完整word版公司理财英文版题库8

合集下载

罗斯《公司理财》英文习题答案DOCchap028

公司理财习题答案第二十八章Chapter 28: Cash Management28.1 Firms need to hold cash to:a. Satisfy the transaction needs. For example, cash is collected from sales and newfinancing and disbursed as wages, salaries, trade debts, taxes and dividends.b. Maintain compensating balances. A minimum required compensating balance atbanks providing credit service to the firm may impose a lower limit on the level ofcash a firm holds.28.2 a. Decrease. Examine the Baumol model. As the interest rate (k) increases, the optimalcash balance must also rise.b. Increase. Examine the Baumol model. As brokerage costs (F, the per transactioncosts) rise, the optimal balance increases.c. Decrease. Clearly, if the bank lowers its compensating balance requirement, a firmwill not be required to hold as much of its assets as cash.d. Decrease. If the cost of borrowing falls, a firm need not hold as much of its assets ascash because the cost of running short, i.e. the cost to borrow to fill cash needs, islower.e. Increase. As a firm’s credit rating falls, its cost to borrow increases. Thus, the firmcannot as easily afford to run short of cash and its cash balance must be higher.f. Decrease. Introduction of direct banking fees would increase the fixed costsassociated with holding cash. As fixed costs rise, the optimal balance must also rise.28.3 The average weekly cash balance is $20,750 [ ($24,000 + $34,000 + $10,000 +$15,000)/ 4].With monthly compounding, the return that the firm can earn on its average balance is$20,750 [[( 1 + 0.12/12)12 - 1] = $2,631.62Your answer may differ if you made different assumptions about the interest payments.28.4 a. The total amount of cash that will be disbursed during the year is:$345,000 * 12 = $4,140,000 Using the optimal cash balance formula,193,243$07.0)000,140,4)(500($2K 2FT*C ===$243,193 should be kept as cash. The balance, $556,807 (=$800,000-$243,193),should be invested in marketable securities.b. The number of times marketable securities will be sold during the next twelvemonths is $4,140,000 / $243,193 = 17 times28.5C*2FT K T KC *2F 7.5%(20mil)25,0007.5%200.01$3,000(mil)Average w eekly disbursement 3,00052$57.69mil222===⨯⨯=⨯===28.6 Use the Miller-Orr formula. The target cash balance = Z*3F 4K L 23=+σ The upper limit = H*=3Z*-2LThe daily opportunity cost = K= 1.0836510.000211-=Z*3($600)($1,440,00)4(0.000211)3$20,000$34,536H *$63,608=+== The average cash balance:C *4Z *L34($34,536)$20,0003$39,381=-=-=28.7 a.Z g*Hg 2L g 3200,0002100,0003$133,333Z s *Hs 2L s 3300,0002150,0003$200,000=+=+⨯==+=+⨯=b. Gold Star:()()s Z *L 4K /3F 133,333100,00040.00026132,0006,444,251K 1.1010.000261g 2g g3g g 3g 365=-=-⨯⨯⨯≈=-=Silver Star:()()s Z *L 4K /3F 200,000150,00040.00023632,000K 1.0910.000236g 2g g3g g 3g 365=-=-⨯⨯⨯≈=-=15733333,,So, Silver Star Co. has a more volatile daily cash flow.28.8 Garden Groves float = 150 ($15,000) = $2,250,000Increase in collected cash balance if a 3 day lockbox is installed = 3($2,250,000)= $6,750,000Annual earnings from this amount = $6,750,000 x 0.075 = $506,250The system should be installed if its cost is below this amount.Variable cost $ 0.5 x 150 x 365 = $27,375 Fixed cost = 80,000Total cost =$107,375The lockbox system should be installed. The net earnings from the use of the system are $398,875 (= $506,250 - $107,375)公司理财习题答案第二十八章28.9 To make the system profitable, the net earnings of installing the lockbox system must benon-negative. The lower limit for acceptability is zero profits.Let N be the number of customers per day.Earnings = ($4,500) (N) (2) (0.06) = $540 x NCosts:Variable cost: N (365) ($0.25) = $91.25 x NFixed cost: $15,000Equate Earnings to total costs:N = 33.43Salisbury Stakes needs at least 34 customers per day for the lockbox system to beprofitable.28.10 Disbursement float = $12,000 x 5 = $60,000Collection float = -$15,000 x 3 = -$45,000Net float = $60,000 - $45,000 = $15,000If funds are collected in four days rather than three, disbursement float will not change.Collection float will change to -$60,000. This change makes the net float equal to zero.28.11 a. Reduction in outstanding cash balances = $100,000 x 3 days = $300,000b. Return on savings = $300,000 (0.12) = $360,000c. Maximum monthly charge = $36,000 / 12 = $3,000Note: The calculation in part b assumes annual compounding. The answer in part cdoes not account for the time value of money. With monthly compounding of theinterest earned, the return on savings at the end of the year is$300,000 [(1.01)12 - 1] = $38,047.51The present value of this amount is $38,047.51 / (1.01) 12 = $33,765.23Compute the monthly payment as an annuity with a discount rate of 1% per periodfor twelve periods. That annuity factor is 11.2551. Thus, the payment is$33,765.23 = (Payment) (11.2551)Payment = $3,000Notice, as long as the treatment of the cash flows is the same, the payment is thesame.28.12 The cash savings are the earnings from the interest bearing account. Assuming dailycompounding, the three-day return to the delayed payment is($200,000)[(1.0004)3-1] = $240.096The interest rate for two weeks is 0.5615% (=(1.0004)14-1).Therefore, the present value of this annuity is($240.096)11(1.005615)260.005615$5,793.12 -=⎡⎣⎢⎢⎢⎢⎤⎦⎥⎥⎥⎥The Walter Company will save $5,793.12 per year.28.13 If the Miller Company divides the eastern region, collections will be accelerated by oneday freeing up $4 million per day. Compensating balances will be increased by $100,000 [=2($300,000)-$500,000]. The net effect is to have $3,900,000 to invest. If T-bills pay 7%per year, the annual net savings from the division of the eastern region is $3,900,000 x 0.07 = $273,000.28.14 Lockbox: interest saved = 7,500 x 250 x 1.5 x0.0003 = $843.75Annual saving (Annual charge) = 843.75 x 365 - 30,000 - 0.3 x 250 x 365= $250,593.75Annual saving (Concentration Banking) = 7,500 x 250 x1 x 0.0003 x 365= 562.5 x 365 = $205,312.5So the lockbox system is recommended.28.15 The important characteristics of short-term marketable securities are:i. maturityii. default riskiii. marketabilityiv. taxability。

罗斯《公司理财》英文习题答案DOCchap004

公司理财习题答案第四章Chapter 4: Net Present Value4.1 a. $1,000 ⨯ 1.0510 = $1,628.89b. $1,000 ⨯ 1.0710 = $1,967.15c. $1,000 ⨯ 1.0520 = $2,653.30d. Interest compounds on the I nterest already earned. Therefore, the interest earnedin part c, $1,653.30, is more than double the amount earned in part a, $628.89.4.2 a. $1,000 / 1.17 = $513.16b. $2,000 / 1.1 = $1,818.18c. $500 / 1.18 = $233.254.3 You can make your decision by computing either the present value of the $2,000 that youcan receive in ten years, or the future value of the $1,000 that you can receive now.Present value: $2,000 / 1.0810 = $926.39Future value: $1,000 ⨯ 1.0810 = $2,158.93Either calculation indicates you should take the $1,000 now.4.4 Since this bond has no interim coupon payments, its present value is simply the presentvalue of the $1,000 that will be received in 25 years. Note: As will be discussed in the next chapter, the present value of the payments associated with a bond is the price of that bond.PV = $1,000 /1.125 = $92.304.5 PV = $1,500,000 / 1.0827 = $187,780.234.6 a. At a discount rate of zero, the future value and present value are always the same.Remember, FV = PV (1 + r) t. If r = 0, then the formula reduces to FV = PV.Therefore, the values of the options are $10,000 and $20,000, respectively. Youshould choose the second option.b. Option one: $10,000 / 1.1 = $9,090.91Option two: $20,000 / 1.15 = $12,418.43Choose the second option.c. Option one: $10,000 / 1.2 = $8,333.33Option two: $20,000 / 1.25 = $8,037.55Choose the first option.d. You are indifferent at the rate that equates the PVs of the two alternatives. Youknow that rate must fall between 10% and 20% because the option you wouldchoose differs at these rates. Let r be the discount rate that makes you indifferentbetween the options.$10,000 / (1 + r) = $20,000 / (1 + r)5(1 + r)4 = $20,000 / $10,000 = 21 + r = 1.18921r = 0.18921 = 18.921%4.7 PV of Joneses’ offer = $150,000 / (1.1)3 = $112,697.22Since the PV of Joneses’ offer is less than Smiths’ offer, $115,000, you should chooseSmiths’ offer.4.8 a. P0 = $1,000 / 1.0820 = $214.55b. P10 = P0 (1.08)10 = $463.20c. P15 = P0 (1.08)15 = $680.594.9 The $1,000 that you place in the account at the end of the first year will earn interest for sixyears. The $1,000 that you place in the account at the end of the second year will earninterest for five years, etc. Thus, the account will have a balance of$1,000 (1.12)6 + $1,000 (1.12)5 + $1,000 (1.12)4 + $1,000 (1.12)3= $6,714.614.10 PV = $5,000,000 / 1.1210 = $1,609,866.184.11 a. The cost of investment is $900,000.PV of cash inflows = $120,000 / 1.12 + $250,000 / 1.122 + $800,000 / 1.123= $875,865.52Since the PV of cash inflows is less than the cost of investment, you should notmake the investment.b. NPV = -$900,000 + $875,865.52= -$24,134.48c. NPV = -$900,000 + $120,000 / 1.11 + $250,000 / 1.112 + $800,000 / 1.113= $-4,033.18Since the NPV is still negative, you should not make the investment.4.12 NPV = -($340,000 + $10,000) + ($100,000 - $10,000) / 1.1+ $90,000 / 1.12 + $90,000 / 1.13 + $90,000 / 1.14 + $100,000 / 1.15= -$2,619.98Since the NPV is negative, you should not buy it.If the relevant cost of capital is 9 percent,NPV = -$350,000 + $90,000 / 1.09 + $90,000 / 1.092 + $90,000 / 1.093+ $90,000 / 1.094 + $100,000 / 1.095= $6,567.93Since the NPV is positive, you should buy it.4.13 a. Profit = PV of revenue - Cost = NPVNPV = $90,000 / 1.15 - $60,000 = -$4,117.08No, the firm will not make a profit.b. Find r that makes zero NPV.$90,000 / (1+r)5 - $60,000 = $0(1+r)5 = 1.5r = 0.08447 = 8.447%4.14 The future value of the decision to own your car for one year is the sum of the trade-invalue and the benefit from owning the car. Therefore, the PV of the decision to own thecar for one year is$3,000 / 1.12 + $1,000 / 1.12 = $3,571.43Since the PV of the roommate’s offer, $3,500, is lower than the aunt’s offer, you shouldaccept aunt’s offer.4.15 a. $1.000 (1.08)3 = $1,259.71b. $1,000 [1 + (0.08 / 2)]2 ⨯ 3 = $1,000 (1.04)6 = $1,265.32c. $1,000 [1 + (0.08 / 12)]12 ⨯ 3 = $1,000 (1.00667)36 = $1,270.24d. $1,000 e0.08 ⨯ 3 = $1,271.25公司理财习题答案第四章e. The future value increases because of the compounding. The account is earninginterest on interest. Essentially, the interest is added to the account balance at theend of every compounding period. During the next period, the account earnsinterest on the new balance. When the compounding period shortens, the balancethat earns interest is rising faster.4.16 a. $1,000 e0.12 ⨯ 5 = $1,822.12b. $1,000 e0.1 ⨯ 3 = $1,349.86c. $1,000 e0.05 ⨯ 10 = $1,648.72d. $1,000 e0.07 ⨯ 8 = $1,750.674.17 PV = $5,000 / [1+ (0.1 / 4)]4 ⨯ 12 = $1,528.364.18 Effective annual interest rate of Bank America= [1 + (0.041 / 4)]4 - 1 = 0.0416 = 4.16%Effective annual interest rate of Bank USA= [1 + (0.0405 / 12)]12 - 1 = 0.0413 = 4.13%You should deposit your money in Bank America.4.19 The price of the consol bond is the present value of the coupon payments. Apply theperpetuity formula to find the present value. PV = $120 / 0.15 = $8004.20 Quarterly interest rate = 12% / 4 = 3% = 0.03Therefore, the price of the security = $10 / 0.03 = $333.334.21 The price at the end of 19 quarters (or 4.75 years) from today = $1 / (0.15 ÷ 4) = $26.67The current price = $26.67 / [1+ (.15 / 4)]19 = $13.254.22 a. $1,000 / 0.1 = $10,000b. $500 / 0.1 = $5,000 is the value one year from now of the perpetual stream. Thus,the value of the perpetuity is $5,000 / 1.1 = $4,545.45.c. $2,420 / 0.1 = $24,200 is the value two years from now of the perpetual stream.Thus, the value of the perpetuity is $24,200 / 1.12 = $20,000.4.23 The value at t = 8 is $120 / 0.1 = $1,200.Thus, the value at t = 5 is $1,200 / 1.13 = $901.58.4.24 P = $3 (1.05) / (0.12 - 0.05) = $45.004.25 P = $1 / (0.1 - 0.04) = $16.674.26 The first cash flow will be generated 2 years from today.The value at the end of 1 year from today = $200,000 / (0.1 - 0.05) = $4,000,000.Thus, PV = $4,000,000 / 1.1 = $3,636,363.64.4.27 A zero NPV-$100,000 + $50,000 / r = 0-r = 0.54.28 Apply the NPV technique. Since the inflows are an annuity you can use the present valueof an annuity factor.NPV = -$6,200 + $1,200 8A1.0= -$6,200 + $1,200 (5.3349)= $201.88Yes, you should buy the asset.4.29 Use an annuity factor to compute the value two years from today of the twenty payments.Remember, the annuity formula gives you the value of the stream one year before the first payment. Hence, the annuity factor will give you the value at the end of year two of the stream of payments. Value at the end of year two = $2,000 20A08.0= $2,000 (9.8181)= $19,636.20The present value is simply that amount discounted back two years.PV = $19,636.20 / 1.082 = $16,834.884.30 The value of annuity at the end of year five= $500 15A = $500 (5.84737) = $2,923.6915.0The present value = $2,923.69 / 1.125 = $1,658.984.31 The easiest way to do this problem is to use the annuity factor. The annuity factor must beequal to $12,800 / $2,000 = 6.4; remember PV =C A t r. The annuity factors are in theappendix to the text. To use the factor table to solve this problem, scan across the rowlabeled 10 years until you find 6.4. It is close to the factor for 9%, 6.4177. Thus, the rate you will receive on this note is slightly more than 9%.You can find a more precise answer by interpolating between nine and ten percent.10% ⎤ 6.1446 ⎤a ⎡ r ⎥bc ⎡ 6.4 ⎪ d⎣ 9% ⎦⎣ 6.4177 ⎦By interpolating, you are presuming that the ratio of a to b is equal to the ratio of c to d.(9 - r ) / (9 - 10) = (6.4177 - 6.4 ) / (6.4177 - 6.1446)r = 9.0648%The exact value could be obtained by solving the annuity formula for the interest rate.Sophisticated calculators can compute the rate directly as 9.0626%.公司理财习题答案第四章4.32 a. The annuity amount can be computed by first calculating the PV of the $25,000which you need in five years. That amount is $17,824.65 [= $25,000 / 1.075].Next compute the annuity which has the same present value.$17,824.65 = C 5A.007$17,824.65 = C (4.1002)C = $4,347.26Thus, putting $4,347.26 into the 7% account each year will provide $25,000 fiveyears from today.b. The lump sum payment must be the present value of the $25,000, i.e., $25,000 /1.075 = $17,824.65The formula for future value of any annuity can be used to solve the problem (seefootnote 14 of the text).4.33The amount of loan is $120,000 ⨯ 0.85 = $102,000.20C A= $102,000.010The amount of equal installments isC = $102,000 / 20A = $102,000 / 8.513564 = $11,980.8810.04.34 The present value of salary is $5,000 36A = $150,537.53.001The present value of bonus is $10,000 3A = $23,740.42 (EAR = 12.68% is used since.01268bonuses are paid annually.)The present value of the contract = $150,537.53 + $23,740.42 = $174,277.944.35 The amount of loan is $15,000 ⨯ 0.8 = $12,000.C 48A = $12,0000067.0The amount of monthly installments isC = $12,000 / 48A = $12,000 / 40.96191 = $292.960067.04.36 Option one: This cash flow is an annuity due. To value it, you must use the after-taxamounts. The after-tax payment is $160,000 (1 - 0.28) = $115,200. Value all except the first payment using the standard annuity formula, then add back the first payment of$115,200 to obtain the value of this option.Value = $115,200 + $115,200 30A10.0= $115,200 + $115,200 (9.4269)= $1,201,178.88Option two: This option is valued similarly. You are able to have $446,000 now; this is already on an after-tax basis. You will receive an annuity of $101,055 for each of the next thirty years. Those payments are taxable when you receive them, so your after-taxpayment is $72,759.60 [= $101,055 (1 - 0.28)].Value = $446,000 + $72,759.60 30A.010= $446,000 + $72,759.60 (9.4269)= $1,131,897.47Since option one has a higher PV, you should choose it.4.37 The amount of loan is $9,000. The monthly payment C is given by solving the equation: C 60008.0A = $9,000 C = $9,000 / 47.5042 = $189.46In October 2000, Susan Chao has 35 (= 12 ⨯ 5 - 25) monthly payments left, including the one due in October 2000.Therefore, the balance of the loan on November 1, 2000 = $189.46 + $189.46 34008.0A = $189.46 + $189.46 (29.6651) = $5,809.81Thus, the total amount of payoff = 1.01 ($5,809.81) = $5,867.91 4.38 Let r be the rate of interest you must earn. $10,000(1 + r)12 = $80,000 (1 + r)12 = 8 r = 0.18921 = 18.921%4.39 First compute the present value of all the payments you must make for your children’s education. The value as of one year before matriculation of one child’s education is$21,000 415.0A= $21,000 (2.8550) = $59,955. This is the value of the elder child’s education fourteen years from now. It is the value of the younger child’s education sixteen years from today. The present value of these is PV = $59,955 / 1.1514 + $59,955 / 1.1516 = $14,880.44You want to make fifteen equal payments into an account that yields 15% so that the present value of the equal payments is $14,880.44. Payment = $14,880.44 / 1515.0A = $14,880.44 / 5.8474 = $2,544.804.40 The NPV of the policy isNPV = -$750 306.0A - $800306.0A / 1.063 + $250,000 / [(1.066) (1.0759)] = -$2,004.76 - $1,795.45 + $3,254.33= -$545.88 Therefore, you should not buy the policy.4.41 The NPV of the lease offer isNPV = $120,000 - $15,000 - $15,000 908.0A - $25,000 / 1.0810= $105,000 - $93,703.32 - $11,579.84 = -$283.16 Therefore, you should not accept the offer.4.42 This problem applies the growing annuity formula. The first payment is $50,000(1.04)2(0.02) = $1,081.60. PV = $1,081.60 [1 / (0.08 - 0.04) - {1 / (0.08 - 0.04)}{1.04 / 1.08}40]= $21,064.28 This is the present value of the payments, so the value forty years from today is $21,064.28 (1.0840) = $457,611.46公司理财习题答案第四章4.43 Use the discount factors to discount the individual cash flows. Then compute the NPV ofthe project. Notice that the four $1,000 cash flows form an annuity. You can still use the factor tables to compute their PV. Essentially, they form cash flows that are a six year annuity less a two year annuity. Thus, the appropriate annuity factor to use with them is 2.6198 (= 4.3553 - 1.7355).Year Cash Flow Factor PV 1 $700 0.9091 $636.37 2 900 0.8264 743.76 3 1,000 ⎤ 4 1,000 ⎥ 2.6198 2,619.80 5 1,000 ⎥ 6 1,000 ⎦ 7 1,250 0.5132 641.50 8 1,375 0.4665 641.44 Total $5,282.87NPV = -$5,000 + $5,282.87 = $282.87 Purchase the machine.4.44 Weekly inflation rate = 0.039 / 52 = 0.00075 Weekly interest rate = 0.104 / 52 = 0.002 PV = $5 [1 / (0.002 - 0.00075)] {1 – [(1 + 0.00075) / (1 + 0.002)]52 ⨯ 30} = $3,429.384.45 Engineer:NPV = -$12,000 405.0A + $20,000 / 1.055 + $25,000 / 1.056 - $15,000 / 1.057- $15,000 / 1.058 + $40,000 2505.0A / 1.058= $352,533.35 Accountant:NPV = -$13,000 405.0A + $31,000 3005.0A / 1.054= $345,958.81 Become an engineer.After your brother announces that the appropriate discount rate is 6%, you can recalculate the NPVs. Calculate them the same way as above except using the 6% discount rate. Engineer NPV = $292,419.47 Accountant NPV = $292,947.04Your brother made a poor decision. At a 6% rate, he should study accounting.4.46 Since Goose receives his first payment on July 1 and all payments in one year intervalsfrom July 1, the easiest approach to this problem is to discount the cash flows to July 1 then use the six month discount rate (0.044) to discount them the additional six months. PV = $875,000 / (1.044) + $650,000 / (1.044)(1.09) + $800,000 / (1.044)(1.092) + $1,000,000 / (1.044)(1.093) + $1,000,000/(1.044)(1.094) + $300,000 / (1.044)(1.095)+ $240,000 1709.0A / (1.044)(1.095) + $125,000 1009.0A / (1.044)(1.0922) = $5,051,150Remember that the use of annuity factors to discount the deferred payments yields the value of the annuity stream one period prior to the first payment. Thus, the annuity factor applied to the first set of deferred payments gives the value of those payments on July 1 of 1989. Discounting by 9% for five years brings the value to July 1, 1984. The use of the six month discount rate (4.4%) brings the value of the payments to January 1, 1984. Similarly, the annuity factor applied to the second set of deferred payments yields the value of those payments in 2006. Discounting for 22 years at 9% and for six months at 4.4% provides the value at January 1, 1984.The equivalent five-year, annual salary is the annuity that solves: $5,051,150 = C 509.0A C = $5,051,150/3.8897C = $1,298,596The student must be aware of possible rounding errors in this problem. The differencebetween 4.4% semiannual and 9.0% and for six months at 4.4% provides the value at January 1, 1984. 4.47 PV = $10,000 + ($35,000 + $3,500) [1 / (0.12 - 0.04)] [1 - (1.04 / 1.12) 25 ]= $415,783.604.48 NPV = -$40,000 + $10,000 [1 / (0.10 - 0.07)] [1 - (1.07 / 1.10)5 ] = $3,041.91 Revise the textbook.4.49The amount of the loan is $400,000 (0.8) = $320,000 The monthly payment is C = $320,000 / 3600067.0.0A = $ 2,348.10 Thirty years of payments $ 2,348.10 (360) = $ 845,316.00 Eight years of payments $2,348.10 (96) = $225,417.60 The difference is the balloon payment of $619,898.404.50 The lease payment is an annuity in advanceC + C 2301.0A = $4,000 C (1 + 20.4558) = $4,000 C = $186.424.51 The effective annual interest rate is[ 1 + (0.08 / 4) ] 4 – 1 = 0.0824The present value of the ten-year annuity is PV = 900 100824.0A = $5,974.24 Four remaining discount periodsPV = $5,974.24 / (1.0824) 4 = $4,352.43公司理财习题答案第四章4.52The present value of Ernie’s retirement incomePV = $300,000 20A / (1.07) 30 = $417,511.5407.0The present value of the cabinPV = $350,000 / (1.07) 10 = $177,922.25The present value of his savingsPV = $40,000 10A = $280,943.26.007In present value terms he must save an additional $313,490.53 In future value termsFV = $313,490.53 (1.07) 10 = $616,683.32He must saveC = $616.683.32 / 20A = $58,210.5407.0。

公司理财(英文习题)

Corporate Finance Class Test 2Name No。

ScorePartⅠ:Choice Questions(15questions，3point each，45 pointstotal）（Only one choice is the best for each question。

Answer this parton the following table。

Answers in other places will not beconsidered.）A. increasing payments paid for a definitive period of timeB. increasing payments paid foreverC。

equal payments paid at regular intervals over a stated time periodD. equal payments paid at regular intervals of time on an ongoing basis2. Your credit card company charges you 1。

65 percent interest per month. What isthe annual percentage rate on your account？A。

18.95 percent B。

19。

80 percentC. 20.90 percentD. 21.25 percent3. What is the effective annual rate if a bank charges you 9.50 percent compounded quarterly？A. 9。

62 percent B。

9。

68 percentC. 9。

72 percentD. 9.84 percent4 Mary just purchased a bond which pays $60 a year in interest。

