fina final
Your firm has a potential project that will cost $5,000 now to begin. The project will then generate after-tax cash flows of $900 at the end of the next three years and then $1400 per year for the three years after that. If the discount rate is 8% then what is the PI? Answer in % format with 2 number after the decimal point
103.67
Libscomb Technologies' annual sales are $5,965,853 and all sales are made on credit, it purchases $3,030,231 of materials each year (and this is its cost of goods sold). Libscomb also has $522,489 of inventory, $491,684 of accounts receivable, and $471,694 of accounts payable. Assume a 365 day year. What is Libscomb's Receivables Turnover?
12.13
A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 40% of sales, while fixed cost will be $488,441. The first year's sales estimates are $1,250,000. Calculate the firm's degree of operating leverage (DOL). Answer to 2 decimal places.
2.87
Libscomb Technologies' annual sales are $6,330,727 and all sales are made on credit, it purchases $4,384,985 of materials each year (and this is its cost of goods sold). Libscomb also has $507,252 of inventory, $1,475,000 of accounts receivable, and $1,400,000 of accounts payable. Assume a 365 day year. What is Libscomb's Receivables Period (in days)?
85.04
The primary purpose of capital budgeting is to: A. maximize the shareholders' wealth. B. maximize the budget. C. minimize the firm's costs. D. maximize the firm's profit.
A. maximize the shareholders' wealth.
Capital rationing may be beneficial to a firm if it: A. increases funds to be used for other purposes B. allows managers to select their favorite projects. C. reduces a firm's interest expense D. weeds out proposals with weaker or biased NPVs.
D. weeds out proposals with weaker or biased NPVs.
The dividend decision Invest in assets that earn a return greater than the minimum acceptable hurdle rate Find the right kind of debt for your firm and the right mix of debt and equity to fund your operations If you can't find investments that make your minimum acceptable rate, return the cash to the owners of the business
If you can't find investments that make your minimum acceptable rate, return the cash to the owners of the business
The investment decision Invest in assets that earn a return greater than the minimum acceptable hurdle rate Find the right kind of debt for your firm and the right mix of debt and equity to fund your operations If you can't find investments that make your minimum acceptable rate, return the cash to the owners of the business
Invest in assets that earn a return greater than the minimum acceptable hurdle rate
The "gold standard" of investment criteria refers to: NPV EVA Payback Period Profitability Index IRR
NPV
Davis Supply maintains an average inventory of 2,000 dinosaur skulls for sale to filmmakers. The carrying cost per skull per year is estimated to be $150.00 and the fixed order cost is $39. What is the economic order quantity (EOQ)? (Round to the nearest whole number.)
32
What is the NPV of a project that costs $100,000.00 and returns $50,000.00 annually for three years if the opportunity cost of capital is 6.27%
32,985.75
What is the net effect on a firm's working capital if a new project requires: $34,422 increase in inventory, $47,424 increase in accounts receivable, $35,000.00 increase in machinery, and a $44,371 increase in accounts payable? Round to nearest dollar amount.
37,475
Libscomb Technologies' annual sales are $5,811,758 and all sales are made on credit, it purchases $4,466,319 of materials each year (and this is its cost of goods sold). Libscomb also has $549,730 of inventory, $479,020 of accounts receivable, and beginning and ending of year $418,994 and $476,187 accounts payables (respectively). Assume a 365 day year. What is Libscomb's Cash Cycle (in days)?
38.43
Carlisle Transport had $4,802 cash at the beginning of the period. During the period, the firm collected $1,765 in receivables, paid $1,857 to supplier, had credit sales of $5,512, and incurred cash expenses of $500. What was the cash balance at the end of the period?
4210
Compute the payback period for a project that requires an initial outlay of $204,236 that is expected to generate $40,000 per year for 9 years.
5.11
A corporation is contemplating an expansion project. The CFO plans to calculate the project's NPV by discounting the relevant cash flows (which include the initial up-front costs, the operating cash flows, and the terminal cash flows) at the corporation's cost of capital (WACC). Which of the following factors should the CFO include when estimating the relevant cash flows? Any sunk costs associated with the project. Any interest expenses associated with the project. Any opportunity costs associated with the project. All past costs associated with the original project.
Any opportunity costs associated with the project.
Which of the following statements is correct for a project with a negative NPV? A. Accepting the project has an indeterminate effect on shareholders. B. The cost of capital exceeds the IRR C. IRR exceeds the cost of capital. D. The discount rate exceeds the cost of capital.
