公司理财精要版原书第12版习题库答案Ross12e_Chapter16_TB

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公司理财精要版原书第12版习题库答案Ross12e_Chapter22_TB_AnswerKey

公司理财精要版原书第12版习题库答案Ross12e_Chapter22_TB_AnswerKey

Fundamentals of Corporate Finance, 12e (Ross)Chapter 22 Behavioral Finance: Implications for Financial Management1) Nadine made a business decision that turned out badly. In reflecting upon her decision, she decided it was a reasoning error that led to the faulty decision. Which one of the following areas of study best applies to this situation?A) Corporate ethicsB) Financial statement analysisC) Managerial financeD) Debt managementE) Behavioral financeAnswer: EDifficulty: 1 EasyTopic: Behavioral financeLearning Objective: 22-01 Describe how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation2) Peter has successfully managed the finances of A.D. Leadbetter in a manner that has yielded abnormally high returns. Due to this success, Peter has decided to publish a newsletter for financial executives so that he can share his superior financial wisdom with others. There is a very real probability that Peter has which one of the following characteristics?A) Gambler's fallacyB) Frame dependenceC) OverconfidenceD) Representativeness heuristicE) Sentiment-based risk attitudesAnswer: CDifficulty: 1 EasyTopic: BiasesLearning Objective: 22-01 Describe how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation3) Jeremy believes he excels at picking stock winners and thus trades frequently. Which characteristic does he most likely represent?A) Confirmation biasB) Frame dependenceC) OverconfidenceD) Representativeness heuristicE) Break-even effectAnswer: CDifficulty: 1 EasyTopic: BiasesLearning Objective: 22-01 Describe how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation4) Anytime Ted analyzes a proposed project, he always assigns a much higher probability of success to the project than is warranted by the information he has gathered. Ted suffers from which one of the following?A) Frame dependenceB) Mental accountingC) Endowment effectD) Confirmation biasE) OveroptimismAnswer: EDifficulty: 1 EasyTopic: BiasesLearning Objective: 22-01 Describe how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation5) The tendency for a decision maker to search for reassurance that a recent decision he or she made was a good decision represents which one of the following characteristics?A) OverconfidenceB) OveroptimismC) Affect heuristicD) Confirmation biasE) Representativeness heuristicAnswer: DDifficulty: 1 EasyTopic: BiasesLearning Objective: 22-01 Describe how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation6) Which one of the following best illustrates an error which you, as a project manager, might make due to confirmation bias?A) Overestimating the best outcome expected from a project while underestimating the possibility of a less favorable outcomeB) Assuming that a new project will be profitable since similar projects in the past were successfulC) Assuming that your expectations of the future outcome from a project are more accurate than the expectations of others within your organizationD) Listening to the advice of subordinates with whom you agree while ignoring the advice of subordinates with whom you tend to disagreeE) Downplaying the cost of future failure of an existing project since the project has already paid for itselfAnswer: DDifficulty: 1 EasyTopic: BiasesLearning Objective: 22-01 Describe how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation7) Assume you are an overconfident manager. You are most apt to do which one of the following more so than you would if you were not overconfident?A) Research a project more thoroughly before committing funds to commence itB) Accept risky projects that turn out to be less profitable than you expectedC) Wait until new technology proves its worth before incorporating it into your firm's operationsD) Avoid mergers and acquisitionsE) Invest excess company cash more conservatively than your peers at other firmsAnswer: BDifficulty: 1 EasyTopic: BiasesLearning Objective: 22-01 Describe how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation8) Marzella Corp. is analyzing a project that involves expanding the firm into a new product line. The project's financial projections will tend to have which one of the following characteristics if the person compiling those projections suffers from overoptimism?A) Overestimated construction costsB) Overestimated expensesC) Overestimated net present valuesD) Underestimated profitsE) Underestimated sales estimatesAnswer: CDifficulty: 1 EasyTopic: BiasesLearning Objective: 22-01 Describe how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation9) Alice believes she can accurately forecast the future and makes business decisions based on this belief. Which characteristics does this belief represent?A) OverconfidenceB) OveroptimismC) Affect heuristicD) Confirmation biasE) Representativeness heuristicAnswer: ADifficulty: 1 EasyTopic: BiasesLearning Objective: 22-01 Describe how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation10) Kate tends to hold onto assets that have lost value in the hope that their values will increase in the future. Kate illustrates which one of the following?A) Frame dependenceB) Self-attribution biasC) Gambler's fallacyD) Break-even effectE) Regret aversionAnswer: DDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation11) Which one of the following refers to the fact that an individual may reply differently if a question is asked in an equivalent but different manner?A) Loss aversionB) Gambler's fallacyC) Frame dependenceD) OverconfidenceE) Format referenceAnswer: CDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation12) Aivree wants to accumulate great wealth but she invests all of her funds in U.S. Treasury bills because she wants to avoid the potential losses she knows can occur in the stock markets. Aivree best illustrates which one of these characteristics?A) Loss aversionB) Gambler's fallacyC) Disposition effectD) Law of small numbersE) Mental accountingAnswer: ADifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation13) Consumer Marketing just conducted a two-phase survey. In the first phase, the survey questions were worded such that the answers tended to sound positive. In the second phase, the survey questions were reworded so the answers tended to convey a negative feeling. Both sets of survey questions should have resulted in similar results as the information solicited was essentially identical. However, the survey results varied significantly. This survey best illustrates which one of the following?A) Mental accountingB) OverconfidenceC) Self-attribution biasD) Confirmation biasE) Frame dependenceAnswer: EDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation14) Recently, a neighbor you have known for years won a lottery and received a $250,000 prize. This neighbor decided to invest all of his winnings in a new business venture that he knew only had a 5 percent chance of success. Previous to this, the neighbor had always been ultra conservative with his money and had refused to invest in this business venture as recently as last week. Which one of the following behaviors most applies to your neighbor's decision to invest in this business venture now?A) Disposition effectB) Affect heuristicC) Gambler's fallacyD) House moneyE) Get-evenitisAnswer: DDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation15) The tendency to sell winners and hold losers is known as the:A) representativeness heuristic.B) disposition effect.C) house money effect.D) self-attribution bias.E) affect heuristic.Answer: BDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation16) Steve purchased a stock last year for $34 a share. The stock increased in value to $36 a share before declining to its current value of $30. Steve has decided to sell the stock, but only if he can receive $34 a share or better. Steve is primarily suffering from which one of the following behavioral conditions?A) Representativeness heuristicB) House moneyC) Loss aversionD) RandomnessE) Myopic loss aversionAnswer: CDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation17) Over the past six months, you have watched as your parent's retirement savings have declined in value by 25 percent due to a severe financial market downturn. As a result, you have decided that you will never invest in stocks for your own retirement but will instead keep all of your money in an insured bank account. Which behavioral characteristic have you acquired as a result of the market downturn?A) Myopic loss aversionB) Get-evenitisC) Self-attribution biasD) Mental accountingE) Regret aversionAnswer: ADifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation18) Ramon opened a combination laundry and dry cleaning establishment three years ago that is quite successful. He has considered expanding this business by opening another location but keeps putting off that decision for fear that the second location will not be a success. Ramon is currently displaying which one of the following behavioral characteristics?A) Self-attribution biasB) OverconfidenceC) Regret aversionD) House money effectE) Frame dependenceAnswer: CDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation19) Phyllis is planning for her retirement in 15 years. She currently lives comfortably on $38,000a year given that she is debt-free. Based on her family history she only expects to live ten years after she retires. Thus, she computes her retirement need as $38,000 a year for ten years. Which one of the following behaviors applies to Phyllis?A) Regret aversionB) Money illusionC) Self-attribution biasD) Endowment effectE) Myopic loss aversionAnswer: BDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation20) Kate is attempting to sell her house for $260,000. Fred lives across the street in an identical house. Fred recently stated to his wife that Kate's house is probably worth only $250,000 but that once she sells her house, he would like to put their house on the market at $285,000 and then move into a condominium. Which one of the following behaviors applies to Fred?A) Myopic loss aversionB) House money effectC) Money illusionD) Self-attribution biasE) Endowment effectAnswer: EDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation21) You have a tendency to take credit for the decisions you make that have good outcomes even when those outcomes are out of your control. On the other hand, you blame bad luck for your decisions that turn out badly. Which of these terms applies to you?A) Myopic loss aversionB) House money effectC) Money illusionD) Self-attribution biasE) Endowment effectAnswer: DDifficulty: 1 EasyTopic: Framing effectsLearning Objective: 22-02 Demonstrate how framing effects can result in inconsistent and/or incorrect decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation22) A tendency to be overly conservative when faced with new information is referred to as:A) anchoring and adjustment.B) heuristics.C) self-attribution.D) loss aversion.E) regret aversion.Answer: ADifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation23) Bill feels that he possesses a good dose of "street smarts." Thus, he makes his business decisions based on how a project feels to him rather than taking the time to financially analyze a project. This type of behavior is referred to as:A) overconfidence.B) endowment effect.C) money illusion.D) affect heuristic.E) sentiment-based risk.Answer: DDifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation24) Which term refers to the tendency to shy away from the unknown?A) Aversion to ambiguityB) Clustering illusionC) Anchoring and adjustmentD) Recency biasE) Availability biasAnswer: ADifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation25) You recently overheard your boss telling someone that if he'd actually crunched some numbers and done some analysis instead of just going with his instincts, he never would have opened the new store in Centre City. Which one of the following caused your boss to make a bad decision?A) Regret aversionB) Endowment effectC) Money illusionD) Affect heuristicE) Representativeness heuristicAnswer: DDifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation26) Roger's Meat Market is a chain of retail stores that limits its sales to fresh-cut meats. The stores have been very profitable in northern cities. However, when two stores were opened in the south, both lost money and had to be closed. Roger, the owner, has now concluded that no southern-based store should be opened as it would not be profitable. Which one of the following applies to Roger?A) Confirmation biasB) Endowment effectC) Money illusionD) Affect heuristicE) Representativeness heuristicAnswer: EDifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation27) Up until three years ago, A.C. Dime opened an average of ten new retail stores a year. One of every ten new stores had to be closed within two years due to poor sales. This 90 percent success ratio was fairly steady for over 30 years. Starting three years ago, the firm has opened 40 new stores and every one had significant profits within six months. Management believes their recent success is not just a random event and that all future stores will be profitable. Thus, the managers have decided to open a minimum of 15 new stores each year. The managers are suffering from:A) arbitrage limitations.B) anchoring and adjustment.C) aversion to ambiguity.D) the clustering illusion.E) myopic