BA 240 FINAL
The next dividend payment by Savitz, Incorporated, will be $2.25 per share. The dividends are anticipated to maintain a growth rate of 4 percent forever. If the stock currently sells for $53 per share, what is the required return? 7.83% 8.08% 4.00% 8.25% 4.25%
8.25%
Net present value: is the best method of analyzing mutually exclusive projects. is less useful than the internal rate of return when comparing different-sized projects. is the easiest method of evaluation for nonfinancial managers. cannot be applied when comparing mutually exclusive projects. is very similar in its methodology to the average accounting return.
is the best method of analyzing mutually exclusive projects.
The interest rate that is most commonly quoted by a lender is referred to as the: annual percentage rate. compound rate. effective annual rate. simple rate. common rate.
annual percentage rate.
A loan that calls for periodic interest payments and a lump sum principal payment is referred to as a(n) ____ loan. amortized modified balloon pure discount interest-only
interest-only
Which one of the following is a cash flow from a corporation into the financial markets? Borrowing of long-term debt Payment of government taxes Payment of loan interest Issuance of corporate debt Sale of common stock
Payment of loan interest
Jared invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as: free interest. bonus income. simple interest. interest on interest. present value interest.
interest on interest.
Which one of the following best states the primary goal of financial management? Maximize current dividends per share Maximize the current value per share Avoid financial distress Maximize profit Maintain steady growth while increasing current profits
Maximize the current value per share
A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year Cash Flow 0 −$ 28,100 1 12,100 2 15,100 3 11,100 If the required return is 15 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Should the firm accept the project?
IRR 17.45% yes
You receive a credit card application from Shady Banks Savings and Loan offering an introductory rate of .4 percent per year, compounded monthly for the first six months, increasing thereafter to 16.7 percent compounded monthly. Assume you transfer the $5,700 balance from your existing credit card and make no subsequent payments. How much interest will you owe at the end of the first year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Interest $505.22
Which of the following statements regarding the aftertax cost of debt is accurate? It varies inversely with changes in market interest rates. It will generally exceed the cost of equity if the relevant tax rate is zero. It will generally equal the cost of preferred stock if the tax rate is zero. It is unaffected by changes in the market rate of interest. It is highly dependent upon a company's tax rate.
It is highly dependent upon a company's tax rate.
For each of the following, compute the present value: (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Present Value Years Interest Rate Future Value $6,328.62 13 7 % $15,251 30,394.24 4 13 % 49,557 19,780.96 29 14 % 884,073 17,452.22 40 9 % 548,164
A project with financing type cash flows is typified by a project that has which one of the following characteristics? Multiple Choice Conventional cash flows Cash flows that extend beyond the acceptable payback period One year or more, in the middle of a project, where the cash flows are equal to zero A cash inflow at Time 0 Cash inflows that are equal in amount
A cash inflow at Time 0
Wright Market Research is able to borrow money at a rate of 6.8 percent per year. This interest rate is called the: compound rate. current yield. cost of debt. capital gains yield. cost of capital.
cost of debt
The secondary market is best defined as the market: in which subordinated shares are issued and resold. conducted solely by brokers. dominated by dealers. where outstanding shares of stock are resold. where warrants are offered and sold.
where outstanding shares of stock are resold
The Rhaegel Corporation's common stock has a beta of 1.6. If the risk-free rate is 5.5 percent and the expected return on the market is 14 percent, what is the company's cost of equity capital? Multiple Choice 27.9% 19.86% 20.05% 18.15% 19.1%
19.1%
You own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ________ quarter(s) of dividends when the next dividend is paid. 0 1 2 3 either 1, 2, or 3
3
Hudson Corporation will pay a dividend of $2.70 per share next year. The company pledges to increase its dividend by 3.50 percent per year indefinitely. If you require a return of 11.20 percent on your investment, how much will you pay for the company's stock today? $33.88 $17.75 $35.06 $33.66 $36.47
35.06
The Tribiani Company just issued a dividend of $2.80 per share on its common stock. The company is expected to maintain a constant 5.8 percent growth rate in its dividends indefinitely. If the stock sells for $56 a share, what is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Cost of equity 11.09
You are viewing a graph that plots the NPVs of a project against the various discount rates that could be applied to the project's cash flows. What is the name given to this graph? Project tract Projected risk profile NPV profile NPV route Present value sequence
NPV profile
A project has an initial cost of $52,700 and a market value of $61,800. What is the difference between these two values called? Net present value Accounting return Payback value Profitability index Discounted payback
Net present value
Fegley, Incorporated, has an issue of preferred stock outstanding that pays a $4.75 dividend every year in perpetuity. If this issue currently sells for $98 per share, what is the required return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Required return 4.85%
You have found the following historical information for the Daniela Company over the past four years: Year 1 Year 2 Year 3 Year 4 Stock price $ 50.40 $ 59.32 $ 68.54 $ 61.75 EPS 2.52 2.64 2.89 3.03 Earnings are expected to grow at 15 percent for the next year. Using the company's historical average PE as a benchmark, what is the target stock price one year from today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Target stock price $75.41
Which one of the following statements is correct? A general partnership is a legal person. Taxable income earned by a partnership is treated as individual income. Partnerships are the most complicated type of business to form. All partnerships are required to have at least one limited partner. Only firms organized as partnerships have limited lives.