B. The cost of capital exceeds the IRR
It should not usually be clear whether we are describing independent or mutually exclusive projects in the following chapters because when we only describe one project then it can be assumed to be independent True False
FALSE
NPV assumes intermediate cash flows are reinvested at the cost of equity, while IRR assumes that they are reinvested at the cost of capital True False
FALSE
Net present value (NPV) is a sophisticated capital budgeting technique; found by adding a project's initial investment from the present value of its cash inflows discounted at a rate equal to the firm's cost of capital. True False
FALSE
The disadvantages of the IRR period method is that it Requires a lot of data (estimates of all CFs) Requires complex calculations Only works for normal cash flows Does not require a discount rate (for calculation) Adjusts for TVM and therefore risk (in comparing to hurdle rate that adjusts for risk)
Requires a lot of data (estimates of all CFs) Requires complex calculations Only works for normal cash flows
The Internal Rate of Return (IRR) is the discount rate that equates the NPV of an investment opportunity with $0 True False
TRUE
If a 20% reduction in forecast sales would not extinguish a project's profitability, then sensitivity analysis would suggest: that the initial sales forecasts were inflated. deemphasizing that variable as a critical factor. requiring a more detailed sales forecast. reallocating fixed costs to this product.
deemphasizing that variable as a critical factor.
What types of projects does the BNSF strategic studies team evaluate? mandatory critical discretionary regulated
discretionary
Identify which of these are the relevant cash flows when considering a capital budgeting project. test marketing costs fraction of CEO salary lost rent from retail facility remodeling expenses for new store increase in inventory expected salvage value of manufacturing equipment
lost rent from retail facility remodeling expenses for new store increase in inventory expected salvage value of manufacturing equipment
In theory, a firm should maintain financial leverage consistent with a capital structure that maximizes dividends meets the industry standards maximizes the owner's wealth meets the investor expectations
maximizes the owner's wealth
What types of analyses do the BNSF strategic studies team conduct? experimental operational discounted cash flow sensitivity
sensitivity
Maverick Technologies has sales of $3,000,000. The company's fixed operating costs total $500,000 and its variable costs equal 60% of sales, so the company's current operating income is $700,000. The company's interest expense is $469,789. What is the company's degree of financial leverage (DFL)? Answer to 2 decimal places.
3.0407
A company just paid $10 million for a feasibility study. If the company goes ahead with the project, it must immediately spend another $100 million now, and then spend $20 million in one year. In two years it will receive $80 million, and in three years it will receive $90 million. If the cost of capital for the project is 11 percent, what is the project's IRR? % terms to 2 decimal places and without the % sign.
15.95
Hammond Supplies expects sales of 116,368 units per year with carrying costs of $4.88 per unit and ordering cost of $3.62 per order. Assuming the level of inventory is stable, what is the optimal average number of units in inventory?
208
A company just paid $10 million for a feasibility study. If the company goes ahead with the project, it must immediately spend another $112,459,543 now, and then spend $20 million in one year. In two years it will receive $80 million, and in three years it will receive $90 million. If the cost of capital for the project is 11 percent, what is the project's NPV?
259458
A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 40.96% of sales, while fixed cost will be $450,000. The first year's sales estimates are $1,262,605. Calculate the firm's operating breakeven level of sales. Answer to 2 decimal places.
762,195.12
Mavericks Cosmetics buys $4,880,034 of product (net of discounts) on terms of 3/10, net 60, and it currently pays on the 10th day and takes discounts. Mavericks plans to expand, and this will require additional financing. If Mavericks decides to forego discounts, what would the effective percentage cost of its trade credit be, based on a 365-day year?
203.97
Maverick Technologies has sales of $3,000,000. The company's fixed operating costs total $477,517 and its variable costs equal 60% of sales. The company's interest expense is $500,000. What is the company's degree of total leverage (DTL)? Answer to 2 decimal places.
5.3937
What is the internal rate of return for a project with an initial outlay of $10,000 that is expected to generate cash flows of $2,000 per year for 6 years?
5.47
Libscomb Technologies' annual sales are $5,059,878 and all sales are made on credit, it purchases $3,868,263 of materials each year (and this is its cost of goods sold). Libscomb also has $583,776 of inventory, $522,570 of accounts receivable, and $486,094 of accounts payable. Assume a 365 day year. What is Libscomb's Inventory Period (in days)?
