FIN exam 2 instapoll

Interest rates that include an inflation premium are referred to as

Nominal rates ( R = r + h)

Patel packaging systems purchased a new computer system in 2021 at a cost of 328,000. This system is in the 5 year MACRS class and has depreciation allowance percentages of 20,32,19.2, 11.52 and 5.76. What is maximum amount of depreciation the firm can claim on this system in the first year if it selects bonus depreciation method? a. $164,000 b. $65,600 c. $54,667 d. $170,560 e. $328,000

e. $328,000 (we are able to depreciate entire amount technically)

The operating cash flow of a cost-cutting project a. Is equal to the depreciation tax shield b. Is equal to zero because there is no incremental sales c. Can only be analyzed by projecting the sales and costs for a firms entire operations d. Includes any changes that occur in the current accounts e. Can be positive even though there are no sales

e. Can be positive even though there are no sales

An agent who maintains an inventory from which he or she buys and sells securities is called a a. Broker b. Trader c. Capitalist d. Principal e. Dealer

e. Dealer

Pro forma statements for a proposed project should generally do all of the following except a. Be compiled on a stand alone basis b. Include all project related fixed asset acquisitions and disposals c. Include all the incremental cash flows related to the project d. Include taxes e. Include interest expense

e. Include interest expense

All of the following cash flows are related to a proposed project. Which one should be included in cash flow at time 0? a. Loan obtained to finance the project b. Initial investment in inventory to support the project c. Annual depreciation tax shield d. Aftertax salvage value e. Net working capital recovery

b. Initial investment in inventory to support the project

Which one of the following is a project cash inflow? a. Decrease in accounts payable b. Increase in accounts receivable c. Decrease in inventory d. Depreciation expense e. Equipment acquisition

c. Decrease in inventory

If you sell a bond with a coupon of 6 percent to a dealer when the market rate is 7 percent, which of the following prices will you receive? a. bid price b. call price c. bid-ask spread d. par value e. ask price

a. bid price

The top down approach to computing operating cash flow a. Ignores noncash expenses b. Applies only if a project affects sales c. Applies only to cost cutting projects d. Is equal to sales - costs - taxes + depreciation e. Is used solely to compute an EAC

a. Ignores noncash expenses

A $1,000 par value corporate bond that pays $45 annually in interest was issue last year. Which one of these would apply to this bond today if current price of bond in 989.42 a. The bond is currently selling at a premium b. The current yield exceeds the coupon rate c. The bond is selling at par value d. The current yield exceeds the yield to maturity e. The coupon rate has increased to 7%

b. The current yield exceeds the coupon rate

If a project has a net present value equal to zero then a. The total cash inflows must equal the initial cost of the project b. The project earns a return exactly equal to the discount rate c. A decrease in the project's initial cost will cause the project to have negative npv d. Any delay in receiving the projected cash flows will cause the project to have a positive npv e. Projects PI must be equal to zero

b. The project earns a return exactly equal to the discount rate

Reyes has a dividend yield of 5.4 percent and a total return for the year of 4.8 percent. Which one of the following must be true? a. The dividend must be constant b. The stock has a negative capital gains yield c. The capital gains yield must be zero d. The required rate of return for this stock increased over the year e. The firm is experiencing supernormal growth

b. The stock has a negative capital gains yield

Which one of the following would make a mutually exclusive project unacceptable a. A cash inflow related to net working capital at time 0 b. Requiring fixed assets that have no salvage value c. An equivalent annual cost that exceeds that of an alternative project d. Lack of revenue generation e. A depreciation tax shield that exceeds the value of the interest expense

c. An equivalent annual cost that exceeds that of an alternative project

Ingraham stoneworks has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project's internal rate of return? a. Decreasing required discount rate b. Increasing initial investment in fixed assets c. Condensing the firm's cash inflows into fewer years without lowering the total dollar amount of those inflows d. Lowering the total dollar amount of all inflows e. Decreasing the amount of the final cash inflow

c. Condensing the firm's cash inflows into fewer years without lowering the total dollar amount of those inflows

You expect interest rates to decline in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur? a. Short term; low coupon b. Short term; high coupon c. Long term; zero coupon d. Long term; low coupon e. Long term; high coupon

c. Long term; zero coupon

National trucking has paid an annual dividends of $1 per share on its common stock for past 15 years and is expected to pay a dollar per share long into future- one share of the firm's stock a. Basically worthless as it offers no growth potential b. Equal in value to present value of $1 paid one year from today c. Priced same as a $1 perpetuity d. Valued at an assumed growth rate of 1 percent e. Worth $1 per share in the current market

c. Priced same as a $1 perpetuity

Buxbaum corporation is preparing a bond offering with a coupon rate of 6%, paid semiannually, and a face value of $1,000. The bonds will mature in 10 years and will be sold at par. Given this, which one of the following statements is correct? a. The bonds will become discount bonds if the market rate of interest declines b. The bonds will pay 10 interest payments of $60 each c. The bonds will sell at a premium if the market rate is 5.5% d. The bonds will initially sell for $1,030 each e. The final payment will be in the amount of $1,060.