英文版罗斯公司理财习题答案ChapWord版

英文版罗斯公司理财习题答案

CHAPTER 8MAKING CAPITAL INVESTMENT DECISIONSAnswers to Concepts Review and Critical Thinking Questions1. In this context, an opportunity cost refers to the value of anasset or other input that will be used in a project. The relevant cost is what the asset or input is actually worth today, not, for example, what it cost to acquire.2. a.Yes, the reduction in the sales of the company’s otherproducts, referred to as erosion, and should be treated as an incremental cash flow. These lost sales are included because they are a cost (a revenue reduction) that the firm must bear if it chooses to produce the new product.b. Yes, expenditures on plant and equipment should be treatedas incremental cash flows. These are costs of the new product line. However, if these expenditures have already occurred, they are sunk costs and are not included as incremental cash flows.c. No, the research and development costs should not be treatedas incremental cash flows. The costs of research and development undertaken on the product during the past 3 years are sunk costs and should not be included in the evaluation of the project. Decisions made and costs incurred in the past cannot be changed. They should not affect the decision to accept or reject the project.d. Yes, the annual depreciation expense should be treated as anincremental cash flow. Depreciation expense must be taken into account when calculating the cash flows related to a given project. While depreciation is not a cash expense that directly affects c ash flow, it decreases a firm’s netincome and hence, lowers its tax bill for the year. Because of this depreciation tax shield, the firm has more cash on hand at the end of the year than it would have had without expensing depreciation.e.No, dividend payments should not be treated as incrementalcash flows. A firm’s decision to pay or not pay dividends is independent of the decision to accept or reject any given investment project. For this reason, it is not an incremental cash flow to a given project. Dividend policy is discussed in more detail in later chapters.f.Yes, the resale value of plant and equipment at the end of aproject’s life should be treated as an incremental cashflow. The price at which the firm sells the equipment is a cash inflow, and any difference between the book value ofthe equipment and its sale price will create gains or losses that result in either a tax credit or liability.g.Yes, salary and medical costs for production employees hiredfor a project should be treated as incremental cash flows.The salaries of all personnel connected to the project must be included as costs of that project.3.I tem I is a relevant cost because the opportunity to sell theland is lost if the new golf club is produced. Item II is also relevant because the firm must take into account the erosion of sales of existing products when a new product is introduced. If the firm produces the new club, the earnings from the existing clubs will decrease, effectively creating a cost that must be included in the decision. Item III is not relevant because the costs of Research and Development are sunk costs. Decisions made in the past cannot be changed. They are not relevant to the production of the new clubs.4. For tax purposes, a firm would choose MACRS because it providesfor larger depreciation deductions earlier. These larger deductions reduce taxes, but have no other cash consequences.Notice that the choice between MACRS and straight-line is purely a time value issue; the total depreciation is the same;only the timing differs.5.It’s probably only a mild over-simplification. Currentliabilities will all be paid, presumably. The cash portion of current assets will be retrieved. Some receivables won’t be collected, and some inventory will not be sold, of course.Counterbalancing these losses is the fact that inventory sold above cost (and not replaced at the end of the project’s life) acts to increase working capital. These effects tend to offset one another.6.Management’s discretion to set the firm’s capital structureis applicable at the firm level. Since any one particular project could be financed entirely with equity, another project could be financed with debt, and the firm’s overall capital structure remains unchanged, financing costs are not relevant in the analysis of a project’s incremental cash flows according to the stand-alone principle.7. The EAC approach is appropriate when comparing mutuallyexclusive projects with different lives that will be replaced when they wear out. This type of analysis is necessary so that the projects have a common life span over which they can be compared; in effect, each project is assumed to exist over an infinite horizon of N-year repeating projects. Assuming that this type of analysis is valid implies that the project cash flows remain the same forever, thus ignoring the possible effects of, among other things: (1) inflation, (2) changing economic conditions, (3) the increasing unreliability of cash flow estimates that occur far into the future, and (4) the possible effects of future technology improvement that could alter the project cash flows.8. Depreciation is a non-cash expense, but it is tax-deductible onthe income statement. Thus depreciation causes taxes paid, an actual cash outflow, to be reduced by an amount equal to the depreciation tax shield, t c D. A reduction in taxes that would otherwise be paid is the same thing as a cash inflow, so the effects of the depreciation tax shield must be added in to get the total incremental aftertax cash flows.9. There are two particularly important considerations. The firstis erosion. Will the “essentialized”book simply displace copies of the existing book that would have otherwise been sold?This is of special concern given the lower price. The second consideration is competition. Will other publishers step in and produce such a product? If so, then any erosion is much less relevant. A particular concern to book publishers (and producers of a variety of other product types) is that the publisher only makes money from the sale of new books. Thus, it is important to examine whether the new book would displace sales of used books (good from the publisher’s perspective) or new books (not good). The concern arises any time there is an active market for used product.10.D efinitely. The damage to Porsche’s reputation is definitely afactor the company needed to consider. If the reputation was damaged, the company would have lost sales of its existing car lines.11.O ne company may be able to produce at lower incremental cost ormarket better. Also, of course, one of the two may have made a mistake!12.P orsche would recognize that the outsized profits would dwindleas more products come to market and competition becomes more intense.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basic1. Using the tax shield approach to calculating OCF, we get:OCF = (Sales – Costs)(1 – t C) + t C DepreciationOCF = [($5 × 2,000 –($2 × 2,000)](1 –0.35) +0.35($10,000/5)OCF = $4,600So, the NPV of the project is:NPV = –$10,000 + $4,600(PVIFA17%,5)NPV = $4,7172. We will use the bottom-up approach to calculate the operatingcash flow for each year. We also must be sure to include the net working capital cash flows each year. So, the total cash flow each year will be:Year 1 Year 2 Year 3 Year 4 Sales Rs.7,000 Rs.7,000 Rs.7,000 Rs.7,000Costs 2,000 2,000 2,000 2,000Depreciation 2,500 2,500 2,500 2,500EBT Rs.2,500 Rs.2,500 Rs.2,500 Rs.2,500Tax 850 850 850 850Net income Rs.1,650 Rs.1,650 Rs.1,650 Rs.1,650OCF 0 Rs.4,150 Rs.4,150 Rs.4,150 Rs.4,150Capital spending –Rs.10,000 0 0 0 0NWC –200 –250 –300 –200 950 Incremental cashflow –Rs.10,200 Rs.3,900 Rs.3,850 Rs.3,950 Rs.5,100The NPV for the project is:NPV = –Rs.10,200 + Rs.3,900 / 1.10 + Rs.3,850 / 1.102+ Rs.3,950 / 1.103 + Rs.5,100 / 1.104NPV = Rs.2,978.333. U sing the tax shield approach to calculating OCF, we get:OCF = (Sales – Costs)(1 – t C) + t C DepreciationOCF = (R2,400,000 – 960,000)(1 – 0.30) + 0.30(R2,700,000/3) OCF = R1,278,000So, the NPV of the project is:NPV = –R2,700,000 + R1,278,000(PVIFA15%,3)NPV = R217,961.704.T he cash outflow at the beginning of the project will increasebecause of the spending on NWC. At the end of the project, the company will recover the NWC, so it will be a cash inflow. The sale of the equipment will result in a cash inflow, but we also must account for the taxes which will be paid on this sale. So, the cash flows for each year of the project will be:Year Cash Flow0 – R3,000,000 = –R2.7M – 300K1 1,278,0002 1,278,0003 1,725,000 = R1,278,000 + 300,000 + 210,000 + (0 – 210,000)(.30)And the NPV of the project is:NPV = –R3,000,000 + R1,278,000(PVIFA15%,2) + (R1,725,000 / 1.153) NPV = R211,871.465. First we will calculate the annual depreciation for theequipment necessary for the project. The depreciation amount each year will be:Year 1 depreciation = R2.7M(0.3330) = R899,100Year 2 depreciation = R2.7M(0.4440) = R1,198,800Year 3 depreciation = R2.7M(0.1480) = R399,600So, the book value of the equipment at the end of three years, which will be the initial investment minus the accumulated depreciation, is:Book value in 3 years = R2.7M –(R899,100 + 1,198,800 + 399,600)Book value in 3 years = R202,500The asset is sold at a gain to book value, so this gain is taxable.Aftertax salvage value = R202,500 + (R202,500 – 210,000)(0.30) Aftertax salvage value = R207,750To calculate the OCF, we will use the tax shield approach, so the cash flow each year is:OCF = (Sales – Costs)(1 – t C) + t C DepreciationYear Cash Flow0 – R3,000,000 = –R2.7M – 300K1 1,277,730.00 = (R1,440,000)(.70) + 0.30(R899,100)2 1,367,640.00 = (R1,440,000)(.70) + 0.30(R1,198,800)3 1,635,630.00 = (R1,440,000)(.70) + 0.30(R399,600) + R207,750 + 300,000Remember to include the NWC cost in Year 0, and the recovery of the NWC at the end of the project. The NPV of the project with these assumptions is:NPV = – R3.0M + (R1,277,730/1.15) + (R1,367,640/1.152) +(R1,635,630/1.153)NPV = R220,655.206. First, we will calculate the annual depreciation of the newequipment. It will be:Annual depreciation charge = €925,000/5Annual depreciation charge = €185,000The aftertax salvage value of the equipment is:Aftertax salvage value = €90,000(1 – 0.35)Aftertax salvage value = €58,500Using the tax shield approach, the OCF is:OCF = €360,000(1 – 0.35) + 0.35(€185,000)OCF = €298,750Now we can find the project IRR. There is an unusual feature that is a part of this project. Accepting this project means that we will reduce NWC. This reduction in NWC is a cash inflow at Year 0. This reduction in NWC implies that when the project ends, we will have to increase NWC. So, at the end of theproject, we will have a cash outflow to restore the NWC to its level before the project. We also must include the aftertax salvage value at the end of the project. The IRR of the project is:NPV = 0 = –€925,000 + 125,000 + €298,750(PVIFA IRR%,5) + [(€58,500 – 125,000) / (1+IRR)5]IRR = 23.85%7. First, we will calculate the annual depreciation of the newequipment. It will be:Annual depreciation = £390,000/5Annual depreciation = £78,000Now, we calculate the aftertax salvage value. The aftertax salvage value is the market price minus (or plus) the taxes on the sale of the equipment, so:Aftertax salvage value = MV + (BV – MV)t cVery often, the book value of the equipment is zero as it is in this case. If the book value is zero, the equation for the aftertax salvage value becomes:Aftertax salvage value = MV + (0 – MV)t cAftertax salvage value = MV(1 – t c)We will use this equation to find the aftertax salvage value since we know the book value is zero. So, the aftertax salvage value is:Aftertax salvage value = £60,000(1 – 0.34)Aftertax salvage value = £39,600Using the tax shield approach, we find the OCF for the project is:OCF = £120,000(1 – 0.34) + 0.34(£78,000)OCF = £105,720Now we can find the project NPV. Notice that we include the NWC in the initial cash outlay. The recovery of the NWC occurs in Year 5, along with the aftertax salvage value.NPV = –£390,000 –28,000 + £105,720(PVIFA10%,5) + [(£39,600 + 28,000) / 1.15]NPV = £24,736.268. To find the BV at the end of four years, we need to find theaccumulated depreciation for the first four years. We could calculate a table with the depreciation each year, but an easier way is to add the MACRS depreciation amounts for each of the first four years and multiply this percentage times the cost of the asset. We can then subtract this from the asset cost. Doing so, we get:BV4 = $9,300,000 – 9,300,000(0.2000 + 0.3200 + 0.1920 + 0.1150) BV4 = $1,608,900The asset is sold at a gain to book value, so this gain is taxable.Aftertax salvage value = $2,100,000 + ($1,608,900 –2,100,000)(.40)Aftertax salvage value = $1,903,5609. We will begin by calculating the initial cash outlay, that is,the cash flow at Time 0. To undertake the project, we will have to purchase the equipment and increase net working capital. So, the cash outlay today for the project will be:Equipment –€2,000,000NWC –100,000Total –€2,100,000Using the bottom-up approach to calculating the operating cash flow, we find the operating cash flow each year will be:Sales €1,200,000Costs 300,000Depreciation 500,000EBT €400,000Tax 140,000Net income €260,000The operating cash flow is:OCF = Net income + DepreciationOCF = €260,000 + 500,000OCF = €760,000To find the NPV of the project, we add the present value of the project cash flows. We must be sure to add back the net working capital at the end of the project life, since we are assuming the net working capital will be recovered. So, the project NPV is:NPV = –€2,100,000 + €760,000(PVIFA14%,4) + €100,000 / 1.144NPV = €173,629.3810.W e will need the aftertax salvage value of the equipment tocompute the EAC. Even though the equipment for each product hasa different initial cost, both have the same salvage value. Theaftertax salvage value for both is:Both cases: aftertax salvage value = $20,000(1 –0.35) = $13,000To calculate the EAC, we first need the OCF and NPV of each option. The OCF and NPV for Techron I is:OCF = – $34,000(1 – 0.35) + 0.35($210,000/3) = $2,400NPV = –$210,000 + $2,400(PVIFA14%,3) + ($13,000/1.143) = –$195,653.45EAC = –$195,653.45 / (PVIFA14%,3) = –$84,274.10And the OCF and NPV for Techron II is:OCF = – $23,000(1 – 0.35) + 0.35($320,000/5) = $7,450NPV = –$320,000 + $7,450(PVIFA14%,5) + ($13,000/1.145) = –$287,671.75EAC = –$287,671.75 / (PVIFA14%,5) = –$83,794.05The two milling machines have unequal lives, so they can only be compared by expressing both on an equivalent annual basis, which is what the EAC method does. Thus, you prefer the Techron II because it has the lower (less negative) annual cost.Intermediate11.F irst, we will calculate the depreciation each year, which willbe:D1 = ¥480,000(0.2000) = ¥96,000D2 = ¥480,000(0.3200) = ¥153,600D3 = ¥480,000(0.1920) = ¥92,160D4 = ¥480,000(0.1150) = ¥55,200The book value of the equipment at the end of the project is:BV4= ¥480,000 –(¥96,000 + 153,600 + 92,160 + 55,200) = ¥83,040The asset is sold at a loss to book value, so this creates a tax refund.After-tax salvage value = ¥70,000 + (¥83,040 – 70,000)(0.35) = ¥74,564.00So, the OCF for each year will be:OCF1 = ¥160,000(1 – 0.35) + 0.35(¥96,000) = ¥137,600.00OCF2 = ¥160,000(1 – 0.35) + 0.35(¥153,600) = ¥157,760.00OCF3 = ¥160,000(1 – 0.35) + 0.35(¥92,160) = ¥136,256.00OCF4 = ¥160,000(1 – 0.35) + 0.35(¥55,200) = ¥123,320.00Now we have all the necessary information to calculate the project NPV. We need to be careful with the NWC in this project.Notice the project requires ¥20,000 of NWC at the beginning, and ¥3,000 more in NWC each successive year. We will subtract the ¥20,000 from the initial cash flow, and subtract ¥3,000 each year from the OCF to account for this spending. In Year 4, we will add back the total spent on NWC, which is ¥29,000. The ¥3,000 spent on NWC capital during Year 4 is irrelevant. Why?Well, during this year the project required an additional ¥3,000, but we would get the money back immediately. So, thenet cash flow for additional NWC would be zero. With all this, the equation for the NPV of the project is:NPV = –¥480,000 –20,000 + (¥137,600 –3,000)/1.14 + (¥157,760 – 3,000)/1.142+ (¥136,256 –3,000)/1.143+ (¥123,320 + 29,000 + 74,564)/1.144NPV = –¥38,569.4812.I f we are trying to decide between two projects that will notbe replaced when they wear out, the proper capital budgeting method to use is NPV. Both projects only have costs associated with them, not sales, so we will use these to calculate the NPV of each project. Using the tax shield approach to calculate the OCF, the NPV of System A is:OCF A = –元120,000(1 – 0.34) + 0.34(元430,000/4)OCF A = –元42,650NPV A = –元430,000 –元42,650(PVIFA20%,4)NPV A = –元540,409.53And the NPV of System B is:OCF B = –元80,000(1 – 0.34) + 0.34(元540,000/6)OCF B = –元22,200NPV B = –元540,000 –元22,200(PVIFA20%,6)NPV B = –元613,826.32If the system will not be replaced when it wears out, then System A should be chosen, because it has the more positive NPV.13.If the equipment will be replaced at the end of its useful life,the correct capital budgeting technique is EAC. Using the NPVs we calculated in the previous problem, the EAC for each system is:EAC A = –元540,409.53 / (PVIFA20%,4)EAC A = –元208,754.32EAC B = –元613,826.32 / (PVIFA20%,6)EAC B = –元184,581.10If the conveyor belt system will be continually replaced, we should choose System B since it has the more positive NPV.14.S ince we need to calculate the EAC for each machine, sales areirrelevant. EAC only uses the costs of operating the equipment, not the sales. Using the bottom up approach, or net income plus depreciation, method to calculate OCF, we get:Machine A Machine BVariable costs –₪3,150,000 –₪2,700,000Fixed costs –150,000 –100,000Depreciation –350,000 –500,000EBT –₪3,650,000 –₪3,300,000Tax 1,277,500 1,155,000Net income –₪2,372,500 –₪2,145,000+ Depreciation 350,000 500,000OCF –₪2,022,500 –₪1,645,000The NPV and EAC for Machine A is:NPV A = –₪2,100,000 –₪2,022,500(PVIFA10%,6) NPV A = –₪10,908,514.76EAC A = –₪10,908,514.76 / (PVIFA10%,6)EAC A = –₪2,504,675.50And the NPV and EAC for Machine B is:NPV B = –₪4,500,000 – 1,645,000(PVIFA10%,9)NPV B = –₪13,973,594.18EAC B = –₪13,973,594.18 / (PVIFA10%,9)EAC B = –₪2,426,382.43You should choose Machine B since it has a more positive EAC.15.W hen we are dealing with nominal cash flows, we must be carefulto discount cash flows at the nominal interest rate, and we must discount real cash flows using the real interest rate.Project A’s cash flows are in real terms, so we need to find the real interest rate. Using the Fisher equation, the real interest rate is:1 + R = (1 + r)(1 + h)1.15 = (1 + r)(1 + .04)r = .1058 or 10.58%So, the NPV of Project A’s real cash flows, discounting at the real interest rate, is:NPV = –฿40,000 + ฿20,000 / 1.1058 + ฿15,000 / 1.10582 + ฿15,000 / 1.10583NPV = ฿1,448.88Project B’s cash flow are in nominal terms, so the NPV discount at the nominal interest rate is:NPV = –฿50,000 + ฿10,000 / 1.15 + ฿20,000 / 1.152+ ฿40,000 /1.153NPV = ฿119.17We should accept Project A if the projects are mutually exclusive since it has the highest NPV.16.T o determine the value of a firm, we can simply find thepre sent value of the firm’s future cash flows. No depreciation is given, so we can assume depreciation is zero. Using the tax shield approach, we can find the present value of the aftertax revenues, and the present value of the aftertax costs. The required return, growth rates, price, and costs are all given in real terms. Subtracting the costs from the revenues will give us the value of the firm’s cash flows. We must calculate the present value of each separately since each is growing at a different rate. First, we will find the present value of the revenues. The revenues in year 1 will be the number of bottles sold, times the price per bottle, or:Aftertax revenue in year 1 in real terms = (2,000,000 ×$1.50)(1 – 0.34)Aftertax revenue in year 1 in real terms = $1,650,000Revenues will grow at six percent per year in real terms forever. Apply the growing perpetuity formula, we find the present value of the revenues is:PV of revenues = C1 / (R–g)PV of revenues = $1,650,000 / (0.10 – 0.06)PV of revenues = $41,250,000The real aftertax costs in year 1 will be:Aftertax costs in year 1 in real terms = (2,000,000 ×$0.65)(1 – 0.34)Aftertax costs in year 1 in real terms = $858,000Costs will grow at five percent per year in real terms forever.Applying the growing perpetuity formula, we find the present value of the costs is:PV of costs = C1 / (R–g)PV of costs = $858,000 / (0.10 – 0.05)PV of costs = $17,160,000Now we can find the value of the firm, which is:Value of the firm = PV of revenues – PV of costsValue of the firm = $41,250,000 – 17,160,000Value of the firm = $24,090,00017.To calculate the nominal cash flows, we simple increase eachitem in the income statement by the inflation rate, except for depreciation. Depreciation is a nominal cash flow, so it does not need to be adjusted for inflation in nominal cash flow analysis. Since the resale value is given in nominal terms as of the end of year 5, it does not need to be adjusted for inflation. Also, no inflation adjustment is needed for either the depreciation charge or the recovery of net working capital since these items are already expressed in nominal terms. Note that an increase in required net working capital is a negative cash flow whereas a decrease in required net working capital isa positive cash flow. The nominal aftertax salvage value is:Market price $30,000Tax on sale –10,200Aftertax salvage value $19,800Remember, to calculate the taxes paid (or tax credit) on the salvage value, we take the book value minus the market value, times the tax rate, which, in this case, would be:Taxes on salvage value = (BV – MV)t CTaxes on salvage value = ($0 – 30,000)(.34)Taxes on salvage value = –$10,200Now we can find the nominal cash flows each year using the income statement. Doing so, we find:Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Sales $200,000 $206,000 $212,180 $218,545 $225,102Expenses 50,000 51,500 53,045 54,636 56,275Depreciation 50,000 50,000 50,000 50,000 50,000EBT $100,000 $104,500 $109,135 $113,909 $118,826Tax 34,000 35,530 37,106 38,729 40,401Net income $66,000 $68,970 $72,029 $75,180 $78,425OCF $116,000 $118,970 $122,029 $125,180 $128,425Capital spending –$250,000 $19,800NWC –10,000 10,000Total cash flow –$260,000 $116,000 $118,970 $122,029 $125,180 $158,22518.T he present value of the company is the present value of thefuture cash flows generated by the company. Here we have real cash flows, a real interest rate, and a real growth rate. The cash flows are a growing perpetuity, with a negative growth rate. Using the growing perpetuity equation, the present value of the cash flows are:PV = C1 / (R–g)PV = $120,000 / [.11 – (–.07)]PV = $666,666.6719.T o find the EAC, we first need to calculate the NPV of theincremental cash flows. We will begin with the aftertax salvage value, which is:Taxes on salvage value = (BV – MV)t CTaxes on salvage value = (€0 – 10,000)(.34)Taxes on salvage value = –€3,400Market price €10,000Tax on sale –3,400Aftertax salvage value €6,600Now we can find the operating cash flows. Using the tax shield approach, the operating cash flow each year will be:OCF = –€5,000(1 – 0.34) + 0.34(€45,000/3)OCF = €1,800So, the NPV of the cost of the decision to buy is:NPV = –€45,000 + €1,800(PVIFA12%,3) + (€6,600/1.123)NPV = –€35,987.95In order to calculate the equivalent annual cost, set the NPV of the equipment equal to an annuity with the same economic life. Since the project has an economic life of three years and is discounted at 12 percent, set the NPV equal to a three-year annuity, discounted at 12 percent.EAC = –€35,987.95 / (PVIFA12%,3)EAC = –€14,979.8020.W e will find the EAC of the EVF first. There are no taxes sincethe university is tax-exempt, so the maintenance costs are the operating cash flows. The NPV of the decision to buy one EVF is:NPV = –₩8,000 –₩2,000(PVIFA14%,4)NPV = –₩13,827.42In order to calculate the equivalent annual cost, set the NPV of the equipment equal to an annuity with the same economic life. Since the project has an economic life of four years and is discounted at 14 percent, set the NPV equal to a three-year annuity, discounted at 14 percent. So, the EAC per unit is:EAC = –₩13,827.42 / (PVIFA14%,4)EAC = –₩4,745.64Since the university must buy 10 of the word processors, the total EAC of the decision to buy the EVF word processor is:Total EAC = 10(–₩4,745.64)Total EAC = –₩47,456.38Note, we could have found the total EAC for this decision by multiplying the initial cost by the number of word processors needed, and multiplying the annual maintenance cost of each by the same number. We would have arrived at the same EAC.We can find the EAC of the AEH word processors using the same method, but we need to include the salvage value as well. Thereare no taxes on the salvage value since the university is tax-exempt, so the NPV of buying one AEH will be:NPV = –₩5,000 –₩2,500(PVIFA14%,3) + (₩500/1.143)NPV = –₩10,466.59So, the EAC per machine is:EAC = –₩10,466.59 / (PVIFA14%,3)EAC = –₩4,508.29Since the university must buy 11 of the word processors, the total EAC of the decision to buy the AEH word processor is:Total EAC = 11(–₩4,508.29)Total EAC = –₩49,591.21The university should buy the EVF word processors since the EAC is lower. Notice that the EAC of the AEH is lower on a per machine basis, but because the university needs more of these word processors, the total EAC is higher.21.W e will calculate the aftertax salvage value first. Theaftertax salvage value of the equipment will be:Taxes on salvage value = (BV – MV)t CTaxes on salvage value = (₫0 – 100,000)(.34)Taxes on salvage value = –₫34,000Market price ₫100,000Tax on sale –34,000Aftertax salvage value ₫66,000Next, we will calculate the initial cash outlay, that is, the cash flow at Time 0. To undertake the project, we will have to purchase the equipment. The new project will decrease the net working capital, so this is a cash inflow at the beginning of the project. So, the cash outlay today for the project will be:Equipment –₫500,000NWC 100,000Total –₫400,000Now we can calculate the operating cash flow each year for the project. Using the bottom up approach, the operating cash flow will be:Saved salaries ₫120,000Depreciation 100,000EBT ₫20,000。

(完整word版)罗斯公司理财题库全集(word文档良心出品)

Chapter 21Leasing Multiple Choice Questions1. In a lease arrangement, the owner of the asset is:A. the lesser.B. the lessee.C. the lessor.D. the leaser.E. None of the above.2. In a lease arrangement, the user of the asset is:A. the lesser.B. the lessee.C. the lessor.D. the leaser.E. None of the above.3. Which of the following would not be a characteristic of a financial lease?A. They are not usually fully amortized.B. They usually do not have maintenance necessary for the leased assets.C. They usually do not include a cancellation option.D. The lessee usually has the right to renew the lease at expiration.E. All of the above are characteristics of financial leases.4. An independent leasing company supplies ___________ leases versus the manufacturer who supplies ________________ leases.A. leveraged; directB. sales and leaseback; sales-typeC. capital; sales-typeD. direct; sales-typeE. None of the above5. Which of the following is not a financial lease?A. A leveraged leaseB. An operating leaseC. A sale-and-leasebackD. Both A and B.E. None of the above.6. If the lessor borrows much of the purchase price of a leased asset, the lease is called:A. a leveraged lease.B. a sale-and-leaseback.C. a capital lease.D. a nonrecourse lease.E. None of the above.7. An operating lease's primary characteristics are:A. fully amortized, lessee maintains equipment and there is no cancellation clause.B. not fully amortized, lessor maintains equipment and there is a cancellation clause.C. fully amortized, lessor maintains equipment and there is a cancellation clause.D. not fully amortized, lessor maintains equipment and there is not cancellation clause.E. fully amortized, lessee maintains equipment and lessee can acquire assets at end of lease for fair market value.8. If a lease is for 35 years, it is regarded as a:A. financial lease.B. operating lease.C. capital lease.D. conditional sale.E. sale and leaseback.9. The city of Oakland sold some buildings and used the proceeds to improve its financial position. The city then leased the buildings back in order to continue to use these facilities. This is an example of:A. an operating lease.B. a short-term lease.C. a sale and leaseback.D. a fully amortized lease.E. None of the above.10. A financial lease has the following as its primary characteristics:A. is fully amortized, lessee maintains equipment and there is no renewal clause and no cancellation clause.B. is not fully amortized, lessor maintains equipment and there is a renewal clause but no cancellation clause.C. is fully amortized, lessor maintains equipment and there is a renewal clause and a no cancellation clause.D. is not fully amortized, lessor maintains equipment and there is a renewal clause.E. is fully amortized, lessee maintains equipment and there is a renewal clause and a no cancellation clause.11. An advantage of leasing is that the lessor does not own the asset and can cancel:A. only financial leases.B. only operating leases.C. only capital leases.D. any kind of leases anytime.E. None of the above.12. A leveraged lease typically involves a non-recourse loan in which:A. the lessee's payments go directly to the lender in case of default.B. the lessor is not obligated in case of default.C. the third party lenders have a first lien on the assets.D. All of the above.E. None of the above.13. For accounting purposes, which of the following conditions would automatically cause a lease to be a capital lease?A. The lessee can purchase the asset below fair market value at the end of the lease.B. The lease transfers ownership of the asset to the lessee by the end of the lease.C. The lease term is more than 75% of the asset's economic life.D. The present value of the lease payments is more than 90% of the asset's market value at lease inception.E. All of the above would lead to the lease being considered a capital lease.14. Capital leases would show up on the balance sheet of the firm in which manner for a six year machinery lease worth $700,000?A. Capital leases do not have to be put on the balance sheet; only financial leases do.B. Asset - Machinery $700,000; Liabilities - Long Term debt $700,000 because of debt displacement.C. Asset - Assets under Capital Lease $700,000; Liabilities - Obligations under Capital Lease $700,000.D. Assets - Assets under Capital Lease $700,000; Liabilities - Long Term Debt $700,000 because of debt displacement.E. None of the above.15. Prior to FASB 13, "Accounting for Leases", lease activity was only reported in financial footnotes. This off-balance-sheet-financing made firms with:A. capital leases appear financially stronger than firms that used debt to purchase the asset.B. operating leases appear financially stronger than firms that used debt to purchase the asset.C. leases of any type appear financially stronger than firms that used debt to purchase the asset.D. All of the above.E. None of the above.16. Which of the following is not an implication of FASB 13, Accounting for Leases?A. FASB 13 requires that the PV of the lease payments appear on the right hand side of the balance sheet.B. FASB 13 requires that the present value of the asset appear on the left hand side of the balance sheet.C. FASB 13 allows for off-balance-sheet financing for operating leases.D. All of the above.E. None of the above.17. The reason the IRS is most concerned about lease contracts is:A. firms that lease generally pay no taxes.B. that leasing usually leads to bankruptcy.C. that leases can be set up solely to avoid taxes.D. because leasing leads to off-balance-sheet-financing.E. All of the above.18. A lease with high payments early in its life which then decline to termination would:A. provide greater cash flow to the lessee in the beginning years.B. be evidence of tax avoidance and not acceptable to the IRS.C. be qualified as a capital lease under FASB 13.D. provide a lower residual value and thus ensure a bargain-purchase price option.E. All of the above.19. In valuing the lease versus purchase option, the relevant cash flows are the:A. tax shield from depreciation.B. investment outlay for the equipment.C. a decrease in the firm's operating costs that are not affected by leasing.D. All of the above are relevant.E. None of the above are relevant.20. The appropriate discount rate for valuing a financial lease is:A. the firm's after-tax weighted average cost of capital.B. the after-tax required return on assets of risks similar to the leased asset.C. the after-tax cost of secured borrowing.D. Either A or B.E. All of the above.21. The WACC is not used in the lease versus purchase decision because:A. the WACC was used in the decision to acquire the asset, this is only a financing decision.B. the WACC is used only when a lease alone is considered and not a lease versus purchase.C. the WACC does not include the lease cost of capital and therefore should not be used.D. tax rates of the lessor may be different than the lessee and therefore the WACC is incorrect.E. when a bank arranges a lease they do not consider the lessee's cost of capital.22. Firms that use financial leases must consider their debt-to-equity ratios as inadequate measures of financial leverage because:A. lenders are concerned about the firm's total liabilities and related cash flow.B. debt displacement occurs with leasing.C. less future debt can be raised for a growing firm when a lease is used.D. All of the above.E. None of the above.23. ______ would be evidence the lease is being used to avoid taxes and not a legitimate business purpose.A. Early balloon paymentsB. Late balloon paymentsC. Capitalizing a leaseD. Transfer of lease payments to a second ownerE. None of the above24. Debt displacement is associated with leases because:A. all assets not purchased with equity use debt financing.B. debt is always a cheaper source of financing and preferred to equity financing.C. FASB 13 and the IRS mandate debt displacement.D. lease financing is all debt and causes an imbalance in the optimal debt to equity ratio which reduces future debt financing.E. None of the above.25. A lease is likely to be most beneficial to both parties when:A. the lessor's tax rate is lower than the lessee's.B. the lessor's tax rate is higher than the lessee's.C. the lessor's tax rate is equal to the lessee's.D. a lease cannot be beneficial to both parties.E. a lease always has zero NPV, so both parties always break even.26. The price or lease payment that the lessee sets as their bound is known as:A. the present value of the tax shields.B. the reservation payment, L MIN.C. the present value of operating savings.D. the reservation payment, L MAX.E. None of the above.27. Which of the following is probably not a good reason for leasing instead of buying?A. Taxes may be reduced by leasing.B. Leasing may reduce transactions costs.C. Leasing may provide a beneficial reduction of uncertainty.D. All of the above are good reasons.E. All of the above are not good reasons.28. Which of the following is probably a good reason for leasing instead of buying?A. Leasing provides 100% financing.B. Leasing is not considered a form of debt financing.C. Leasing may increase EPS relative to buying.D. All of the above are good reasons.E. None of the above is a good reason.29. Some assets are leased more than others because:A. the value of the asset under a lease is not highly affected by term of use or maintenance decisions.B. a lease may be used to fool clients into "buying" high priced assets above market value.C. leasing allows sellers to attract clients with low prices as the basis for setting the contract.D. Both A and B.E. Both A and C.30. To meet IRS guidelines for leasing, the lease should:A. limit the lessee's right to issue debt or pay dividends while the lease is operative.B. not limit the lessee's right to issue debt or pay dividends while the lease is operative.C. pay a very high return to the lessor.D. transfer ownership of the asset at the end of the lease at below fair market value.E. be over 30 years.Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $7,650 to buy and would be straight-line depreciated to a zero salvage value over 9 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 8%. The corporate tax rate is 30%.31. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in years 1-9?A. $-255B. $-955C. $-1,295D. $-1,850E. None of the above32. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?A. $-4,865B. $-700C. $6,950D. $7,650E. None of the above33. What is the NPV of the lease relative to the purchase?A. $-1,039.78B. $339.78C. $360.22D. $6,610.22E. None of the above34. What would the after-tax cash flow in year 9 be if the asset had a residual value of $500 (ignoring any possible risk differences)?A. $-605B. $-955C. $-1,455D. $-1,305E. None of the above35. This lease would be classified as a(n):A. operating lease because the asset will be obsolete.B. operating lease because there is no amortization.C. leveraged lease because it is being financed.D. capital lease because the lease life is greater than 75% of the economic life.E. sale and leaseback because the company gets full use of the asset.Your firm is considering leasing a new robotic milling control system. The lease lasts for 5 years. The lease calls for 6 payments of $300,000 per year with the first payment occurring at lease inception. The system would cost $1,050,000 to buy and would be straight-line depreciated to a zero salvage value. The actual salvage value is zero. The firm can borrow at 8%, and the corporate tax rate is 34%.36. What is the appropriate discount rate for valuing the lease?A. 2.72%B. 5.28%C. 8.00%D. 12.12%E. None of the above.37. What is the after-tax cash flow from leasing in year 0?A. $300,000B. $495,000C. $852,000D. $948,000E. None of the above38. What is the after-tax cash flow in years 1 through 5?A. $-126,600B. $-198,000C. $-269,400D. $-287,250E. None of the above39. What is the NPV of the lease?A. $-111,690B. $-295,040C. $-305,388D. $-309,690E. None of the above40. What is the maximum lease payment that you would be willing to make?A. $170,655B. $175,000C. $187,842D. $210,307E. None of the above41. What is the minimum lease payment that the lessor would be willing to accept?A. $161,000B. $176,995C. $217,645D. $237,083E. None of the aboveYour firm is considering leasing a new laser light. The lease lasts for 3 years. The lease calls for 4 payments of $10,000 per year with the first payment occurring immediately. The computer would cost $45,000 to buy and would be straight-line depreciated to a zero salvage value over 3 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 10%. The corporate tax rate is 35%.42. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in years 1-3?A. $-32,775B. $-11,750C. $-1,750D. $-1,850E. None of the above43. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?A. $-35,000B. $-38,500C. $35,000D. $38,500E. None of the above44. What is the NPV of the lease relative to the purchase?A. $-6,500B. $7,380C. $4,678D. $12,400E. None of the above45. What would the after-tax cash flow in year 3 be if the asset had a residual value of $1,000 (ignoring any possible risk differences)?A. $-11,750B. $11,750C. $12,400D. $-12,400E. None of the above46. This lease would be classified as a(n):A. operating lease because the asset will be obsolete.B. operating lease because there is no amortization.C. leveraged lease because it is being financed.D. capital lease because the lease life is greater than 75% of the economic life.E. sale and leaseback because the company gets full use of the asset.Essay Questions47. Sardinas Sardines has assets valued at $10 million and equity of $10 million. The firm recently leased new equipment worth $1 million. Present the balance sheet under two conditions; the lease is judged to be an operating lease, and the lease is judged to be a capital lease.48. The Blank Button Company is considering the purchase of a new machine for $30,000. The machine is expected to save the firm $12,500 per year in operating costs over a 5 year period, and can be depreciated on a straight-line basis to a zero salvage value over its life. Alternatively, the firm can lease the machine for $6,500 per year for 5 years, with the first payment due in 1 year. The firm's tax rate is 34%, and its cost of debt is 10%. Calculate the NPV of the lease versus the purchase decision. Calculate the reservation payment of the lessee.49. The Plastic Iron Company has decided to acquire a new electronic milling machine. Plastic Iron can purchase the machine for $87,000 which has an expected life of 8 years and will be depreciated using 7 class MACRS rates of .1428, .2449, .1749, .125, .0892, .0892, .0892 and any remainder in year 8. Miller Leasing has offered to lease the machine to Plastic Iron for $14,000 a year for 8 years. Plastic Iron has an 18.64% cost of equity, 12% cost of debt, a 1:1 D/E ratio and faces a 34% marginal tax rate. Should they lease or buy? Show all work.50. What are some of the advantages and disadvantages of leasing?Chapter 21 Leasing Answer KeyMultiple Choice Questions1. In a lease arrangement, the owner of the asset is:A. the lesser.B. the lessee.C. the lessor.D. the leaser.E. None of the above.Difficulty level: EasyTopic: LESSORType: DEFINITIONS2. In a lease arrangement, the user of the asset is:A. the lesser.B. the lessee.C. the lessor.D. the leaser.E. None of the above.Difficulty level: EasyTopic: LESSEEType: DEFINITIONS3. Which of the following would not be a characteristic of a financial lease?A. They are not usually fully amortized.B. They usually do not have maintenance necessary for the leased assets.C. They usually do not include a cancellation option.D. The lessee usually has the right to renew the lease at expiration.E. All of the above are characteristics of financial leases.Difficulty level: MediumTopic: FINANCIAL LEASEType: DEFINITIONS4. An independent leasing company supplies ___________ leases versus the manufacturer who supplies ________________ leases.A. leveraged; directB. sales and leaseback; sales-typeC. capital; sales-typeD. direct; sales-typeE. None of the aboveDifficulty level: EasyTopic: TYPES OF LEASESType: DEFINITIONS5. Which of the following is not a financial lease?A. A leveraged leaseB. An operating leaseC. A sale-and-leasebackD. Both A and B.E. None of the above.Difficulty level: EasyTopic: TYPES OF LEASESType: DEFINITIONS6. If the lessor borrows much of the purchase price of a leased asset, the lease is called:A. a leveraged lease.B. a sale-and-leaseback.C. a capital lease.D. a nonrecourse lease.E. None of the above.Difficulty level: EasyTopic: TYPES OF LEASESType: DEFINITIONS7. An operating lease's primary characteristics are:A. fully amortized, lessee maintains equipment and there is no cancellation clause.B. not fully amortized, lessor maintains equipment and there is a cancellation clause.C. fully amortized, lessor maintains equipment and there is a cancellation clause.D. not fully amortized, lessor maintains equipment and there is not cancellation clause.E. fully amortized, lessee maintains equipment and lessee can acquire assets at end of lease for fair market value.Difficulty level: MediumTopic: OPERATING LEASEType: DEFINITIONS8. If a lease is for 35 years, it is regarded as a:A. financial lease.B. operating lease.C. capital lease.D. conditional sale.E. sale and leaseback.Difficulty level: MediumTopic: TYPES OF LEASESType: DEFINITIONS9. The city of Oakland sold some buildings and used the proceeds to improve its financial position. The city then leased the buildings back in order to continue to use these facilities. This is an example of:A. an operating lease.B. a short-term lease.C. a sale and leaseback.D. a fully amortized lease.E. None of the above.Difficulty level: EasyTopic: TYPES OF LEASEType: CONCEPTS10. A financial lease has the following as its primary characteristics:A. is fully amortized, lessee maintains equipment and there is no renewal clause and no cancellation clause.B. is not fully amortized, lessor maintains equipment and there is a renewal clause but no cancellation clause.C. is fully amortized, lessor maintains equipment and there is a renewal clause and a no cancellation clause.D. is not fully amortized, lessor maintains equipment and there is a renewal clause.E. is fully amortized, lessee maintains equipment and there is a renewal clause and a no cancellation clause.Difficulty level: EasyTopic: FINANCIAL LEASEType: CONCEPTS11. An advantage of leasing is that the lessor does not own the asset and can cancel:A. only financial leases.B. only operating leases.C. only capital leases.D. any kind of leases anytime.E. None of the above.Difficulty level: EasyTopic: ADVANTAGE TO LEASINGType: CONCEPTS12. A leveraged lease typically involves a non-recourse loan in which:A. the lessee's payments go directly to the lender in case of default.B. the lessor is not obligated in case of default.C. the third party lenders have a first lien on the assets.D. All of the above.E. None of the above.Difficulty level: MediumTopic: LEVERAGED LEASEType: CONCEPTS13. For accounting purposes, which of the following conditions would automatically cause a lease to be a capital lease?A. The lessee can purchase the asset below fair market value at the end of the lease.B. The lease transfers ownership of the asset to the lessee by the end of the lease.C. The lease term is more than 75% of the asset's economic life.D. The present value of the lease payments is more than 90% of the asset's market value at lease inception.E. All of the above would lead to the lease being considered a capital lease.Difficulty level: MediumTopic: CAPITAL LEASEType: CONCEPTS14. Capital leases would show up on the balance sheet of the firm in which manner for a six year machinery lease worth $700,000?A. Capital leases do not have to be put on the balance sheet; only financial leases do.B. Asset - Machinery $700,000; Liabilities - Long Term debt $700,000 because of debt displacement.C. Asset - Assets under Capital Lease $700,000; Liabilities - Obligations under Capital Lease $700,000.D. Assets - Assets under Capital Lease $700,000; Liabilities - Long Term Debt $700,000 because of debt displacement.E. None of the above.Difficulty level: EasyTopic: CAPITAL LEASEType: CONCEPTS15. Prior to FASB 13, "Accounting for Leases", lease activity was only reported in financial footnotes. This off-balance-sheet-financing made firms with:A. capital leases appear financially stronger than firms that used debt to purchase the asset.B. operating leases appear financially stronger than firms that used debt to purchase the asset.C. leases of any type appear financially stronger than firms that used debt to purchase the asset.D. All of the above.E. None of the above.Difficulty level: ChallengeTopic: FASB 13Type: CONCEPTS16. Which of the following is not an implication of FASB 13, Accounting for Leases?A. FASB 13 requires that the PV of the lease payments appear on the right hand side of the balance sheet.B. FASB 13 requires that the present value of the asset appear on the left hand side of the balance sheet.C. FASB 13 allows for off-balance-sheet financing for operating leases.D. All of the above.E. None of the above.Difficulty level: MediumTopic: FASB 13Type: CONCEPTS17. The reason the IRS is most concerned about lease contracts is:A. firms that lease generally pay no taxes.B. that leasing usually leads to bankruptcy.C. that leases can be set up solely to avoid taxes.D. because leasing leads to off-balance-sheet-financing.E. All of the above.Difficulty level: EasyTopic: TAX IMPLICATIONSType: CONCEPTS18. A lease with high payments early in its life which then decline to termination would:A. provide greater cash flow to the lessee in the beginning years.B. be evidence of tax avoidance and not acceptable to the IRS.C. be qualified as a capital lease under FASB 13.D. provide a lower residual value and thus ensure a bargain-purchase price option.E. All of the above.Difficulty level: MediumTopic: TAX IMPLICATIONSType: CONCEPTS19. In valuing the lease versus purchase option, the relevant cash flows are the:A. tax shield from depreciation.B. investment outlay for the equipment.C. a decrease in the firm's operating costs that are not affected by leasing.D. All of the above are relevant.E. None of the above are relevant.Difficulty level: MediumTopic: LEASE VS. BUYType: CONCEPTS20. The appropriate discount rate for valuing a financial lease is:A. the firm's after-tax weighted average cost of capital.B. the after-tax required return on assets of risks similar to the leased asset.C. the after-tax cost of secured borrowing.D. Either A or B.E. All of the above.Difficulty level: EasyTopic: APPROPRIATE DISCOUNT RATEType: CONCEPTS21. The WACC is not used in the lease versus purchase decision because:A. the WACC was used in the decision to acquire the asset, this is only a financing decision.B. the WACC is used only when a lease alone is considered and not a lease versus purchase.C. the WACC does not include the lease cost of capital and therefore should not be used.D. tax rates of the lessor may be different than the lessee and therefore the WACC is incorrect.E. when a bank arranges a lease they do not consider the lessee's cost of capital.Difficulty level: ChallengeTopic: APPROPRIATE DISCOUNT RATEType: CONCEPTS22. Firms that use financial leases must consider their debt-to-equity ratios as inadequate measures of financial leverage because:A. lenders are concerned about the firm's total liabilities and related cash flow.B. debt displacement occurs with leasing.C. less future debt can be raised for a growing firm when a lease is used.D. All of the above.E. None of the above.Difficulty level: MediumTopic: FINANCIAL LEASEType: CONCEPTS23. ______ would be evidence the lease is being used to avoid taxes and not a legitimate business purpose.A. Early balloon paymentsB. Late balloon paymentsC. Capitalizing a leaseD. Transfer of lease payments to a second ownerE. None of the aboveDifficulty level: MediumTopic: TAX IMPLICATIONSType: CONCEPTS24. Debt displacement is associated with leases because:A. all assets not purchased with equity use debt financing.B. debt is always a cheaper source of financing and preferred to equity financing.C. FASB 13 and the IRS mandate debt displacement.D. lease financing is all debt and causes an imbalance in the optimal debt to equity ratio which reduces future debt financing.E. None of the above.Difficulty level: ChallengeTopic: LEASES AND DEBTType: CONCEPTS25. A lease is likely to be most beneficial to both parties when:A. the lessor's tax rate is lower than the lessee's.B. the lessor's tax rate is higher than the lessee's.C. the lessor's tax rate is equal to the lessee's.D. a lease cannot be beneficial to both parties.E. a lease always has zero NPV, so both parties always break even.Difficulty level: ChallengeTopic: TAX IMPLICATIONSType: CONCEPTS26. The price or lease payment that the lessee sets as their bound is known as:A. the present value of the tax shields.B. the reservation payment, L MIN.C. the present value of operating savings.D. the reservation payment, L MAX.E. None of the above.Difficulty level: MediumTopic: RESERVATION PAYMENTType: CONCEPTS27. Which of the following is probably not a good reason for leasing instead of buying?A. Taxes may be reduced by leasing.B. Leasing may reduce transactions costs.C. Leasing may provide a beneficial reduction of uncertainty.D. All of the above are good reasons.E. All of the above are not good reasons.Difficulty level: MediumTopic: REASON FOR LEASINGType: CONCEPTS。