aversion.Answer: DDifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation28) You are employed as a commission-based sales clerk for a cosmetics retail store. You know that, on average, exactly 50 percent of the customers that enter your store will make at least one purchase. Thus far this morning, you have waited on eight customers without making a single sale. You are convinced that the next customer you wait on will buy something. This belief is known as:A) aversion to ambiguity.B) the law of small numbers.C) anchoring and adjusting.D) gambler's fallacy.E) false consensus.Answer: DDifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation29) The last six times you purchased a stock you earned high returns within one year. Thus, you believe you will have the same result with your next stock purchase. This is an example of which one of the following?A) Recency biasB) Anchoring and adjustmentC) Frame dependenceD) Aversion to ambiguityE) Clustering illusionAnswer: ADifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation30) You started an online business two weeks ago. Thus far, you have averaged ten sales a day, which is one sale for every five hits. You are now considering giving up your day job and becoming a full-time online retailer. You have calculated the amount of income you can earn based on ten sales a day and know that level of income would support you in a comfortable fashion. The belief that you will have ten sales per day if this becomes your full-time occupation is based on which one of the following?A) Mental accountingB) Anchoring and adjustmentC) Law of small numbersD) Bubble and crash theoryE) Confirmation biasAnswer: CDifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation31) You are a hard-charging manager who doesn't really like to sit at a desk for too long. You prefer to gather information quickly, make a decision, and move on to the next item on your agenda. Which one of the following applies to you?A) Availability biasB) Arbitrage limitsC) Law of small numbersD) Representativeness heuristicE) Regret aversionAnswer: ADifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation32) Your friends are all investing in a start-up company. You, on the other hand, refuse to invest in the company because you don't know the odds of it becoming successful. Which behavioral characteristic are you displaying?A) Aversion to ambiguityB) Recency biasC) Sentiment-based risk aversionD) Clustering illusionE) Money illusionAnswer: ADifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation33) You are the manager of a retail store. You believe the economy is in a recession and that sales for the month will be unusually slow. Since you have complete discretion over the pricing at your location, you decide to have a storewide sale and offer ten percent off all merchandise for a three-day period. You don't expect your superiors to criticize this decision as you believe they, along with the majority of the other store managers, feel the same way about the economy as you do. Which one of the following applies to you?A) Recency biasB) Law of small numbersC) Gambler's fallacyD) False consensusE) Money illusionAnswer: DDifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation34) The last two promotions within a firm involved individuals who completed the same advanced managerial program. As a result, the company president has stipulated that all future management hires must be graduates of that program. This behavior is typical of someone who has which one of the following characteristics?A) Endowment effectB) Framing effectC) Representativeness heuristicD) Narrow framingE) Affect heuristicAnswer: CDifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation35) Which term refers to the reliance on stereotypes or limited samples to form opinions about an entire class?A) Clustering illusionB) Law of small numbersC) Representativeness heuristicD) False consensusE) Recency biasAnswer: CDifficulty: 1 EasyTopic: HeuristicsLearning Objective: 22-03 Show how the use of heuristics can lead to suboptimal financial decisions.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation36) It is believed by some individuals that, in an efficient market, the actions of traders who constantly buy and sell on any perceived market mispricing will in effect cause market prices to correctly reflect asset values. A person who believes that the actions of these traders will not result in correctly valued prices are most apt to believe in which one of the following?A) Gambler's fallacyB) Limits to arbitrageC) Availability biasD) False consensusE) Clustering illusionAnswer: BDifficulty: 1 EasyTopic: Arbitrage and its limitsLearning Objective: 22-04 Define the shortcomings and limitations to market efficiency from the behavioral finance view.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation37) Which one of the following is an investment risk that investors face in addition to firm-based risk and market-based risk?A) Management-related riskB) Inflation riskC) Supply chain riskD) Interest rate riskE) Sentiment-based riskAnswer: EDifficulty: 1 EasyTopic: Behavioral financeLearning Objective: 22-04 Define the shortcomings and limitations to market efficiency from the behavioral finance view.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation38) Which word best describes the stock market during the month of October 1987?A) CrashB) CircleC) BubbleD) LimitE) FlatAnswer: ADifficulty: 1 EasyTopic: Historical performanceLearning Objective: 22-04 Define the shortcomings and limitations to market efficiency from the behavioral finance view.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation39) All of the following create limits to arbitrage except:A) firm-specific risk.B) noise traders.C) thinly traded securities.D) rational traders.E) implementation costs.Answer: DDifficulty: 1 EasyTopic: Arbitrage and its limitsLearning Objective: 22-04 Define the shortcomings and limitations to market efficiency from the behavioral finance view.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation40) AB Industries is an all-equity firm that has $10 per share in cash and a book value per share of $12. At which one of the following market prices would you know with absolute certainty that the stock was mispriced?A) $9B) $10C) $11D) $12E) $13Answer: ADifficulty: 1 EasyTopic: Market efficiencyLearning Objective: 22-04 Define the shortcomings and limitations to market efficiency from the behavioral finance view.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation41) Approximately what percent of its total value did the stock market lose on "Black Monday"?A) 19B) 10C) 23D) 30E) 38Answer: CDifficulty: 1 EasyTopic: Historical performanceLearning Objective: 22-04 Define the shortcomings and limitations to market efficiency from the behavioral finance view.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation42) Which one of the following statements related to market crashes is correct?A) Financial market crashes are unique to the United States.B) A market crash tends to occur within a week but have effects that last many years.C) Once the market finally crashed in 1929, stock prices began a long period of steady increases.D) The market crash of 1987 occurred on a day when trading volume was light indicating there were a limited number of irrational investors involved.E) Actions in Washington, D.C., may have helped contribute to the market crash in 1929 but not to the 1987 crash.Answer: BDifficulty: 1 EasyTopic: Historical performanceLearning Objective: 22-04 Define the shortcomings and limitations to market efficiency from the behavioral finance view.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation。