c. The bonds will sell at a premium if the market rate is 5.5%

Which one of the following is the rate at which a stocks price is expected to grow? a. Current yield b. Total return c. Dividend yield d. Capital gains yield e. Coupon rate

d. Capital gains yield

A decrease in which of the following will increase the current value of a stock according to the dividend growth model a. Dividend amount decrease b. Number of future dividends, provided the total number of dividends is less than infinite c. Dividend growth rate d. Discount rate e. Both discount rate and the dividend growth rate

d. Discount rate

When using the two stage dividend growth model: a. G1 cannot be negative b. Pt = Dt/R c. G1 must be greater than g2 d. G1 can be greater than r e. R must be less than g1 but greater than g2

d. G1 can be greater than r

Which one of the following should not be included in analysis of a new product? a. Increase in accounts payable related to purchasing inventory of new product b. Reduction in sales for a current product once the new product is introduced c. Market value of a machine owned by firm which will be used to produce new product d. Money already spent for research and development e. Increase in accounts receivable needed to finance sales of the new product

d. Money already spent for research and development

Which one of the following transactions occurs in the primary market? a. Purchase of 500 shares of GE stock from current shareholder b. Gift of 100 outstanding shares to charity c. Gift of 200 shares from mother to daughter d. Purchase of newly issued stock from issuer e. IBMS purchase of GE stock from a dealer

d. Purchase of newly issued stock from issuer

A project has a required payback of three years. Which one of the following statements is correct concerning the payback analysis of the project a. The cash flows in each of the three years must exceed one third of projects initial cost if to be accepted b. The cash flow in year 3 is ignored c. Projects cash flow in year 3 is discounted d. The cash flow in year 2 is valued just as highly as cash flow in year 1 e. The project is acceptable whenever the payback period exceeds three years

d. The cash flow in year 2 is valued just as highly as cash flow in year 1

A zero coupon bond: a. is sold at a large premium. b. pays interest that is tax deductible to the issuer when paid. c. can only be issued by the U.S. Treasury. d. has more interest rate risk than a comparable coupon bond. Smaller coupon - more exposure and vulnerability to IR risk e. provides no taxable income to the bondholder until the bond matures.

d. has more interest rate risk than a comparable coupon bond. Smaller coupon - more exposure and vulnerability to IR risk

All else constant, a bond will sell at ______ when the coupon rate is ________ the yield to maturity

discount; less than

Which bond would you generally expect to have highest yield a. Risk-free Treasury bond b. Nontaxable, highly liquid bond c. Long-term, high-quality, tax-free bond d. Short-term, inflation-adjusted bond e. Long-term, taxable junk bond

e. Long-term, taxable junk bond

Which one of the following is correct a. Stocks can only be assigned one dividend growth rate 2 stage exists b. Preferred stocks generally have variable growth rates constant like coupon c. Dividend growth rates must be either zero or positive can be negative d. All stocks can be valued using dividend discount models no not if there aren't dividends e. Stocks can have negative growth rates

e. Stocks can have negative growth rates

Which of the following is the best example of two mutually exclusive projects a. Building a furniture store beside a clothing outlet in the same shopping mall b. Producing both plastic forks and spoons on same assembly line c. Using an empty warehouse to store both raw materials and finished goods d. Promoting two products during the same commercial e. Waiting until a machine finishes project X before finishing project Z

e. Waiting until a machine finishes project X before finishing project Z

Cerda diagnostics spent 5000 last week repairing equipment. This week the company is trying to decide whether the equipment could be better utilized by assigning it to a proposed project. When analyzing proposed project, the 5000 should be treated as which type of cost a. opportunity b. Fixed c. Incremental d. Erosion e. Sunk

e. sunk

Javangula foods is considering two mutually exclusive projects and has determined that the crossover rate for these projects is 12.3 percent. Given this information you know that a. Neither project will be accepted if the discount rate is less than 12.3 percent b. both projects have a negative NPV at discount rates greater than 12.3 percent. c. both projects provide an internal rate of return of 12.3 percent. d. both projects have a zero NPV at a discount rate of 12.3 percent. e. the project that is acceptable at a discount rate of 12 percent should be rejected at a discount rate of 13 percent.

e. the project that is acceptable at a discount rate of 12 percent should be rejected at a discount rate of 13 percent.