Taxable income earned by a partnership is treated as individual income.
The internal rate of return is: the discount rate that makes the net present value of a project equal to the initial cash outlay. equivalent to the discount rate that makes the net present value equal to one. tedious to compute without the use of either a financial calculator or a computer. highly dependent upon the current interest rates offered in the marketplace. a better methodology than net present value when dealing with unconventional cash flows.
Tedious to compute without the use of either a financial calculator or a computer.
Ursala, Incorporated, has a target debt-equity ratio of 1.10. Its WACC is 8.2 percent, and the tax rate is 21 percent. a. If the company's cost of equity is 11 percent, what is its pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If instead you know that the aftertax cost of debt is 6.1 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. Cost of debt 7.16% b. Cost of equity 10.51%
When utilizing the capital asset pricing model approach to value equity, the outcome: is dependent upon the unsystematic risk of a security. assumes the reward-to-risk ratio increases as beta increases. can only be applied to dividend-paying firms. assumes a firm's future risks will be higher than its current risks. assumes the reward-to-risk ratio is constant.
assumes the reward-to-risk ratio is constant.
A(n) ________ loan has regular payments that include both principal and interest but these payments are insufficient to pay off the loan. perpetual continuing balloon pure discount interest-only
balloon
An agent who arranges a transaction between a buyer and a seller of equity securities is called a: broker. floor trader. capitalist. principal. dealer.
broker
An agent who maintains an inventory from which he or she buys and sells securities is called a: broker. trader. capitalist. principal. dealer.
dealer.
The growth of both sole proprietorships and partnerships is frequently limited by the firm's: double taxation. bylaws. inability to raise cash. limited liability. agency problems.
inability to raise cash.
Boston Free Press has a dividend policy whereby the firm pays a constant annual dividend of $2.40 per share of common stock. The firm has 1,000 shares of stock outstanding. The company: must always show a current liability of $2,400 for dividends payable. must still declare each dividend before it becomes an actual company liability. is obligated to pay $2.40 per share each year in perpetuity. will be declared in default if it does not pay at least $2.40 per share per year on a timely basis. incurs a liability that must be paid at a later date should the company miss paying an annual dividend payment.
must still declare each dividend before it becomes an actual company liability.
You want to have $81,000 in your savings account 12 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.80 percent interest, what amount must you deposit each year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Annual deposit $4,581.63
Caccamise Company is expected to maintain a constant 3.6 percent growth rate in its dividends indefinitely. If the company has a dividend yield of 5.4 percent, what is the required return on the company's stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Required return 9.00%
The Dahlia Flower Company has earnings of $2.15 per share. The benchmark PE for the company is 12. a. What stock price would you consider appropriate? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What if the benchmark PE were 15? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Stock price at a PE of 12 $25.80 b. Stock price at a PE of 15 $32.25
Andrew just calculated the present value of a $15,000 bonus he will receive next year. The interest rate he used in his calculation is referred to as the: current yield. effective rate. compound rate. simple rate. discount rate.
discount rate.
The process of determining the present value of future cash flows in order to know their value today is referred to as: compound interest valuation. interest on interest valuation. discounted cash flow valuation. future value interest factoring. complex factoring.
discounted cash flow valuation.
The actual interest rate on a loan that is compounded monthly but expressed as an annual rate is referred to as the _____ rate. stated discounted annual effective annual periodic monthly consolidated monthly
effective annual
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: Multiple Choice neither project will be accepted if the discount rate is less than 12.3 percent. both projects have a negative NPV at discount rates greater than 12.3 percent. both projects provide an internal rate of return of 12.3 percent. both projects have a zero NPV at a discount rate of 12.3 percent. the project that is acceptable at a discount rate of 12 percent should be rejected at a discount rate of 13 percent.
the project that is acceptable at a discount rate of 12 percent should be rejected at a discount rate of 13 percent.
A project has a net present value of zero. Given this information: the project has a zero percent rate of return. the project requires no initial cash investment. the project has no cash flows. the summation of all of the project's cash flows is zero. the project's cash inflows equal its cash outflows in current dollar terms.
the project's cash inflows equal its cash outflows in current dollar terms.
Which one of the following actions will increase the present value of an amount to be received sometime in the future? Increase in the time until the amount is received Increase in the discount rate Decrease in the future value Decrease in the interest rate Decrease in both the future value and the number of time periods
Decrease in the interest rate
First City Bank pays 7 percent simple interest on its savings account balances, whereas Second City Bank pays 7 percent interest compounded annually. If you made a deposit of $56,000 in each bank, how much more money would you earn from your Second City Bank account at the end of 9 years?