公司理财期末试题及答案(英文版)

EXAM PAPER 1I. True(T) or False(F). Please fill in the bracket with T or F. (15%)1. In financial management, the more appropriate goal of the firm is maximization of shareholderwealth. ( )2. The component cost of preferred stock must be adjusted for taxes which the stockholdersmust pay on the dividends. ( )3. If an investment project has a profitability index of 1.15, the project’s internal rate of returnexceeds its net present value. ( )4. With an annuity due the payments occur at the end of each period. ( )5. If the firm decides to impose a capital constraint on investment projects, the appropriatedecision criterion is to select the set of projects with the highest NPV subject to the capital constraint. ( )6. Business risk refers to the relative dispersion in the firm’s EBIT. ( )7. Net working capital equals current assets less current liabilities. ( )8. Under MM’s model with corporate taxes, the benefits of debt financing stem solely from the taxdeductibility of interest payments. ( )9. Investors can only expect to receive a return for incurring unsystematic risk. ( )10. The Security Market Line is a risk-return trade-off for combinations of the market portfolio andthe riskless asset. ( )II. Multiple Choice (15%)1. Dorset Ltd wishes to calculate its weighted average cost of capital for use in investmentappraisal. The company is financed by 150 million $1 ordinary shares, which have a current market value of $2, and $100 million 12 per cent irredeemable debentures, which are currently quoted at $150 per $100 nominal value. The cost of ordinary share capital is 11 per cent and the rate of corporation tax is 25 per cent.What is the weighted average cost of capital for Dorset Ltd? (To one decimal place)A. 9·0 per centB. 9·3 per centC. 10·4 per centD. 11·4 per cent2. Cheshire Ltd has developed a revolutionary form of tyre gauge at a cost of $300,000 to date.To produce the tyre gauge, a new machine will be acquired immediately at a cost of $750,000.The machine will be sold at the end of the five years for $350,000 and will be depreciated over its life using the straight-line method.The tyre gauge has an expected life of five years and estimated future profits from the product are: Years1 2 3 4 5$000 $000 $000 $000 $000Estimated profit 80 160 240 140 130What is the payback period for the new tyre gauge? (To the nearest month)A. 3 years 2 monthsB. 4 years 2 monthsC. 4 years 3 monthsD. 4 years 11 months3. Cumbria Ltd has $1 ordinary shares in issue that have a current market value of $3. Thedividend expected for next year is $0·40 and future dividends are expected to grow at the rate of 5 per cent per annum. The rate of corporation tax is 20 per cent and the dividend Growth model is used to calculate the cost of ordinary shares.What is the cost of ordinary shares to the business?A. 6·1%B. 15·7%C. 18·3%D. 19·0%4. Calcite Ltd used the NPV and IRR methods of investment appraisal to evaluate a project thathas an initial cash outlay followed by annual net cash inflows over its life. After the evaluationhad been undertaken, it was discovered that the cost of capital had been incorrectly calculated and that the correct cost of capital figure was in fact higher than that used.What will be the effect on the NPV and IRR figures of correcting for this error?Effect onNPV IRRA. Decrease DecreaseB. Decrease No changeC. Increase IncreaseD. Increase No Change5. A business evaluates an investment project that has an initial outlay followed by annual netcash inflows of $10 million throughout its infinite life. The evaluation of the inflows produced a present value of $50 million and a profitability (present value) index of 2·0.What is the internal rate of return and initial outlay of this project?IRR Initial outlay% $mA. 20 25B. 20 100C. 40 25D. 10 1006. Quartz Ltd pays an annual dividend of 30 cent per share to shareholders, which is expected tocontinue in perpetuity. The average rate of return for the market is 9% and the company has a beta coefficient of 1·5. The risk-free rate of return is 4%.What is the expected rate of return for the shareholders of the company and the predicted value of the shares in the company?Expected rate Predictedof return value(%) (cent)A. 23·5 705B. 17·5 171C. 16·5 182D. 11·5 2617. Tourmaline Ltd pays its major credit supplier 40 days after receiving the goods and receives nosettlement discount. The supplier has recently offered the company revised credit terms of 3/10, net 40.If Tourmaline Ltd refuses the settlement discount and pays in full after 40 days, what is the approximate, implied, interest cost that is incurred by the company per year?A. 10·3%B. 27·4%C. 28·2%D. 37·6%8. Carrickfergus Ltd wishes to forecast its financial performance and position for the forthcomingyear. The forecast model used by the company incorporates the following relationships: Sales: total assets employed 2·5:1Current assets: current liabilities 1·8:1Quick assets: current liabilities 1·2:1Fixed assets: current assets 1·0:1If sales for the forthcoming year are expected to be $800,000, what is the forecast closing stock figure?A. $53,333B. $71,111C. $85,926D. $96,000.9. The Modigliani and Miller (no taxes) proposition concerning capital gearing states that, as thelevel of capital gearing increases from zero,A. the cost of equity capital will remain unchangedB. the weighted average cost of capital will decreaseC. the value of the business will remain unchangedD. the cost of loan capital will increase.10. A study of the shares of companies listed on a particular stock market found that:(i) share prices were independent of past share price movements and followed a random path. (ii) some investors used the published accounts of the companies to analyse performance and, by doing so, made abnormal gains over many years.Which of the following would be consistent with these findings?A. The stock market is inefficientB. The stock market is efficient in the weak formC. The stock market is efficient in the semi-strong formD. The stock market is efficient in the strong form11. The economic order quantity (EOQ) for stocks can be calculated by using an equation of theform:)/2(ZXY EOQ=What is Z in the above equation?A. Cost of placing an orderB. Annual demand for the item of stockC. Cost of holding one unit of stock for one yearD. The lead time between placing an order and receiving the goods12. Which of the following is associated with the problem of “overtrading”?A. Higher-than-normal earnings per shareB. Higher-than-normal sales to capital employed ratioC. Lower-than-normal gearing ratioD. Lower-than-normal stock turnover ratio13. Investors have an expected rate of return of 8% from ordinary shares in Algol Ltd, which have abeta of 1·2. The expected returns to the market are 7%.What will be the expected rate of return from ordinary shares in Rigel Ltd, which have a beta of 1.8?A. 9·0%B. 10·5%C. 11·0%D. 12·6%.14. Chrysotile Ltd has ordinary shares with a par value of $0·50 in issue. The company generatedearnings per share of 45c for the financial year that has just ended. The dividend cover ratio is 2·5 times and the gross dividend yield is 2% (Ignore taxation).What is the price/earnings ratio of the company?A. 2·8 timesB. 5·0 timesC. 20·0 timesD. 40·0 times15. Ethical behavior is important because it:A. builds customer loyaltyB. builds a good reputationC. avoids fines and legal expensesD. all of the aboveIII. Solving the following problems. (60 marks)1. Brambling (Electronics) Ltd is a research-led business that specialises in the development of surveillance equipment. The company has recently developed a new form of camera with a powerful fibre-optic lens and is currently considering whether or not to produce the camera. The Board of Directors will soon meet to make a final decision and has the following information available to help it decide:(i) The cost of developing the camera has been $1,400,000 to date and the company iscommitted to spending a further $350,000 within the next two months.(ii) The company has spare production capacity and can produce the camera using machinery that will cost $4,700,000 and which will be purchased immediately. It isexpected to be sold at the end of four years for $800,000.(iii) Total fixed costs identified with the production of the camera are $1,725,000 per year.This includes a depreciation charge in respect of the machinery of $975,000 per yearand a charge allocated to represent a fair share of the fixed costs of the business as awhole of $250,000 per year.(iv) The cameras are expected to sell for $10,000 each and the marketing department believes that the business can sell 800 cameras per year over the next four years.(v) The variable costs of production are $7,000 per camera.(vi) If the business decides not to produce the camera it can sell the patents immediately for $1,300,000.The company has a cost of capital of 12%.Ignore taxation.Required:(a) Calculate the net present value of producing and selling the new camera versus thealternative of selling the patent. (6 marks)(b) Carry out a separate sensitivity analysis to show by how much the following factorswould have to change before the proposal to produce and sell the new camera has an NPV of zero:(i) the initial outlay on the machinery;(ii) the discount rate;(iii) the residual value of the machinery;(iv) the annual net operating cash flows. (11 marks)(c) Briefly evaluate your findings in (a) and (b) above. (3 marks)(20 marks)2.Grebe Ltd operates a chain of cellular telephone stores in the UK. An abbreviated profit and loss account and balance sheet of the business for the year that has just ended is as follows: Abbreviated profit and loss account for the year ended 31 May 2003$000SalesOperating profit for the year Debenture interest payable 6,450 800 160Net profit before taxation Corporation tax (20%)Net profit after taxation Dividends proposed Retained profit for the year 640 128 512 256 256Abbreviated balance sheet as at 31 May 2003$000$000 Fixed assets at written down valuesCurrent assetsLess Creditors: amounts falling due within one yearLess Creditors: amounts falling due after more than one yearCapital and reserves$0·50 Ordinary sharesRetained profit 1,8001,1003,5007004,2002,0002,2006001,6002,200The company is expecting a surge in sales following advances in cellular telephone technology that should translate into additional operating profits of $180,000 per year for the foreseeable future. However, the company will need to invest $1,200,000 immediately in expanding the asset base of the business if it is to achieve these additional profits.The business has approached a large supplier that already has an equity investment in the business to see whether it would be prepared to provide further funds for the business. The supplier has indicated it would be willing to provide the necessary funds by either:(i) an issue of $0·50 ordinary shares at a premium of $1·50 per share, or(ii) an issue of $1,200,000 10% debentures at par.The Board of Directors of Grebe Ltd has already announced that it will maintain the same dividend payout ratio in future years as in the past and that this policy will be unaffected by the form of finance raised.Required:(a) For each of the financing options, calculate the forecast earnings per share for theforthcoming year;(10 marks)(b) Calculate the level of operating profit at which the earnings per share will be the sameunder each financing option. (10 marks)(20 marks)3. Bartok Ltd produces a single product. Financial data concerning the product is as follows:$ $Selling price per unit 20Variable cost per unit 17Fixed costs per unit 2 19Net profit 1At present, total credit sales for the product are $1·2m and the average collection period is one month. In order to stimulate sales for the product, the company is considering liberalising its credit policy so as to allow an average collection period of 1 1/2 months. This change of policy will allow the company to break into the US market where, currently, it has no presence. As a result of this breakthrough, sales will increase by 25%. However, there would be an additional investment required in stocks of $150,000 and an increase in trade creditors of $50,000.The company requires a 25% rate of return on its investments.Ignore taxation.Required:(a) Evaluate the proposal to increase the average collection period for debtorsassuming:(i) all customers take advantage of the longer credit period (8 marks)(ii) only new customers take advantage of the longer credit period. (8 marks)(b) Identify and discuss the main factors which influence the credit terms granted tocustomers by a company. (4 marks)(20 marks)ANSWERS FOR EXAM PAPER 1I. (10%, 1 mark each)1. T2. F3. F4. F5. T6. T7. T8. T9. F 10. FII. (30%, two marks each)1. B2. A3. C4. B5. C6. D7. D8. A9. C 10. B 11. C 12. B 13. C 14. C 15. DIII. (60%, 20marks each)1. (a) Annual operating cash flows can be calculated as follows:$m $m Sales (800 x $10,000) LessVariable costs (800 x $7,000) Fixed costs5·6 0·58·0 6·1 1·9(2 marks)Cash flows relating to the project are as follows:Year0 $m1 $m 2$m 3 $m 4 $m Machinery Opportunity cost Annual cash flows(4·7) (1·3) (6·0)1·9 1·91·9 1·91·9 1·90.8 1·9 2·7(2 marks)The net present value of the project is:$m $m $m $m $mCash flows Discount rate (12%) Present valueNPV (6·0)1·0(6·0)0·291·90·891·691·90·801·521·90·711·352·70·641·73(2maks)(b) (i) The increase required in the initial outlay on machinery before the project becomes nolonger profitable will be $0·29m. The machinery is already expressed in present value terms and so this figure is the same as the net present value of the project. This figure is 6·2% higher than the initial cost figure stated. (2 marks)(ii) If the discount rate is increased to 14%, the NPV of the project is:$m $m $m $m $mCash flows Discount rate (14%) Present valueNPV (6·0)1·0(6·0)0·011·90·881·671·90·771·461·90·681·292·70·591·59Thus, the project will become unprofitable at approximately 14% cost of capital.This represents a 16·7% increase in the cost of capital. (3 marks)(iii) The decrease in the residual value of the equipment (R) that will make the project no longer profitable is calculated as follows:(R x discount factor at the end of four years) – NPV of the project = 0This can be rearranged as follows:(R x discount factor at the end of four years) = NPV of the projectR x 0.64 = $0·29 mR = $0·29m/0·64= $0·45mThis represents a 43·8% decrease in the estimated residual value. (3marks)(iv) The decrease in annual net operating cash flows (C) to make the project no longer profitable is calculated as follows:(C x annuity factor for a four-year period) – NPV = 0This can be rearranged as follows:(C x annuity factor for a four-year period) = NPV C x 3·04 = $0·29m C = $0·29m/3·04 C = $0·095mThis represents a decrease of 5·0% on the estimated annual net operating cash flows. (3marks)(c) The net present value calculations in (a) above indicate that the project will increaseshareholder wealth if it is accepted. The sensitivity calculations in (b) above show by how much each of the key variables will have to change before the project becomes no longer profitable. It can be seen that the most sensitive factor is the annual net operating cash flows followed by the initial cost of the machinery, the discount rate and finally the residual value of the machinery. The annual net operating cash flows will require only a five per cent decrease before the project ceases to be profitable. (3marks)2 (a) Forecast profit and loss account for the year ended 31 May 2004Shares $000Debentures$000 Profit before interest and taxation Debenture interest payable Profit before taxation Corporation tax (20%) Profit after taxation DividendRetained profit for the year Forecast earnings per share980 160 820 164 656 328 328$656,000/1,800,000=36·4c (5marks)980 280 700 140 560 280 280$560,000/1,200,000 46·7c (5marks)(b) The level of operating profit, or profit before interest and taxation (PBIT), at which earnings per share under each method are equal (PBIT = x) is calculated as follows:Shares Debentures(x – B/E PBIT)(1 – tax rate) (x – B/E PBIT)(1 – tax rate)––––––––––––––––––––––– = –––––––––––––––––––––––No. of shares No. of sharesThe level of PBIT at which earnings per share are equal is:(x – $0·16m)(1 – 0·20) (x – $0·28m)(1 – 0·20)–––––––––––––––––––– = –––––––––––––––––––– (3 marks)1·8m 1·2m(0·8 x – $0·128m) (0·8 x – $0·224m)––––––––––––––––– = ––––––––––––––––1·8m 1·2m0·96m x – $0·1536m = 1·44m x – $0·4032m0·48m x = $0·2496mx = $0·52m (2 marks)3. (a) (i) The contribution per unit is $3 (i.e. $20 - $17). A 25% increase in sales will lead to anincrease of sales revenue of $0·3m or 15,000 units (i.e. $0·3m/$20). Hence the increase in contribution and profit will be:15,000 x $3 = $45,000 (4marks)The additional investment required will be:$Increase in stocksIncrease in debtors [($1·5m/12 ) x 11/2m] - [(1·2m/12) x 1m)]Increase in creditorsNet increase in working capitalReturn on investment 150,00087,500237,50050,000187,500= 45,000 x 100% 187,500= 24·0 %(6 marks)(ii) The additional investment required will be:$Increase in stocksIncrease in debtors [($0·3m/12) x 11/2]Increase in creditorsNet increase in working capital Return on investment 150,00037,500187,50050,000137,500= 45,000 x 100% 137,500= 32·7 %(6 marks)Thus, it is if new customers only take advantage of the longer credit period that the proposed change in policy will meet the profit requirements of the company.(b) The main factors that influence the credit terms granted to customers are: Management policies/Market strength /Order size and frequency /Profitability /Resources of the business /Resources of the customer/Industry norms, etc.(4 marks)。

