Question 1
6..5 pts
An important consideration in the lease versus purchase decision is
the loss of the depreciation tax shield if leased.
the benefit of the lease payment as a tax deduction.
the effect on financial structure and future funding needs.
all of the above.
Question 2
6..5 pts
Net working capital decreases when
inventory falls, accounts receivable falls, or accounts payable increases
inventory increases, accounts receivable increases, or accounts payable falls
cost of goods sold falls, or interest rate falls
operating expenses fall, or current assets increase
Question 3
6..5 pts
Bavarian Brew, an unlevered firm, has an expected EBIT of $500,000. The required return on
assets for the firm’s assets is 10%. The company has 250,000 shares outstanding. The company
is considering raising $1 million in debt with a required return of 6% and would use the proceeds
to repurchase outstanding stock. What is the value of Bavarian Brew before restructuring?
Assume no corporate taxes.
$500,000
,$5,000,000
$1,000,000
$3,300,000
Question 4
6..5 pts
Choclattes Corp. earned $5.00 per share in 2006, and paid a dividend of $2.00 per share. If it
earns $5.50 in 2007 and follows a constant nominal payout policy, its dividend will be
$3.30
$3.00
$2.20
$2.00
Question 5
6..5 pts
Capital budgeting must be placed on an incremental basis. This means that ____ must be
ignored and ____ must be considered.
sunk cost; opportunity cost
sunk cost; financing cost
cannibalization; opportunity cost
, opportunity cost; net working capital
Question 6
6..5 pts
The capital budgeting process involves
identifying potential investments and estimating the incremental cash inflows and outflows of
cash associated with each investment
analyzing and prioritizing the investments utilizing various decision criteria
implementing and monitoring the selected investment projects
estimating a fair rate of return on each investment given its risk
all of the above
Question 7
6..5 pts
The uncertainty caused by the variability of a firm’s cash flows is called . . .
financial risk
business risk
financial leverage
none of the above
Question 8
6..5 pts
An important consideration in the lease versus purchase decision is
the loss of the depreciation tax shield if leased.
the benefit of the lease payment as a tax deduction.
the effect on financial structure and future funding needs.
all of the above.
Question 2
6..5 pts
Net working capital decreases when
inventory falls, accounts receivable falls, or accounts payable increases
inventory increases, accounts receivable increases, or accounts payable falls
cost of goods sold falls, or interest rate falls
operating expenses fall, or current assets increase
Question 3
6..5 pts
Bavarian Brew, an unlevered firm, has an expected EBIT of $500,000. The required return on
assets for the firm’s assets is 10%. The company has 250,000 shares outstanding. The company
is considering raising $1 million in debt with a required return of 6% and would use the proceeds
to repurchase outstanding stock. What is the value of Bavarian Brew before restructuring?
Assume no corporate taxes.
$500,000
,$5,000,000
$1,000,000
$3,300,000
Question 4
6..5 pts
Choclattes Corp. earned $5.00 per share in 2006, and paid a dividend of $2.00 per share. If it
earns $5.50 in 2007 and follows a constant nominal payout policy, its dividend will be
$3.30
$3.00
$2.20
$2.00
Question 5
6..5 pts
Capital budgeting must be placed on an incremental basis. This means that ____ must be
ignored and ____ must be considered.
sunk cost; opportunity cost
sunk cost; financing cost
cannibalization; opportunity cost
, opportunity cost; net working capital
Question 6
6..5 pts
The capital budgeting process involves
identifying potential investments and estimating the incremental cash inflows and outflows of
cash associated with each investment
analyzing and prioritizing the investments utilizing various decision criteria
implementing and monitoring the selected investment projects
estimating a fair rate of return on each investment given its risk
all of the above
Question 7
6..5 pts
The uncertainty caused by the variability of a firm’s cash flows is called . . .
financial risk
business risk
financial leverage
none of the above
Question 8