Difference in accounts $11,673.72 The simple interest per year is: $56,000 × .07 = $3,920 So after 9 years you will have: $3,920 × 9 = $35,280 in interest. The total balance will be $56,000 + 35,280 = $91,280. With compound interest we use the future value formula: FV = PV(1 + r)tFV = $56,000(1.07)9 FV = $102,953.72 The difference is: $102,953.72 - 91,280 = $11,673.72
A decrease in which of the following will increase the current value of a stock according to the dividend growth model? Dividend amount Number of future dividends, provided the total number of dividends is less than infinite Dividend growth rate Discount rate Both the discount rate and the dividend growth rate
Discount rate
What are the distributions of either cash or stock to shareholders by a corporation called? Coupon payments Retained earnings Dividends Capital payments Diluted profits
Dividends
Assume you are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now? Future value Present value Principal amount Discounted value Invested principal
Future value
Which one of the following questions involves a capital structure decision? Which one of two project proposals should the firm implement? How should the firm allocate its limited available funds among acceptable projects? How much funding should be allocated to financing customer purchases of a new product? How much debt should the firm incur to fund a project? How much inventory will be needed to support a project?
How much debt should the firm incur to fund a project?
Which one of the following questions is a working capital management decision? Should the company issue new shares of stock or borrow money? Should the company refurbish its equipment or replace it? How much inventory should the company keep on hand? Should the company close one of its current stores? How much money should the company borrow to buy a new building?
How much inventory should the company keep on hand?
Caroline is going to receive a award of $20,000 six years from now. Jiexin is going to receive an award of $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent? The present values of Caroline's and Jiexin's awards are equal. In future dollars, Jiexin's award is worth more than Caroline's award. In today's dollars, Caroline's award is worth more than Jiexin's. Twenty years from now, the value of Caroline's award will equal the value of Jiexin's award. Jiexin's award is worth more today than Caroline's award.
In today's dollars, Caroline's award is worth more than Jiexin's.
Which one of the following questions is least likely to be addressed by financial managers? In which region of the country should a new product be launched? Should customers be given 30 or 45 days to pay for their credit purchases? Should the firm pay off its debt early? Should the firm acquire new equipment? How much cash should the firm keep on hand?
In which region of the country should a new product be launched?
Valenica Corporation has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders? Right to share in company profits prior to other shareholders Right to elect the corporate directors Right to vote on proposed mergers Right to all residual income after the common dividends have been paid Right to a permanent seat on the board of directors
Right to share in company profits prior to other shareholders
Eunchae invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning? Free interest Complex interest Simple interest Interest on interest Compound interest
Simple interest
Assume a project is independent and has financing-type cash flows. Which one of these statements is correct? The IRR cannot be used to determine the acceptability of the project. The project is acceptable if the required return exceeds the IRR. The project is acceptable only if the NPV is zero or negative. The project's required rate of return will always be negative. The project is acceptable if the internal rate of return is negative.
The project is acceptable if the required return exceeds the IRR
Sunrise, Incorporated, is trying to determine its cost of debt. The firm has a debt issue outstanding with 16 years to maturity that is quoted at 107 percent of face value. The issue makes semiannual payments and has an embedded cost of 4 percent annually. a. What is the company's pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the tax rate is 25 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. Pretax cost of debt 3.43% b. Aftertax cost of debt 2.57%
Hayley won a lottery and will receive $1,000 each year for the next 30 years. The current value of these winnings is called the: single amount. future value. present value. simple amount. compounded value.
present value.
Todd can afford to pay $430 per month for the next 6 years in order to purchase a new car. The interest rate is 7.6 percent compounded monthly. What is the most he can afford to pay for a new car today? $39,072.29 $24,800.19 $24,527.26 $25,626.86 $23,560.18
$24,800.19
A friend wants to borrow money from you. He states that he will pay you $3,500 every 6 months for 10 years with the first payment exactly 3 years and 6 months from today. The interest rate is an APR of 5.8 percent with semiannual compounding. What is the value of the payments today? $44,377.64 $44,271.98 $43,024.28 $45,747.71 $31,349.61
$44,271.98
You expect to receive $3,900 upon your graduation and will invest your windfall at an interest rate of .59 percent per quarter until the account is worth $5,350. How many years do you have to wait until you reach your target account value? 12.54 years 14.47 years 13.55 years 13.43 years 11.76 years
13.43 years
The Blue Marlin is owned by a group of five shareholders who all vote independently and who all want personal control over the firm. What is the minimum percentage of the outstanding shares one of these shareholders must own if he or she is to gain personal control over this firm given that the firm uses straight voting? 17 percent 20 percent plus one vote 25 percent plus one vote 50 percent plus one vote 51 percent
50 percent plus one vote
You are comparing two annuities that offer regular payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while Annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities? Multiple Choice These annuities have equal present values but unequal future values. These two annuities have both equal present and equal future values. Annuity B is an annuity due. Annuity A has a smaller future value than Annuity B. Annuity B has a smaller present value than Annuity A.
Annuity B has a smaller present value than Annuity A.