公司理财精要版原书第12版习题库答案Ross12e_Chapter01_TB_AnswerKey

公司理财精要版原书第12版习题库答案Ross12e_Chapter01_TB_AnswerKey

Fundamentals of Corporate Finance, 12e (Ross)Chapter 1 Introduction to Corporate Finance1) Which one of the following functions should be the responsibility of the controller rather than the treasurer?A) Depositing cash receiptsB) Processing cost reportsC) Analyzing equipment purchasesD) Approving credit for a customerE) Paying a vendorAnswer: BDifficulty: 1 EasyTopic: Management organization and rolesLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation2) The treasurer of a corporation generally reports directly to the:A) board of directors.B) chairman of the board.C) chief executive officer.D) president.E) vice president of finance.Answer: EDifficulty: 1 EasyTopic: Management organization and rolesLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation3) Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure?A) The vice president of finance reports to the chairman of the board.B) The chief executive officer reports to the president.C) The controller reports to the chief financial officer.D) The treasurer reports to the president.E) The chief operations officer reports to the vice president of production.Answer: CDifficulty: 1 EasyTopic: Management organization and rolesLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation4) An example of a capital budgeting decision is deciding:A) how many shares of stock to issue.B) whether or not to purchase a new machine for the production line.C) how to refinance a debt issue that is maturing.D) how much inventory to keep on hand.E) how much money should be kept in the checking account.Answer: BDifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation5) When evaluating the timing of a project's projected cash flows, a financial manager is analyzing:A) the amount of each expected cash flow.B) only the start-up costs that are expected to require cash resources.C) only the date of the final cash flow related to the project.D) the amount by which cash receipts are expected to exceed cash outflows.E) when each cash flow is expected to occur.Answer: EDifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation6) Capital structure decisions include determining:A) which one of two projects to accept.B) how to allocate investment funds to multiple projects.C) the amount of funds needed to finance customer purchases of a new product.D) how much debt should be assumed to fund a project.E) how much inventory will be needed to support a project.Answer: DDifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation7) The decision to issue additional shares of stock is an example of:A) working capital management.B) a net working capital decision.C) capital budgeting.D) a controller's duties.E) a capital structure decision.Answer: EDifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation8) Which one of the following questions is a working capital management decision?A) Should the company issue new shares of stock or borrow money?B) Should the company update or replace its older equipment?C) How much inventory should be on hand for immediate sale?D) Should the company close one of its current stores?E) How much should the company borrow to buy a new building?Answer: CDifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation9) Which one of the following is a working capital management decision?A) What type(s) of equipment is (are) needed to complete a current project?B) Should the firm pay cash for a purchase or use the credit offered by the supplier?C) What amount of long-term debt is required to complete a project?D) How many shares of stock should the firm issue to fund an acquisition?E) Should a project should be accepted?Answer: BDifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation10) Working capital management decisions include determining:A) the minimum level of cash to be kept in a checking account.B) the best method of producing a product.C) the number of employees needed to work during a particular shift.D) when to replace obsolete equipment.E) if a competitor should be acquired.Answer: ADifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation11) Which one of the following terms is defined as the management of a firm's long-term investments?A) Working capital managementB) Financial allocationC) Agency cost analysisD) Capital budgetingE) Capital structureAnswer: DDifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation12) Which one of the following terms is defined as the mixture of a firm's debt and equity financing?A) Working capital managementB) Cash managementC) Cost analysisD) Capital budgetingE) Capital structureAnswer: EDifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation13) A firm's short-term assets and its short-term liabilities are referred to as the firm's:A) working capital.B) debt.C) investment capital.D) net capital.E) capital structure.Answer: ADifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation14) Which one of the following questions is least likely to be addressed by financial managers?A) How should a product be marketed?B) Should customers be given 30 or 45 days to pay for their credit purchases?C) Should the firm borrow more money?D) Should the firm acquire new equipment?E) How much cash should the firm keep on hand?Answer: ADifficulty: 1 EasyTopic: Financial management decisionsLearning Objective: 01-01 Define the basic types of financial management decisions and the role of the financial manager.