罗斯公司理财Chap004全英文题库及答案

Chapter 04 Discounted Cash Flow Valuation Answer KeyMultiple Choice Questions1. An annuity stream of cash flow payments is a set of:A.level cash flows occurring each time period for a fixed length of time.B.level cash flows occurring each time period forever.C.increasing cash flows occurring each time period for a fixed length of time.D.increasing cash flows occurring each time period forever.E.arbitrary cash flows occurring each time period for no more than 10 years.Difficulty level: EasyTopic: ANNUITYType: DEFINITIONS2. Annuities where the payments occur at the end of each time period are called _____, whereas _____ refer to annuity streams with payments occurring at the beginning of each time period.A.ordinary annuities; early annuitieste annuities; straight annuitiesC.straight annuities; late annuitiesD.annuities due; ordinary annuitiesE.ordinary annuities; annuities dueDifficulty level: EasyTopic: ANNUITIES DUEType: DEFINITIONS3. An annuity stream where the payments occur forever is called a(n):A.annuity due.B.indemnity.C.perpetuity.D.amortized cash flow stream.E.amortization table.Difficulty level: EasyTopic: PERPETUITYType: DEFINITIONS4. The interest rate expressed in terms of the interest payment made each period is called the _____ rate.A.stated annual interestpound annual interestC.effective annual interestD.periodic interestE.daily interestDifficulty level: EasyTopic: STATED INTEREST RATESType: DEFINITIONS5. The interest rate expressed as if it were compounded once per year is called the _____ rate.A.stated interestpound interestC.effective annualD.periodic interestE.daily interestDifficulty level: EasyTopic: EFFECTIVE ANNUAL RATEType: DEFINITIONS6. The interest rate charged per period multiplied by the number of periods per year is called the _____ rate.A.effective annualB.annual percentageC.periodic interestpound interestE.daily interestDifficulty level: EasyTopic: ANNUAL PERCENTAGE RATEType: DEFINITIONS7. Paying off long-term debt by making installment payments is called:A.foreclosing on the debt.B.amortizing the debt.C.funding the debt.D.calling the debt.E.None of the above.Difficulty level: EasyTopic: AMORTIZATIONType: DEFINITIONS8. You are comparing two annuities which offer monthly payments for ten years. Both annuities are identical with the exception of the payment dates. Annuity A pays on the first of each month while annuity B pays on the last day of each month. Which one of the following statements is correct concerning these two annuitiesA.Both annuities are of equal value today.B.Annuity B is an annuity due.C.Annuity A has a higher future value than annuity B.D.Annuity B has a higher present value than annuity A.E.Both annuities have the same future value as of ten years from today.Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: CONCEPTS9. You are comparing two investment options. The cost to invest in either option is the same today. Both options will provide you with $20,000 of income. Option A pays five annual payments starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five annual payments of $4,000 each. Which one of the following statements is correct given these two investment optionsA.Both options are of equal value given that they both provide $20,000 of income.B.Option A is the better choice of the two given any positive rate of return.C.Option B has a higher present value than option A given a positive rate of return.D.Option B has a lower future value at year 5 than option A given a zero rate of return.E.Option A is preferable because it is an annuity due.Difficulty level: MediumTopic: UNEVEN CASH FLOWS AND PRESENT VALUEType: CONCEPTS10. You are considering two projects with the following cash flows:Which of the following statements are true concerning these two projects？I. Both projects have the same future value at the end of year 4, given a positive rate of return.II. Both projects have the same future value given a zero rate of return.III. Both projects have the same future value at any point in time, given a positive rate of return.IV. Project A has a higher future value than project B, given a positive rate of return.A.II onlyB.IV onlyC.I and III onlyD.II and IV onlyE.I, II, and III onlyDifficulty level: MediumTopic: UNEVEN CASH FLOWS AND FUTURE VALUE Type: CONCEPTS11. A perpetuity differs from an annuity because:A.perpetuity payments vary with the rate of inflation.B.perpetuity payments vary with the market rate of interest.C.perpetuity payments are variable while annuity payments are constant.D.perpetuity payments never cease.E.annuity payments never cease.Difficulty level: EasyTopic: PERPETUITY VERSUS ANNUITYType: CONCEPTS12. Which one of the following statements concerning the annual percentage rate is correctA.The annual percentage rate considers interest on interest.B.The rate of interest you actually pay on a loan is called the annual percentage rate.C.The effective annual rate is lower than the annual percentage rate when an interest rate is compounded quarterly.D.When firms advertise the annual percentage rate they are violating . truth-in-lending laws.E.The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.Difficulty level: MediumTopic: ANNUAL PERCENTAGE RATEType: CONCEPTS13. Which one of the following statements concerning interest rates is correctA.The stated rate is the same as the effective annual rate.B.An effective annual rate is the rate that applies if interest were charged annually.C.The annual percentage rate increases as the number of compounding periods per year increases.D.Banks prefer more frequent compounding on their savings accounts.E.For any positive rate of interest, the effective annual rate will always exceed the annual percentage rate.Difficulty level: MediumTopic: INTEREST RATESType: CONCEPTS14. Which of the following statements concerning the effective annual rate are correct？I. When making financial decisions, you should compare effective annual rates rather than annual percentage rates.II. The more frequently interest is compounded, the higher the effective annual rate.III. A quoted rate of 6% compounded continuously has a higher effective annual rate than if the rate were compounded daily.IV. When borrowing and choosing which loan to accept, you should select the offer with the highest effective annual rate.A.I and II onlyB.I and IV onlyC.I, II, and III onlyD.II, III, and IV onlyE.I, II, III, and IVDifficulty level: MediumTopic: EFFECTIVE ANNUAL RATEType: CONCEPTS15. The highest effective annual rate that can be derived from an annual percentage rate of 9% is computed as:A..09e - 1.B. q.C. e (1 + .09).D. - 1.E.(1 + .09)q.Difficulty level: MediumTopic: CONTINUOUS COMPOUNDINGType: CONCEPTS16. The time value of money concept can be defined as:A.the relationship between the supply and demand of money.B.the relationship between money spent versus money received.C.the relationship between a dollar to be received in the future and a dollar today.D.the relationship between interest rate stated and amount paid.E.None of the above.Difficulty level: EasyTopic: TIME VALUEType: CONCEPTS17. Discounting cash flows involves:A.discounting only those cash flows that occur at least 10 years in the future.B.estimating only the cash flows that occur in the first 4 years of a project.C.multiplying expected future cash flows by the cost of capital.D.discounting all expected future cash flows to reflect the time value of money.E.taking the cash discount offered on trade merchandise.Difficulty level: EasyTopic: CASH FLOWSType: CONCEPTS18. Compound interest:A.allows for the reinvestment of interest payments.B.does not allow for the reinvestment of interest payments.C.is the same as simple interest.D.provides a value that is less than simple interest.E.Both A and D.Difficulty level: EasyTopic: INTERESTType: CONCEPTS19. An annuity:A.is a debt instrument that pays no interest.B.is a stream of payments that varies with current market interest rates.C.is a level stream of equal payments through time.D.has no value.E.None of the above.Difficulty level: Easy Topic: ANNUITYType: CONCEPTS20. The stated rate of interest is 10%. Which form of compounding will give the highest effective rate of interestA.annual compoundingB.monthly compoundingC.daily compoundingD.continuous compoundingE.It is impossible to tell without knowing the term of the loan.Difficulty level: EasyTopic: COMPOUNDINGType: CONCEPTS21. The present value of future cash flows minus initial cost is called:A.the future value of the project.B.the net present value of the project.C.the equivalent sum of the investment.D.the initial investment risk equivalent value.E.None of the above.Difficulty level: EasyTopic: PRESENT VALUEType: CONCEPTS22. Find the present value of $5,325 to be received in one period if the rate is %.A.$5,B.$5,C.$5,D.$5,E.None of the above.Difficulty level: EasyTopic: PRESENT VALUE - SINGLE SUMType: PROBLEMS23. If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compounded interest at % for three years which one will pay more and by how muchA.Simple interest by $pound interest by $pound interest by $pound interest by $E.None of the above.Simple Interest = $10,000 (.08)(3) = $2,400;Compound Interest = $10,000(3 - 1) = $2,;Difference = $2, - $2,400 = $Difficulty level: EasyTopic: SIMPLE & COMPOUND INTERESTType: PROBLEMS24. Bradley Snapp has deposited $7,000 in a guaranteed investment account witha promised rate of 6% compounded annually. He plans to leave it there for 4 full years when he will make a down payment on a car after graduation. How much of a down payment will he be able to makeA.$1,B.$2,C.$8,D.$8,E.$9,$7,000 4 = $8,Difficulty level: EasyTopic: FUTURE VALUE - SINGLE SUMType: PROBLEMS25. Your parents are giving you $100 a month for four years while you are in college. At a 6% discount rate, what are these payments worth to you when you first start collegeA.$3,B.$4,C.$4,D.$4,E.$4,Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS26. You just won the lottery! As your prize you will receive $1,200 a month for 100 months. If you can earn 8% on your money, what is this prize worth to you todayA.$87,B.$87,C.$87,D.$88,E.$90,Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS27. Todd is able to pay $160 a month for five years for a car. If the interest rate is %, how much can Todd afford to borrow to buy a carA.$6,B.$8,C.$8,D.$8,E.$9,Difficulty level: EasyTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS28. You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $50,000 today or receive payments of $641 a month for ten years. You can earn % on your money. Which option should you take and whyA.You should accept the payments because they are worth $56, today.B.You should accept the payments because they are worth $56, today.C.You should accept the payments because they are worth $56, today.D.You should accept the $50,000 because the payments are only worth $47, today.E.You should accept the $50,000 because the payments are only worth $47, today.Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS29. Your employer contributes $25 a week to your retirement plan. Assume that you work for your employer for another twenty years and that the applicable discount rate is 5%. Given these assumptions, what is this employee benefit worth to you todayA.$13,B.$15,C.$16,D.$16,E.$16,Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS30. You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%, what is this job worth to you todayA.$180,B.$201,C.$210,D.$223,E.$224,Difficulty level: MediumTopic: ORDINARY ANNUITY AND PRESENT VALUEType: PROBLEMS31. The Ajax Co. just decided to save $1,500 a month for the next five years as a safety net for recessionary periods. The money will be set aside in a separate savings account which pays % interest compounded monthly. It deposits the first $1,500 today. If the company had wanted to deposit an equivalent lump sum today, how much would it have had to depositA.$82,B.$83,C.$83,D.$83,E.$84,Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS32. You need some money today and the only friend you have that has any is your ‘miserly' friend. He agrees to loan you the money you need, if you make payments of $20 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you % interest per month. How much money are you borrowingA.$B.$C.$D.$E.$Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS33. You buy an annuity which will pay you $12,000 a year for ten years. The payments are paid on the first day of each year. What is the value of this annuity today at a 7% discount rateA.$84,B.$87,C.$90,D.$96,E.$116,Difficulty level: MediumTopic: ANNUITY DUE AND PRESENT VALUEType: PROBLEMS34. You are scheduled to receive annual payments of $10,000 for each of the next 25 years. Your discount rate is %. What is the difference in the present value if you receive these payments at the beginning of each year rather than at the end of each yearA.$8,699B.$9,217C.$9,706D.$10,000E.$10,850Difference = $111, - $102, = $8, = $8,699 (rounded) Note: The difference = .085 $102, = $8,Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUEType: PROBLEMS35. You are comparing two annuities with equal present values. The applicable discount rate is %. One annuity pays $5,000 on the first day of each year for twenty years. How much does the second annuity pay each year for twenty years if it pays at the end of each yearA.$4,651B.$5,075C.$5,000D.$5,375E.$5,405Because each payment is received one year later, then the cash flow has to equal: $5,000 (1 + .075) = $5,375Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUE Type: PROBLEMS36. Martha receives $100 on the first of each month. Stewart receives $100 on the last day of each month. Both Martha and Stewart will receive payments for five years. At an 8% discount rate, what is the difference in the present value of these two sets of paymentsA.$B.$C.$D.$E.$Difference = $4, - $4, = $Difficulty level: MediumTopic: ORDINARY ANNUITY VERSUS ANNUITY DUE Type: PROBLEMS37. What is the future value of $1,000 a year for five years at a 6% rate of interestA.$4,B.$5,C.$5,D.$6,E.$6,Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS38. What is the future value of $2,400 a year for three years at an 8% rate of interestA.$6,B.$6,C.$7,D.$7,E.$8,Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS39. Janet plans on saving $3,000 a year and expects to earn %. How much will Janet have at the end of twenty-five years if she earns what she expectsA.$219,B.$230,C.$236,D.$244,E.$256,Difficulty level: EasyTopic: ORDINARY ANNUITY AND FUTURE VALUEType: PROBLEMS40. Toni adds $3,000 to her savings on the first day of each year. Tim adds $3,000 to his savings on the last day of each year. They both earn a 9% rate of return. What is the difference in their savings account balances at the end of thirty yearsA.$35,B.$36,C.$38,D.$39,E.$40,Difference = $445, - $408, = $36,Note: Difference = $408, .09 = $36,Difficulty level: MediumTopic: ANNUITY DUE VERSUS ORDINARY ANNUITY Type: PROBLEMS41. You borrow $5,600 to buy a car. The terms of the loan call for monthly payments for four years at a % rate of interest. What is the amount of each paymentA.$B.$C.$D.$E.$Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTSType: PROBLEMS42. You borrow $149,000 to buy a house. The mortgage rate is % and the loan period is 30 years. Payments are made monthly. If you pay for the house according to the loan agreement, how much total interest will you payA.$138,086B.$218,161C.$226,059D.$287,086E.$375,059Total interest = ($1, 30 12) - $149,000 = $226, = $226,059 (rounded)Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND COST OF INTERESTType: PROBLEMS43. The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25 million be paid to the president upon the completion of her first ten years of service. The company wants to set aside an equal amount of funds each year to cover this anticipated cash outflow. The company can earn % on these funds. How much must the company set aside each year for this purposeA.$1,775,B.$1,798,C.$1,801,D.$1,852,E.$1,938,Difficulty level: EasyTopic: ORDINARY ANNUITY PAYMENTS AND FUTURE VALUEType: PROBLEMS44. You retire at age 60 and expect to live another 27 years. On the day you retire, you have $464,900 in your retirement savings account. You are conservative and expect to earn % on your money during your retirement. How much can you withdraw from your retirement savings each month if you plan to die on the day you spend your last pennyA.$2,B.$2,C.$2,D.$2,E.$2,Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS45. The McDonald Group purchased a piece of property for $ million. It paida down payment of 20% in cash and financed the balance. The loan terms require monthly payments for 15 years at an annual percentage rate of % compounded monthly. What is the amount of each mortgage paymentA.$7,B.$8,C.$9,D.$9,E.$9,Amount financed = $1,200,000 (1 - .2) = $960,000Difficulty level: MediumTopic: ORDINARY ANNUITY PAYMENTS AND PRESENT VALUEType: PROBLEMS。

罗斯《公司理财》英文习题答案DOCchap

30.1 The new corporation issues $300,000 in new debt. The merger creates $100,000 ofgoodwill because the merger is a purchase.Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 580 Equity 700Goodwill 100Total assets $1,300 Total liabilities $1,300 30.2 If the balance sheet for Philadelphia Pretzel shows assets at book value instead of marketvalue, the goodwill will be only $60,000 (=$300,000 - $240,000). Thus, the net fixed assetsare $620,000 (=$1,300,000 - $480,000 - $140,000 - $60,000).Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $200Other assets 140 Long-term debt 400Net fixed assets 620 Equity 700Goodwill 60Total assets $1,300 Total liabilities $1,300 30.3Balance SheetLager Brewing(in $ thousands)Current assets $480 Current liabilities $280Other assets 140 Long-term debt 100Net fixed assets 580 Equity 820Total assets $1,200 Total liabilities $1,200 30.4 a. False. Although the reasoning seems correct, the Stillman-Eckbo data do not supportthe monopoly power theory.b. True. When managers act in their own interest, acquisitions are an important controldevice for shareholders. It appears that some acquisitions and takeovers are theconsequence of underlying conflicts between managers and shareholders.c. False. Even if markets are efficient, the presence of synergy will make the value ofthe combined firm different from the sum of the values of the separate firms.Incremental cash flows provide the positive NPV of the transaction.d. False. In an efficient market, traders will value takeovers based on “Fundamentalfactors” regardless of the time horizon. Recall that the evidence as a whole suggestsefficiency in the markets. Mergers should be no different.e. False. The tax effect of an acquisition depends on whether the merger is taxable ornon-taxable. In a taxable merger, there are two opposing factors to consider, thecapital gains effect and the write-up effect. The net effect is the sum of these twoeffects.f. True. Because of the coinsurance effect, wealth might be transferred from thestockholders to the bondholders. Acquisition analysis usually disregards this effectand considers only the total value.30.530.6 a. The weather conditions are independent. Thus, the joint probabilities are theproducts of the individual probabilities.Possible states Joint probabilityRain Rain 0.1 x 0.1=0.01Rain Warm 0.1 x 0.4=0.04Rain Hot 0.1 x 0.5=0.05Warm Rain 0.4 x 0.1=0.04Warm Warm 0.4 x 0.4=0.16Warm Hot 0.4 x 0.5=0.20Hot Rain 0.5 x 0.1=0.05Hot Warm 0.5 x 0.4=0.20Hot Hot 0.5 x 0.5=0.25Since the state Rain Warm has the same outcome (revenue) as Warm Rain, theirprobabilities can be added. The same is true of Rain Hot, Hot Rain and Warm Hot,Hot Warm. Thus the joint probabilities arePossibleJoint probabilitystatesRain Rain 0.01Rain Warm 0.08Rain Hot 0.10Warm Warm 0.16Warm Hot 0.40Hot Hot 0.25The joint values are the sums of the values of the two companies for the particularstate.Possible states Joint valueRain Rain $200,000Rain Warm 300,000Warm Warm 400,000Rain Hot 500,000Warm Hot 600,000Hot Hot 800,000b. Recall, if a firm cannot service its debt, the bondholders receive the value of the assets.Thus, the value of the debt is the value of the company if the face value of the debt isgreater than the value of the company. If the value of the company is greater than the value of the debt, the value of the debt is its face value. Here the value of the common stock is always the residual value of the firm over the value of the debt.Joint Prob. Joint Value Debt Value Stock Value0.01 $200,000 $200,000 $00.08 300,000 300,000 00.16 400,000 400,000 00.10 500,000 400,000 100,0000.40 600,000 400,000 200,0000.25 800,000 400,000 400,000c. To show that the value of the combined firm is the sum of the individual values, youmust show that the expected joint value is equal to the sum of the separate expected values.Expected joint value= 0.01($200,000) + 0.08($300,000) + 0.16($400,000) + 0.10($500,000) +0.40($600,000) + 0.25($800,000)= $580,000Since the firms are identical, the sum of the expected values is twice the expectedvalue of either.Expected individual value = 0.1($100,000) + 0.4($200,000) + 0.5($400,000) = $290,000 Expected combined value = 2($290,000) = $580,000d. The bondholders are better off if the value of the debt after the merger is greater thanthe value of the debt before the merger.Value of the debt before the merger:The value of debt for either company= 0.1($100,000) + 0.4($200,000) + 0.5($200,000) = $190,000Total value of debt before the merger = 2($190,000) = $380,000Value of debt after the merger= 0.01($200,000) + 0.08($300,000) + 0.16($400,000) + 0.10($400,000) +0.40($400,000) +0.25($400,000)= $390,000The bondholders are $10,000 better off after the merger.30.7 The decision hinges upon the risk of surviving. The final decision should hinge on thewealth transfer from bondholders to stockholders when risky projects are undertaken.High-risk projects will reduce the expected value of the bondholders’ claims on the firm.The telecommunications business is riskier than the utilities business. If the total value of the firm does not change, the increase in risk should favor the stockholder. Hence,management should approve this transaction. Note, if the total value of the firm dropsbecause of the transaction and the wealth effect is lower than the reduction in total value, management should reject the project.30.8 If the market is “smart,” the P/E ratio will not be constant.a. Value = $2,500 + $1,000 = $3,500b. EPS = Post-merger earnings / Total number of shares=($100 + $100)/200 =$1c. Price per share = Value/Total number of shares=$3,500/200 =$17.50d. If the market is “fooled,” the P/E ratio will be constant at $25.Value = P/E * Total number of shares= 25 * 200 = $5,000EPS = Post-merger earnings / Total number of shares=$5,000/200 = $25.0030.9 a. After the merger, Arcadia Financial will have 130,000 [=10,000 + (50,000)(6/10)]shares outstanding. The earnings of the combined firm will be $325,000. The earningsper share of the combined firm will be $2.50 (=$325,000/130,000). The acquisition will increase the EPS for the stockholders from $2.25 to $2.50.b. There will be no effect on the original Arcadia stockholders. No synergies exist in thismerger since Arcadia is buying Coldran at its market price. Examining the relativevalues of the two firms sees the latter point.Share price of Arcadia = (16 * $225,000) / 100,000=$36Share price of Coldran = (10.8 * $100,000) / 50,000=$21.60The relative value of these prices is $21.6/$36 = 0.6. Since Coldran’s shareholdersreceive 0.6 shares of Arcadia for every share of Coldran, no synergies exist.30.10 a. The synergy will be the discounted incremental cash flows. Since the cash flows areperpetual, this amount isb. The value of Flash-in-the-Pan to Fly-by-Night is the synergy plus the current marketvalue of Flash-in-the-Pan.V = $7,500,000 + $20,000,000= $27,500,000c. Cash alternative = $15,000,000Stock alternative = 0.25($27,500,000 + $35,000,000)= $15,625,000d. NPV of cash alternative = V - Cost=$27,500,000 - $15,000,000=$12,500,000NPV of stock alternative = V - Cost=$27,500,000 - $15,625,000=$11,875,000e. Use the cash alternative, its NPV is greater.30.11 a. The value of Portland Industries before the merger is $9,000,000 (=750,000x12). Thisvalue is also the discounted value of the expected future dividends.$9,000,000 =r = 0.1025 = 10.25%r is the risk-adjusted discount rate for Portland’s expected future dividends.the value of Portland Industries after the merger isThis is the value of Portland Industries to Freeport.b. NPV = Gain - Cost= $14,815,385 - ($40x250, 000)= $4,815,385c. If Freeport offers stock, the value of Portland Industries to Freeport is the same, but thecost differs.Cost = (Fraction of combined firm owned by Portland’s stockholders)x(Value of the combined firm)Value of the combined firm = (Value of Freeport before merger)+ (Value of Portland to Freeport)= $15x1,000,000 + $14,815,385= $29,815,385Cost = 0.375x$29,815,385= $11,180,769NPV= $14,815,385 - $11,180,769=$3,634,616d. The acquisition should be attempted with a cash offer since it provides a higher NPV.e. The value of Portland Industries after the merger isThis is the value of Portland Industries to Freeport.NPV = Gain-Cost=$11,223,529 - ($40x250,000)=$1,223,529If Freeport offers stock, the value of Portland Industries to Freeport is the same, but the cost differs.Cost = (Fraction of combined firm owned by Portland’s stockholders)x(Value of the combined firm)Value of the combined firm = (Value of Freeport before merger)+ (Value of Portland to Freeport)= $15x1,000,000 + $11,223,529= $26,223,529Cost = 0.375 * $26,223,529=$9,833,823NPV = $11,223,529 - $9,833,823=$1,389,706The acquisition should be attempted with a stock offer since it provides a higher NPV.30.12 a. Number of shares after acquisition=30 + 15 = 45 milStock price of Harrods after acquisition = 1,000/45=22.22 poundsb. Value of Selfridge stockholders after merger:α * 1,000 = 300α = 30%New shares issued = 12.86 mil12.86:20 = 0.643:1The proper exchange ratio should be 0.643 to make the stock offer’s value to Selfridgeequivalent to the cash offer.30.13 To evaluate this proposal, look at the present value of the incremental cash flows.Cash Flows to Company A(in $ million)Year 0 1 2 3 4 5Acquisition of B -550Dividends from B 150 32 5 20 30 45Tax-loss carryforwards 25 25Terminal value 600Total -400 32 30 45 30 645 The additional cash flows from the tax-loss carry forwards and the proposed level of debt should be discounted at the cost of debt because they are determined with very littleuncertainty.The after-tax cash flows are subject to normal business risk and must be discounted at anormal rate.Beta coefficient for the bond = 0.25 = [(8%-6%)/8%].Beta coefficient for the company = 1 = [(0.25)2 + (1.25)(0.75)]Discount rate for normal operations:r = 6% + 8% (1) = 14%Discount rate for dividends:The new beta coefficient for the company, 1, must be the weighted average of the debtbeta and the stock beta.1 = 0.5(0.25) + 0.5(βs)βs = 1.75r = 6% + 8%(1.75) = 20%Because the NPV of the acquisition is negative, Company A should not acquireCompany B.30.14 The commonly used defensive tactics by target-firm managers include:i. corporate charter amendments like super-majority amendment or staggering theelection of board members.ii. repurchase standstill agreements.iii. exclusionary self-tenders.iv. going private and leveraged buyouts.v. other devices like golden parachutes, scorched earth strategy, poison pill, ..., etc.Mini Case: U.S.Steel’s case.You have 3 choices: tender, or do not tender or sell in the market. If you do sell your shares in the market, at some point, somebody else would need to make a decision in “tender” or “not tender” as well.It is important to recognize that the firm has about 60 million shares outstanding (since 30 million shares will give US Steel 50.1% of Marathon shares). Let’s consider the possible sellingthe market price.If you choose not to tender, and 30 million shares were tendered US Steel succeeds to gain50.1% control, you will only receive $85 a share. If you do tender, the price you will receive will be no worse than $85 a share and can be as high as $125 a share. Depending on the number of shares tendered, you will receive one of the following prices.If only 50.1% tendered, you will get $125 per share.If the shares tendered exceed 50.1% but less than 100%, you will get more than $105 ashare.If all 60 million shares were tendered, you will get $105 per share. (which is )It is clear that, in the above 3 cases, when you are not sure about whether US Steel will succeed or not, you will be better off to tender your shares than not tender. This is because at best, you will only receive $85 per share if you choose not to tender.版权申明本文部分内容，包括文字、图片、以及设计等在网上搜集整理。

完整word版公司理财英文版题库7

CHAPTER 7Net Present Value and Other Investment RulesMultiple Choice Questions:I. DEFINITIONSNET PRESENT V ALUEa 1. The difference between the present value of an investment and its cost is the:a. net present value.b. internal rate of return.c. payback period.d. profitability index.e. discounted payback period.Difficulty level: EasyNET PRESENT V ALUE RULEc 2. Which one of the following statements concerning net present value (NPV) is correct?a. An investment should be accepted if, and only if, the NPV is exactly equal to zero.b. An investment should be accepted only if the NPV is equal to the initial cash flow.c. An investment should be accepted if the NPV is positive and rejected if it is negative.d. An investment with greater cash inflows than cash outflows, regardless of when the cash flows occur, will always have a positive NPV and therefore should always be accepted.e. Any project that has positive cash flows for every time period after the initial investment should be accepted.Difficulty level: EasyPAYBACKc 3. The length of time required for an investment to generate cash flows sufficient to recover the initial cost of the investment is called the:a. net present value.b. internal rate of return.c. payback period.d. profitability index.e. discounted cash period.Difficulty level: EasyPAYBACK RULEa 4. Which one of the following statements is correct concerning the payback period?a. An investment is acceptable if its calculated payback period is less than some pre-specified period of time.b. An investment should be accepted if the payback is positive and rejected if it isnegative.c. An investment should be rejected if the payback is positive and accepted if it isnegative.An investment is acceptable if its calculated payback period is greater than some pre- d.specified period of time.An investment should be accepted any time the payback period is less than the e.discounted payback period, given a positive discount rate.Difficulty level: EasyDISCOUNTED PAYBACKe 5. The length of time required for a project's discounted cash flows to equal the initialcost of the project is called the:a. net present value.b. internal rate of return.c. payback period.d. discounted profitability index.e. discounted payback period.Difficulty level: EasyDISCOUNTED PAYBACK RULEd 6. The discounted payback rule states that you should accept projects:a. which have a discounted payback period that is greater than some pre-specified periodof time.b. if the discounted payback is positive and rejected if it is negative.c. only if the discounted payback period equals some pre-specified period of time.d. if the discounted payback period is less than some pre-specified period of time.e. only if the discounted payback period is equal to zero.Difficulty level: EasyA VERAGE ACCOUNTING RETURNc 7. An investment's average net income divided by its average book value defines theaverage:a. net present value.b. internal rate of return.c. accounting return.d. profitability index.e. payback period.Difficulty level: EasyA VERAGE ACCOUNTING RETURN RULEb 8. An investment is acceptable if its average accounting return (AAR):a. is less than a target AAR.b. exceeds a target AAR.c. exceeds the firm's return on equity (ROE).d. is less than the firm's return on assets (ROA).e. is equal to zero and only when it is equal to zero.Difficulty level: EasyINTERNAL RATE OF RETURNb. 9. The discount rate that makes the net present value of an investment exactly equal to zero is called the:a. external rate of return.b. internal rate of return.c. average accounting return.d. profitability index.e. equalizer.Difficulty level: EasyINTERNAL RATE OF RETURN RULEd 10. An investment is acceptable if its IRR:a. is exactly equal to its net present value (NPV).b. is exactly equal to zero.c. is less than the required return.d. exceeds the required return.e. is exactly equal to 100 percent.Difficulty level: EasyMULTIPLE RATES OF RETURNe 11. The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.a. net present value profilingb. operational ambiguityc. mutually exclusive investment decisiond. issues of scalee. multiple rates of returnDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSc 12. A situation in which accepting one investment prevents the acceptance of another investment is called the:a. net present value profile.b. operational ambiguity decision.c. mutually exclusive investment decision.d. issues of scale problem.e. multiple choices of operations decision.Difficulty level: EasyPROFITABILITY INDEXd. 13. The present value of an investment's future cash flows divided by the initial cost of the investment is called the:a. net present value.b. internal rate of return.c. average accounting return.d. profitability index.e. profile period.Difficulty level: EasyPROFITABILITY INDEX RULEa 14. An investment is acceptable if the profitability index (PI) of the investment is:a. greater than one.b. less than one.c. greater than the internal rate of return (IRR).d. less than the net present value (NPV).e. greater than a pre-specified rate of return.Difficulty level: EasyII. CONCEPTSNET PRESENT V ALUEd 15. All else constant, the net present value of a project increases when:a. the discount rate increases.b. each cash inflow is delayed by one year.c. the initial cost of a project increases.d. the rate of return decreases.e. all cash inflows occur during the last year of a project's life instead of periodically throughout the life of the project.Difficulty level: EasyNET PRESENT V ALUEa 16. The primary reason that company projects with positive net present values are considered acceptable is that:a. they create value for the owners of the firm.b. the project's rate of return exceeds the rate of inflation.c. they return the initial cash outlay within three years or less.d. the required cash inflows exceed the actual cash inflows.e. the investment's cost exceeds the present value of the cash inflows.Difficulty level: EasyNET PRESENT V ALUEd 17. If a project has a net present value equal to zero, then:I. the present value of the cash inflows exceeds the initial cost of the project.II. the project produces a rate of return that just equals the rate required to accept the project.III. the project is expected to produce only the minimally required cash inflows. IV. any delay in receiving the projected cash inflows will cause the project to have a negative net present value.a. II and III onlyb. II and IV onlyc. I, II, and IV onlyd. II, III, and IV onlye. I, II, and III onlyDifficulty level: MediumNET PRESENT V ALUEb 18. Net present value:a. cannot be used when deciding between two mutually exclusive projects.b. is more useful to decision makers than the internal rate of return when comparing different sized projects.c. is easy to explain to non-financial managers and thus is the primary method of analysis used by the lowest levels of management.d. is not an as widely used tool as payback and discounted paybacke. is very similar in its methodology to the average accounting return.Difficulty level: EasyPAYBACKc 19. Payback is frequently used to analyze independent projects because:a. it considers the time value of money.b. all relevant cash flows are included in the analysis.c. it is easy and quick to calculate.d. it is the most desirable of all the available analytical methods from a financial perspective.e. it produces better decisions than those made using either NPV or IRR.Difficulty level: EasyPAYBACKc 20. The advantages of the payback method of project analysis include the:I. application of a discount rate to each separate cash flow.II. bias towards liquidity.III. ease of use.IV. arbitrary cutoff point.a. I and II onlyb. I and III onlyc. II and III onlyd. II and IV onlye. II, III, and IV onlyDifficulty level: MediumPAYBACKd 21. All else equal, the payback period for a project will decrease whenever the:a. initial cost increases.b. required return for a project increases.c. assigned discount rate decreases.d. cash inflows are moved forward in time.e. duration of a project is lengthened.Difficulty level: MediumDISCOUNTED PAYBACKd 22. The discounted payback period of a project will decrease whenever the:a. discount rate applied to the project is increased.b. initial cash outlay of the project is increased.c. time period of the project is increased.d. amount of each project cash flow is increased.e. costs of the fixed assets utilized in the project increase.Difficulty level: MediumDISCOUNTED PAYBACKa 23. The discounted payback rule may cause:a. some positive net present value projects to be rejected.b. the most liquid projects to be rejected in favor of less liquid projects.c. projects to be incorrectly accepted due to ignoring the time value of money.d. projects with negative net present values to be accepted.e. some projects to be accepted which would otherwise be rejected under the payback rule.Difficulty level: EasyINTERNAL RATE OF RETURNb 24. The internal rate of return (IRR):I. rule states that a project with an IRR that is less than the required rate should be accepted.II. is the rate generated solely by the cash flows of an investment.III. is the rate that causes the net present value of a project to exactly equal zero. IV. can effectively be used to analyze all investment scenarios.a. I and IV onlyb. II and III onlyc. I, II, and III onlyd. II, III, and IV onlye. I, II, III, and IVDifficulty level: MediumINTERNAL RATE OF RETURNa 25. The internal rate of return for a project will increase if:a. the initial cost of the project can be reduced.b. the total amount of the cash inflows is reduced.c. each cash inflow is moved such that it occurs one year later than originally projected.d. the required rate of return is reduced.e. the salvage value of the project is omitted from the analysis.Difficulty level: MediumINTERNAL RATE OF RETURNc 26. The internal rate of return is:a. more reliable as a decision making tool than net present value whenever you are considering mutually exclusive projects.b. equivalent to the discount rate that makes the net present value equal to one.c. difficult to compute without the use of either a financial calculator or a computer.d. dependent upon the interest rates offered in the marketplace.e. a better methodology than net present value when dealing with unconventional cash flows.Difficulty level: MediumINTERNAL RATE OF RETURNa 27. The internal rate of return tends to be:a. easier for managers to comprehend than the net present value.b. extremely accurate even when cash flow estimates are faulty.c. ignored by most financial analysts.d. used primarily to differentiate between mutually exclusive projects.e. utilized in project analysis only when multiple net present values apply.Difficulty level: EasyINCREMENTAL INTERNAL RATE OF RETURNe 28. You are trying to determine whether to accept project A or project B. These projectsare mutually exclusive. As part of your analysis, you should compute the incrementedIRR by determining:a. the internal rate of return for the cash flows of each project.b. the net present value of each project using the internal rate of return as the discount rate.c. the discount rate that equates the discounted payback periods for each project.d. the discount rate that makes the net present value of each project equal to 1.e. the internal rate of return for the differences in the cash flows of the two projects. Difficulty level: MediumINCREMENTAL INTERNAL RATE OF RETURNb 29. Graphing the incremental IRR helps explain:a. why one project is always superior to another project.b. how decisions concerning mutually exclusive projects are derived.c. how the duration of a project affects the decision as to which project to accept.d. how the net present value and the initial cash outflow of a project are related.e. how the profitability index and the net present value are related.Difficulty level: MediumPROFITABILITY INDEXd 30. The profitability index is closely related to:a. payback.b. discounted payback.c. the average accounting return.d. net present value.e. mutually exclusive projects.Difficulty level: EasyPROFITABILITY INDEXb 31. Analysis using the profitability index:a. frequently conflicts with the accept and reject decisions generated by the application ofthe net present value rule.b. is useful as a decision tool when investment funds are limited.c. is useful when trying to determine which one of two mutually exclusive projects should be accepted.d. utilizes the same basic variables as those used in the average accounting return.e. produces results which typically are difficult to comprehend or apply.Difficulty level: MediumPROFITABILITY INDEXe 32. If you want to review a project from a benefit-cost perspective, you should use the_____ method of analysis.a. net present valueb. paybackc. internal rate of returnd. average accounting returne. profitability indexDifficulty level: EasyPROFITABILITY INDEXb 33. When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:a. accepted because the internal rate of return is positive.b. accepted because the profitability index is greater than 1.c. accepted because the profitability index is negative.d. rejected because the internal rate of return is negative.e. rejected because the net present value is negative.Difficulty level: EasyMUTUALLY EXCLUSIVE PROJECTSc 34. Which one of the following is the best example of two mutually exclusive projects?a. planning to build a warehouse and a retail outlet side by sideb. buying sufficient equipment to manufacture both desks and chairs simultaneouslyc. using an empty warehouse for storage or renting it entirely out to another firmd. using the company sales force to promote sales of both shoes and sockse. buying both inventory and fixed assets using funds from the same bond issue Difficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSd 35. The Liberty Co. is considering two projects. Project A consists of building a wholesale book outlet on lot #169 of the Englewood Retail Center. Project B consists of buildinga sit-down restaurant on lot #169 of the Englewood Retail Center. When trying todecide whether or build the book outlet or the restaurant, management should rely most heavily on the analysis results from the _____ method of analysis.a. profitability indexb. internal rate of returnc. paybackd. net present valuee. accounting rate of returnDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSc 36. When two projects both require the total use of the same limited economic resource, the projects are generally considered to be:a. independent.b. marginally profitable.c. mutually exclusive.d. acceptable.e. internally profitable.Difficulty level: EasyMUTUALLY EXCLUSIVE PROJECTSc 37. Matt is analyzing two mutually exclusive projects of similar size and has prepared thefollowing data. Both projects have 5 year lives.Project A Project B$14,693 Net present value $15,0902.51 years 2.76 years Payback period9.6 percent 9.3 percent Average accounting return8.0 percent Required return 8.3 percent9.0 percentRequired AAR 9.0 percentMatt has been asked for his best recommendation given this information. His recommendation should be to accept:a. project B because it has the shortest payback period.b. both projects as they both have positive net present values.c. project A and reject project B based on their net present values.d. project B and reject project A based on their average accounting returns.e. project B and reject project A based on both the payback period and the averageaccounting return.Difficulty level: MediumINVESTMENT ANALYSISa 38. Given that the net present value (NPV) is generally considered to be the best method of analysis, why should you still use the other methods?a. The other methods help validate whether or not the results from the net present value analysis are reliable.b. You need to use the other methods since conventional practice dictates that you only accept projects after you have generated three accept indicators.c. You need to use other methods because the net present value method is unreliable when a project has unconventional cash flows.d. The average accounting return must always indicate acceptance since this is the best method from a financial perspective.e. The discounted payback method must always be computed to determine if a project returns a positive cash flow since NPV does not measure this aspect of a project.Difficulty level: MediumINVESTMENT ANALYSISe 39. In actual practice, managers frequently use the:I. AAR because the information is so readily available.II. IRR because the results are easy to communicate and understand.III. payback because of its simplicity.IV. net present value because it is considered by many to be the best method of analysis.a. I and III onlyb. II and III onlyc. I, III, and IV onlyd. II, III, and IV onlye. I, II, III, and IVDifficulty level: MediumINVESTMENT ANALYSISa 40. No matter how many forms of investment analysis you do:a. the actual results from a project may vary significantly from the expected results.b. the internal rate of return will always produce the most reliable results.c. a project will never be accepted unless the payback period is met.d. the initial costs will generally vary considerably from the estimated costs.e. only the first three years of a project ever affect its final outcome.Difficulty level: EasyINVESTMENT ANALYSISb 41. Which of the following methods of project analysis are biased towards short-term projects?I. internal rate of returnII. accounting rate of returnIII. paybackIV. discounted paybacka. I and II onlyb. III and IV onlyc. II and III onlyd. I and IV onlye. II and IV onlyDifficulty level: MediumINVESTMENT ANALYSISa 42. If a project is assigned a required rate of return equal to zero, then:a. the timing of the project's cash flows has no bearing on the value of the project.b. the project will always be accepted.c. the project will always be rejected.d. whether the project is accepted or rejected will depend on the timing of the cash flows.e. the project can never add value for the shareholders.Difficulty level: MediumDECISION RULESe 43. You are considering a project with the following data:Internal rate of return 8.7 percentProfitability ratio .98Net present value -$393Payback period 2.44 yearsRequired return 9.5 percentWhich one of the following is correct given this information?a. The discount rate used in computing the net present value must have been less than 8.7 percent.b. The discounted payback period will have to be less than 2.44 years.c. The discount rate used to compute the profitability ratio was equal to the internal rate of return.d. This project should be accepted based on the profitability ratio.e. This project should be rejected based on the internal rate of return.Difficulty level: MediumNET PRESENT V ALUEc 44. Accepting positive NPV projects benefits the stockholders because:a. it is the most easily understood valuation process.b. the present value of the expected cash flows are equal to the cost.c. the present value of the expected cash flows are greater than the cost.d. it is the most easily calculated.e. None of the above.Difficulty level: EasyNET PRESENT V ALUEa 45. Which of the following does not characterize NPV?a. NPV does not incorporate risk into the analysis.b. NPV incorporates all relevant information.c. NPV uses all of the project's cash flows.d. NPV discounts all future cash flows.e. Using NPV will lead to decisions that maximize shareholder wealth.Difficulty level: EasyPAYBACKe 46. The payback period rule:a. discounts cash flows.b. ignores initial cost.c. always uses all possible cash flows in its calculation.d. Both A and C.e. None of the above.Difficulty level: EasyPAYBACKc 47. The payback period rule accepts all investment projects in which the payback period forthe cash flows is:a. equal to the cutoff point.b. greater than the cutoff point.c. less than the cutoff point.d. positive.e. None of the above.Difficulty level: EasyPAYBACKd 48. The payback period rule is a convenient and useful tool because:a. it provides a quick estimate of how rapidly the initial investment will be recouped.b. results of a short payback rule decision will be quickly seen.c. it does not take into account time value of money.d. All of the above.e. None of the above.Difficulty level: EasyDISCOUNTED PAYBACKa 49. The discounted payback period rule:a. considers the time value of money.b. discounts the cutoff point.c. ignores uncertain cash flows.d. is preferred to the NPV rule.e. None of the above.Difficulty level: EasyPAYBACKc 50. The payback period rule:a. determines a cutoff point so that all projects accepted by the NPV rule will be acceptedby the payback period rule.b. determines a cutoff point so that depreciation is just equal to positive cash flows in thepayback year.c. requires an arbitrary choice of a cutoff point.d. varies the cutoff point with the interest rate.e. Both A and D.Difficulty level: EasyA VERAGE ACCOUNTING RETURNc 51. The average accounting return is determined by:a. dividing the yearly cash flows by the investment.b. dividing the average cash flows by the investment.c. dividing the average net income by the average investment.d. dividing the average net income by the initial investment.e. dividing the net income by the cash flow.Difficulty level: EasyA VERAGE ACCOUNTING RETURNb 52. The investment decision rule that relates average net income to average investment is the:a. discounted cash flow method.b. average accounting return method.c. average payback method. d. average profitability index.e. None of the above.Difficulty level: EasyMODIFIED INTERNAL RATE OF RETURN d 53. Modified internal rate of return:a. handles the multiple IRR problem by combining cash flows until only one change in sign change remains.b. requires the use of a discount rate.c. does not require the use of a discount rate.d. Both A and B.e. Both A and C.Difficulty level: MediumA VERAGE ACCOUNTING RETURNd 54. The shortcoming(s) of the average accounting return (AAR) method is (are):a. the use of net income instead of cash flows.b. the pattern of income flows has no impact on the AAR.c. there is no clear-cut decision rule.d. All of the above.e. None of the above.Difficulty level: MediumINTERNAL RATE OF RETURNe 55. The two fatal flaws of the internal rate of return rule are:a. arbitrary determination of a discount rate and failure to consider initial expenditures.b. arbitrary determination of a discount rate and failure to correctly analyze mutually exclusive investment projects.c. arbitrary determination of a discount rate and the multiple rate of return problem.d. failure to consider initial expenditures and failure to correctly analyze mutually exclusive investment projects.e. failure to correctly analyze mutually exclusive investment projects and the multiple rate of return problem.Difficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSd 56. A mutually exclusive project is a project whose:a. acceptance or rejection has no effect on other projects.b. NPV is always negative.c. IRR is always negative.d. acceptance or rejection affects other projects.e. cash flow pattern exhibits more than one sign change.Difficulty level: EasyINTERNAL RATE OF RETURNd 57. A project will have more than one IRR if:a. the IRR is positive.b. the IRR is negative.c. the NPV is zero.d. the cash flow pattern exhibits more than one sign change.e. the cash flow pattern exhibits exactly one sign change.Difficulty level: EasyINTERNAL RATE OF RETURN RULESb 58. Using internal rate of return, a conventional project should be accepted if the internal rate of return is:a. equal to the discount rate.b. greater than the discount rate.c. less than the discount rate.d. negative.e. positive.Difficulty level: EasyINTERNAL RATE OF RETURNa 59. The internal rate of return may be defined as:a. the discount rate that makes the NPV cash flows equal to zero.b. the difference between the market rate of interest and the NPV.c. the market rate of interest less the risk-free rate.d. the project acceptance rate set by management.e. None of the above.Difficulty level: MediumMULTIPLE INTERNAL RATE OF RETURNSd 60. The problem of multiple IRRs can occur when:a. there is only one sign change in the cash flows.b. the first cash flow is always positive.c. the cash flows decline over the life of the project.d. there is more than one sign change in the cash flows.e. None of the above.Difficulty level: EasyTIMING AND SCALE ISSUES WITH INTERNAL RATE OF RETURNb 61. The elements that cause problems with the use of the IRR in projects that are mutually exclusive are:a. the discount rate and scale problems.b. timing and scale problems.c. the discount rate and timing problems.d. scale and reversing flow problems.e. timing and reversing flow problems. Difficulty level: MediumNET PRESENT V ALUE DECISIONc 62. If there is a conflict between mutually exclusive projects due to the IRR, one should:a. drop the two projects immediately.b. spend more money on gathering information.c. depend on the NPV as it will always provide the most value.d. depend on the AAR because it does not suffer from these same problems.e. None of the above.Difficulty level: MediumPROFITABILITY INDEXe 63. The profitability index is the ratio of:a. average net income to average investment.b. internal rate of return to current market interest rate.c. net present value of cash flows to internal rate of return.d. net present value of cash flows to average accounting return.e. present value of cash flows to initial investment cost.Difficulty level: EasyINVESTMENT DECISION RULESa 64. Which of the following statement is true?a. One must know the discount rate to compute the NPV of a project but one can computethe IRR without referring to the discount rate.b. One must know the discount rate to compute the IRR of a project but one can computethe NPV without referring to the discount rate.c. Payback accounts for time value of money.d. There will always be one IRR regardless of cash flows.e. Average accounting return is the ratio of total assets to total net income.Difficulty level: MediumCAPITAL BUDGETING PRACTICEb65. Graham and Harvey (2001) found that ___ and ___ were the two most popular capital budgeting methods.a. Internal Rate of Return; Payback Periodb. Internal Rate of Return; Net Present Valuec. Net Present Value; Payback Periodd. Modified Internal Rate of Return; Internal Rate of Returne. Modified Internal Rate of Return; Net Present ValueDifficulty level: MediumPROBLEMS III.。