______ are personally responsible for 100 percent of the firm's debts. General Partners but not sole proprieters Sole prorprieters but not general partners All business owners Both limited and general partners Both general partners and sole proprietors
Both general partners and sole proprietors
Which of the following parties are not considered stakeholders of a firm? Employees Government Competitors Customers Suppliers
Competitors
Savers has an issue of preferred stock with a $4.45 stated dividend that just sold for $81 per share. What is the bank's cost of preferred stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Cost of preferred stock 5.49%
Which one of the following actions by a financial manager is most apt to create an agency problem? Refusing to borrow money when doing so will create losses for the firm Refusing to lower selling prices if doing so will reduce the net profits Refusing to expand the company if doing so will lower the value of the equity Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of sales Increasing current profits when doing so lowers the value of the company's equity
Increasing current profits when doing so lowers the value of the company's equity
Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted? Net present value Discounted payback Internal rate of return Profitability index Payback
Net present value
Which one of the following is a primary market transaction? Sale of currently outstanding stock by a dealer to an individual investor Sale of a new share of stock from a corporation to an individual investor Transfer of stock ownership from one shareholder to another shareholder Gift of stock from one shareholder to a previous non-shareholder Repurchase of stock by a corporation from a shareholder
Sale of a new share of stock from a corporation to an individual investor
Which one of the following statements concerning interest rates is correct? Multiple Choice Savers would prefer annual compounding over monthly compounding given the same annual percentage rate. The effective annual rate decreases as the number of compounding periods per year increases. The effective annual rate equals the annual percentage rate when interest is compounded annually. Borrowers would prefer monthly compounding over annual compounding given the same annual percentage rate. For any positive rate of interest, the annual percentage rate will always exceed the effective annual rate.
The effective annual rate equals the annual percentage rate when interest is compounded annually.
Ginger Industries stock has a beta of 1.25. The company just paid a dividend of $.40, and the dividends are expected to grow at 5 percent. The expected return on the market is 12 percent, and Treasury bills are yielding 6.1 percent. The most recent stock price for the company is $78. a. Calculate the cost of equity using the DGM method. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the cost of equity using the SML method. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. DGM method 5.54% b. SML method 13.48%
Jiminy's Cricket Farm issued a bond with 25 years to maturity and a semiannual coupon rate of 6 percent 2 years ago. The bond currently sells for 107 percent of its face value. The company's tax rate is 21 percent. a. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. Which is more relevant, the pretax or the aftertax cost of debt?
a. Pretax cost of debt 5.46% b. Aftertax cost of debt 4.31% Aftertax cost of debt
Corporate dividends represent: tax-free income for the recipient because they are distributions of pretax income. tax-free income for the recipient because they are distributions of aftertax income. pretax income from the corporation which becomes taxable income for the recipient. taxable income for both the corporation and the shareholder, whether or not dividends are paid to shareholders. aftertax income from the corporation which becomes taxable income for the recipient.
aftertax income from the corporation which becomes taxable income for the recipient.
You are comparing two mutually exclusive projects, Project X and Project Z. The crossover point is 11.4 percent. You have determined that you should accept project X if the required return is 12.7 percent. This implies you should: always accept Project X. be indifferent to the projects at any discount rate above 12.7 percent. always accept Project X if the required return exceeds the crossover rate. accept Project Z only when the required return is equal to the crossover rate. accept Project Z if the required return is less than 12.7 percent.
always accept Project X if the required return exceeds the crossover rate.
When calculating a firm's weighted average cost of capital, the capital structure weights: are based on the book values of debt and equity. are based on the market values of the outstanding securities. depend upon the financing obtained to fund each specific project. remain constant over time unless new securities are issued or outstanding securities are redeemed. are restricted to debt and common stock.
are based on the market values of the outstanding securities
Read Corporation currently pays an annual dividend of $1.46 per share and plans on increasing that amount by 2.75 percent annually. Cho, Incorporated, currently pays an annual dividend of $1.42 per share and plans on increasing its dividend by 3.1 percent annually. Given this information, you know for certain that the stock of Cho has a higher ________ than the stock of Read. market price dividend yield capital gains yield total return real return
capital gains yield
A firm's mixture of debt and equity financing is the result of its ______ decisions. working capital management cash management cost analysis capital budgeting capital structure
capital structure
The interest earned on both the initial principal and the interest reinvested from prior periods is called: Multiple Choice free interest. dual interest. simple interest. interest on interest. compound interest.
compound interest
The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the: Multiple Choice required return. zero-sum rate. present value rate. break-even rate. crossover rate.
crossover rate.
Madelyn is calculating the present value of a bonus she will receive next year. The process she is using is called: growth analysis. discounting. accumulating. compounding. reducing.
discounting
An ordinary annuity is best defined as: increasing payments paid for a definitive period of time. increasing payments paid forever. equal payments paid at the end of regular intervals over a stated time period. equal payments paid at the beginning of regular intervals for a limited time period. equal payments that occur at set intervals for an unlimited period of time.
equal payments paid at the end of regular intervals over a stated time period.
Graphing the crossover point helps explain: why one project is always superior to another project. how decisions concerning mutually exclusive projects are derived. how the duration of a project affects the decision as to which project to accept. how the net present value and the initial cash outflow of a project are related. how the profitability index and the net present value are related.
how decisions concerning mutually exclusive projects are derived.