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation15) A business owned by a solitary individual who has unlimited liability for the firm's debt is called a:A) corporation.B) sole proprietorship.C) general partnership.D) limited partnership.E) limited liability company.Answer: BDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation16) A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:A) corporation.B) sole proprietorship.C) general partnership.D) limited partnership.E) limited liability company.Answer: CDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation17) A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:A) general partner.B) sole proprietor.C) limited partner.D) corporate shareholder.E) zero partner.Answer: CDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation18) A business created as a distinct legal entity and treated as a legal "person" is called a(n):A) corporation.B) sole proprietorship.C) general partnership.D) limited partnership.E) unlimited liability company.Answer: ADifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation19) Which one of the following statements concerning a sole proprietorship is correct?A) A sole proprietorship is designed to protect the personal assets of the owner.B) The profits of a sole proprietorship are subject to double taxation.C) The owner of a sole proprietorship is personally responsible for all of the company's debts.D) There are very few sole proprietorships remaining in the U.S. today.E) A sole proprietorship is structured the same as a limited liability company.Answer: CDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation20) Which one of the following statements concerning a sole proprietorship is correct?A) The life of a sole proprietorship is limited.B) A sole proprietor can generally raise large sums of capital quite easily.C) Transferring ownership of a sole proprietorship is easier than transferring ownership of a corporation.D) A sole proprietorship is taxed the same as a C corporation.E) A sole proprietorship is the most regulated form of organization.Answer: ADifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation21) Which of the following individuals have unlimited liability for a firm's debts based on their ownership interest?A) Only general partnersB) Only sole proprietorsC) All stockholdersD) Both limited and general partnersE) Both general partners and sole proprietorsAnswer: EDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation22) The primary advantage of being a limited partner is:A) the receipt of tax-free income.B) the partner's active participation in the firm's activities.C) the lack of any potential financial loss.D) the daily control over the business affairs of the partnership.E) the partner's maximum loss is limited to their capital investment.Answer: EDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation23) A general partner:A) is personally responsible for all partnership debts.B) has no say over a firm's daily operations.C) faces double taxation whereas a limited partner does not.D) has a maximum loss equal to his or her equity investment.E) receives a salary in lieu of a portion of the profits.Answer: ADifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation24) A limited partnership:A) has an unlimited life.B) can opt to be taxed as a corporation.C) terminates at the death of any one limited partner.D) has at least one partner who has unlimited liability for all of the partnership's debts.E) consists solely of limited partners.Answer: DDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation25) A partnership with four general partners:A) distributes profits based on percentage of ownership.B) has an unlimited partnership life.C) limits the active involvement in the firm to a single partner.D) limits each partner's personal liability to 25 percent of the partnership's total debt.E) must distribute 25 percent of the profits to each partner.Answer: EDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation26) One disadvantage of the corporate form of business ownership is the:A) limited liability of its shareholders for the firm's debts.B) double taxation of distributed profits.C) firm's greater ability to raise capital than other forms of ownership.D) firm's potential for an unlimited life.E) firm's ability to issue additional shares of stock.Answer: BDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation27) Which one of the following statements is correct?A) The majority of firms in the U.S. are structured as corporations.B) Corporate profits are taxable income to the shareholders when earned.C) Corporations can have an unlimited life.D) Shareholders are protected from all potential losses.E) Shareholders directly elect the corporate president.Answer: CDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation28) Which one of the following statements is correct?A) A general partnership is legally the same as a corporation.B) Income from both sole proprietorships and partnerships that is taxable is treated as individual income.C) Partnerships are the most complicated type of business to form.D) All business organizations have bylaws.E) Only firms organized as sole proprietorships have limited lives.Answer: BDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation29) The articles of incorporation:A) describe the purpose of the firm and set forth the number of shares of stock that can be issued.B) are amended periodically especially prior to corporate elections.C) explain how corporate directors are to be elected and the length of their terms.D) sets forth the procedures by which a firm regulates itself.E) include only the corporation's name and intended life.Answer: ADifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation30) Corporate bylaws:A) must be amended should a firm decide to increase the number of shares authorized.B) cannot be amended once adopted.C) define the name by which the firm will operate.D) describe the intended life and purpose of the organization.E) determine how a corporation regulates itself.Answer: EDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation31) A limited liability company:A) can only have a single owner.B) is comprised of limited partners only.C) is taxed similar to a partnership.D) is taxed similar to a C corporation.E) generates totally tax-free income.Answer: CDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation32) Which business form is best suited to raising large amounts of capital?A) Sole proprietorshipB) Limited liability companyC) CorporationD) General partnershipE) Limited partnershipAnswer: CDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation33) A ________ has all the respective rights and privileges of a legal person.A) sole proprietorshipB) general partnershipC) limited partnershipD) corporationE) limited liability companyAnswer: DDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation34) Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?A) Sole proprietorshipB) Joint stock companyC) Limited partnershipD) General partnershipE) CorporationAnswer: CDifficulty: 2 MediumTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: ApplyAACSB: Knowledge ApplicationAccessibility: Keyboard Navigation35) Sally and Alicia are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with their unlimited liability. Which form of business entity should they consider as a replacement to their current arrangement assuming they wish to remain the only two owners of the business?A) Sole proprietorshipB) Joint stock companyC) Limited partnershipD) Limited liability companyE) CorporationAnswer: DDifficulty: 2 MediumTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: ApplyAACSB: Knowledge ApplicationAccessibility: Keyboard Navigation36) The growth of both sole proprietorships and partnerships is frequently limited by the firm's:A) double taxation.B) bylaws.C) inability to raise cash.D) limited liability.E) agency problems.Answer: CDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation37) Corporate dividends are:A) tax-free because the income is taxed at the personal level when earned by the firm.B) tax-free because they are distributions of aftertax income.C) tax-free since the corporation pays tax on that income when it is earned.D) taxed at both the corporate and the personal level when the dividends are paid to shareholders.E) taxable income of the recipient even though that income was previously taxed.Answer: EDifficulty: 1 EasyTopic: Forms of business organizationLearning Objective: 01-03 Articulate the financial implications of the different forms of business organization.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation38) Financial managers should primarily focus on the interests of:A) stakeholders.B) the vice president of finance.C) their immediate supervisor.D) shareholders.E) the board of directors.Answer: DDifficulty: 1 EasyTopic: Goal of financial managementLearning Objective: 01-02 Explain the goal of financial management.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation39) Which one of the following best states the primary goal of financial management?A) Maximize current dividends per shareB) Maximize the current value per shareC) Increase cash flow and avoid financial distressD) Minimize operational costs while maximizing firm efficiencyE) Maintain steady growth while increasing current profitsAnswer: BDifficulty: 1 EasyTopic: Goal of financial managementLearning Objective: 01-02 Explain the goal of financial management.Bloom's: RememberAACSB: Reflective ThinkingAccessibility: Keyboard Navigation40) Which one of the following best illustrates that the management of a firm is adhering to thegoal of financial management?A) An increase in the amount of the quarterly dividendB) A decrease in the per unit production costsC) An increase in the number of shares outstandingD) A decrease in the net working capitalE) An increase in the market value per shareAnswer: EDifficulty: 1 EasyTopic: Goal of financial managementLearning Objective: 01-02 Explain the goal of financial management.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation41) Financial managers should strive to maximize the current value per share of the existing stock to:A) guarantee the company will grow in size at the maximum possible rate.B) increase employee salaries.C) best represent the interests of the current shareholders.D) increase the current dividends per share.E) provide managers with shares of stock as part of their compensation.Answer: CDifficulty: 1 EasyTopic: Goal of financial managementLearning Objective: 01-02 Explain the goal of financial management.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation42) Decisions made by financial managers should primarily focus on increasing the:A) size of the firm.B) growth rate of the firm.C) gross profit per unit produced.D) market value per share of outstanding stock.E) total sales.Answer: DDifficulty: 1 EasyTopic: Goal of financial managementLearning Objective: 01-02 Explain the goal of financial management.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation43) The Sarbanes-Oxley Act of 2002 is a governmental response to:A) decreasing corporate profits.B) the terrorist attacks on 9/11/2001.C) a weakening economy.D) deregulation of the stock exchanges.E) management greed and abuses.Answer: EDifficulty: 1 EasyTopic: Ethics, governance, and regulationLearning Objective: 01-04 Explain the conflicts of interest that can arise between managers and owners.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation44) Which one of the following is an unintended result of the Sarbanes-Oxley Act?A) More detailed and accurate financial reportingB) Increased management awareness of internal controlsC) Corporations delisting from major exchangesD) Increased responsibility for corporate officersE) Identification of internal control weaknessesAnswer: CDifficulty: 1 EasyTopic: Ethics, governance, and regulationLearning Objective: 01-04 Explain the conflicts of interest that can arise between managers and owners.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation45) A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:A) must continue to provide audited financial statements to the public.B) must continue to provide a detailed list of internal control deficiencies on an annual basis.C) can provide less information to its shareholders than it did prior to "going dark".D) can continue publicly trading its stock but only on the exchange on which it was previously listed.E) ceases to exist.Answer: CDifficulty: 1 EasyTopic: Ethics, governance, and regulationLearning Objective: 01-04 Explain the conflicts of interest that can arise between managers and owners.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation46) The Sarbanes-Oxley Act of 2002 holds a public company's ________ responsible for the accuracy of the company's financial statements.A) managersB) internal auditorsC) external legal counselD) internal legal counselE) Securities and Exchange Commission agentAnswer: ADifficulty: 1 EasyTopic: Ethics, governance, and regulationLearning Objective: 01-04 Explain the conflicts of interest that can arise between managers and owners.Bloom's: UnderstandAACSB: Reflective ThinkingAccessibility: Keyboard Navigation。

公司理财精要版原书第12版习题库答案Ross12e_Chapter15_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter15_TB

