FIN 201 Exam #3 Ch 11-14
For which situation below would one need to "smooth out" the variation in each set of cash flows so that each becomes a perpetuity?
Choosing between alternative assets with differing lives
Which of the following is NOT one of the "five C's" of credit analysis?
Collectability
Which of the following is a money-market security, issued by large banks and medium-to-large corporations, that matures in nine months or less?
Commercial paper
Which of the following current asset financing policies reflects the decision to finance the peaks of current assets with long-term debt and equity that provides the firm with a surplus of cash and marketable securities most of the time, except during peak asset demand?
Flexible financing policy
Which of these is the period of time after a check has been written, but not yet cleared and deposited?
Float
Which of these are fees paid by firms to investment bankers for issuing new securities?
Flotation costs
Which of these is used as a measure of the total amount of available cash flow from a project?
Free cash flow
Which of these describe groups or pairs of projects where you can accept one but not all?
Mutually exclusive
Of the capital budgeting techniques discussed, which works equally well with normal and non-normal cash flows and with independent and mutually exclusive projects?
Net present value
Which of these are sets of cash flows where all the initial cash flows are negative and all the subsequent ones are either zero or positive?
Normal cash flows
To trace cash flows through the firm's operations, we must measure which of the following? (It is the time necessary to acquire raw materials, turn them into finished goods, sell them, and receive payment for them.)
Operating cycle
The area of management concerned with designing and overseeing the process of production is which of the following?
Operations management
Which of the following is defined as the cost or forgone opportunity of using an asset already in use by the firm, or a person already employed by the firm, in a new project?
Opportunity cost
Which of the following is a technique for evaluating capital projects that is particularly useful when firms face time constraints in repaying investors?
Payback
Which rate-based decision statistic measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return?
Profitability Index (PI)
Which of the following is defined as costs associated with not having sufficient cash, inventory, or accounts receivable?
Shortage costs
Which of the following will impact the cost of equity component in the weighted average cost of capital?
All of these
An estimated WACC computed using some sort of proxy for the average equity risk of the projects in a particular business unit is known as the:
Divisional WACC
Which of the following statements is true?
If the new project is riskier than the firm's existing projects, then it should be charged a higher cost of capital.
Which of these is a capital budgeting technique that generates decision rules and associated metrics for choosing projects based upon the implicit expected geometric average of a project's rate of return?
Internal rate of return
Which of the following is a true statement with before-tax cost of debt?
To estimate the before-tax cost of debt, we need to solve for the Yield to Maturity (YTM) on the firm's existing debt.
Which of the following is NOT a reason for holding cash?
Transaction opportunities
Which of these statements is true regarding divisional WACC?
Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta.
Suppose a new project was going to be financed partially with retained earnings. What flotation costs should you use for retained earnings?
Zero
Neither payback period nor discounted payback period techniques for evaluating capital projects account for:
cash flows that occur after payback
A decrease in net working capital (NWC) is treated as a:
cash inflow
Effects that arise from a new product or service that increase sales of the firm's existing products or services are referred to as:
complementary effects
Operating cycle is measured as:
days' sales in inventory plus average collection period.
All capital budgeting techniques:
exclude some crucial information.
When calculating the weighted average cost of capital, weights are based on:
market values
Which of these completes this statement to make it true? The constant growth model is:
only going to be appropriate for the limited number of stocks that just happen to expect constant growth.
Which of these is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements?
pro forma analysis
Accelerated depreciation allows firms to:
receive more of the dollars of depreciation earlier in the asset's life.
The ____________ approach to computing a divisional weighted average cost of capital (WACC) requires only that WACCs for "risky" and "relatively safe" divisions be adjusted.
subjective
Effects that arise from a new product or service that decrease sales of the firm's existing products or services are referred to as:
substitutionary effects.
If a firm has already paid an expense or is obligated to pay one in the future, regardless of whether a particular project is undertaken, that expense is a:
sunk cost
With regard to depreciation, the time value of money concept tells us that:
taking the depreciation expense sooner is always better
When choosing between two mutually exclusive projects using the payback period method for evaluating capital projects, one would choose:
the project that pays back the soonest if it is equal to or less than managers' maximum payback period.
The net present value decision technique may not be the only pertinent unit of measure if the firm is facing:
time or resource constraints
As new capital budgeting projects arise, we must estimate:
when such projects will require cash flows