon bond with annual payments maturing 11 years from today. Your required return is 11.2 percent. What price are you willing to pay for this bond if the face (or par) value is $1,000?
• Question 16Sol’s Sporting Goods is expanding and, as a result, expects additional operating cash flows of $26,000 a year for 4 years. This expansion requires $39,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires an additional $3,000 of net working capital throughout the life of the project; Sol expects to recover this amount at the end of the project. What is the net present value of this expansion project at a 16-percent required rate of return?
•Question 17When making a capital budgeting decision, which of the following is/are NOT relevant?
I. The size of a cash flow
II. The risk of a cash flow
III. The accounting earnings from a cash flow IV. The timing of a cash flow
• Question 18Ian is going to receive $20,000 six years from now. Sunny is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Ian and Sunny apply a 7-percent discount rate to these amounts?
• Question 19What is the difference in the value of a $5,000 annual perpetuity and an annuity of $5,000 for 100 years? Assume that the discount rate is 8% and that cash flows are received at the end of the year.
• Question 20Company X has 2 million shares of common stock outstanding at a book value of $2 per share. The stock trades for $3.00 per share. It also has $2 million in face value of debt that trades at 90% of par. What is the appropriate debt ratio (D/(D+E)) to use for calculating Company X’s weighted-average cost of capital?
• Question 21Total risk is measured by _____, and systematic risk is measured by ____.
• Question 22The after-tax cost of debt generally increases when
I. a firm’s bond rating improves.
II. the market-required rate of interest for the company’s bonds increases.
III. tax rates decrease.
IV. bond prices rise.
• Question 23The excess return earned by a risky asset, for example, with a beta of 1.4, over that earned by a risk-free asset is referred to as a
• Question 24 Which of the following are examples of diversifiable risk?
I. An earthquake damages Oakland, California.
II. The federal government imposes an additional $1,000 fee on all business entities.
III. Employment taxes increase nationally.
IV. Toymakers are required to improve their safety standards.
•Question 25 The pre-tax cost of debt
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