A firm's ______ is the firm's mix of short-term assets and short-term liabilities. net working capital net debt investment capital net currency capital structure
net working capital
The annual dividend yield is computed by dividing _____ annual dividend by the current stock price. this year's last year's next year's the past 5-year average the next 5-year average
next year's
Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction: took place in the primary market. occurred in a dealer market. occurred in the secondary market involved a proxy. was a private placement.
occurred in the secondary market
if a borrower receives money today and must repay the loan in a single lump sum on a future date, the loan is called a(n) ________ loan. amortized continuous balloon pure discount interest-only
pure discount
If a project has a net present value equal to zero, then: the total of the cash inflows must equal the initial cost of the project. the project earns a return exactly equal to the discount rate. a decrease in the project's initial cost will cause the project to have a negative NPV. any delay in receiving the projected cash inflows will cause the project to have a positive NPV. the project's PI must also be equal to zero.
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? The dividend must be constant. The stock has a negative capital gains yield. The capital gains yield must be zero. The required rate of return for this stock increased over the year. The firm is experiencing supernormal growth.
the stock has a negative capital gains yield.
Lannister Manufacturing has a target debt-equity ratio of 0.53. Its cost of equity is 15 percent, and its cost of debt is 9 percent. If the tax rate is 34 percent, what is the company's WACC? Multiple Choice 11.27% 12.45% 9.08% 11.86% 10.2%
11.86%
Assume a firm utilizes the security market line approach to determine the cost of equity. If the firm currently pays an annual dividend of $3.36 per share and has a beta of 1.38, all else constant, which of the following actions will increase the firm's cost of equity? Multiple Choice A decrease in the dividend amount An increase in the dividend amount A decrease in the market rate of return A decrease in the firm's beta A decrease in the risk-free rate
A decrease in the risk-free rate
Which one of following is the rate at which a stock's price is expected to appreciate? Current yield Total return Dividend yield Capital gains yield Coupon rate
Capital gains yield
Boyd Leasing is analyzing a project that requires purchasing $210,000 of new fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $22,000. How is the $22,000 salvage value handled when computing the net present value of the project? Reduction in the cash outflow at Time 0 Cash inflow in the final year of the project Cash inflow for the year following the final year of the project Cash inflow prorated over the life of the project Excluded from the net present value calculation
Cash inflow in the final year of the 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? Decreasing the required discount rate Increasing the initial investment in fixed assets Condensing the firm's cash inflows into fewer years without lowering the total dollar amount of those inflows Eliminating the salvage value Decreasing the amount of the final cash inflow
Condensing the firm's cash inflows into fewer years without lowering the total dollar amount of those inflows
Which form of business would be the best choice if it were necessary to raise large amounts of capital? Sole proprietorship Limited liability company Corporation General partnership Limited partnership
Corporation
You are planning to make monthly deposits of $470 into a retirement account that pays 9 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be in 35 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Future value $1,382,639.00
Which one of the following is an agency cost? Accepting an investment opportunity that will add value to the firm Increasing the quarterly dividend Investing in a new project that creates firm value Hiring outside accountants to audit the company's financial statements Closing a division of the firm that is operating at a loss
Hiring outside accountants to audit the company's financial statements
Which one of the following will decrease the net present value of a project? Increasing the value of each of the project's discounted cash inflows Moving each cash inflow forward one time period, such as from Year 3 to Year 2 Decreasing the required discount rate Increasing the project's initial cost at Time 0 Increasing the amount of the final cash inflow
Increasing the project's initial cost at Time 0
Investment X offers to pay you $5,200 per year for 9 years, whereas Investment Y offers to pay you $7,500 per year for 5 years. If the discount rate is 5 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) If the discount rate is 15 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Investment X $36,960.56 Investment Y $32,471.25 Investment X $24,812.32 Investment Y $25,141.50
Suppose you are committed to owning a $197,000 Ferrari. If you believe your mutual fund can achieve an annual rate of return of 11 percent and you want to buy the car in 8 years (on the day you turn 30), how much must you invest today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Investment$85,483.52
Which of the following statements regarding a firm's pretax cost of debt is accurate? It is based on the current yield to maturity of the company's outstanding bonds. It is equal to the coupon rate on the latest bonds issued by the company. It is equivalent to the average current yield on all of a company's outstanding bonds. It is based on the original yield to maturity on the latest bonds issued by a company. It must be estimated as it cannot be directly observed in the market.
It is based on the current yield to maturity of the company's outstanding bonds.
This morning, Clayton deposited $2,500 into an account that pays 5 percent interest, compounded annually. Also this morning, Jayda deposited $2,500 at 5 percent interest, compounded annually. Clayton will withdraw his interest earnings and spend it as soon as possible. Jayda will reinvest her interest earnings into her account. Given this information, which one of the following statements is true? Jayda will earn more interest in Year 1 than Clayton will earn. Clayton will earn more interest in Year 3 than Jayda will earn. Jayda will earn more interest in Year 2 than Clayton will earn. After five years, Clayton and Jayda will both have earned the same amount of interest. Clayton will earn compound interest.