罗斯《公司理财》英文习题答案DOCchap023

公司理财习题答案第二十三章Answers to End-of-Chapter Problems B-203Chapter 23: Options and Corporate Finance: Extensions and Applications23.1 d 1 = [(r + ½ σ2) t]/ t 2σ= [(0.06 + ½ (0.25)2 ) 4]/()()425.02= 0.73N(d 1) = 0.7673 d 2 = d 1 – t 2σ = 0.73 – ()()425.02 = 0.23N(0.23) = 0.5910C = 50(0.7673) – 50e -0.06⨯4 (0.5910) = $38.365 – $23.245 = $15.12Total Value:$15.12 ⨯50$1$m illion = $302,40023.2 Option A: use discount rate of 6%Total pay value = $1mil 406.0A + 1.2096 millionOption B:Total pay value = $1.25 mil 406.0AThe question is whether the incremental $1.25 mil straight pay value is greater or lower than the options value of $1.2096 mil. If we use the riskless rate of 6%, the cost ofadditional $0.25 mil is $0.8663 mil (As opposed to $1.2096 mil). Holding everything else constant, Mr. Hurt is right and the Board is wrong. It’s cheaper for the firm to pay Mr. Hurt a $1.25 mil straight pay without opitons. However, diversification may make the $1.25 mil straignt pay better off for Mr. Hurt. From the bounding effect, the firm will be better off to offer Mr. Hurt the options.23.3 Fixed plant: r = 12%NPV = -1million + ()()112.0120$000,150++ ()()()(){}()1912.012.0120$2/000,1505.020$000,1505.0+A + = -1million + $2,678,571.43 + $10,704,073.24= $12,382,644.67Flexible plant:NPV = -1.5million + ()()112.0110$000,150+ +()()()(){}()1912.0912.012.0115$000,1505.010$000,1505.0+A +A = -1.5million + $1,339,285.71 + $8,920,061.03= $8,759,346.74TGC should choose the fixed plant since it has a larger NPV.Answers to End-of-Chapter Problems B-204 23.4If rate = 11%; NPV = ⎪⎭⎫ ⎝⎛+-11.155$50$ = -$0.4505 million < 0If rate = 9%; NPV = ⎪⎭⎫ ⎝⎛+-09.155$50$= $0.4588 millionNPV = 0.5 (0) + 0.5 (0.4588 million) = $229,400 > $500 He should not take the offer to sell his option.23.5 a. NPV = -7 million + (10,000 ⨯ $200) 515.0A= -$295,689.80b. $100,000 = 415.0C AC = $35,026.54( level of sales) ⨯ ($200) = $35,026.54=175.13 units≈ 176 units23.6 NPV = -7 mil +(10,000⨯ $200 /1.15) +[(0.5⨯15,000⨯ $200 ⨯915.0A ) +(0.5 ⨯100,000)]/1.15= -7 mil + $1,739,130.43 + $6,267,283.37= $1,006,413.80。

罗斯公司理财Chap001全英文题库及答案

罗斯公司理财Chap001全英⽂题库及答案Chapter 01 Introduction to Corporate Finance Answer KeyMultiple Choice Questions1. The person generally directly responsible for overseeing the tax management, cost accounting, financial accounting, and information system functions is the:A. treasurer.B. director.C. controller.D. chairman of the board.E. chief executive officer.Difficulty level: EasyTopic: CONTROLLERType: DEFINITIONS2. The person generally directly responsible for overseeing the cash and credit functions, financial planning, and capital expenditures is the:A. treasurer.B. director.C. controller.D. chairman of the board.E. chief operations officer.3. The process of planning and managing a firm's long-term investments is called:A. working capital management.B. financial depreciation.C. agency cost analysis.D. capital budgeting.E. capital structure.Difficulty level: EasyTopic: CAPITAL BUDGETINGType: DEFINITIONS4. The mixture of debt and equity used by a firm to finance its operations is called:A. working capital management.B. financial depreciation.C. cost analysis.D. capital budgeting.E. capital structure.5. The management of a firm's short-term assets and liabilities is called:A. working capital management.B. debt management.C. equity management.D. capital budgeting.E. capital structure.6. A business owned by a single individual is called a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. limited liability company.7. A business formed by two or more individuals who each have unlimited liability for business debts is called a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. limited liability company.8. The division of profits and losses among the members of a partnership is formalized in the:A. indemnity clause.B. indenture contract.C. statement of purpose.D. partnership agreement.E. group charter.9. A business created as a distinct legal entity composed of one or more individuals or entities is called a:A. corporation.B. sole proprietorship.C. general partnership.D. limited partnership.E. unlimited liability company.Difficulty level: EasyTopic: CORPORATIONType: DEFINITIONS10. The corporate document that sets forth the business purpose of a firm is the:A. indenture contract.B. state tax agreement.C. corporate bylaws.D. debt charter.E. articles of incorporation.11. The rules by which corporations govern themselves are called:A. indenture provisions.B. indemnity provisions.C. charter agreements.D. bylaws.E. articles of incorporation.12. A business entity operated and taxed like a partnership, but with limited liability for the owners, is called a:A. limited liability company.B. general partnership.C. limited proprietorship.D. sole proprietorship.E. corporation.13. The primary goal of financial management is to:A. maximize current dividends per share of the existing stock.B. maximize the current value per share of the existing stock.C. avoid financial distress.D. minimize operational costs and maximize firm efficiency.E. maintain steady growth in both sales and net earnings.14. A conflict of interest between the stockholders and management of a firm is called:A. stockholders' liability.B. corporate breakdown.C. the agency problem.D. corporate activism.E. legal liability.15. Agency costs refer to:A. the total dividends paid to stockholders over the lifetime of a firm.B. the costs that result from default and bankruptcy of a firm.C. corporate income subject to double taxation.D. the costs of any conflicts of interest between stockholders and management.E. the total interest paid to creditors over the lifetime of the firm.16. A stakeholder is:A. any person or entity that owns shares of stock of a corporation.B. any person or entity that has voting rights based on stock ownership of a corporation.C. a person who initially started a firm and currently has management control over the cash flows of the firm due to his/her current ownership of company stock.D. a creditor to whom the firm currently owes money and who consequently has a claim on the cash flows of the firm.E. any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.17. The Sarbanes Oxley Act of 2002 is intended to:A. protect financial managers from investors.B. not have any effect on foreign companies.C. reduce corporate revenues.D. protect investors from corporate abuses.E. decrease audit costs for U.S. firms.18. The treasurer and the controller of a corporation generally report to the:A. board of directors.B. chairman of the board.C. chief executive officer.D. president.E. chief financial officer.19. Which one of the following statements is correct concerning the organizational structure ofa corporation?A. The vice president of finance reports to the chairman of the board.B. The chief executive officer reports to the board of directors.C. The controller reports to the president.D. The treasurer reports to the chief executive officer.E. The chief operations officer reports to the vice president of production.Difficulty level: MediumTopic: ORGANIZATIONAL STRUCTUREType: CONCEPTS20. Which one of the following is a capital budgeting decision?A. determining how much debt should be borrowed from a particular lenderB. deciding whether or not to open a new storeC. deciding when to repay a long-term debtD. determining how much inventory to keep on handE. determining how much money should be kept in the checking account21. The Sarbanes Oxley Act was enacted in:A. 1952.B. 1967.C. 1998.D. 2002.E. 2006.22. Since the implementation of Sarbanes-Oxley, the cost of going public in the United States has:A. increased.B. decreased.C. remained about the same.D. been erratic, but over time has decreased.E. It is impossible to tell since Sarbanes-Oxley compliance does not involve direct cost to the firm.23. Working capital management includes decisions concerning which of the following?I. accounts payableII. long-term debtIII. accounts receivableIV. inventoryA. I and II onlyB. I and III onlyC. II and IV onlyD. I, II, and III onlyE. I, III, and IV onlyDifficulty level: MediumTopic: WORKING CAPITAL MANAGEMENTType: CONCEPTS24. Working capital management:A. ensures that sufficient equipment is available to produce the amount of product desired on a daily basis.B. ensures that long-term debt is acquired at the lowest possible cost.C. ensures that dividends are paid to all stockholders on an annual basis.D. balances the amount of company debt to the amount of available equity.E. is concerned with the upper portion of the balance sheet.Difficulty level: EasyTopic: WORKING CAPITAL MANAGEMENTType: CONCEPTS25. Which one of the following statements concerning a sole proprietorship is correct?A. A sole proprietorship is the least common form of business ownership.B. The profits of a sole proprietorship are taxed twice.C. The owners of a sole proprietorship share profits as established by the partnership agreement.D. The owner of a sole proprietorship may be forced to sell his/her personal assets to pay company debts.E. A sole proprietorship is often structured as a limited liability company.Difficulty level: EasyTopic: SOLE PROPRIETORSHIPType: CONCEPTS26. Which one of the following statements concerning a sole proprietorship is correct?A. The life of the firm is limited to the life span of the owner.B. The owner can generally raise large sums of capital quite easily.C. The ownership of the firm is easy to transfer to another individual.D. The company must pay separate taxes from those paid by the owner.E. The legal costs to form a sole proprietorship are quite substantial.Difficulty level: EasyTopic: SOLE PROPRIETORSHIPType: CONCEPTS27. Which one of the following best describes the primary advantage of being a limited partner rather than a general partner?A. entitlement to a larger portion of the partnership's incomeB. ability to manage the day-to-day affairs of the businessC. no potential financial lossD. greater management responsibilityE. liability for firm debts limited to the capital investedDifficulty level: EasyTopic: PARTNERSHIPType: CONCEPTS28. A general partner:A. has less legal liability than a limited partner.B. has more management responsibility than a limited partner.C. faces double taxation whereas a limited partner does not.D. cannot lose more than the amount of his/her equity investment.E. is the term applied only to corporations which invest in partnerships.Difficulty level: EasyTopic: PARTNERSHIPType: CONCEPTS29. A partnership:A. is taxed the same as a corporation.B. agreement defines whether the business income will be taxed like a partnership or a corporation.C. terminates at the death of any general partner.D. has less of an ability to raise capital than a proprietorship.E. allows for easy transfer of interest from one general partner to another.Difficulty level: EasyTopic: PARTNERSHIPType: CONCEPTS30. Which of the following are disadvantages of a partnership?I. limited life of the firmII. personal liability for firm debtIII. greater ability to raise capital than a sole proprietorshipIV. lack of ability to transfer partnership interestA. I and II onlyB. III and IV onlyC. II and III onlyD. I, II, and IV onlyE. I, III, and IV onlyDifficulty level: MediumTopic: PARTNERSHIPType: CONCEPTS31. Which of the following are advantages of the corporate form of business ownership?I. limited liability for firm debtII. double taxationIII. ability to raise capitalIV. unlimited firm lifeA. I and II onlyB. III and IV onlyC. I, II, and III onlyD. II, III, and IV onlyE. I, III, and IV onlyDifficulty level: MediumTopic: CORPORATIONType: CONCEPTS32. Which one of the following statements is correct concerning corporations?A. The largest firms are usually corporations.B. The majority of firms are corporations.C. The stockholders are usually the managers of a corporation.D. The ability of a corporation to raise capital is quite limited.E. The income of a corporation is taxed as personal income of the stockholders.Difficulty level: EasyTopic: CORPORATIONType: CONCEPTS33. Which one of the following statements is correct?A. Both partnerships and corporations incur double taxation.B. Both sole proprietorships and partnerships are taxed in a similar fashion.C. Partnerships are the most complicated type of business to form.D. Both partnerships and corporations have limited liability for general partners and shareholders.E. All types of business formations have limited lives.Difficulty level: MediumTopic: BUSINESS TYPESType: CONCEPTS34. The articles of incorporation:A. can be used to remove company management.B. are amended annually by the company stockholders.C. set forth the number of shares of stock that can be issued.D. set forth the rules by which the corporation regulates its existence.E. can set forth the conditions under which the firm can avoid double taxation.35. The bylaws:A. establish the name of the corporation.B. are rules which apply only to limited liability companies.C. set forth the purpose of the firm.D. mandate the procedure for electing corporate directors.E. set forth the procedure by which the stockholders elect the senior managers of the firm.36. The owners of a limited liability company prefer:A. being taxed like a corporation.B. having liability exposure similar to that of a sole proprietor.C. being taxed personally on all business income.D. having liability exposure similar to that of a general partner.E. being taxed like a corporation with liability like a partnership.Difficulty level: MediumTopic: LIMITED LIABILITY COMPANYType: CONCEPTS37. Which one of the following business types is best suited to raising large amounts of capital?A. sole proprietorshipB. limited liability companyC. corporationD. general partnershipE. limited partnershipDifficulty level: EasyTopic: CORPORATIONType: CONCEPTS38. Which type of business organization has all the respective rights and privileges of a legal person?A. sole proprietorshipB. general partnershipC. limited partnershipD. corporationE. limited liability companyDifficulty level: EasyTopic: CORPORATIONType: CONCEPTS39. Financial managers should strive to maximize the current value per share of the existing stock because:A. doing so guarantees the company will grow in size at the maximum possible rate.B. doing so increases the salaries of all the employees.C. the current stockholders are the owners of the corporation.D. doing so means the firm is growing in size faster than its competitors.E. the managers often receive shares of stock as part of their compensation.Difficulty level: EasyTopic: GOAL OF FINANC IAL MANAGEMENTType: CONCEPTS40. The decisions made by financial managers should all be ones which increase the:A. size of the firm.B. growth rate of the firm.C. marketability of the managers.D. market value of the existing owners' equity.E. financial distress of the firm.Difficulty level: EasyTopic: GOAL OF FINANCIAL MANAGEMENTType: CONCEPTS41. Which one of the following actions by a financial manager creates an agency problem?A. refusing to borrow money when doing so will create losses for the firmB. refusing to lower selling prices if doing so will reduce the net profitsC. agreeing to expand the company at the expense of stockholders' valueD. agreeing to pay bonuses based on the book value of the company stockE. increasing current costs in order to increase the market value of the stockholders' equity42. Which of the following help convince managers to work in the best interest of the stockholders?I. compensation based on the value of the stockII. stock option plansIII. threat of a proxy fightIV. threat of conversion to a partnershipA. I and II onlyB. II and III onlyC. I, II and III onlyD. I and III onlyE. I, II, III, and IVDifficulty level: MediumTopic: AGENCY PROBLEMType: CONCEPTS43. Which form of business structure faces the greatest agency problems?A. sole proprietorshipB. general partnershipC. limited partnershipD. corporationE. limited liability company44. A proxy fight occurs when:A. the board solicits renewal of current members.B. a group solicits proxies to replace the board of directors.C. a competitor offers to sell their ownership in the firm.D. the firm files for bankruptcy.E. the firm is declared insolvent.45. Which one of the following parties is considered a stakeholder of a firm?A. employeeB. short-term creditorC. long-term creditorD. preferred stockholderE. common stockholderDifficulty level: EasyTopic: STAKEHOLDERSType: CONCEPTS46. Which of the following are key requirements of the Sarbanes-Oxley Act?I. Officers of the corporation must review and sign annual reports.II. Officers of the corporation must now own more than 5% of the firm's stock. III. Annual reports must list deficiencies in internal controlsIV. Annual reports must be filed with the SEC within 30 days of year end.A. I onlyB. II onlyC. I and III onlyD. II and III onlyE. II and IV onlyDifficulty level: MediumTopic: SARBANES-OXLEYType: CONCEPTS47. Insider trading is:A. legal.B. illegal.C. impossible to have in our efficient market.D. discouraged, but legal.E. list only the securities of the largest firms.48. Sole proprietorships are predominantly started because:A. they are easily and cheaply setup.B. the proprietorship life is limited to the business owner's life.C. all business taxes are paid as individual tax.D. All of the above.E. None of the above.Difficulty level: EasyTopic: SOLE PROPRIETORSHIPSType: CONCEPTS49. Managers are encouraged to act in shareholders' interests by:A. shareholder election of a board of directors who select management.B. the threat of a takeover by another firm.C. compensation contracts that tie compensation to corporate success.D. Both A and B.E. All of the above.Difficulty level: MediumTopic: GOVERNANCEType: CONCEPTS50. The Securities Exchange Act of 1934 focuses on:A. all stock transactions.B. sales of existing securities.C. issuance of new securities.D. insider trading.E. Federal Deposit Insurance Corporation (FDIC) insurance.Difficulty level: MediumTopic: REGULATIONType: CONCEPTS51. The basic regulatory framework in the United States was provided by:A. the Securities Act of 1933.B. the Securities Exchange Act of 1934.C. the monetary system.D. A and B.E. All of the above.Difficulty level: MediumTopic: REGULATIONType: CONCEPTS52. The Securities Act of 1933 focuses on:A. all stock transactions.B. sales of existing securities.C. issuance of new securities.D. insider trading.E. Federal Deposit Insurance Corporation (FDIC) insurance.Difficulty level: EasyTopic: REGULATIONType: CONCEPTS53. In a limited partnership:A. each limited partner's liability is limited to his net worth.B. each limited partner's liability is limited to the amount he put into the partnership.C. each limited partner's liability is limited to his annual salary.D. there is no limitation on liability; only a limitation on what the partner can earn.E. None of the above.Difficulty level: EasyTopic: LIMITED PARTNERSHIPType: CONCEPTS54. Accounting profits and cash flows are:A. generally the same since they reflect current laws and accounting standards.B. generally the same since accounting profits reflect when the cash flows are received.C. generally not the same since GAAP allows for revenue recognition separate from the receipt of cash flows.D. generally not the same because cash inflows occur before revenue recognition.E. Both c and d.。

