Questions 61 through 72 relate to Corporate Finance. (18 minutes)
At the beginning of the year, Breidel Company changes its inventory accounting method (for both financial and tax
reporting) from first in first out to average cost. Assuming an environment of increasing prices, how will this accounting
change affect Breidel's forecasts of its net cash position?
A)
No effect because this accounting change does not
affect cash flows.
B)
Less net cash in both the short-term forecast and the
long-term forecast.
C)
No effect on the short-term forecast but greater net cash
in the long-term forecast.
Question #62 of 120 Question ID: 1146119Which of the following statements is most accurate regarding the net present value (NPV) and internal rate of return (IRR)
capital budgeting methods?
NPV assumes that cash flows can be reinvested at the
project’s IRR.
IRR assumes the cash flows are reinvested at the
project’s cost of capital.
Question #63 of 120 Question ID: 1146127When using the CAPM to estimate the cost of common equity for a company in a developing country, an analyst
should most appropriately:
add a country risk premium to the market risk premium.
add the sovereign yield spread to the CAPM cost of
common equity.
make no adjustments because country risk is reflected
in the equity’s beta.
Question #64 of 120 Question ID: 1146134The type of short-term financing for which the financing cost is most closely tied to the creditworthiness of a firm's
customers is:
factoring.
issuing commercial paper.
an uncommitted line of credit.
Question #65 of 120 Question ID: 1146130Smith Company's earnings per share are more sensitive to changes in operating income than are those of Jones
Company. This implies that Smith Company has a higher degree of:
total leverage.
financial leverage.
operating leverage.
Question #66 of 120 Question ID: 1146128If flotation costs are treated correctly in calculating the net present value of a project that will begin in the current period,
the flotation costs are most likely:
included in the initial outlay.
reflected in the discount rate used for the project.
included in the cost of the capital raised.
Question #67 of 120 Question ID: 1146122Thompson Products has seen its marginal tax rate increase from 28% to 34% over the last two years and believes the
change is permanent. The effects of this change on Thompson's current WACC and on its financial leverage over time
are most likely:
an increase in both.
a decrease in both.
an increase in one and a decrease in the other.
Question #68 of 120 Question ID: 1146116Which of the following investments is least likely to be evaluated using traditional capital budgeting analysis? Investing:
$100 million for the research and development of new
paint products.
$200 million in equipment to reduce carbon output rather
than pay daily fines.
$75 million to expand production and sales into a
neighboring country.
Question #69 of 120 Question ID: 1146131Daley Company sells its output for $15 per unit. Daley's variable costs, including taxes, are $10 per unit and its breakeven
quantity of sales is 30,000 units. Daley's annual fixed costs are $50,000 for interest and $100,000 for rent. If Daley sells
35,000 units in a year, its net income will be:
$15,000.
$25,000.
$35,000.
Question #70 of 120 Question ID: 1146114Reviewing the performance and independence of board members is a responsibility of:
the audit committee.
the nominations committee.
the compensation committee.
Question #71 of 120 Question ID: 1146123A company's pretax cost of fixed-rate debt capital equals the company's new debt:
coupon rate.
Question #72 of 120 Question ID: 1146117A company is evaluating the following capital projects for investment over the next two years:
Two new machines with costs of $4 million each.
Computer software upgrade with a cost of $1 million.
Multi-year replacement of two aging machines involving an investment of $4.5 million for the first machine and another
$4.5 million for the second machine if projected savings from the first machine are realized.
All of these projects have positive net present values and the available budget is $10 million. The company should accept:
all of these projects.
those projects with the highest expected rates of return
over the 2-year capital budgeting period.
those projects with the highest present value of
expected future cash flows relative to required
investment.
Question #73 of 120 Question ID: 1146150
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