Jayda will earn more interest in Year 2 than Clayton will earn.
A project that provides annual cash flows of $17,100 for nine years costs $77,000 today. What is the NPV for the project if the required return is 8 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 8 percent, should the firm accept this project? What is the NPV for the project if the required return is 20 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 20 percent, should the firm accept this project? At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
NPV $29,821.78 Accept NPV $-8,070.47 Reject Discount rate 16.66%
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow 0 −$ 27,500 1 11,500 2 14,500 3 10,500 What is the NPV for the project if the required return is 11 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 11 percent, should the firm accept this project? What is the NPV for the project if the required return is 25 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At a required return of 25 percent, should the firm accept this project?
NPV$2,306.40 Yes NPV $-3,644.00 NO
For each of the following, compute the future value: (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Present Value Years Interest Rate Future Value $1,800 10 14 % $6,673.00s 7,852 8 8 % 14,533.50 67,355 15 13 % 421,256.38 174,796 6 5 % 234,243.36
Solve for the unknown interest rate in each of the following: (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Present Value Years Interest Rate Future Value $210 5 5.15 % $270 330 19 6.00 % 997 36,000 20 8.25 % 175,751 35,261 30 10.80 % 764,676
Imprudential, Incorporated, has an unfunded pension liability of $576 million that must be paid in 25 years. To assess the value of the firm's stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 6.9 percent, what is the present value of this liability? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89)
Present value $108,637,522.58
Beginning three months from now, you want to be able to withdraw $1,700 each quarter from your bank account to cover college expenses over the next four years. If the account pays .39 percent interest per quarter, how much do you need to have in your bank account today to meet your expense needs over the next four years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value $26,319.49
The Maybe Pay Life Insurance Company is trying to sell you an investment policy that will pay you and your heirs $26,000 per year forever. If the required return on this investment is 5.3 percent, how much will you pay for the policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value $490,566.04
Ernst & Frank stock is listed on Nasdaq. The firm is planning to issue some new equity shares for sale to the general public. This sale will definitely occur in which one of the following markets? Private Auction Tertiary Secondary Primary
Primary
Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 −$ 28,000 −$ 28,000 1 13,400 3,800 2 11,300 9,300 3 8,700 14,200 4 4,600 15,800 a-1. What is the IRR for each of these projects? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct? If the required return is 10 percent, what is the NPV for each of these projects? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Which project will the company choose if it applies the NPV decision rule? At what discount rate would the company be indifferent between these two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Project A 16.14% Project B 16.03% Project A NO Project A $3,199.00 Project B $4,601.00 Project B 15.75%
Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively. Which one of the following statements is true concerning these two projects given a positive discount rate? (No calculations needed.) Both projects have the same future value at the end of Year 4. Both projects have the same value at Time 0. Both projects are ordinary annuities. Project Y has a higher present value than Project X. Project X has both a higher present and a higher future value than Project Y.
Project X has both a higher present and a higher future value than Project Y
Chemical Mines has 5,000 shareholders and is preparing to elect two new board members. You do not own enough shares to personally control the elections but are determined to oust the current leadership. Likewise, no other single shareholder owns sufficient shares to personally control the outcome of the election. Which one of the following is the most likely outcome of this situation given that some shareholders are happy with the existing management? Negotiated settlement where each side is granted control over one of the open seats Protracted legal battle over control of the board of directors Arbitrated settlement where the arbitrator determines who will be elected to the board Control of the board decided without your influence Proxy fight for control of the board
Proxy fight for control of the board
Public offerings of debt and equity must be registered with the: Multiple Choice New York Board of Governors. Federal Reserve. NYSE Registration Office. Securities and Exchange Commission. Market Dealers Exchange.
Securities and Exchange Commission.
Which one of the following questions involves a capital budgeting decision? How many shares of stock should the firm issue? Should the firm purchase a new machine for the production line? Should the firm borrow money to acquire new equipment? How much inventory should the firm keep on hand?How much money should be kept in the checking account?
Should the firm purchase a new machine for the production line?
Which one of the following is a working capital management decision? What equipment will be required to complete a project? Should the firm require immediate payment from customers or offer credit terms? What amount of long-term debt is required to complete a project? What percentage of the firm's equity should the firm issue to fund an acquisition? Which one of several acceptable projects should be implemented?
Should the firm require immediate payment from customers or offer credit terms?