罗斯公司理财Chap003全英文题库及答案

Chapter 03 Financial Statements Analysis and Long-Term Planning Answer KeyMultiple Choice Questions1. One key reason a long-term financial plan is developed is because:A. the plan determines your financial policy.B. the plan determines your investment policy.C. there are direct connections between achievable corporate growth and the financial policy.D. there is unlimited growth possible in a well-developed financial plan.E. None of the above.Difficulty level: EasyTopic: LONG-TERM PLANNINGType: DEFINITIONS2. Projected future financial statements are called:A. plug statements.B. pro forma statements.C. reconciled statements.D. aggregated statements.E. none of the above.Difficulty level: EasyTopic: PRO FORMA STATEMENTSType: DEFINITIONS3. The percentage of sales method:A. requires that all accounts grow at the same rate.B. separates accounts that vary with sales and those that do not vary with sales.C. allows the analyst to calculate how much financing the firm will need to support the predicted sales level.D. Both A and B.E. Both B and C.Difficulty level: MediumTopic: PERCENTAGE OF SALESType: DEFINITIONS4. A _____ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively.A. tax reconciliation statementB. statement of standardizationC. statement of cash flowsD. common-base year statementE. common-size statementDifficulty level: EasyTopic: COMMON-SIZE STATEMENTSType: DEFINITIONS5. Relationships determined from a firm's financial information and used for comparison purposes are known as:A. financial ratios.B. comparison statements.C. dimensional analysis.D. scenario analysis.E. solvency analysis.Difficulty level: EasyTopic: FINANCIAL RATIOSType: DEFINITIONS6. Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as _____ ratios.A. asset managementB. long-term solvencyC. short-term solvencyD. profitabilityE. market valueDifficulty level: EasyTopic: SHORT-TERM SOLVENCY RATIOSType: DEFINITIONS7. The current ratio is measured as:A. current assets minus current liabilities.B. current assets divided by current liabilities.C. current liabilities minus inventory, divided by current assets.D. cash on hand divided by current liabilities.E. current liabilities divided by current assets.Difficulty level: EasyTopic: CURRENT RATIOType: DEFINITIONS8. The quick ratio is measured as:A. current assets divided by current liabilities.B. cash on hand plus current liabilities, divided by current assets.C. current liabilities divided by current assets, plus inventory.D. current assets minus inventory, divided by current liabilities.E. current assets minus inventory minus current liabilities.Difficulty level: EasyTopic: QUICK RATIOType: DEFINITIONS9. The cash ratio is measured as:A. current assets divided by current liabilities.B. current assets minus cash on hand, divided by current liabilities.C. current liabilities plus current assets, divided by cash on hand.D. cash on hand plus inventory, divided by current liabilities.E. cash on hand divided by current liabilities.Difficulty level: MediumTopic: CASH RATIOType: DEFINITIONS10. Ratios that measure a firm's financial leverage are known as _____ ratios.A. asset managementB. long-term solvencyC. short-term solvencyD. profitabilityE. market valueDifficulty level: EasyTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS11. The financial ratio measured as total assets minus total equity, divided by total assets, is the:A. total debt ratio.B. equity multiplier.C. debt-equity ratio.D. current ratio.E. times interest earned ratio.Difficulty level: EasyTopic: TOTAL DEBT RATIOType: DEFINITIONS12. The debt-equity ratio is measured as total:A. equity minus total debt.B. equity divided by total debt.C. debt divided by total equity.D. debt plus total equity.E. debt minus total assets, divided by total equity.Difficulty level: EasyTopic: DEBT-EQUITY RATIOType: DEFINITIONS13. The equity multiplier ratio is measured as total:A. equity divided by total assets.B. equity plus total debt.C. assets minus total equity, divided by total assets.D. assets plus total equity, divided by total debt.E. assets divided by total equity.Difficulty level: MediumTopic: EQUITY MULTIPLIERType: DEFINITIONS14. The financial ratio measured as earnings before interest and taxes, divided by interest expense is the:A. cash coverage ratio.B. debt-equity ratio.C. times interest earned ratio.D. gross margin.E. total debt ratio.Difficulty level: MediumTopic: TIMES INTEREST EARNED RATIOType: DEFINITIONS15. The financial ratio measured as earnings before interest and taxes, plus depreciation, divided by interest expense, is the:A. cash coverage ratio.B. debt-equity ratio.C. times interest earned ratio.D. gross margin.E. total debt ratio.Difficulty level: MediumTopic: CASH COVERAGE RATIOType: DEFINITIONS16. Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios.A. asset managementB. long-term solvencyC. short-term solvencyD. profitabilityE. market valueDifficulty level: EasyTopic: ASSET MANAGEMENT RATIOSType: DEFINITIONS17. The inventory turnover ratio is measured as:A. total sales minus inventory.B. inventory times total sales.C. cost of goods sold divided by inventory.D. inventory times cost of goods sold.E. inventory plus cost of goods sold.Difficulty level: MediumTopic: INVENTORY TURNOVERType: DEFINITIONS18. The financial ratio days' sales in inventory is measured as:A. inventory turnover plus 365 days.B. inventory times 365 days.C. inventory plus cost of goods sold, divided by 365 days.D. 365 days divided by the inventory.E. 365 days divided by the inventory turnover.Difficulty level: MediumTopic: DAYS' SALES IN INVENTORYType: DEFINITIONS19. The receivables turnover ratio is measured as:A. sales plus accounts receivable.B. sales divided by accounts receivable.C. sales minus accounts receivable, divided by sales.D. accounts receivable times sales.E. accounts receivable divided by sales.Difficulty level: MediumTopic: RECEIVABLES TURNOVERType: DEFINITIONS20. The financial ratio days' sales in receivables is measured as:A. receivables turnover plus 365 days.B. accounts receivable times 365 days.C. accounts receivable plus sales, divided by 365 days.D. 365 days divided by the receivables turnover.E. 365 days divided by the accounts receivable.Difficulty level: MediumTopic: DAYS' SALES IN RECEIVABLESType: DEFINITIONS21. The total asset turnover ratio is measured as:A. sales minus total assets.B. sales divided by total assets.C. sales times total assets.D. total assets divided by sales.E. total assets plus sales.Difficulty level: EasyTopic: TOTAL ASSET TURNOVERType: DEFINITIONS22. Ratios that measure how efficiently a firm's management uses its assets and equity to generate bottom line net income are known as _____ ratios.A. asset managementB. long-term solvencyC. short-term solvencyD. profitabilityE. market valueDifficulty level: EasyTopic: PROFITABILITY RATIOSType: DEFINITIONS23. The financial ratio measured as net income divided by sales is known as the firm's:A. profit margin.B. return on assets.C. return on equity.D. asset turnover.E. earnings before interest and taxes.Difficulty level: EasyTopic: PROFIT MARGINType: DEFINITIONS24. The financial ratio measured as net income divided by total assets is known as the firm's:A. profit margin.B. return on assets.C. return on equity.D. asset turnover.E. earnings before interest and taxes.Difficulty level: EasyTopic: RETURN ON ASSETSType: DEFINITIONS25. The financial ratio measured as net income divided by total equity is known as the firm's:A. profit margin.B. return on assets.C. return on equity.D. asset turnover.E. earnings before interest and taxes.Difficulty level: EasyTopic: RETURN ON EQUITYType: DEFINITIONS26. The financial ratio measured as the price per share of stock divided by earnings per share is known as the:A. return on assets.B. return on equity.C. debt-equity ratio.D. price-earnings ratio.E. Du Pont identity.Difficulty level: EasyTopic: PRICE-EARNINGS RATIOType: DEFINITIONS27. The market-to-book ratio is measured as:A. total equity divided by total assets.B. net income times market price per share of stock.C. net income divided by market price per share of stock.D. market price per share of stock divided by earnings per share.E. market value of equity per share divided by book value of equity per share.Difficulty level: MediumTopic: MARKET-TO-BOOK RATIOType: DEFINITIONS28. The _____ breaks down return on equity into three component parts.A. Du Pont identityB. return on assetsC. statement of cash flowsD. asset turnover ratioE. equity multiplierDifficulty level: MediumTopic: DU PONT IDENTITYType: DEFINITIONS29. The External Funds Needed (EFN) equation does not measure the:A. additional asset requirements given a change in sales.B. additional total liabilities raised given the change in sales.C. rate of return to shareholders given the change in sales.D. net income expected to be earned given the change in sales.E. None of the above.Difficulty level: MediumTopic: EXTERNAL FUNDS NEEDEDType: DEFINITIONS30. To calculate sustainable growth rate without using return on equity, the analyst needs the:A. profit margin.B. payout ratio.C. debt-to-equity ratio.D. total asset turnover.E. All of the above.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS31. Growth can be reconciled with the goal of maximizing firm value:A. because greater growth always adds to value.B. because growth must be an outcome of decisions that maximize NPV.C. because growth and wealth maximization are the same.D. because growth of any type cannot decrease value.E. None of the above.Difficulty level: MediumTopic: GROWTHType: DEFINITIONS32. Sustainable growth can be determined by the:A. profit margin, total asset turnover and the price to earnings ratio.B. profit margin, the payout ratio, the debt-to-equity ratio, and the asset requirement or asset turnover ratio.C. Total growth less capital gains growth.D. Either A or B.E. None of the above.Difficulty level: MediumTopic: SUSTAINABLE GROWTHType: DEFINITIONS33. Which of the following will increase sustainable growth?A. Buy back existing stockB. Decrease debtC. Increase profit marginD. Increase asset requirement or asset turnover ratioE. Increase dividend payout ratioDifficulty level: MediumTopic: SUSTAINABLE GROWTHType: DEFINITIONS34. The main objective of long-term financial planning models is to:A. determine the asset requirements given the investment activities of the firm.B. plan for contingencies or uncertain events.C. determine the external financing needs.D. All of the above.E. None of the above.Difficulty level: MediumTopic: LONG TERM PLANNINGType: DEFINITIONS35. On a common-size balance sheet, all _____ accounts are shown as a percentage of _____.A. income; total assetsB. liability; net incomeC. asset; salesD. liability; total assetsE. equity; salesDifficulty level: MediumTopic: COMMON-SIZE BALANCE SHEETType: DEFINITIONS36. Which one of the following statements is correct concerning ratio analysis?A. A single ratio is often computed differently by different individuals.B. Ratios do not address the problem of size differences among firms.C. Only a very limited number of ratios can be used for analytical purposes.D. Each ratio has a specific formula that is used consistently by all analysts.E. Ratios can not be used for comparison purposes over periods of time.Difficulty level: MediumTopic: RATIO ANALYSISType: DEFINITIONS37. Which of the following are liquidity ratios?I. cash coverage ratioII. current ratioIII. quick ratioIV. inventory turnoverA. II and III onlyB. I and II onlyC. II, III, and IV onlyD. I, III, and IV onlyE. I, II, III, and IVDifficulty level: MediumTopic: LIQUIDITY RATIOSType: DEFINITIONS38. An increase in which one of the following accounts increases a firm's current ratio without affecting its quick ratio?A. accounts payableB. cashC. inventoryD. accounts receivableE. fixed assetsDifficulty level: MediumTopic: LIQUIDITY RATIOSType: DEFINITIONS39. A supplier, who requires payment within ten days, is most concerned with which one of the following ratios when granting credit?A. currentB. cashC. debt-equityD. quickE. total debtDifficulty level: MediumTopic: LIQUIDITY RATIOSType: DEFINITIONS40. A firm has a total debt ratio of .47. This means that that firm has 47 cents in debt for every:A. $1 in equity.B. $1 in total sales.C. $1 in current assets.D. $.53 in equity.E. $.53 in total assets.Difficulty level: MediumTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS41. The long-term debt ratio is probably of most interest to a firm's:A. credit customers.B. employees.C. suppliers.D. mortgage holder.E. shareholders.Difficulty level: MediumTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS42. A banker considering loaning a firm money for ten years would most likely prefer the firm have a debt ratio of _____ and a times interest earned ratio of _____.A. .75; .75B. .50; 1.00C. .45; 1.75D. .40; 2.50E. .35; 3.00Difficulty level: MediumTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS43. From a cash flow position, which one of the following ratios best measures a firm's ability to pay the interest on its debts?A. times interest earned ratioB. cash coverage ratioC. cash ratioD. quick ratioE. Interval measureDifficulty level: MediumTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS44. The higher the inventory turnover measure, the:A. faster a firm sells its inventory.B. faster a firm collects payment on its sales.C. longer it takes a firm to sell its inventory.D. greater the amount of inventory held by a firm.E. lesser the amount of inventory held by a firm.Difficulty level: MediumTopic: ASSET MANAGEMENT RATIOSType: DEFINITIONS45. Which one of the following statements is correct if a firm has a receivables turnover measure of 10?A. It takes a firm 10 days to collect payment from its customers.B. It takes a firm 36.5 days to sell its inventory and collect the payment from the sale.C. It takes a firm 36.5 days to pay its creditors.D. The firm has an average collection period of 36.5 days.E. The firm has ten times more in accounts receivable than it does in cash.Difficulty level: MediumTopic: ASSET MANAGEMENT RATIOSType: DEFINITIONS46. A total asset turnover measure of 1.03 means that a firm has $1.03 in:A. total assets for every $1 in cash.B. total assets for every $1 in total debt.C. total assets for every $1 in equity.D. sales for every $1 in total assets.E. long-term assets for every $1 in short-term assets.Difficulty level: MediumTopic: ASSET MANAGEMENT RATIOSType: DEFINITIONS47. Puffy's Pastries generates five cents of net income for every $1 in sales. Thus, Puffy's has a _____ of 5%.A. return on assetsB. return on equityC. profit marginD. Du Pont measureE. total asset turnoverDifficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS48. If a firm produces a 10% return on assets and also a 10% return on equity, then the firm:A. has no debt of any kind.B. is using its assets as efficiently as possible.C. has no net working capital.D. also has a current ratio of 10.E. has an equity multiplier of 2.Difficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS49. If shareholders want to know how much profit a firm is making on their entire investment in the firm, the shareholders should look at the:A. profit margin.B. return on assets.C. return on equity.D. equity multiplier.E. earnings per share.Difficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS50. BGL Enterprises increases its operating efficiency such that costs decrease while sales remain constant. As a result, given all else constant, the:A. return on equity will increase.B. return on assets will decrease.C. profit margin will decline.D. equity multiplier will decrease.E. price-earnings ratio will increase.Difficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS51. The only difference between Joe's and Moe's is that Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. Assuming all else equal:A. Joe's will have a lower profit margin.B. Joe's will have a lower return on equity.C. Moe's will have a higher net income.D. Moe's will have a lower profit margin.E. Moe's will have a higher return on assets.Difficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS52. Last year, Alfred's Automotive had a price-earnings ratio of 15. This year, the price earnings ratio is 18. Based on this information, it can be stated with certainty that:A. the price per share increased.B. the earnings per share decreased.C. investors are paying a higher price for each share of stock purchased.D. investors are receiving a higher rate of return this year.E. either the price per share, the earnings per share, or both changed.Difficulty level: MediumTopic: MARKET VALUE RATIOSType: DEFINITIONS53. Turner's Inc. has a price-earnings ratio of 16. Alfred's Co. has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Alfred's:A. has a higher market price than one share of stock in Turner's.B. has a higher market price per dollar of earnings than does one share of Turner's.C. sells at a lower price per share than one share of Turner's.D. represents a larger percentage of firm ownership than does one share of Turner's stock.E. earns a greater profit per share than does one share of Turner's stock.Difficulty level: MediumTopic: MARKET VALUE RATIOType: DEFINITIONS54. Which two of the following are most apt to cause a firm to have a higher price-earnings ratio?I. slow industry outlookII. high prospect of firm growthIII. very low current earningsIV. investors with a low opinion of the firmA. I and II onlyB. II and III onlyC. II and IV onlyD. I and III onlyE. III and IV onlyDifficulty level: MediumTopic: MARKET VALUE RATIOSType: DEFINITIONS55. Vinnie's Motors has a market-to-book ratio of 3. The book value per share is $4.00. Holding market-to-book constant, a $1 increase in the book value per share will:A. cause the accountants to increase the equity of the firm by an additional $2.B. increase the market price per share by $1.C. increase the market price per share by $12.D. tend to cause the market price per share to rise.E. only affect book values but not market values.Difficulty level: MediumTopic: MARKET VALUE RATIOSType: DEFINITIONS56. Which one of the following sets of ratios applies most directly to shareholders?A. return on assets and profit marginB. quick ratio and times interest earnedC. price-earnings ratio and debt-equity ratioD. market-to-book ratio and price-earnings ratioE. cash coverage ratio and times equity multiplierDifficulty level: MediumTopic: MARKET VALUE RATIOSType: DEFINITIONS57. The three parts of the Du Pont identity can be generally described as:I. operating efficiency, asset use efficiency and firm profitability.II. financial leverage, operating efficiency and asset use efficiency.III. the equity multiplier, the profit margin and the total asset turnover.IV. the debt-equity ratio, the capital intensity ratio and the profit margin.A. I and II onlyB. II and III onlyC. I and IV onlyD. I and III onlyE. III and IV onlyDifficulty level: MediumTopic: DU PONT IDENTITYType: DEFINITIONS58. If a firm decreases its operating costs, all else constant, then:A. the profit margin increases while the equity multiplier decreases.B. the return on assets increases while the return on equity decreases.C. the total asset turnover rate decreases while the profit margin increases.D. both the profit margin and the equity multiplier increase.E. both the return on assets and the return on equity increase.Difficulty level: MediumTopic: DU PONT IDENTITYType: DEFINITIONS59. Which one of the following statements is correct?A. Book values should always be given precedence over market values.B. Financial statements are frequently the basis used for performance evaluations.C. Historical information has no value when predicting the future.D. Potential lenders place little value on financial statement information.E. Reviewing financial information over time has very limited value.Difficulty level: MediumTopic: EVALUATING FINANCIAL STATEMENTSType: DEFINITIONS60. It is easier to evaluate a firm using its financial statements when the firm:A. is a conglomerate.B. is global in nature.C. uses the same accounting procedures as other firms in its industry.D. has a different fiscal year than other firms in its industry.E. tends to have one-time events such as asset sales and property acquisitions.Difficulty level: MediumTopic: EVALUATING FINANCIAL STATEMENTSType: DEFINITIONS61. Which two of the following represent the most effective methods of directly evaluating the financial performance of a firm?I. comparing the current financial ratios to those of the same firm from prior time periodsII. comparing a firm's financial ratios to those of other firms in the firm's peer group who have similar operationsIII. comparing the financial statements of the firm to the financial statements of similar firms operating in other countriesIV. comparing the financial ratios of the firm to the average ratios of all firms located in the same geographic areaA. I and II onlyB. II and III onlyC. III and IV onlyD. I and IV onlyE. I and III onlyDifficulty level: MediumTopic: EVALUATING FINANCIAL STATEMENTSType: DEFINITIONS62. In the financial planning model, external funds needed (EFN) is equal to changes inA. assets - (liabilities - equity).B. assets - (liabilities + equity).C. (assets + liabilities - equity).D. (assets + equity - liabilities).E. assets - equity.Difficulty level: MediumTopic: EXTERNAL FUNDS NEEDEDType: DEFINITIONS63. Which of the following represent problems encountered when comparing the financial statements of one firm with those of another firm?I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.II. The operations of the two firms may vary geographically.III. The firms may use differing accounting methods for inventory purposes.IV. The two firms may be seasonal in nature and have different fiscal year ends.A. I and II onlyB. II and III onlyC. I, III, and IV onlyD. I, II, and III onlyE. I, II, III, and IVDifficulty level: MediumTopic: EVALUATING FINANCIAL STATEMENTSType: DEFINITIONS64. A firm's sustainable growth rate in sales directly depends on its:A. debt to equity ratio.B. profit margin.C. dividend policy.D. asset efficiency.E. All of the above.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS65. The sustainable growth rate will be equivalent to the internal growth rate when:A. a firm has no debt.B. the growth rate is positive.C. the plowback ratio is positive but less than 1.D. a firm has a debt-equity ratio exactly equal to 1.E. net income is greater than zero.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS66. The sustainable growth rate:A. assumes there is no external financing of any kind.B. is normally higher than the internal growth rate.C. assumes the debt-equity ratio is variable.D. is based on receiving additional external debt and equity financing.E. assumes that 100% of all income is retained by the firm.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS67. If a firm bases its growth projection on the rate of sustainable growth, and shows positive net income, then the:A. fixed assets will have to increase at the same rate, regardless of the current capacity level.B. number of common shares outstanding will increase at the same rate of growth.C. debt-equity ratio will have to increase.D. debt-equity ratio will remain constant while retained earnings increase.E. fixed assets, debt-equity ratio, and number of common shares outstanding will all increase.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS68. Marcie's Mercantile wants to maintain its current dividend policy, which is a payout ratio of 40%. The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio. Given these requirements, the maximum rate at which Marcie's can grow is equal to:A. 40% of the internal rate of growth.B. 60% of the internal rate of growth.C. the internal rate of growth.D. the sustainable rate of growth.E. 60% of the sustainable rate of growth.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS69. One of the primary weaknesses of many financial planning models is that they:A. rely too much on financial relationships and too little on accounting relationships.B. are iterative in nature.C. ignore the goals and objectives of senior management.D. are based solely on best case assumptions.E. ignore the size, risk, and timing of cash flows.Difficulty level: MediumTopic: FINANCIAL PLANNING MODELSType: DEFINITIONS70. Financial planning, when properly executed:A. ignores the normal restraints encountered by a firm.B. ensures that the primary goals of senior management are fully achieved.C. reduces the necessity of daily management oversight of the business operations.D. helps ensure that proper financing is in place to support the desired level of growth.E. eliminates the need to plan more than one year in advance.Difficulty level: MediumTopic: FINANCIAL PLANNINGType: DEFINITIONS71. When examining the EBITDA ratio, lower numbers are:A. considered good.B. considered mediocre.C. considered poor.D. indifferent to higher numbers.E. it is impossible to garner information from this ratio.Difficulty level: MediumTopic: EBITDA RATIOType: DEFINITIONS。

罗斯《公司理财》英文习题答案DOCchap012

公司理财习题答案第十二章Chapter 12: Risk, Return, and Capital Budgeting12.1 Cost of equity R S = 5 + 0.95 (9) = 13.55% NPV of the project= -$1.2 million + $340,.0001135515tt =∑= -$20,016.52Do not undertake the project. 12.2 a. R D= (-0.05 + 0.05 + 0.08 + 0.15 + 0.10) / 5 = 0.066 R M = (-0.12 + 0.01 + 0.06 + 0.10 + 0.05) / 5 = 0.02b.DR- D R M R -R M(M R -M R )2 (D R -R D )(M R -R M )-0.116 -0.14 0.0196 0.01624 -0.016 -0.01 0.0001 0.00016 0.014 0.04 0.0016 0.00056 0.084 0.08 0.0064 0.00672 0.034 0.03 0.0009 0.001020.02860.02470Beta of Douglas = 0.02470 / 0.0286 = 0.86412.3 R S = 6% + 1.15 ⨯ 10% = 17.5% R B = 6% + 0.3 ⨯ 10% = 9% a. Cost of equity = R S = 17.5% b. B / S = 0.25 B / (B + S) = 0.2 S / (B + S) = 0.8WACC = 0.8 ⨯ 17.5% + 0.2 ⨯ 9% (1 - 0.35)= 15.17%12.4 C σ = ()2104225.0 = 0.065M σ = ()2101467.0 = 0.0383Beta of ceramics craftsman = CM ρC σ M σ / M σ2 = CM ρC σ/ M σ = (0.675) (0.065) / 0.0383 = 1.146 12.5a. To compute the beta of Mercantile Manufacturing’s stock, you need the product of the deviations of Mercantile’s returns from their mean and the deviations of the market’s returns from their mean. You also need the squares of the deviations ofthe market’s returns from their mean.The mechanics of computing the means and the deviations were presented in an earlier chapter.R T = 0.196 / 12 = 0.016333 R M = 0.236 / 12 = 0.019667 E(T R -R T ) (M R -R M ) = 0.038711 E(M R -R M )2 = 0.038588 β = 0.038711 / 0.038588= 1.0032b.The beta of the average stock is 1. Mercantile’s beta is close to 1, indicating that its stock has average risk.12.6 a.R M can have three values, 0.16, 0.18 or 0.20. The probability that M R takes one of these values is the sum of the joint probabilities of the return pair that include theparticular value of M R . For example, if M R is 0.16, R J will be 0.16, 0.18 or 0.22. The probability that M R is 0.16 and R J is 0.16 is 0.10. The probability that R M is 0.16 and R J is 0.18 is 0.06. The probability that M R is 0.16 and R J is 0.22 is 0.04. The probability that M R is 0.16 is, therefore, 0.10 + 0.06 + 0.04 = 0.20. The same procedure is used to calculate the probability that M R is 0.18 and the probability that M R is 0.20. Remember, the sum of the probability must be one.M RProbability 0.16 0.20 0.18 0.60 0.20 0.20 b. i.RM= 0.16 (0.20) + 0.18 (0.60) + 0.20 (0.20) = 0.18ii. 2M σ = (0.16 - 0.18) 2 (0.20) + (0.18 - 0.18) 2 (0.60) + (0.20 - 0.18) 2 (0.20)= 0.00016iii. M σ = ()2100016.0 = 0.01265c. R J Probability .18 .20 .20 .40 .22 .20 .24.10d. i. E j = .16 (.10) + .18 (.20) + .20 (.40) + .22 (.20) + .24(.10) = .20 ii. σj 2 = (.16 - .20)2 (.10) + (.18 - .20)2 (.20) + (.20 - .20)2 (.40)+ (.22 - .20)2 (.20) + (.24 - .20)2 (.10) = .00048公司理财习题答案第十二章iii. σj = ()21.0 = .0219100048e. Cov mj= (.16 - .18) (.16 - .20) (.10) + (.16 - .18) (.18 - .20) (.06)+ (.16 - .18) (.22 - .20) (.04) + (.20 - .18) (.18 - .20) (.02)+ (.20 - .18) (.22 - .20) (.04) + (.20 - .18) (.24 - .20) (.10)= .000176Corr mj = (0.000176) / (0.01265) (0.02191) = 0.635f. βj = (.635) (.02191) / (.01265) = 1.1012.7 i. The risk of the new project is the same as the risk of the firm without the project.ii. The firm is financed entirely with equity.12.8 a. Pacific Cosmetics should use its stock beta in the evaluation of the project only ifthe risk of the perfume project is the same as the risk of Pacific Cosmetics.b. If the risk of the project is the same as the risk of the firm, use the firm’s stock beta.If the risk differs, then use the beta of an all-equity firm with similar risk as theperfume project. A good way to estimate the beta of the project would be toaverage the betas of many perfume producing firms.12.9 E(R S) = 0.1 ⨯ 3 + 0.3 ⨯ 8 + 0.4 ⨯ 20 + 0.2 ⨯ 15 = 13.7%E(R B) = 0.1 ⨯ 8 + 0.3 ⨯ 8 + 0.4 ⨯ 10 + 0.2 ⨯ 10 = 9.2%E(R M) = 0.1 ⨯ 5 + 0.3 ⨯ 10 + 0.4 ⨯ 15 + 0.2 ⨯ 20 = 13.5%State {R S - E(R S)}{R M - E(R M)}Pr {R B - E(R B)}{R M - E(R M)}Pr1 (0.03-0.137)(0.05-0.135)⨯0.1 (0.08-0.092)(0.05-0.135)⨯0.12 (0.08-0.137)(0.10-0.135)⨯0.3 (0.08-0.092)(0.10-0.135)⨯0.33 (0.20-0.137)(0.15-0.135)⨯0.4 (0.10-0.092)(0.15-0.135)⨯0.44 (0.15-0.137)(0.20-0.135)⨯0.2 (0.10-0.092)(0.20-0.135)⨯0.2Sum 0.002056 0.00038= Cov(R S, R M) = Cov(R B, R M)σM 2= 0.1 (0.05 - 0.135)2 + 0.3 (0.10-0.135)2+ 0.4 (0.15-0.135)2 + 0.2 (0.20-0.135)2= 0.002025a. Beta of debt = Cov(R B, R M) / σM2 = 0.00038 / 0.002025= 0.188b. Beta of stock = Cov(R S, R M) / σM2 = 0.002055 / 0.002025= 1.015c. B / S = 0.5Thus, B / (S + B) = 1 / 3 = 0.3333S / (S + B) = 2 / 3 = 0.6667Beta of asset = 0.188 ⨯ 0.3333 + 1.015 ⨯ 0.6667= 0.73912.10 The discount rate for the project should be lower than the rate implied by the use ofthe Security Market Line. The appropriate discount rate for such projects is theweighted average of the interest rate on debt and the cost of equity. Since theinterest rate on the debt of a given firm is generally less than the firm’s cost ofequity, using only the stock’s beta yields a discount rate that is too high. Theconcept and practical uses of a weighted average discount rate will be in a laterchapter.12.11i. RevenuesThe gross income of the firm is an important factor in determining beta. Firmswhose revenues are cyclical (fluctuate with the business cycle) generally have highbetas. Firms whose revenues are not cyclical tend to have lower betas.ii. Operating leverageOperating leverage is the percentage change in earnings before interest and taxes(EBIT) for a percentage change in sales, [(Change in EBIT / EBIT) (Sales / Changein sales)]. Operating leverage indicates the ability of the firm to service its debt andpay stockholders.iii. Financial leverageFinancial leverage arises from the use of debt. Financial leverage indicates theability of the firm to pay stockholders. Since debt holders must be paid beforestockholders, the higher the financial leverage of the firm, the riskier its stock.The beta of common stock is a function of all three of these factors. Ultimately, theriskiness of the stock, of which beta captures a portion, is determined by thefluctuations in the income available to the stockholders. (As was discussed in thechapter, whether income is paid to the stockholders in the form of dividends or it isretained to finance projects are irrelevant as long as the projects are of similar riskas the firm.) The income available to common stock, the net income of the firm,depends initially on the revenues or sales of the firm. The operating leverageindicates how much of each dollar of revenue will become EBIT. Financialleverage indicates how much of each dollar of EBIT will become net income.12.12 a. Cost of equity for National Napkin= 7 + 1.29 (13 - 7)= 14.74%b. B / (S + B) = S / (S + B) = 0.5WACC = 0.5 ⨯ 7 ⨯ 0.65 + 0.5 ⨯ 14.74= 9.645%12.13 B = $60 million ⨯ 1.2 = $72 millionS = $20 ⨯ 5 million = $100 millionB / (S + B) = 72 / 172 = 0.4186S / (S + B) = 100 / 172 = 0.5814WACC = 0.4186 ⨯ 12% ⨯ 0.75 + 0.5814 ⨯ 18%= 14.23%12.14 S = $25 ⨯ 20 million = $500 millionB = 0.95 ⨯ $180 million = $171 million公司理财习题答案第十二章B / (S + B) = 0.2548 S / (S + B) = 0.7452 WACC = 0.7452 ⨯ 20% + 0.2548 ⨯ 10%⨯ 0.60 = 16.43%12.15 B / S = 0.75 B / (S + B) = 3 / 7 S / (S + B) = 4 / 7 WACC = (4 / 7) ⨯ 15% + (3 / 7) ⨯ 9%⨯ (1 - 0.35) = 11.08%NPV = -$25 million + $7(.)m illion tt 10110815+=∑= $819,299.04 Undertake the project.12.16 WACC = (0.5) x 28% + (0.5) x 10% x (1 - 0.35)= 17.25%NPV = - $1,000,000 + (1 - 0.35) $600,000 51725.0A = $240,608.50Mini Case: Allied ProductsAssumptionsPP&E Investment 42,000,000 Useful life of PP&E Investment (years) 7NEW GPWS price/unit (Year 1) 70,000 NEW GPWS variable cost/unit (Year 1) 50,000 UPGRADE GPWS price/unit (Year 1) 35,000 UPGRADE GPWS variable cost/unit (Year 1) 22,000Year 1 marketing and admin costs 3,000,000 Annual inflation rate 3.00% Corporate Tax rate 40.00%Beta (9/27 Valueline) 1.20 Rf (30 year U.S. Treasury Bond) 6.20%NEW GPWS Market Growth (Strong Growth) 15.00%NEW GPWS Market Growth (Moderate Growth) 10.00%NEW GPWS Market Growth (Mild Recession) 6.00%NEW GPWS Market Growth (Severe Recession state of economy) 3.00%Total Annual Market for UPGRADE GPWS (units) 2,500Allied Signal Market Share in each market 45.00%公司理财习题答案第十二章Year 0 1 2 3 4 5 SalesNEWUnits 97 107 118 130 144 Price 70,000 72,100 74,263 76,491 78,786 Total NEW 6,772,500 7,688,654 8,736,317 9,935,345 11,308,721 UPGRADEUnits 1,125 1,125 1,125 1,125 1,125 Price 35,000 36,050 37,132 38,245 39,393 Total UPGRADE 39,375,000 40,556,250 41,772,938 43,026,126 44,316,909 Total Sales 46,147,500 48,244,904 50,509,254 52,961,470 55,625,630 Variable CostsNEW 4,837,500 5,491,896 6,240,226 7,096,675 8,077,658 UPGRADE 24,750,000 25,492,500 26,257,275 27,044,993 27,856,343 Total Variable Costs 29,587,500 30,984,396 32,497,501 34,141,668 35,934,001SG&A 3,000,000 3,090,000 3,182,700 3,278,181 3,376,526 Depreciation 6,001,800 10,285,800 7,345,800 5,245,800 3,750,600EBIT 7,558,200 3,884,708 7,483,253 10,295,821 12,564,503 Interest 0 0 0 0 0 Tax 3,023,280 1,553,883 2,993,301 4,118,329 5,025,801 Net Income 4,534,920 2,330,825 4,489,952 6,177,493 7,538,702EBIT + Dep - Taxes 10,536,720 12,616,625 11,835,752 11,423,293 11,289,302 Less: Change in NWC 2,000,000 307,375 104,870 113,218 122,611 (2,648,074) Less: Captial Spending 42,000,000 (10,948,080) CF from Assets: (44,000,000) 10,229,345 12,511,755 11,722,534 11,300,682 24,885,455 Discounted CF from Assets 9,304,480 10,351,583 8,821,741 7,735,381 15,494,120Total Discounted CF from Assets 51,707,305Results。