Fundamentals of Corporate Finance, 12e (Ross)Chapter 15 Raising Capital1) Business Aid is funded by a group of wealthy investors for the sole purpose of providing funding for individuals and small firms that are trying to convert their new ideas into viable products. What is this type of funding called?A) Green shoe fundingB) Tombstone underwritingC) Venture capitalD) Red herring fundingE) Life cycle capital2) It is common for venture capitalists to receive at least ________ percent of a start-up company's equity in exchange for the venture capital.A) 10B) 15C) 20D) 30E) 403) Equity financing of new, non-public companies is broadly referred to as:A) singular-risk financing.B) mezzanine-level stock.C) stylized financing.D) private equity.E) exit funding.4) Which one of the following statements concerning venture capital financing is correct?A) Venture capitalists desire shares of common stock but avoid preferred stock.B) Venture capital is relatively easy to obtain.C) Venture capitalists rarely assume active roles in the management of the financed firm.D) Venture capitalists should have key contacts and financial strength.E) Venture capital is relatively inexpensive in today's competitive markets.5) Which one of the following statements concerning venture capitalists is correct?A) Venture capitalists always assume management responsibility for the companies they finance.B) Exit strategy is a key consideration when selecting a venture capitalist.C) Venture capitalists limit their services to providing money to start-up firms.D) Most venture capitalists are long-term investors in the companies they finance.E) A venture capitalist normally invests in a new idea from conception through the IPO.6) When selecting a venture capitalist, which one of the following characteristics is probably the least important?A) Financial strengthB) Level of involvementC) ContactsD) Exit strategyE) Underwriting experience7) Trevor is the CEO of Harvest Foods, which is a privately held corporation. What is the first step he must take if he wishes to take Harvest Foods public?A) Select an underwriterB) Obtain SEC approvalC) Gain board approvalD) Prepare a registration statementE) Distribute a prospectus8) Which one of these describes an exception to the registration filing requirement of the SEC?A) Loans that mature in one year or lessB) Issues that have an approved prospectusC) Loans of $10 million or lessD) Issues of less than $5 millionE) Issues that have received an approved letter of comment9) The Securities and Exchange Commission:A) verifies the accuracy of the information contained in the prospectus.B) publishes red herrings on prospective new security offerings.C) examines the prospectus during the Green Shoe period.D) reviews registration statements to ensure they comply with current laws and regulations.E) determines the final offer price once they have approved the registration statement.10) What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public?A) ProspectusB) Red herringC) IndentureD) Public disclosure statementE) Registration statement11) M&C Merchants is offering $2.5 million of new securities to the general public. Which SEC regulation governs this offering?A) Regulation AB) Regulation CC) Regulation GD) Regulation QE) Regulation R12) What is a prospectus?A) A letter issued by the SEC authorizing a new issue of securitiesB) A report stating that the SEC recommends a new security to investorsC) A letter issued by the SEC that outlines the changes required for a registration statement to be approvedD) A document that describes the details of a proposed security offering along with relevant information about the issuerE) An advertisement in a financial newspaper that describes a security offering13) Which one of the following is a preliminary prospectus?A) TombstoneB) Green shoeC) Registration statementD) Rights offerE) Red herring14) Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called:A) red herrings.B) tombstones.C) Green Shoes.D) registration statements.E) cash offers.15) The raising of small amounts of capital from a large number of people is known as:A) a rights offering.B) over allocating.C) a diversified offer.D) crowdfunding.E) a standby offer.16) During a 12-month period, a company is permitted to issue new securities through crowdfunding up to a limit of:A) $200 thousand.B) $500 thousand.C) $1 million.D) $5 million.E) $50 million.17) What is an issue of securities that is offered for sale to the general public on a direct cash basis called?A) Best efforts underwritingB) Firm commitment underwritingC) General cash offerD) Rights offerE) Herring offer18) Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the company is issuing additional shares and he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called?A) Best efforts offerB) Firm commitment offerC) General cash offerD) Rights offerE) Priority offer19) JLK is a partnership that was formed two years ago and has been extremely successful thus far. The owners have decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?A) Venture capital offeringB) Shelf offeringC) Private placementD) Seasoned equity offeringE) Initial public offering20) What is a seasoned equity offering?A) An offering of shares by shareholders for repurchase by the issuerB) Shares of stock that have been recommended for purchase by the SECC) Equity securities held by a company's founder that are being offered for sale to the general publicD) Sale of newly issued equity shares by a publicly owned companyE) Outstanding shares that are offered for sale by one of a company's original founders21) Executive Tours has decided to go public and has hired an investment firm to handle the offering. The investment firm is serving as a(n):A) aftermarket specialist.B) venture capitalist.C) underwriter.D) seasoned writer.E) primary investor.22) Underwriters generally:A) pay a spread to the issuing firm.B) provide only best efforts underwriting in the U.S.C) accept the risk of selling the new securities in exchange for the gross spread.D) market and distribute an entire issue of new securities within their own firm.E) pass the risk of unsold shares back to the issuing firm via a firm commitment agreement.23) A syndicate can best be defined as a:A) venture capitalist.B) group of attorneys providing services for an IPO.C) block of investors who control a firm.D) bank that loans funds to finance the start-up of a new company.E) group of underwriters sharing the risk of selling a new issue of securities.24) The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the:A) gross spread.B) under price amount.C) filing fee.D) new issue premium.E) offer price.25) Jones & Co. recently went public and received $23.07 a share on their entire offer of 30,000 shares. Keeser & Co. served as the underwriter and sold 28,500 shares to the public at an offer price of $26.50 a share. What type of underwriting was this?A) Best effortsB) ShelfC) OversubscribedD) Private placementE) Firm commitment26) Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8.2 percent and paid Blue Stone Builders the uniform auction price for each of those shares. Which one of the following terms best describes this underwriting?A) Dutch auctionB) Best effortsC) Public rightsD) Private placementE) Market