Find the EAR in each of the following cases: (Use 365 days a year. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Stated Rate (APR) Number of Times Compounded Effective Rate (EAR) 8.3 % Quarterly 8.56 % 17.3 Monthly 18.74 13.3 Daily 14.22 10.3 Infinite 10.85
Find the APR, or stated rate, in each of the following cases: (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Stated Rate (APR) Number of Times Compounded Effective Rate (EAR) 11.85 % Semiannually 12.2 % 12.37 Monthly 13.1 10.27 Weekly 10.8 13.54 Infinite 14.5
Which one of the following statements is correct? Stocks can only be assigned one dividend growth rate. Preferred stocks generally have variable growth rates. Dividend growth rates must be either zero or positive. All stocks can be valued using the dividend discount models. Stocks can have negative growth rates
Stocks can have negative growth rates
Which one of the following statements related to the internal rate of return (IRR) is correct? The IRR yields the same accept and reject decisions as the net present value method given mutually exclusive projects. A project with an IRR equal to the required return would reduce the value of a firm if accepted. The IRR is equal to the required return when the net present value is equal to zero. Financing type projects should be accepted if the IRR exceeds the required return. The average accounting return is a better method of analysis than the IRR from a financial point of view
The IRR is equal to the required return when the net present value is equal to zero
The capital structure of Pendekanti Products is 58 percent common stock, 2 percent preferred stock, and 40 percent debt. The firm maintains a dividend payout ratio of 24 percent, has a beta of 1.08, and has an income tax rate of 21 percent. Given this information, which one of the following statements is accurate? The aftertax cost of debt will be greater than the current yield to maturity on the company's outstanding bonds. The company's cost of preferred is most likely less than the company's actual cost of debt. The cost of equity is unaffected by a change in the company's tax rate. The cost of equity can be estimated only by using the capital asset pricing model. The weighted average cost of capital will remain constant as long as the company's capital structure remains constant.
The cost of equity is unaffected by a change in the company's tax rate.
Assume you deposited $6,000 into a retirement savings account today. The account will earn 8 percent interest per year, compounded annually. You will not withdraw any principal or interest until you retire in 48 years. Which one of the following statements is correct? The interest you earn in Year 7 will equal the interest you earn in Year 14. The interest amount you earn will double in value every year. The total amount of interest you will earn will equal $6,000 × .08 × 48. The present value of this investment is equal to $6,000. The future value of this amount is equal to $6,000 × (1 + 48).08.
The present value of this investment is equal to $6,000.
Which one of the following statements related to loan interest rates is correct? The annual percentage rate considers the compounding of interest. When comparing loans you should compare the effective annual rates. Lenders are most apt to quote the effective annual rate. Regardless of the compounding period, the effective annual rate will always be higher than the annual percentage rate. The more frequent the compounding period, the lower the effective annual rate given a fixed annual percentage rate.
When comparing loans you should compare the effective annual rates.
Prepare an amortization schedule for a five-year loan of $64,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Leave no cells blank - be certain to enter "0" wherever required.) b. How much interest is paid in the third year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. How much total interest is paid over the life of the loan? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Year Beginning Balance Total Payment Interest Payment Principal Payment Ending Balance 1$64,000.00, $16,453.92, $5,760.00, $10,693.92,$53,306.08 2 53,306.08, 16,453.92, 4,797.55, 11,656.37, 41,649.71 3 41,649.71, 16,453.92 3,748.47, 12,705.4, 28,944.27 4 28,944.27, 16,453.92, 2,604.98, 13,848.93, 15,095.34 5 15,095.34, 16,453.92, 1,358.58, 15,095.34 , 0.00 b. Interest paid in third year $3,748.47 c. Interest paid over the life of loan $18,269.59
Shareholders can replace company management by implementing: stock options. promotions. the Sarbanes-Oxley Act. an agency play. a proxy fight.
a proxy fight.
he next dividend payment by Im, Incorporated, will be $1.92 per share. The dividends are anticipated to maintain a growth rate of 6 percent forever. The stock currently sells for $38 per share. a. What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the expected capital gains yield? (Enter your answer as a percent.)
a. Dividend yield 5.05% b. Capital gains yield 6%
Dani Corporation has 6 million shares of common stock outstanding. The current share price is $72, and the book value per share is $9. The company also has two bond issues outstanding. The first bond issue has a face value of $85 million, a coupon rate of 5 percent, and sells for 97 percent of par. The second issue has a face value of $70 million, a coupon rate of 4 percent, and sells for 109 percent of par. The first issue matures in 21 years, the second in 8 years. Both bonds make semiannual coupon payments. a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) c. Which are more relevant, the book or market value weights?