公司理财(英文版)题库8

CHAPTER 8Making Capital Investment Decisions I. DEFINITIONSINCREMENTAL CASH FLOWSa 1. The changes in a firm’s future cash flows that are a direct consequence of accepting aproject are called _____ cash flows.a. incrementalb. stand-alonec. after-taxd. net present valuee. erosionDifficulty level: EasyEQUIVALENT ANNUAL COSTe 2. The annual annuity stream of payments with the same present value as a project’s costsis called the project’s _____ cost.a. incrementalb. sunkc. opportunityd. erosione. equivalent annualDifficulty level: EasySUNK COSTSc 3. A cost that has already been paid, or the liability to pay has already been incurred, isa(n):a. salvage value expense.b. net working capital expense.c. sunk cost.d. opportunity cost.e. erosion cost.Difficulty level: EasyOPPORTUNITY COSTSd 4. The most valuable investment given up if an alternative investment is chosen is a(n):a. salvage value expense.b. net working capital expense.c. sunk cost.d. opportunity cost.e. erosion cost.Difficulty level: EasyEROSION COSTSe 5. The cash flows of a new project that come at the expense of a firm’s existing projectsare called:a. salvage value expenses.b. net working capital expenses.c. sunk costs.d. opportunity costs.e. erosion costs.Difficulty level: EasyPRO FORMA FINANCIAL STATEMENTSa 6. A pro forma financial statement is one that:a. projects future years’ operations.b. is expressed as a percentage of the total assets of the firm.c. is expressed as a percentage of the total sales of the firm.d. is expressed relative to a chosen base year’s financial statement.e. reflects the past and current operations of the firm.Difficulty level: EasyMACRS DEPRECIATIONb 7. The depreciation method currently allowed under US tax law governing the acceleratedwrite-off of property under various lifetime classifications is called _____ depreciation.a. FIFOb. MACRSc. straight-lined. sum-of-years digitse. curvilinearDifficulty level: EasyDEPRECIATION TAX SHIELDc 8. The cash flow tax savings generated as a result of a firm’s tax-deductible depreciationexpense is called the:a. after-tax depreciation savings.b. depreciable basis.c. depreciation tax shield.d. operating cash flow.e. after-tax salvage value.Difficulty level: EasyCASH FLOWd 9. The cash flow from projects for a company is computed as the:a. net operating cash flow generated by the project, less any sunk costs and erosion costs.b. sum of the incremental operating cash flow and after-tax salvage value of the project.c. net income generated by the project, plus the annual depreciation expense.d. sum of the incremental operating cash flow, capital spending, and net working capitalexpenses incurred by the project.e. sum of the sunk costs, opportunity costs, and erosion costs of the project.Difficulty level: MediumII. CONCEPTSPRO FORMA INCOME STATEMENTb 10. The pro forma income statement for a cost reduction project:a. will reflect a reduction in the sales of the firm.b. will generally reflect no incremental sales.c. has to be prepared reflecting the total sales and expenses of a firm.d. cannot be prepared due to the lack of any project related sales.e. will always reflect a negative project operating cash flow.Difficulty level: EasyINCREMENTAL CASH FLOWb 11. One purpose of identifying all of the incremental cash flows related to a proposedproject is to:a. isolate the total sunk costs so they can be evaluated to determine if the project willadd value to the firm.b. eliminate any cost which has previously been incurred so that it can be omitted fromthe analysis of the project.c. make each project appear as profitable as possible for the firm.d. include both the proposed and the current operations of a firm in the analysis of theproject.e. identify any and all changes in the cash flows of the firm for the past year so they canbe included in the analysis.Difficulty level: MediumINCREMENTAL CASH FLOWe 12. Which of the following are examples of an incremental cash flow?I. an increase in accounts receivableII. a decrease in net working capitalIII. an increase in taxesIV. a decrease in the cost of goods solda. I and III onlyb. III and IV onlyc. I and IV onlyd. I, III, and IV onlye. I, II, III, and IVDifficulty level: MediumINCREMENTAL CASH FLOWc 13. Which one of the following is an example of an incremental cash flow?a. the annual salary of the company president which is a contractual obligationb. the rent on a warehouse which is currently being utilizedc. the rent on some new machinery that is required for an upcoming projectd. the property taxes on the currently owned warehouse which has been sitting idle butis going to be utilized for a new projecte. the insurance on a company-owned building which will be utilized for a new projectDifficulty level: MediumINCREMENTAL COSTSd 14. Project analysis is focused on _____ costs.a. sunkb. totalc. variabled. incrementale. fixedDifficulty level: MediumSUNK COSTc 15. Sunk costs include any cost that:a. will change if a project is undertaken.b. will be incurred if a project is accepted.c. has previously been incurred and cannot be changed.d. is paid to a third party and cannot be refunded for any reason whatsoever.e. will occur if a project is accepted and once incurred, cannot be recouped.Difficulty level: EasySUNK COSTd 16. You spent $500 last week fixing the transmission in your car. Now, the brakes areacting up and you are trying to decide whether to fix them or trade the car in for anewer model. In analyzing the brake situation, the $500 you spent fixing thetransmission is a(n) _____ cost.a. opportunityb. fixedc. incrementald. sunke. relevantDifficulty level: EasyEROSIONb 17. Erosion can be explained as the:a. additional income generated from the sales of a newly added product.b. loss of current sales due to a new project being implemented.c. loss of revenue due to employee theft.d. loss of revenue due to customer theft.e. loss of cash due to the expenses required to fix a parking lot after a heavy rain storm.Difficulty level: EasyEROSIONa 18. Which of the following are examples of erosion?I. the loss of sales due to increased competition in the product marketII. the loss of sales because your chief competitor just opened a store across the street from your storeIII. the loss of sales due to a new product which you recently introducedIV. the loss of sales due to a new product recently introduced by your competitora. III onlyb. III and IV onlyc. I, III and IV onlyd. II and IV onlye. I, II, III, and IVDifficulty level: MediumTYPES OF COSTSd 19. Which of the following should be included in the analysis of a project?I. sunk costsII. opportunity costsIII. erosion costsIV. incremental costsa. I and II onlyb. III and IV onlyc. II and IV onlyd. II, III, and IV onlye. I, II, and IV onlyDifficulty level: MediumNET WORKING CAPITALd 20. All of the following are anticipated effects of a proposed project. Which of theseshould be included in the initial project cash flow related to net working capital?I. an inventory decrease of $5,000II. an increase in accounts receivable of $1,500III. an increase in fixed assets of $7,600IV. a decrease in accounts payable of $2,100a. I and II onlyb. I and III onlyc. II and IV onlyd. I, II, and IV onlye. I, II, III, and IVDifficulty level: MediumNET WORKING CAPITALa 21. Changes in the net working capital:a. can affect the cash flows of a project every year of the project’s life.b. only affect the initial cash flows of a project.c. are included in project analysis only if they represent cash outflows.d. are generally excluded from project analysis due to their irrelevance to the totalproject.e. affect the initial and the final cash flows of a project but not the cash flows of themiddle years.Difficulty level: MediumNET WORKING CAPITALc 22. Which one of the following will decrease net working capital of a firm?a. a decrease in accounts payableb. an increase in inventoryc. a decrease in accounts receivabled. an increase in the firm’s checking account balancee. a decrease in fixed assetsDifficulty level: EasyNET WORKING CAPITALd 23. Net working capital:a. can be ignored in project analysis because any expenditure is normally recouped by theend of the project.b. requirements generally, but not always, create a cash inflow at the beginning of aproject.c. expenditures commonly occur at the end of a project.d. is frequently affected by the additional sales generated by a new project.e. is the only expenditure where at least a partial recovery can be made at the end of aproject.Difficulty level: EasyMACRSd 24. A company which uses the MACRS system of depreciation:a. will have equal depreciation costs each year of an asset’s life.b. will expense the cost of nonresidential real estate over a period of 7 years.c. can depreciate the cost of land, if they so desire.d. will write off the entire cost of an asset over the asset’s class life.e. cannot expense any of the cost of a new asset during the first year of the asset’s life.Difficulty level: EasyMACRSa 25. Bet ‘r Bilt Toys just purchased some MACRS 5-year property at a cost of $230,000.Which of the following will correctly give you the book value of this equipment at theend of year 2?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%I. 52% of the asset costII. 48% of the asset costIII. 68% of 80% of the asset costIV. the asset cost, minus 20% of the asset cost, minus 32% of 80% of the asset costa. II onlyb. III and IV onlyc. I and III onlyd. II and IV onlye. I, II, III, and IVDifficulty level: EasyMACRSe 26. Will Do, Inc. just purchased some equipment at a cost of $650,000. What is theproper methodology for computing the depreciation expense for year 3 if theequipment is classified as 5-year property for MACRS?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. $650,000 ⨯ (1-.20) ⨯ (1-.32) ⨯ (1-.192)b. $650,000 ⨯ (1-.20) ⨯ (1-.32)c. $650,000 ⨯ (1+.20) ⨯ (1+.32) ⨯ (1+.192)d. $650,000 ⨯ (1-.192)e. $650,000 ⨯ .192Difficulty level: MediumBOOK VALUEd 27. The book value of an asset is primarily used to compute the:a. annual depreciation tax shield.b. amount of cash received from the sale of an asset.c. amount of tax saved annually due to the depreciation expense.d. amount of tax due on the sale of an asset.e. change in depreciation needed to reflect the market value of the asset.Difficulty level: EasySALVAGE VALUEc 28. The salvage value of an asset creates an after-tax cash inflow to the firm in an amountequal to the:a. sales price of the asset.b. sales price minus the book value.c. sales price minus the tax due based on the sales price minus the book value.d. sales price plus the tax due based on the sales price minus the book value.e. sales price plus the tax due based on the book value minus the sales price.Difficulty level: EasySALVAGE VALUEe 29. The pre-tax salvage value of an asset is equal to the:a. book value if straight-line depreciation is used.b. book value if MACRS depreciation is used.c. market value minus the book value.d. book value minus the market value.e. market value.Difficulty level: EasyPROJECT OCFa 30. A project’s operating cash flow will increase when:a. the depreciation expense increases.b. the sales projections are lowered.c. the interest expense is lowered.d. the net working capital requirement increases.e. the earnings before interest and taxes decreases.Difficulty level: EasyPROJECT CASH FLOWSc 31. The cash flows of a project should:a. be computed on a pre-tax basis.b. include all sunk costs and opportunity costs.c. include all incremental costs, including opportunity costs.d. be applied to the year when the related expense or income is recognized by GAAP.e. include all financing costs related to new debt acquired to finance the project.Difficulty level: EasyPROJECT OCFa 32. Which of the following are correct methods for computing the operating cash flow ofa project assuming that the interest expense is equal to zero?I. EBIT + Depreciation - TaxesII. EBIT + Depreciation + TaxesIII. Net Income + DepreciationIV. (Sales – Costs) ⨯ (Taxes + Depreciation) ⨯ (1-Taxes)a. I and III onlyb. II and IV onlyc. II and III onlyd. I, III, and IV onlye. II, III, and IV onlyDifficulty level: MediumBOTTOM-UP OCFb 33. The bottom-up approach to computing the operating cash flow applies only when:a. both the depreciation expense and the interest expense are equal to zero.b. the interest expense is equal to zero.c. the project is a cost-cutting project.d. no fixed assets are required for the project.e. taxes are ignored and the interest expense is equal to zero.Difficulty level: MediumTOP-DOWN OCFa 34. The top-down approach to computing the operating cash flow:a. ignores all noncash items.b. applies only if a project produces sales.c. can only be used if the entire cash flows of a firm are included.d. is equal to sales - costs - taxes + depreciation.e. includes the interest expense related to a project.Difficulty level: MediumTAX SHIELDd 35. An increase in which one of the following will increase the operating cash flow?a. employee salariesb. office rentc. building maintenanced. equipment depreciatione. equipment rentalDifficulty level: EasyTAX SHIELDc 36. Tax shield refers to a reduction in taxes created by:a. a reduction in sales.b. an increase in interest expense.c. noncash expenses.d. a project’s incremental expenses.e. opportunity costs.Difficulty level: EasyCOST-CUTTINGc 37. A project which is designed to improve the manufacturing efficiency of a firm but willgenerate no additional sales is referred to as a(n) _____ project.a. sunk costb. opportunityc. cost-cuttingd. revenue-cuttinge. revenue-generatingDifficulty level: EasyEQUIVALENT ANNUAL COSTc 38. Toni’s Tools is comparing machines to determine which one to purchase. Themachines sell for differing prices, have differing operating costs, differing machinelives, and will be replaced when worn out. These machines should be compared using:a. net present value only.b. both net present value and the internal rate of return.c. their effective annual costs.d. the depreciation tax shield approach.e. the replacement parts approach.Difficulty level: MediumEQUIVALENT ANNUAL COSTe 39. The equivalent annual cost method is useful in determining:a. the annual operating cost of a machine if the annual maintenance is performed versuswhen the maintenance is not performed as recommended.b. the tax shield benefits of depreciation given the purchase of new assets for a project.c. operating cash flows for cost-cutting projects of equal duration.d. which one of two machines to acquire given equal machine lives but unequal machinecosts.e. which one of two machines to purchase when the machines are mutually exclusive,have different machine lives, and will be replaced once they are worn out.Difficulty level: MediumIII. PROBLEMSRELEVANT CASH FLOWSd 40. Marshall’s & Co. purchased a corner lot in Eglon City five y ears ago at a cost of$640,000. The lot was recently appraised at $810,000. At the time of the purchase, thecompany spent $50,000 to grade the lot and another $4,000 to build a small buildingon the lot to house a parking lot attendant who has overseen the use of the lot for dailycommuter parking. The company now wants to build a new retail store on the site. Thebuilding cost is estimated at $1.2 million. What amount should be used as the initialcash flow for this building project?a. $1,200,000b. $1,840,000c. $1,890,000d. $2,010,000e. $2,060,000Difficulty level: MediumRELEVANT CASH FLOWSe 41. Jamestown Ltd. currently produces boat sails and is considering expanding itsoperations to include awnings for homes and travel trailers. The company owns landbeside its current manufacturing facility that could be used for the expansion. Thecompany bought this land ten years ago at a cost of $250,000. Today, the land isvalued at $425,000. The grading and excavation work necessary to build on the landwill cost $15,000. The company currently has some unused equipment which itcurrently owns valued at $60,000. This equipment could be used for producingawnings if $5,000 is spent for equipment modifications. Other equipment costing$780,000 will also be required. What is the amount of the initial cash flow for thisexpansion project?a. $800,000b. $1,050,000c. $1,110,000d. $1,225,000e. $1,285,000Difficulty level: MediumRELEVANT CASH FLOWSb 42. Wilbert’s, Inc. paid $90,000, in cash, for a piece of equipment three years ago. Lastyear, the company spent $10,000 to update the equipment with the latest technology.The company no longer uses this equipment in their current operations and hasreceived an offer of $50,000 from a firm who would like to purchase it. Wilbert’s isdebating whether to sell the equipment or to expand their operations such that theequipment can be used. When evaluating the expansion option, what value, if any,should Wilbert’s assign to this equipment as an initial cost of the project?a. $40,000b. $50,000c. $60,000d. $80,000e. $90,000Difficulty level: EasyRELEVANT CASH FLOWSa 43. Walks Softly, Inc. sells customized shoes. Currently, they sell 10,000 pairs of shoesannually at an average price of $68 a pair. They are considering adding a lower-pricedline of shoes which sell for $49 a pair. Walks Softly estimates they can sell 5,000 pairsof the lower-priced shoes but will sell 1,000 less pairs of the higher-priced shoes bydoing so. What is the amount of the sales that should be used when evaluating theaddition of the lower-priced shoes?a. $177,000b. $245,000c. $313,000d. $789,000e. $857,000Difficulty level: MediumOPPORTUNITY COSTc 44. Your firm purchased a warehouse for $335,000 six years ago. Four years ago, repairswere made to the building which cost $60,000. The annual taxes on the property are$20,000. The warehouse has a current book value of $268,000 and a market value of$295,000. The warehouse is totally paid for and solely owned by your firm. If thecompany decides to assign this warehouse to a new project, what value, if any, shouldbe included in the initial cash flow of the project for this building?a. $0b. $268,000c. $295,000d. $395,000e. $515,000Difficulty level: EasyOPPORTUNITY COSTd 45. You own a house that you rent for $1,200 a month. The maintenance expenses onthe house average $200 a month. The house cost $89,000 when you purchased itseveral years ago. A recent appraisal on the house valued it at $210,000. The annualproperty taxes are $5,000. If you sell the house you will incur $20,000 in expenses.You are deciding whether to sell the house or convert it for your own use as aprofessional office. What value should you place on this house when analyzing theoption of using it as a professional office?a. $89,000b. $120,000c. $185,000d. $190,000e. $210,000Difficulty level: MediumOPPORTUNITY COSTc 46. Big Joe’s owns a manufacturing facility that is currently sitting idle. The facility islocated on a piece of land that originally cost $129,000. The facility itself cost$650,000 to build. As of now, the book value of the land and the facility are $129,000and $186,500, respectively. Big Joe’s received an offer of $590,000 for the land andfacility last week. They rejected this offer even though they were told that it is areasonable offer in today’s market. If Big Joe’s were to consider using this land andfacility in a new project, what cost, if any, should they include in the project analysis?a. $0b. $315,500c. $590,000d. $650,000e. $779,000Difficulty level: EasyEROSION COSTb 47. Jamie’s Motor Home Sales currently sells 1,000 Class A motor homes, 2,500 Class Cmotor homes, and 4,000 pop-up trailers each year. Jamie is considering adding a mid-range camper and expects that if she does so she can sell 1,500 of them. However, ifthe new camper is added, Jamie expects that her Class A sales will decline to 950 unitswhile the Class C campers decline to 2,200. The sales of pop-ups will not be affected.Class A motor homes sell for an average of $125,000 each. Class C homes are pricedat $39,500 and the pop-ups sell for $5,000 each. The new mid-range camper will sellfor $47,900. What is the erosion cost?a. $6,250,000b. $18,100,000c. $53,750,000d. $93,150,000e. $118,789,500Difficulty level: MediumOCFe 48. Ernie’s E lectrical is evaluating a project which will increase sales by $50,000 andcosts by $30,000. The project will cost $150,000 and be depreciated straight-line to azero book value over the 10 year life of the project. The applicable tax rate is 34%.What is the operating cash flow for this project?a. $3,300b. $5,000c. $8,300d. $13,300e. $18,300Difficulty level: MediumOCFd 49. Kurt’s Kabinets is looking at a project that will require $80,000 in fixed assets andanother $20,000 in net working capital. The project is expected to produce sales of$110,000 with associated costs of $70,000. The project has a 4-year life. The companyuses straight-line depreciation to a zero book value over the life of the project. The taxrate is 35%. What is the operating cash flow for this project?a. $7,000b. $13,000c. $27,000d. $33,000e. $40,000Difficulty level: MediumBOTTOM-UP OCFc 50. Peter’s Boats has sales of $760,000 and a profit margin of 5%. The annualdepreciation expense is $80,000. What is the amount of the operating cash flow if thecompany has no long-term debt?a. $34,000b. $86,400c. $118,000d. $120,400e. $123,900Difficulty level: MediumBOTTOM-UP OCFd 51. Le Place has sales of $439,000, depreciation of $32,000, and net working capital of$56,000. The firm has a tax rate of 34% and a profit margin of 6%. Thefirm has no interest expense. What is the amount of the operating cash flow?a. $49,384b. $52,616c. $54,980d. $58,340e. $114,340Difficulty level: MediumTOP-DOWN OCFb 52. Ben’s Border Café is considering a project which will produce sales of $16,000 andincrease cash expenses by $10,000. If the project is implemented, taxes will increasefrom $23,000 to $24,500 and depreciation will increase from $4,000 to $5,500. Whatis the amount of the operating cash flow using the top-down approach?a. $4,000b. $4,500c. $6,000d. $7,500e. $8,500Difficulty level: MediumTOP-DOWN OCFc 53. Ronnie’s Coffee House i s considering a project which will produce sales of $6,000and increase cash expenses by $2,500. If the project is implemented, taxes willincrease by $1,300. The additional depreciation expense will be $1,000. An initial cashoutlay of $2,000 is required for net working capital. What is the amount of theoperating cash flow using the top-down approach?a. $200b. $1,500c. $2,200d. $3,500e. $4,200Difficulty level: MediumTAX SHIELD OCFc 54. A project will increase sales by $60,000 and cash expenses by $51,000. The projectwill cost $40,000 and be depreciated using straight-line depreciation to a zero bookvalue over the 4-year life of the project. The company has a marginal tax rate of 35%.What is the operating cash flow of the project using the tax shield approach?a. $5,850b. $8,650c. $9,350d. $9,700e. $10,350Difficulty level: MediumDEPRECIATION TAX SHIELDa 55. A project will increase sales by $140,000 and cash expenses by $95,000. The projectwill cost $100,000 and be depreciated using the straight-line method to a zero bookvalue over the 4-year life of the project. The company has a marginal tax rate of 34%.What is the value of the depreciation tax shield?a. $8,500b. $17,000c. $22,500d. $25,000e. $37,750Difficulty level: MediumMACRS DEPRECIATIONd 56. Sun Lee’s Furniture just purchased some fixed assets classified as 5-year property forMACRS. The assets cost $24,000. What is the amount of the depreciation expense forthe third year?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. $2,304b. $2,507c. $2,765d. $4,608e. $4,800Difficulty level: EasyMACRS DEPRECIATIONa 57. You just purchased some equipment that is classified as 5-year property for MACRS.The equipment cost $67,600. What will the book value of this equipment be at the endof three years should you decide to resell the equipment at that point in time?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. $19,468.80b. $20,280.20c. $27,040.00d. $48,131.20e. $48,672.00Difficulty level: MediumMACRS DEPRECIATIONd 58. LiCheng’s Enterprises just purchased some fixed assets that are classified as 3-yearproperty for MACRS. The assets cost $1,900. What is the amount of thedepreciation expense for year 2?MACRS 3-year propertyYear Rate1 33.33%2 44.44%3 14.82%4 7.41%a. $562.93b. $633.27c. $719.67d. $844.36e. $1,477.63Difficulty level: MediumMACRS DEPRECIATIONb 59. RP&A, Inc. purchased some fixed assets four years ago at a cost of $19,800. They nolonger need these assets so are going to sell them today at a price of $3,500. The assetsare classified as 5-year property for MACRS. What is the current book value of theseassets?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. $1,140.48b. $3,421.44c. $3,500.00d. $4,016.67e. $5,702.40Difficulty level: MediumSALVAGE VALUEa 60. You own some equipment which you purchased three years ago at a cost of $135,000.The equipment is 5-year property for MACRS. You are considering selling theequipment today for $82,500. Which one of the following statements is correct if yourtax rate is 34%?MACRS 5-year propertyYear Rate1 20.00%2 32.00%3 19.20%4 11.52%5 11.52%6 5.76%a. The tax due on the sale is $14,830.80.b. The book value today is $8,478.c. The book value today is $64,320.d. The taxable amount on the sale is $38,880.e. You will receive a tax refund of $13,219.20 as a result of this sale.。

罗斯《公司理财》英文习题答案DOCchap006

公司理财习题答案第六章Chapter 6: Some Alternative Investment Rules6.1 a. Payback period of Project A = 1 + ($7,500 - $4,000) / $3,500 = 2 yearsPayback period of Project B = 2 + ($5,000 - $2,500 -$1,200) / $3,000 = 2.43 yearsProject A should be chosen.b. NPV A = -$7,500 + $4,000 / 1.15 + $3,500 / 1.152 + $1,500 / 1.153 = -$388.96NPV B = -$5,000 + $2,500 / 1.15 + $1,200 / 1.152 + $3,000 / 1.153 = $53.83Project B should be chosen.6.2 a. Payback period = 6 + {$1,000,000 - ($150,000 ⨯ 6)} / $150,000 = 6.67 yearsYes, the project should be adopted.b. $150,000 11A= $974,259.010The discounted payback period = 11 + ($1,000,000 - $974,259) / ($150,000 / 1.112)= 11.54 yearsc. NPV = -$1,000,000 + $150,000 / 0.10 = $500,0006.3 a. Average Investment:($16,000 + $12,000 + $8,000 + $4,000 + 0) / 5 = $8,000Average accounting return:$4,500 / $8,000 = 0.5625 = 56.25%b. 1. AAR does not consider the timing of the cash flows, hence it does notconsider the time value of money.2. AAR uses an arbitrary firm standard as the decision rule.3. AAR uses accounting data rather than net cash flows.6.4 Average Investment = ($2,000,000 + 0) / 2 = $1,000,000Average net income = [$100,000 {(1 + g)5 - 1} / g] / 5= {$100,000A (1.075 - 1} / 0.07} / 5= $115,014.78AAR = $115,014.78 / $1,000,000 = 11.50%No, since the machine’s AAR is less than the firm’s cutoff AAR.6.5 a6.6PI = $40,000 7A / $160,000 = 1.04.015Since the PI exceeds one accept the project.6.7 The IRR is the discount rate at which the NPV = 0.-$3,000 + $2,500 / (1 + IRR A) + $1,000 / (1 + IRR A)2 = 0By trial and error, IRR A = 12.87%Since project B’s cash flows are two times of those of project A, the IRR B = IRR A =12.87%6.8 a. Solve x by trial and error:-$4,000 + $2,000 / (1 + x) + $1,500 / (1 + x)2 + $1,000 / (1 + x)3 = 0x = 6.93%b. No, since the IRR (6.93%) is less than the discount rate of 8%.6.9 Find the IRRs of project A analytically. Since the IRR is the discount rate that makes the NPVequal to zero, the following equation must hold.-$200 + $200 / (1 + r) + $800 / (1 + r)2 - $800 / (1 + r)3 = 0$200 [-1 + 1 / (1 + r)] - {$800 / (1 + r)2}[-1 + 1 / (1 + r)] = 0[-1 + 1 / (1 + r)] [$200 - $800 / (1 + r)2] = 0For this equation to hold, either [-1 + 1 / (1 + r)] = 0 or [$200 - $800 / (1 + r)2] = 0.Solve each of these factors for the r that would cause the factor to equal zero. Theresulting rates are the two IRRs for project A. They are either r = 0% or r = 100%.Note: By inspection you should have known that one of the IRRs of project A iszero. Notice that the sum of the un-discounted cash flows for project A is zero.Thus, not discounting the cash flows would yield a zero NPV. The discount ratewhich is tantamount to not discounting is zero.Here are some of the interactions used to find the IRR by trial and error.Sophisticated calculators can compute this rate without all of the tedium involved inthe trial-and-error method.NPV = -$150 + $50 / 1.3 + $100 / 1.32 + $150 / 1.33 = $15.91NPV = -$150 + $50 / 1.4 + $100 / 1.42 + $150 / 1.43 = -$8.60NPV = -$150 + $50 / 1.37 + $100 / 1.372 + $150 / 1.373 = -$1.89NPV = -$150 + $50 / 1.36 + $100 / 1.36 2 + $150 / 1.363 = $0.46NPV = -$150 + $50 / 1.36194 + $100 / 1.361942 + $150 / 1.361943= $0.0010NPV = -$150 + $50 / 1.36195 + $100 / 1.361952 + $150 / 1.361953= -$0.0013NPV = -$150 + $50 / 1.361944 + $100 / 1.3619442 + $150 / 1.3619443= $0.0000906Thus, the IRR is approximately 36.1944%.6.10 a. Solve r in the equation:$5,000 - $2,500 / (1 + r) - $2,000 / (1 + r)2 - $1,000 / (1 + r)3- $1,000 / (1 + r)4 = 0By trial and error,IRR = r = 13.99%b. Since this problem is the case of financing, accept the project if the IRR is less thanthe required rate of return.IRR = 13.99% > 10%Reject the offer.c. IRR = 13.99% < 20%Accept the offer.d. When r = 10%:NPV = $5,000 - $2,500 / 1.1 - $2,000 / 1.12 - $1,000 / 1.13 - $1,000 / 1.14= -$359.95When r = 20%:NPV = $5,000 - $2,500 / 1.2 - $2,000 / 1.22 - $1,000 / 1.23 - $1,000 / 1.24= $466.82Yes, they are consistent with the choices of the IRR rule since the signs of the cashflows change only once.公司理财习题答案第六章6.11 a. Project A:NPV = -$5,000 + $3,500 / (1 + r) + $3,500 / (1 + r)2 = 0IRR = r = 25.69%Project B:NPV = -$100,000 + $65,000 / (1 + r) + $65,000 / (1 + r)2 = 0IRR = r = 19.43%b. Choose project A because it has a higher IRR.c. The difference in scale is ignored.d. Apply the incremental IRR method.e.C0C1C2B - A -$95,000 $61,500 $61,500NPV = -$95,000 + $61,500 / (1 + r) + $61,500 / (1 + r)2 = 0Incremental IRR = r = 19.09%f. If the discount rate is less than 19.09%, choose project B.Otherwise, choose project A.g. NPV A = -$5,000 + $3,500 / 1.15 + $3,500 / 1.152 = $689.98NPV B = -$100,000 + $65,000 / 1.15 + $65,000 / 1.152 = $5,671.08Choose project B.6.12 a. PV A = {$5,000 / (0.12 - 0.04)} / 1.122 = $49,824.61PV B = (-$6,000 / 0.12) / 1.12 = -$44,642.86b. The IRR for project C must solve{$5,000 / (x - 0.04)} / (1 + x)2 + (-$6,000 / x) / (1 + x) = 0$5,000 / (x - 0.04) - $6,000 (1 + x) / x = 025 x2 + 3.17 x - 1 =0x = {-3.17 - (110.0489)0.5} / 50 or {-3.17 + (110.0489)0.5} / 50The relevant positive root is IRR = x = 0.1464 = 14.64%c. To arrive at the appropriate decision rule, we must graph the NPV as a function ofthe discount rate. At a discount rate of 14.64% the NPV is zero. To determine if thegraph is upward or downward sloping, check the NPV at another discount rate. At adiscount rate of 10% the NPV is $14,325.07 [= $68,870.52 - $54,545.54]. Thus, thegraph of the NPV is downward sloping. From the discussion in the text, if an NPVgraph is downward sloping, the project is an investing project. The correct decisionrule for an investing project is to accept the project if the discount rate is below14.64%.14.64% 10% rNPV0 $14,325.076.13 Generally, the statement is false. If the cash flows of project B occur early and the cashflows of project A occur late, then for a low discount rate the NPV of A can exceed theNPV of B. Examples are easy to construct.C0C1C2IRR NPV @ 0% A: -$1,000,000 $0 $1,440,000 0.20 $440,000B: -2,000,000 2,400,000 0 0.20 400,000 In one particular case, the statement is true for equally risky projects. If the lives of thetwo projects are equal and in every time period the cash flows of the project B are twice the cash flows of project A, then the NPV of project B will be twice as great as the NPV of project A for any discount rate between 0% and 20%.6.14 a. NPVα = $756.57 - $500 = $256.57NPVβ = $2,492.11 - $2,000 = $492.11b. Choose project beta.6.15 Although the profitability index is higher for project B than for project A, the NPV is theincrease in the value of the company that will occur if a particular project is undertaken.Thus, the project with the higher NPV should be chosen because it increases the value of the firm the most. Only in the case of capital rationing could the pension fund manager be correct.6.16 a. PI A = ($70,000 / 1.12 + $70,000 / 1.122) / $100,000 = 1.183PI B = ($130,000 / 1.12 + $130,000 / 1.122) / $200,000 = 1.099PI C = ($75,000 / 1.12 + $60,000 / 1.122) / $100,000 = 1.148b. NPV A = -$100,000 + $118,303.57 = $18,303.57NPV B = -$200,000 + $219,706.63 = $19,706.63NPV C = -$100,000 + $114,795.92 = $14,795.92c. Accept all three projects because PIs of all the three projects are greater than one.d. Based on the PI rule, project C can be eliminated because its PI is less than the oneof project A, while both have the same amount of the investment. We can computethe PI of the incremental cash flows between the two projects,Project C0C1C2PIB - A -$100,000 $60,000 $60,000 1.014We should take project B since the PI of the incremental cash flows is greater thanone.e. Project B has the highest NPV, while A has the next highest NPV.Take both projects A and B.6.17 a. The payback period is the time it takes to recoup the initial investment of a project.Accept any project that has a payback period that is equal to or shorter than thecompany’s standard payback period. Reject all other projects.b. The average accounting return (AAR) is defined asAverage project earnings ÷ Average book value of the investment.Accept projects for which the AAR is equal to or greater than the firm’s standard.Reject all other projects.c. The internal rate of return (IRR) is the discount rate which makes the net presentvalue (NPV) of the project zero. The accept / reject criteria is:公司理财习题答案第六章If C0 < 0 and all future cash flows are positive, accept the project if IRR ≥discount rate.If C0 < 0 and all future cash flows are positive, reject the project if IRR <discount rate.If C0 > 0 and all future cash flows are negative, accept the project if IRR ≤discount rate.If C0 > 0 and all future cash flows are negative, reject the project if IRR >discount rate.If the project has cash flows that alternate in sign, there is likely to be more thanone positive IRR. In that situation, there is no valid IRR accept / reject rule.d. The profitability index (PI) is defined as:(The present value of the cash flows subsequent to the initial investment ÷The initial investment)Accept any project for which the profitability index is equal to or greater thanone. Reject project for which that is not true.e. The net present value (NPV) is the sum of the present values of all project cashflows. Accept those projects with NPVs which are equal to or greater than zero.Rejects p roposals with negative NPVs.6.18 Let project A represent New Sunday Early Edition; and let project B represent NewSaturday Late Edition.a. Payback period of project A = 2 + ($1,200 - $1,150) / $450 = 2.11 yearsPayback period of project B = 2 + ($2,100 - $1,900) / $800 = 2.25 yearsBased on the payback period rule, you should choose project A.b. Project A:Average investment = ($1,200 + $0) / 2 = $600Depreciation = $400 / yearAverage income = [($600 - $400) + ($550 - $400) + ($450 - $400)] / 3= $133.33AAR = $133.33 / $600 = 22.22%Project B:Average investment = ($2,100 + $0) / 2 = $1,050Depreciation = $700 / yearAverage income = [($1,000 - $700) + ($900 - $700) + ($800 - $700)] / 3= $200AAR = $200 / $1,050 = 19.05%c. IRR of project A:-$1,200 + $600 / (1 + r) + $550 / (1 + r)2 + $450 / (1 + r)3 = 0IRR = r = 16.76%IRR of project B:-$2,100 + $1,000 / (1 + r) + $900 / (1 + r)2 + $800 / (1 + r)3 = 0IRR = r = 14.29%Project A has a greater IRR.d. IRR of project B-A:Incremental cash flowsYear 0 1 2 3B - A -$900 $400 $350 $350-$900 + $400 / (1 + r) + $350 / (1 + r)2 + $350 / (1 + r)3 = 0Incremental IRR = r = 11.02%If the required rate of return is greater than 11.02%, then choose project A.If the required rate of return is less than 11.02%, then choose project B.6.19 Let project A be Deepwater Fishing; let project B be New Submarine Ride.a. Project A:Year Discounted CF Cumulative CF0 -$600,000 -$600,0001 234,783 -365,2172 264,650 -100,5673 197,255Discounted payback period of project A = 2 + $100,567 / $197,255= 2.51 yearsProject B:Year Discounted CF Cumulative CF0 -$1,800,000 -$1,800,0001 869,565 -930,4352 529,301 -401,1343 591,765Discounted payback period of project B = 2 + $401,134 / $591,765= 2.68 yearsProject A should be chosen.b. IRR of project A:-$600,000 + $270,000 / (1 + r) + $350,000 / (1 + r)2 + $300,000 / (1 + r)3 = 0IRR = r = 24.30%IRR of project B:-$1,800,000 + $1,000,000 /(1 + r) + $700,000 / (1 + r)2 + $900,000 / (1 + r)3= 0IRR = r = 21.46%Based on the IRR rule, project A should be chosen since it has a greater IRR.c. Incremental IRR:Year 0 1 2 3B - A -$1,200,000 $730,000 $350,000 $600,000-$1,200,000 + $730,000 / (1 + r) + $350,000 / (1 + r)2 + $600,000 / (1 + r)3 = 0Incremental IRR = r = 19.92%Since the incremental IRR is greater than the required rate of return, 15%, chooseproject B.d. NPV A = -$600,000 + $270,000 / 1.15 + $350,000 / 1.152 + $300,000 / 1.153= $96,687.76公司理财习题答案第六章NPV B = -$1,800,000 + $1,000,000 / 1.15 + $700,000 / 1.152 + $900,000 / 1.153= $190,630.39Since NPV B > NPV A , choose project B.Yes, the NPV rule is consistent with the incremental IRR rule. 6.20 a. The IRR is the discount rate at which the NPV = 0-$600,000 + ()0r 1000,50$r 1%811%)8r (000,100$1111=+-⎥⎥⎦⎤⎢⎢⎣⎡⎪⎭⎫ ⎝⎛++--IRR ≈18.56%b.Yes, the mine should be opened since its IRR exceeds its required return of 10%.。

