Principles of Financing - Final Milestone

You would like to have around $10,000 in an account after eight years' time. If the account earns 2.5% compounded interest yearly, how much would you have to deposit today?

$8,207

You own a small manufacturing business that produces widgets. You have spent $150,000 acquiring the fixed assets you need to produce widgets. Each widget costs you $2 to make and they sell for $15 each, so your variable cost is 13.3% of the overall revenue.At your current level of operating leverage, how many widgets must you sell to break even?

11,539

Lee purchased stock with an initial share price of $32, and sold it when the share price was $50. While he owned the stock, he earned $2 in dividends.What was his total percentage return on the investment?

62.50%

Select the true statement about the bankruptcy process.

A Chapter 11 bankruptcy can be quite complicated and can take a long time to complete.

Which of the following accurately describes a flat yield curve?

A curve with a minimal spread between short-term and long-term maturities and that indicates concern or doubt about the strength of the economy.

Which inventory technique is most useful when a business has inventory that varies greatly in value?

ABC

What is one disadvantage of NPV as a capital budget method?

Although the weighted average cost of capital is commonly used as the discount rate, it is not a perfect input.

For which company can trend analysis be most useful?

An established hotel company that has made very few changes to its business model

Lucas is worried about his company's short-term viability. What type of financial statement should he look at?

Cash flow statement

Which of the following is an example of an operational risk for a company that manufactures automobiles?

Damage to completed cars held on a storage lot

What is one potential advantage of being a privately-held company?

If managers also own the company, they are strongly incentivized to succeed.

Which of the following is an example of an agency conflict?

Managerial self-dealing

Tom and Wendy are launching a life coaching business. They plan to have an equal say in any managerial business decisions and they plan to share any profits or losses. They are concerned about their exposure to liability, so they have purchased some professional insurance policies. However, they are pleased with how simple it has been to organize their business.Which form of business structure have Tom and Wendy likely adopted?

Partnership

Select the true statement about reinvestment risk.

Reinvestment risk is inversely related to interest rate risk.

Select one reason a company's capital structure may include more equity than debt.

Relying too heavily on debt can increase the interest rate that a company must pay on its debt.

Which of the following is an advantage of bonds for a potential investor?

They offer predictability when it comes to long-term financial planning.

The discounted cash flow approach is useful for __________.

determining the value of future profits (or losses) in today's terms

When does a company know that it has sufficient working capital?

When it can meet all of its short-term expenses and debts with current assets

If you invest in two stocks, and their values both rise on one day and then fall on the next day, they have __________.

a large covariance

In the case of liquidation, shareholders have a right to company assets after __________.

debt-holders

If equity is $2 million and total revenue is $1.3 million, then ROE is __________.

incalculable without net profit data

Nadia is going to receive $1,000 from her grandparents next year. According to the time value of money, the gift of $1,000 is worth __________ a gift of $1,000 if she received it today.

less than

Preparing a cash flow forecast helps a company to avoid __________.

opportunity costs

When performing capital budgeting, __________ incurred by a project are irrelevant to future investment decisions.

sunk costs

The process of predicting what the market would pay for a company's investments and bonds is __________.

valuation