1. The Securities Investor Protection Corporation protects individuals from
• brokerage firm failures
• making poor investment decisions
• fraud by corporations
• other investors who fail to make delivery
2. You just purchased a parcel of land for $10,000. If you expect a 12% annual rate of return on your investment, how much will you sell the land for in 10 years?
3. When calculating the weighted average cost of capital, which of the following has to be adjusted for taxes?
• Preferred stock
• Retained earnings
• Common stock
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4. Buying and selling in more than one ...view middle of the document...
8. Delta Inc. is considering the purchase of a new machine which is expected to increase sales by $10,000 in addition to increasing non-depreciation expenses by $3,000 annually. Due to the sales increase, Delta expects its working capital to increase $1,000 during the life of the project. Delta will depreciate the machine using the straight-line method over the project's five year life to a salvage value of zero. The machine's purchase price is $20,000. The firm has a marginal tax rate of 34 percent, and its required rate of return is 12 percent. The machine's initial cash outflow is:
9. Which of the following is most likely to occur if a firm over-invests in net working capital?
• The return on investment will be lower than it should be.
• The times interest earned ratio will be lower than it should be.
• The current ratio will be lower than it should be.
• The quick ratio will be lower than it should be.
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10. Metals Corp. has $2,575,000 of debt, $550,000 of preferred stock, and $18,125,000 of common equity. Metals Corp.'s after-tax cost of debt is 5.25%, preferred stock has a cost of 6.35%, and newly issued common stock has a cost of 14.05%. What is Metals Corp.'s weighted average cost of capital?
11. Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?
• Return on investment
• Gross profit margin
• Current ratio
• Quick ratio
12. We compute the profitability index of a capital-budgeting proposal by Initial outlay = $1,748.80
• dividing the present value of the annual after-tax cash flows by the cost of capital.
• multiplying the cash inflow by the IRR.
• multiplying the IRR by the cost of capital.
• dividing the present value of the annual after-tax cash flows by the cost of the project.
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13. A company collects 60% of its sales during the month of the sale, 30% one month after the sale, and 10% two months after the sale. The company expects sales of $10,000 in August, $20,000 in September, $30,000 in October, and $40,000 in November. How much money is expected to be collected in October?
14. Which of the following could offset the higher risk exposure a company would face if it’s current ratio and net working capital were relatively low?
• Its accounts receivable collection policy could increase the average collection period.
• It could offer no discounts for early payment by its customers.
• It could buy back some of its shares in the open market in order to reduce its equity.
• Its current assets would need to be highly liquid.
15. The Oviedo Thespians are planning to present performances of their Florida Revue on 2 consecutive nights in January. It will cost them $5,000 per night for theater rental,...