公司理财(英文版)题库

.CHAPTER 7Net Present Value and Other Investment Rules Multiple Choice Questions:I. DEFINITIONSNET PRESENT VALUEa 1. The difference between the present value of an investment and its cost is the:a. net present value.b. internal rate of return.c. payback period.d. profitability index.e. discounted payback period.Difficulty level: EasyNET PRESENT VALUE RULEc 2. Which one of the following statements concerning net present value (NPV) is correct?a. An investment should be accepted if, and only if, the NPV is exactly equal to zero.b. An investment should be accepted only if the NPV is equal to the initial cash flow.c. An investment should be accepted if the NPV is positive and rejected if it is negative.d. An investment with greater cash inflows than cash outflows, regardless of when thecash flows occur, will always have a positive NPV and therefore should always beaccepted.e. Any project that has positive cash flows for every time period after the initialinvestment should be accepted.Difficulty level: EasyPAYBACKc 3. The length of time required for an investment to generate cash flows sufficient torecover the initial cost of the investment is called the:a. net present value.b. internal rate of return.c. payback period.d. profitability index.e. discounted cash period.Difficulty level: EasyPAYBACK RULEa 4. Which one of the following statements is correct concerning the payback period?a. An investment is acceptable if its calculated payback period is less than some pre-specified period of time.b. An investment should be accepted if the payback is positive and rejected if it isnegative.c. An investment should be rejected if the payback is positive and accepted if it isnegative.d. An investment is acceptable if its calculated payback period is greater than some pre-specified period of time.e. An investment should be accepted any time the payback period is less than thediscounted payback period, given a positive discount rate.Difficulty level: EasyDISCOUNTED PAYBACKe 5. The length of time required for a project’s discounted cash flows to equal the initialcost of the project is called the:a. net present value.b. internal rate of return.c. payback period.d. discounted profitability index.e. discounted payback period.Difficulty level: EasyDISCOUNTED PAYBACK RULEd 6. The discounted payback rule states that you should accept projects:a. which have a discounted payback period that is greater than some pre-specified periodof time.b. if the discounted payback is positive and rejected if it is negative.c. only if the discounted payback period equals some pre-specified period of time.d. if the discounted payback period is less than some pre-specified period of time.e. only if the discounted payback period is equal to zero.Difficulty level: EasyAVERAGE ACCOUNTING RETURNc 7. An investment’s average net income divided by its average book value defines theaverage:a. net present value.b. internal rate of return.c. accounting return.d. profitability index.e. payback period.Difficulty level: EasyAVERAGE ACCOUNTING RETURN RULEb 8. An investment is acceptable if its average accounting return (AAR):a. is less than a target AAR.b. exceeds a target AAR.c. exceeds the firm’s return on equity (ROE).d. is less than the firm’s return on assets (ROA).e. is equal to zero and only when it is equal to zero.Difficulty level: EasyINTERNAL RATE OF RETURNb. 9. The discount rate that makes the net present value of an investment exactly equal tozero is called the:a. external rate of return.b. internal rate of return.c. average accounting return.d. profitability index.e. equalizer.Difficulty level: EasyINTERNAL RATE OF RETURN RULEd 10. An investment is acceptable if its IRR:a. is exactly equal to its net present value (NPV).b. is exactly equal to zero.c. is less than the required return.d. exceeds the required return.e. is exactly equal to 100 percent.Difficulty level: EasyMULTIPLE RATES OF RETURNe 11. The possibility that more than one discount rate will make the NPV of an investmentequal to zero is called the _____ problem.a. net present value profilingb. operational ambiguityc. mutually exclusive investment decisiond. issues of scalee. multiple rates of returnDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSc 12. A situation in which accepting one investment prevents the acceptance of anotherinvestment is called the:a. net present value profile.b. operational ambiguity decision.c. mutually exclusive investment decision.d. issues of scale problem.e. multiple choices of operations decision.Difficulty level: EasyPROFITABILITY INDEXd. 13. The present value of an investment’s future cash flows divided by the initial cost of theinvestment is called the:a. net present value.b. internal rate of return.c. average accounting return.d. profitability index.e. profile period.Difficulty level: EasyPROFITABILITY INDEX RULEa 14. An investment is acceptable if the profitability index (PI) of the investment is:a. greater than one.b. less than one.c. greater than the internal rate of return (IRR).d. less than the net present value (NPV).e. greater than a pre-specified rate of return.Difficulty level: EasyII. CONCEPTSNET PRESENT VALUEd 15. All else constant, the net present value of a project increases when:a. the discount rate increases.b. each cash inflow is delayed by one year.c. the initial cost of a project increases.d. the rate of return decreases.e. all cash inflows occur during the last year of a project’s life instead ofperiodically throughout the life of the project.Difficulty level: EasyNET PRESENT VALUEa 16. The primary reason that company projects with positive net present values areconsidered acceptable is that:a. they create value for the owners of the firm.b. the project’s rate of return exceeds the rate of inflation.c. they return the initial cash outlay within three years or less.d. the required cash inflows exceed the actual cash inflows.e. the investment’s cost exceeds the present value of the cash inflows.Difficulty level: EasyNET PRESENT VALUEd 17. If a project has a net present value equal to zero, then:I. the present value of the cash inflows exceeds the initial cost of the project.II. the project produces a rate of return that just equals the rate required to accept the project.III. the project is expected to produce only the minimally required cash inflows.IV. any delay in receiving the projected cash inflows will cause the project to have a negative net present value.a. II and III onlyb. II and IV onlyc. I, II, and IV onlyd. II, III, and IV onlye. I, II, and III onlyDifficulty level: MediumNET PRESENT VALUEb 18. Net present value:a. cannot be used when deciding between two mutually exclusive projects.b. is more useful to decision makers than the internal rate of return when comparingdifferent sized projects.c. is easy to explain to non-financial managers and thus is the primary method of analysisused by the lowest levels of management.d. is not an as widely used tool as payback and discounted paybacke. is very similar in its methodology to the average accounting return.Difficulty level: EasyPAYBACKc 19. Payback is frequently used to analyze independent projects because:a. it considers the time value of money.b. all relevant cash flows are included in the analysis.c. it is easy and quick to calculate.d. it is the most desirable of all the available analytical methods from a financialperspective.e. it produces better decisions than those made using either NPV or IRR.Difficulty level: EasyPAYBACKc 20. The advantages of the payback method of project analysis include the:I. application of a discount rate to each separate cash flow.II. bias towards liquidity.III. ease of use.IV. arbitrary cutoff point.a. I and II onlyb. I and III onlyc. II and III onlye. II, III, and IV onlyDifficulty level: MediumPAYBACKd 21. All else equal, the payback period for a project will decrease whenever the:a. initial cost increases.b. required return for a project increases.c. assigned discount rate decreases.d. cash inflows are moved forward in time.e. duration of a project is lengthened.Difficulty level: MediumDISCOUNTED PAYBACKd 22. The discounted payback period of a project will decrease whenever the:a. discount rate applied to the project is increased.b. initial cash outlay of the project is increased.c. time period of the project is increased.d. amount of each project cash flow is increased.e. costs of the fixed assets utilized in the project increase.Difficulty level: MediumDISCOUNTED PAYBACKa 23. The discounted payback rule may cause:a. some positive net present value projects to be rejected.b. the most liquid projects to be rejected in favor of less liquid projects.c. projects to be incorrectly accepted due to ignoring the time value of money.d. projects with negative net present values to be accepted.e. some projects to be accepted which would otherwise be rejected under the paybackrule.Difficulty level: EasyINTERNAL RATE OF RETURNb 24. The internal rate of return (IRR):I. rule states that a project with an IRR that is less than the required rate should beaccepted.II. is the rate generated solely by the cash flows of an investment.III. is the rate that causes the net present value of a project to exactly equal zero.IV. can effectively be used to analyze all investment scenarios.a. I and IV onlyb. II and III onlyc. I, II, and III onlyd. II, III, and IV onlyDifficulty level: MediumINTERNAL RATE OF RETURNa 25. The internal rate of return for a project will increase if:a. the initial cost of the project can be reduced.b. the total amount of the cash inflows is reduced.c. each cash inflow is moved such that it occurs one year later than originally projected.d. the required rate of return is reduced.e. the salvage value of the project is omitted from the analysis.Difficulty level: MediumINTERNAL RATE OF RETURNc 26. The internal rate of return is:a. more reliable as a decision making tool than net present value whenever you areconsidering mutually exclusive projects.b. equivalent to the discount rate that makes the net present value equal to one.c. difficult to compute without the use of either a financial calculator or a computer.d. dependent upon the interest rates offered in the marketplace.e. a better methodology than net present value when dealing with unconventional cashflows.Difficulty level: MediumINTERNAL RATE OF RETURNa 27. The internal rate of return tends to be:a. easier for managers to comprehend than the net present value.b. extremely accurate even when cash flow estimates are faulty.c. ignored by most financial analysts.d. used primarily to differentiate between mutually exclusive projects.e. utilized in project analysis only when multiple net present values apply.Difficulty level: EasyINCREMENTAL INTERNAL RATE OF RETURNe 28. You are trying to determine whether to accept project A or project B. These projectsare mutually exclusive. As part of your analysis, you should compute the incrementedIRR by determining:a. the internal rate of return for the cash flows of each project.b. the net present value of each project using the internal rate of return as the discountrate.c. the discount rate that equates the discounted payback periods for each project.d. the discount rate that makes the net present value of each project equal to 1.e. the internal rate of return for the differences in the cash flows of the two projects.Difficulty level: MediumINCREMENTAL INTERNAL RATE OF RETURNb 29. Graphing the incremental IRR helps explain:a. why one project is always superior to another project.b. how decisions concerning mutually exclusive projects are derived.c. how the duration of a project affects the decision as to which project to accept.d. how the net present value and the initial cash outflow of a project are related.e. how the profitability index and the net present value are related.Difficulty level: MediumPROFITABILITY INDEXd 30. The profitability index is closely related to:a. payback.b. discounted payback.c. the average accounting return.d. net present value.e. mutually exclusive projects.Difficulty level: EasyPROFITABILITY INDEXb 31. Analysis using the profitability index:a. frequently conflicts with the accept and reject decisions generated by the application ofthe net present value rule.b. is useful as a decision tool when investment funds are limited.c. is useful when trying to determine which one of two mutually exclusive projectsshould be accepted.d. utilizes the same basic variables as those used in the average accounting return.e. produces results which typically are difficult to comprehend or apply.Difficulty level: MediumPROFITABILITY INDEXe 32. If you want to review a project from a benefit-cost perspective, you should use the_____ method of analysis.a. net present valueb. paybackc. internal rate of returnd. average accounting returne. profitability indexDifficulty level: EasyPROFITABILITY INDEXb 33. When the present value of the cash inflows exceeds the initial cost of a project, thenthe project should be:a. accepted because the internal rate of return is positive.b. accepted because the profitability index is greater than 1.c. accepted because the profitability index is negative.d. rejected because the internal rate of return is negative.e. rejected because the net present value is negative.Difficulty level: EasyMUTUALLY EXCLUSIVE PROJECTSc 34. Which one of the following is the best example of two mutually exclusive projects?a. planning to build a warehouse and a retail outlet side by sideb. buying sufficient equipment to manufacture both desks and chairs simultaneouslyc. using an empty warehouse for storage or renting it entirely out to another firmd. using the company sales force to promote sales of both shoes and sockse. buying both inventory and fixed assets using funds from the same bond issueDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSd 35. The Liberty Co. is considering two projects. Project A consists of building a wholesalebook outlet on lot #169 of the Englewood Retail Center. Project B consists of buildinga sit-down restaurant on lot #169 of the Englewood Retail Center. When trying todecide whether or build the book outlet or the restaurant, management should relymost heavily on the analysis results from the _____ method of analysis.a. profitability indexb. internal rate of returnc. paybackd. net present valuee. accounting rate of returnDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSc 36. When two projects both require the total use of the same limited economic resource,the projects are generally considered to be:a. independent.b. marginally profitable.c. mutually exclusive.d. acceptable.e. internally profitable.Difficulty level: EasyMUTUALLY EXCLUSIVE PROJECTSc 37. Matt is analyzing two mutually exclusive projects of similar size and has prepared thefollowing data. Both projects have 5 year lives.Project A Project B Net present value $15,090 $14,693Payback period 2.76 years 2.51 yearsAverage accounting return 9.3 percent 9.6 percentRequired return 8.3 percent 8.0 percentRequired AAR 9.0 percent 9.0 percentMatt has been asked for his best recommendation given this information. Hisrecommendation should be to accept:a. project B because it has the shortest payback period.b. both projects as they both have positive net present values.c. project A and reject project B based on their net present values.d. project B and reject project A based on their average accounting returns.e. project B and reject project A based on both the payback period and the averageaccounting return.Difficulty level: MediumINVESTMENT ANALYSISa 38. Given that the net present value (NPV) is generally considered to be the best methodof analysis, why should you still use the other methods?a. The other methods help validate whether or not the results from the net present valueanalysis are reliable.b. You need to use the other methods since conventional practice dictates that you onlyaccept projects after you have generated three accept indicators.c. You need to use other methods because the net present value method is unreliablewhen a project has unconventional cash flows.d. The average accounting return must always indicate acceptance since this is the bestmethod from a financial perspective.e. The discounted payback method must always be computed to determine if a projectreturns a positive cash flow since NPV does not measure this aspect of a project.Difficulty level: MediumINVESTMENT ANALYSISe 39. In actual practice, managers frequently use the:I. AAR because the information is so readily available.II. IRR because the results are easy to communicate and understand.III. payback because of its simplicity.IV. net present value because it is considered by many to be the best method of analysis.a. I and III onlyb. II and III onlyc. I, III, and IV onlyd. II, III, and IV onlye. I, II, III, and IVDifficulty level: MediumINVESTMENT ANALYSISa 40. No matter how many forms of investment analysis you do:a. the actual results from a project may vary significantly from the expected results.b. the internal rate of return will always produce the most reliable results.c. a project will never be accepted unless the payback period is met.d. the initial costs will generally vary considerably from the estimated costs.e. only the first three years of a project ever affect its final outcome.Difficulty level: EasyINVESTMENT ANALYSISb 41. Which of the following methods of project analysis are biased towards short-termprojects?I. internal rate of returnII. accounting rate of returnIII. paybackIV. discounted paybacka. I and II onlyb. III and IV onlyc. II and III onlyd. I and IV onlye. II and IV onlyDifficulty level: MediumINVESTMENT ANALYSISa 42. If a project is assigned a required rate of return equal to zero, then:a. the timing of the project’s cash flows has no bearing on the value of the project.b. the project will always be accepted.c. the project will always be rejected.d. whether the project is accepted or rejected will depend on the timing of the cash flows.e. the project can never add value for the shareholders.Difficulty level: MediumDECISION RULESe 43. You are considering a project with the following data:Internal rate of return 8.7 percentProfitability ratio .98Net present value -$393Payback period 2.44 yearsRequired return 9.5 percentWhich one of the following is correct given this information?a. The discount rate used in computing the net present value must have been less than 8.7percent.b. The discounted payback period will have to be less than 2.44 years.c. The discount rate used to compute the profitability ratio was equal to the internal rateof return.d. This project should be accepted based on the profitability ratio.e. This project should be rejected based on the internal rate of return.Difficulty level: MediumNET PRESENT VALUEc 44. Accepting positive NPV projects benefits the stockholders because:a. it is the most easily understood valuation process.b. the present value of the expected cash flows are equal to the cost.c. the present value of the expected cash flows are greater than the cost.d. it is the most easily calculated.e. None of the above.Difficulty level: EasyNET PRESENT VALUEa 45. Which of the following does not characterize NPV?a. NPV does not incorporate risk into the analysis.b. NPV incorporates all relevant information.c. NPV uses all of the project's cash flows.d. NPV discounts all future cash flows.e. Using NPV will lead to decisions that maximize shareholder wealth.Difficulty level: EasyPAYBACKe 46. The payback period rule:a. discounts cash flows.b. ignores initial cost.c. always uses all possible cash flows in its calculation.d. Both A and C.e. None of the above.Difficulty level: EasyPAYBACKc 47. The payback period rule accepts all investment projects in which the payback period forthe cash flows is:a. equal to the cutoff point.b. greater than the cutoff point.c. less than the cutoff point.d. positive.e. None of the above.Difficulty level: EasyPAYBACKd 48. The payback period rule is a convenient and useful tool because:a. it provides a quick estimate of how rapidly the initial investment will be recouped.b. results of a short payback rule decision will be quickly seen.c. it does not take into account time value of money.d. All of the above.e. None of the above.Difficulty level: EasyDISCOUNTED PAYBACKa 49. The discounted payback period rule:a. considers the time value of money.b. discounts the cutoff point.c. ignores uncertain cash flows.d. is preferred to the NPV rule.e. None of the above.Difficulty level: EasyPAYBACKc 50. The payback period rule:a. determines a cutoff point so that all projects accepted by the NPV rule will be acceptedby the payback period rule.b. determines a cutoff point so that depreciation is just equal to positive cash flows in thepayback year.c. requires an arbitrary choice of a cutoff point.d. varies the cutoff point with the interest rate.e. Both A and D.Difficulty level: EasyAVERAGE ACCOUNTING RETURNc 51. The average accounting return is determined by:a. dividing the yearly cash flows by the investment.b. dividing the average cash flows by the investment.c. dividing the average net income by the average investment.d. dividing the average net income by the initial investment.e. dividing the net income by the cash flow.Difficulty level: EasyAVERAGE ACCOUNTING RETURNb 52. The investment decision rule that relates average net income to average investment isthe:a. discounted cash flow method.b. average accounting return method.c. average payback method.d. average profitability index.e. None of the above.Difficulty level: EasyMODIFIED INTERNAL RATE OF RETURNd 53. Modified internal rate of return:a. handles the multiple IRR problem by combining cash flows until only one change insign change remains.b. requires the use of a discount rate.c. does not require the use of a discount rate.d. Both A and B.e. Both A and C.Difficulty level: MediumAVERAGE ACCOUNTING RETURNd 54. The shortcoming(s) of the average accounting return (AAR) method is (are):a. the use of net income instead of cash flows.b. the pattern of income flows has no impact on the AAR.c. there is no clear-cut decision rule.d. All of the above.e. None of the above.Difficulty level: MediumINTERNAL RATE OF RETURNe 55. The two fatal flaws of the internal rate of return rule are:a. arbitrary determination of a discount rate and failure to consider initial expenditures.b. arbitrary determination of a discount rate and failure to correctly analyze mutuallyexclusive investment projects.c. arbitrary determination of a discount rate and the multiple rate of return problem.d. failure to consider initial expenditures and failure to correctly analyze mutuallyexclusive investment projects.e. failure to correctly analyze mutually exclusive investment projects and the multiple rateof return problem.Difficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSd 56. A mutually exclusive project is a project whose:a. acceptance or rejection has no effect on other projects.b. NPV is always negative.c. IRR is always negative.d. acceptance or rejection affects other projects.e. cash flow pattern exhibits more than one sign change.Difficulty level: EasyINTERNAL RATE OF RETURNd 57. A project will have more than one IRR if:a. the IRR is positive.b. the IRR is negative.c. the NPV is zero.d. the cash flow pattern exhibits more than one sign change.e. the cash flow pattern exhibits exactly one sign change.Difficulty level: EasyINTERNAL RATE OF RETURN RULESb 58. Using internal rate of return, a conventional project should be accepted if the internalrate of return is:a. equal to the discount rate.b. greater than the discount rate.c. less than the discount rate.d. negative.e. positive.Difficulty level: EasyINTERNAL RATE OF RETURNa 59. The internal rate of return may be defined as:a. the discount rate that makes the NPV cash flows equal to zero.b. the difference between the market rate of interest and the NPV.c. the market rate of interest less the risk-free rate.d. the project acceptance rate set by management.e. None of the above.Difficulty level: MediumMULTIPLE INTERNAL RATE OF RETURNSd 60. The problem of multiple IRRs can occur when:a. there is only one sign change in the cash flows.b. the first cash flow is always positive.c. the cash flows decline over the life of the project.d. there is more than one sign change in the cash flows.e. None of the above.Difficulty level: EasyTIMING AND SCALE ISSUES WITH INTERNAL RATE OF RETURNb 61. The elements that cause problems with the use of the IRR in projects that are mutuallyexclusive are:a. the discount rate and scale problems.b. timing and scale problems.c. the discount rate and timing problems.d. scale and reversing flow problems.e. timing and reversing flow problems.Difficulty level: MediumNET PRESENT VALUE DECISIONc 62. If there is a conflict between mutually exclusive projects due to the IRR, one should:a. drop the two projects immediately.b. spend more money on gathering information.c. depend on the NPV as it will always provide the most value.d. depend on the AAR because it does not suffer from these same problems.e. None of the above.Difficulty level: MediumPROFITABILITY INDEXe 63. The profitability index is the ratio of:a. average net income to average investment.b. internal rate of return to current market interest rate.c. net present value of cash flows to internal rate of return.d. net present value of cash flows to average accounting return.e. present value of cash flows to initial investment cost.Difficulty level: EasyINVESTMENT DECISION RULESa 64. Which of the following statement is true?a. One must know the discount rate to compute the NPV of a project but one can computethe IRR without referring to the discount rate.b. One must know the discount rate to compute the IRR of a project but one can computethe NPV without referring to the discount rate.c. Payback accounts for time value of money.d. There will always be one IRR regardless of cash flows.e. Average accounting return is the ratio of total assets to total net income.Difficulty level: MediumCAPITAL BUDGETING PRACTICE。

罗斯《公司理财》英文习题答案DOCchap008

公司理财习题答案第八章Chapter 8: Strategy and Analysis in Using Net Present Value8.1 Go directly:NPV = 0.5 ⨯ $20 million + 0.5 ⨯ $5 million= $12.5 millionTest marketing:NPV = -$2 million + (0.75 ⨯ $20 million + 0.25 ⨯ $5 million) / 1.15= $12.13 millionGo directly to the market.8.2 Focus group: -$120,000 + 0.70 ⨯ $1,200,000 = $720,000Consulting firm: -$400,000 + 0.90 ⨯ $1,200,000 = $680,000Direct marketing: 0.50 ⨯ $1,200,000 = $600,000The manager should conduct a focus group.8.3 Price more aggressively:-$1,300,000 + (0.55 ⨯ 0) + 0.45 ⨯ (-$550,000)= -$1,547,500Hire lobbyist:-$800,000 + (0.75 ⨯ 0) + 0.25 ⨯ (-$2,000,000)= -$1,300,000Tandem should hire the lobbyist.8.4 Let sales price be x.Depreciation = $600,000 / 5 = $120,000BEP: ($900,000 + $120,000) / (x - $15) = 20,000x = $668.5 The accounting break-even= (120,000 + 20,000) / (1,500 - 1,100)= 350 units8.6 a. The accounting break-even= 340,000 / (2.00 - 0.72)= 265,625 abalonesb. [($2.00 ⨯ 300,000) - (340,000 + 0.72 ⨯ 300,000)] (0.65)= $28,600This is the after tax profit.8.7 EAC = $140,000 / 7A = $33,650.015Depreciation = $140,000 / 7 = $20,000BEP = {$33,650 + $340,000 ⨯ 0.65 - $20,000 ⨯ 0.35} / {($2 - $0.72) ⨯ 0.65} = 297,656.25≈ 297,657 units8.8 Depreciation = $200,000 / 5 = $40,000 EAC = $200,000 / 512.0A = $200,000 / 3.60478 = $55,482BEP = {$55,482 + $350,000 ⨯ 0.75 - $40,000 ⨯ 0.25} / {($25 - $5) ⨯ 0.75} = 20,532.13 ≈ 20533 units 8.9 Let I be the break-even purchase price. Incremental C 0$20,000 Tax effect 3,400 Total $23,400 Depreciation per period = $45,000 / 15 = $3,000Book value of the machine = $45,000 - 5 ⨯ $3,000 = $30,000Loss on sale of machine = $30,000 - $20,000 = $10,000 Tax credit due to loss = $10,000 ⨯ 0.34 = $3,400Incremental cost savings: $10,000 (1 - 0.34) = $6,600 Incremental depreciation tax shield: [I / 10 - $3,000] (0.34)The break-even purchase price is the Investment (I), which makes the NPV be zero. NPV = 0 = -I + $23,400 + $6,600 1015.0A + [I / 10 - $3,000] (0.34) 1015.0A = -I + $23,400 + $6,600 (5.0188) + I (0.034) (5.0188) - $3,000 (0.34) (5.0188) I = $61,981 8.10 Pessimistic:NPV= -$420,000 + (){}23,000$38$21$320,0000.65$60,0000.351.13t t 17--⨯+⨯=∑= -$123,021.71 Expected: NPV = -$420,000 + (){}25,000$40$20$300,0000.65$60,0000.351.13t7--⨯+⨯=∑t 1= $247,814.17公司理财习题答案第八章Optimistic:NPV= -$420,000 +(){}27,000$42$19$280,0000.65$60,0000.351.13tt 17--⨯+⨯=∑= $653,146.42Even though the NPV of pessimistic case is negative, if we change one input while allothers are assumed to meet their expectation, we have all positive NPVs like the one before. Thus, this project is quite profitable.PessimisticNPVUnit sales 23,000 $132,826.30 Price$38 $104,079.33 Variable costs $21 $175,946.75 Fixed costs$320,000$190,320.248.11 Pessimistic: NPV = -$1,500,000 +(){}1100000220000600000401131,.$850,.$300,..⨯--⨯+⨯=∑$115$725tt= -$675,701.68 Expected: NPV = -$1,500,000+(){}1200000250000600000401131,.$800,.$300,..⨯--⨯+⨯=∑$120$705tt= $399,304.88Optimistic: NPV = -$1,500,000+(){}130,0000.27$125$68$750,0000.60$300,0000.401.13tt 15⨯--⨯+⨯=∑= $1,561,468.43The expected present value of the new tennis racket is $428,357.21. (Assuming there are equal chances of the 3 scenarios occurring.)8.12 NPV = (){}-+⨯--⨯+⨯=∑1,500,000130,0000.22$120$70$800,0000.60$300,0000.401.13tt 15= $251,581.17The 3% drop in market share hurt significantly more than the 10,000 increase in market size helped. However, if the drop were only 2%, the effects would be about even. Market size is going up by over 8%, thus it seems market share is more important than market size.8.13 a. NPV = -$10,000,000 + ( $750, 000 ⨯10A) = -$5,391,574.6710.b.Revised NPV = -$10,000,000 + $750,000 / 1.10 + [(.5 ⨯ $1,500,000 ⨯9A).10+ (.5 ⨯ $200,000 )] / 1.10= -$5,300,665.58Option value of abandonment = -$5,300,665.58 – ( -$5,391,574.67 )= $90,909.098.14 a. NPV = -$100M + ( $100 ⨯ 2M ⨯10A) = $738.49Million.20b.$50M = C9A20.C = $12.40 Million (or 1.24 Million units )。