a. Equity/Value 0.2584 a. Debt/Value 0.7416 b. Equity/Value 0.7313 b. Debt/Value 0.2687 c. Market value
A project has the following cash flows: Year Cash Flow 0 $ 46,000 1 −25,000 2 −36,000 a. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the NPV of this project, if the required return is 12 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV of the project if the required return is 0 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the NPV of the project if the required return is 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. IRR 19.72% b. NPV $-5,020.41 c. NPV $-15,000.00 d. NPV $2,425.60
In 1895, the first U.S. Open Golf Championship was held. The winner's prize money was $180. In 2019, the winner's check was $1,380,000. a.What was the percentage increase per year in the winner's check over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b.If the winner's prize increases at the same rate, what will it be in 2040? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Increase per year 7.48 % b. Winners prize in 2040 $6,277,056.06
A project has the following cash flows: Year Cash Flow 0 −$ 15,600 1 6,300 2 7,600 3 6,100 a. What is the NPV at a discount rate of zero percent? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the NPV at a discount rate of 9 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the NPV at a discount rate of 17 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What is the NPV at a discount rate of 30 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. NPV $4,400 b. NPV $1,286.90 c. NPV $-854.82 d. NPV $-3,480.29
Mendez Company has identified an investment project with the following cash flows. Year Cash Flow 1 $ 760 2 1,010 3 1,270 4 1,375 a. If the discount rate is 11 percent, what is the present value of these cash flows? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the present value at 18 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the present value at 24 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Present value at 11% $3,338.79 b. Present value at 18% $2,851.60 c. Present value at 24% $2,517.46
An investment offers $6,400 per year, with the first payment occurring one year from now. The required return is 6 percent. a. What would the value be today if the payments occurred for 15 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What would the value be today if the payments occurred for 40 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What would the value be today if the payments occurred for 75 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What would the value be today if the payments occurred forever? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Present value of 15 annual payments $62,158.39 b. Present value of 40 annual payments $96,296.30 c. Present value of 75 annual payments $105,317.43 d. Present value of annual payments forever $106,666.67
A coin sold at auction in 2019 for $9,786,000. The coin had a face value of $15 when it was issued in 1794 and had been previously sold for $140,000 in 1973. a. At what annual rate did the coin appreciate from its first minting to the 1973 sale? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What annual rate did the 1973 buyer earn on his purchase? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. At what annual rate did the coin appreciate from its first minting to the 2019 sale? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. Rate of return from 1794 to 1973 5.24% b. Rate of return from 1973 to 2019 9.67% c. Rate of return from 1794 to 2019 6.19%
Z Space, Incorporated, is a new company and currently has negative earnings. The company's sales are $2.5 million and there are 140,000 shares outstanding. a. If the benchmark price-sales ratio is 6.0, what is your estimate of an appropriate stock price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What if the price-sales ratio were 5.4? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Stock price at a price-sales of 6.0 $107.14 b. Stock price at a price-sales of 5.4 $96.43
Ninecent Corporation has a target capital structure of 65 percent common stock, 5 percent preferred stock, and 30 percent debt. Its cost of equity is 13 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 25 percent. a. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a. WACC 10.05% b. Cost of debt 4.50%
Cullen invested $5,000 five years ago and earns 6 percent annual interest. By leaving his interest earnings in her account, he increases the amount of interest he earns each year. His investment is best described as benefitting from: Multiple Choice simplifying. compounding. aggregating. accumulating. discounting.
compounding
A business that is a legal entity separate from the owners, yet treated as a legal person, is called a(n): corporation. sole proprietorship. general partnership. limited partnership. unlimited liability company.
corporation.
Agency problems are most likely to be associated with: sole proprietorships. general partnerships. limited partnerships. corporations. limited liability companies.
corporations
Which one of the following statements regarding corporations is correct? The majority of firms in the U.S. are structured as corporations. Undistributed corporate profits are taxable income to the shareholders. Corporations can have an unlimited life. Shareholders are protected from all potential losses. Shareholders directly elect the chief financial officer.
corporations can have an unlimited life
Okonjo Economics has a debt-equity ratio of .38. All of the firm's outstanding shares were purchased by a small number of investors. The return these investors require is called the: dividend yield. cost of equity. capital gains yield. cost of capital. income return.
cost of equity.
Nirav just opened a savings account paying 2 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this information, Nirav: will earn the same amount of interest each year for four years. will earn simple interest on his savings every year for four years. could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest. has an account currently valued at $5,000. could earn more interest on this account if the interest earnings were withdrawn annually.
could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest
When evaluating any capital project proposal, the cost of capital: is determined by the overall risk level of the firm. is dependent upon the source of the funds obtained to fund that project. is dependent upon the firm's overall capital structure. should be applied as the discount rate for all other projects considered by the firm. depends upon how the funds raised for that project are going to be spent.
depends upon how the funds raised for that project are going to be spent.
The internal rate of return is defined as the: maximum rate of return a firm expects to earn on a project. rate of return a project will generate if the project is financed solely with internal funds. discount rate that equates the net cash inflows of a project to zero. discount rate which causes the net present value of a project to equal zero. discount rate that causes the profitability index for a project to equal zero.
discount rate which causes the net present value of a project to equal zero
Your aunt has promised to give you $5,000 when you graduate from college. You expect to graduate three years from now. If you speed up your plans to enable you to graduate two years from now, the present value of the promised gift will: remain constant. increase. decrease. equal $5,000. be less than $5,000.
increase
Assume Barnes' Boots has a debt-equity ratio of .52. The firm uses the capital asset pricing model to determine its cost of equity. Accordingly, the firm's estimated cost of equity: Multiple Choice is affected by the firm's rate of growth projections. implies that the firm pays out all of its earnings to its shareholders. is dependent upon a reliable estimate of the market risk premium. would be unaffected if the dividend discount model were applied instead. will be unaffected by changes in overall market risks.
is dependent upon a reliable estimate of the market risk premium.
When evaluating the timing of a project's projected cash flows, a financial manager is analyzing: the amount of each expected cash flow. only the start-up costs that are expected to require cash resources. only the date of the final cash flow related to the project. the amount by which cash receipts are expected to exceed cash outflows. when each cash flow is expected to occur.
when each cash flow is expected to occur.