1. Which one of the following is a capital budgeting decision?
A. determining how much debt should be borrowed from a particular lender
B. deciding whether or not to open a new store
C. determining how much inventory to keep on hand
D. deciding when to repay a long-term debt
E. determining how much money should be kept in the checking account
2. Which of the following are advantages of the corporate form of business ownership?
I. limited liability for firm debt
II. double taxation
III. ability to raise capital
IV. unlimited firm life
A. I and II only
B. III and IV only
C. II, III, and IV only
D. I, III, and IV only
E. I, II, and III only
3. _____ is calculated by adding back noncash expenses to net income and adjusting for changes in current assets and liabilities.
A. Capital spending
B. Cash flow to creditors
C. Operating cash flow
D. Net working capital
E. Cash flow from operations
4. A firm has sales of $1,200, net income of $200, net fixed assets of $500, and current assets of $300. The firm has $100 in inventory. What is the common-size statement value of inventory?
A. 12.5%
B. 20.0%
C. 33.3%
D. 50.0%
E. 8.3%
5. If a business takes out a $10,000, 7 year, 12% loan, the annual payment is:
A. $2,111.78
B. $2,191.17
C. $2,000.00
D. $1,976.38
E. $2,456.54
6. The Smart Bank wants to appear competitive based on quoted loan rates and thus must offer a 7.9 annual percentage rate. What is the maximum rate the bank can actually earn based on the quoted rate?
A. 8.20%
B. 7.90%
C. 8.39%
D. 8.22%
E. 8.18%
7. You are considering two independent projects with the following cash flows. The required return for both projects is 10%. Given this information, which one of the following statements is correct?
A. You should accept project B because it has the higher IRR and reject project A.
B. You should accept project A because it has the lower NPV and reject project B.
C. You should accept both projects if the funds are available to do so since both NPV’s are > 0.
D. You should accept project A because it has the higher NPV and you can not accept both projects.
E. You should accept project B since it has the higher IRR and reject project A because you can not accept both projects.
8. Matt is analyzing two mutually exclusive projects of similar size and has prepared the following data. Both projects have 5 year lives.
Matt has been asked for his best recommendation given this information. His recommendation should be to accept:
A. project B and reject project A based on both the payback period and the average accounting return.
B. project A and reject project B based on their net present values.
C. project B and reject project A based on other criteria not mentioned in the problem.
D. project B because it has the shortest payback period.
E. both projects as they both have positive net present values.
9. Le Place has sales of $439,000, depreciation of $32,000, and net working capital of $56,000. The firm has a tax rate of 34% and a profit margin of 6%. The firm has no interest expense. What is the amount of the operating cash flow?
A. $52,616
B. $58,340
C. $54,980
D. $114,340
E. $49,384
10. A project has an accounting break-even point of 2,000 units. The fixed costs are $4,200 and the depreciation expense is $400. The projected variable cost per unit is $23.10. What is the projected sales price?
A. $21.20
B. $25.40
C. $20.80
D. $25.60
E. $21.00
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