55.08
Libscomb Technologies' annual sales are $6,342,389 and all sales are made on credit, it purchases $4,259,088 of materials each year (and this is its cost of goods sold). Libscomb also has $589,544 of inventory, $572,411 of accounts receivable, and $415,141 of accounts payable. Assume a 365 day year. What is Libscomb's Inventory Turnover?
7.22
Libscomb Technologies' annual sales are $6,283,181 and all sales are made on credit, it purchases $4,321,249 of materials each year (and this is its cost of goods sold). Libscomb also has $532,433 of inventory, $538,208 of accounts receivable, and $499,704 of accounts payable. Assume a 365 day year. What is Libscomb's Operating Cycle (in days)?
76.23
Mahrouq Technologies buys $18,768,742 of materials (net of discounts) on terms of 6/30, net 60, and it currently pays within 30 days and takes discounts. Mahrouq plans to expand, and this will require additional financing. If Mahrouq decides to forego discounts and thus to obtain additional credit from its suppliers, calculate the nominal cost of that credit.
77.66
Which of the following changes, if of a sufficient magnitude, could turn a negative NPV project into a positive NPV project? A decrease in the estimated annual sales An increase in the discount rate An increase in the initial investment A decrease in the fixed costs
A decrease in the fixed costs
Projects that compete with one another so that the acceptance of one eliminates from further consideration all other projects that serve a similar function. A. Mutually Inclusive B. Independent C. Mutually Exclusive D. Dependent
C. Mutually Exclusive
The financing decision Invest in assets that earn a return greater than the minimum acceptable hurdle rate Find the right kind of debt for your firm and the right mix of debt and equity to fund your operations If you can't find investments that make your minimum acceptable rate, return the cash to the owners of the business
Find the right kind of debt for your firm and the right mix of debt and equity to fund your operations
____________________ results from the use of fixed - cost assets or funds to magnify returns to a firm's owners. Long - term debt Leverage Equity Capital structure
Leverage
What are advantages of payback period? Measures Liquidity, Easy to communicate Does not require discount rate Does not require complex calculations Does not require all CFs, Does not fully adjust for TVM
Measures Liquidity, Easy to communicate Does not require discount rate Does not require complex calculations
The multiple IRR problem occurs when the signs of a project's cash flows change more than once. True False
TRUE
The degree of operating leverage has which of the following characteristics? The closer the firm is operating to breakeven quantity, the smaller the DOL. A change in quantity demanded will produce the same percentage change in EBIT as an identical change in price per unit of output, other things held constant. The DOL is not a fixed number for a given firm, but will depend upon the time zero values of the economic variables Q (Quantity), P (Price), and V (Volume). The DOL relates the change in sales to the change in net operating income. If the firm has no debt, the DOL will equal 1.
The DOL relates the change in sales to the change in net operating income.
Which of the following statements is correct? The degree of operating leverage (DOL) depends on a company's fixed costs, variable costs, and sales. The DOL formula assumes (1) that fixed costs are constant and (2) that variable costs are a constant proportion of sales. The degree of total leverage (DTL) is equal to the DOL plus the degree of financial leverage (DFL). Arithmetically, financial leverage and operating leverage offset one another so as to keep the degree of total leverage constant. Therefore, the formula shows that the greater the degree of financial leverage, the smaller the degree of operating leverage. For a given change in sales, the corresponding percentage change in net income could be more or less than the percentage change in operating income. The degree of total leverage (DTL) is equal to the DFL divided by the degree of operating leverage (DOL)
The degree of operating leverage (DOL) depends on a company's fixed costs, variable costs, and sales. The DOL formula assumes (1) that fixed costs are constant and (2) that variable costs are a constant proportion of sales.
Jon Stevens, BNSF Vice President and Controller describes the capital spending process primarily as a means to ensure regulatory compliance necessary to maintain volume capacity a balancing act that requires careful evaluation of the costs and benefits of each project
a balancing act that requires careful evaluation of the costs and benefits of each project
According to the article, "Sunk cost fallacy: Throwing good money after bad," how can banks limit losses from bad loans? reduce provisions for non-perfomring loans make fewer loans to businesses increase bank executive turnover No answer text provided.
increase bank executive turnover
Generally, increases in leverage result in______________ return and _____________________ risk. decreased; decreased increased; increased increased; decreased decreased; increased
increased; increased