commitment27) The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the ________ period.A) auctionB) quietC) lockupD) Green ShoeE) red28) Mobile Units recently offered 75,000 new shares of stock for sale. The underwriters sold a total of 78,500 shares to the public at a price of $16 a share. The additional 3,500 shares were purchased in accordance with which one of the following?A) Green Shoe provisionB) Red herring provisionC) Quiet provisionD) Lockup agreementE) Post-issue agreement29) With firm commitment underwriting, the issuing firm:A) is unsure of the total amount of funds it will receive until after the offering is completed.B) is unsure of the number of shares it will actually issue until after the offering is completed.C) knows exactly how many shares will be purchased by the general public during the offer period.D) retains the financial risk associated with unsold shares.E) knows upfront the amount of money it will receive from the stock offering.30) Which one of the following is a key goal of the aftermarket period?A) Collecting the largest number of Dutch auction bids as possibleB) Determining a fair offer priceC) Supporting the market price for a new securities issueD) Establishing a broad-based underwriting syndicateE) Distributing red herrings to as many potential investors as possible31) Which one of the following statements is correct?A) The quiet period commences when a registration statement is filed with the SEC and ends on the day the IPO shares commence trading.B) Lockup agreements outline how oversubscribed IPO shares will be allocated.C) Additional IPO shares can be issued in accordance with the lockup agreement.D) Quiet period restrictions only apply to the issuer of new securities.E) A public interview with an issuer's CFO could cause a forced delay in the issuer's IPO.32) With Dutch auction underwriting:A) each winning bidder pays the minimum price offered by any bidder.B) all successful bidders pay the same price per share.C) all bidders receive at least a portion of the quantity for which they bid.D) the selling firm receives the maximum possible price for each security sold.E) the bidder for the largest quantity receives the first allocation of securities.33) Individual investors might avoid requesting 100 shares in an upcoming IPO because they:A) do not want to be bothered with submitting their bid to the SEC for approval.B) do not want to abide by the quiet period requirement.C) are prevented from entering orders for less than 1,000 shares.D) are more apt to receive shares if the IPO is under allocated.E) would have to pay a premium based on their small order size.34) If a firm commitment IPO is overpriced then the:A) investors in the IPO may consider suing the underwriters.B) Green Shoe provision will probably be utilized.C) stock price will generally increase on the first day of trading.D) issuing firm is guaranteed to be successful in the long term.E) issuing firm receives less money than it probably should have.35) All of the following are supporting arguments in favor of IPO underpricing except which one?A) Helps prevent the "winner's curse"B) Rewards institutional investors who share their market value opinionsC) Reduces potential lawsuits against underwritersD) Diminishes underwriting riskE) Provides better returns to issuing firms36) When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to:A) increase.B) decrease.C) remain constant.D) respond, but the direction of the response is not predictable as shown by past studies.E) decrease momentarily and then immediately increase substantially within an hour following the announcement.37) The total direct costs of underwriting an equity IPO:A) tend to increase on a percentage basis as the total proceeds of the IPO increase.B) are generally between 7 and 9 percent, regardless of the issue size.C) tend to be less than the direct costs of issuing bonds on a percentage of proceeds basis.D) exclude the gross spread.E) can be as low as 5.5 percent and as high as 25 percent of gross proceeds.38) Which one of the following statements is correct concerning the direct costs of issuing securities?A) Domestic bonds are generally more expensive to issue than equity IPOs.B) The gross spread as a percentage of proceeds is the same for similar-sized IPOs and SEOs.C) A seasoned offering is always more expensive on a percentage basis than an IPO.D) There tends to be substantial economies of scale when issuing any type of security.E) The costs of issuing convertible bonds tend to be less on a percentage basis than the costs of issuing straight debt.39) Shares of PLS United have been selling with rights attached. Tomorrow, the stock will sell independent of these rights. Which one of the following terms applies to tomorrow in relation to this stock?A) Pre-issue dateB) Aftermarket dateC) Declaration dateD) Holder-of-record dateE) Ex-rights date40) The date on which a shareholder is officially listed as the recipient of stock rights is called the:A) issue date.B) offer date.C) declaration date.D) holder-of-record date.E) ex-rights date.41) A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a(n) ________ underwriting.A) standbyB) best effortsC) firm commitmentD) direct feeE) oversubscription42) BK & Co. offered 15,000 shares in a rights offer. T.L. Moore & Co. was the underwriter that by prior agreement purchased the 639 unsold shares. For its participation in this rights offer, T.L. Moore & Co. is most likely entitled to:A) the gross margin.B) the optional spread.C) a standby fee.D) the subscription price.E) an oversubscription fee.43) Franklin Minerals recently had a rights offering of 12,000 shares at an offer price of $17 a share. Isabelle is a shareholder who exercised her rights option by buying all of the rights to which she was entitled based on the number of shares she owns. Currently, there are six shareholders who have opted not to participate in the rights offering. Isabelle would like to purchase these unsubscribed shares. Which one of the following will allow her to do so?A) Standby provisionB) Oversubscription privilegeC) Open offer privilegeD) New issues provisionE) Overallotment provision44) Existing shareholders:A) may or may not have a pre-emptive right to newly issued shares.B) must purchase new shares whenever rights are issued.C) are prohibited from selling their rights.D) are generally well advised to let the rights they receive expire.E) can maintain their proportional ownership positions without exercising their rights.45) To purchase a share in a rights offering, an existing shareholder generally just needs to:A) pay the subscription amount in cash.B) submit the required form along with the required number of rights.C) pay the difference between the market price of the stock and the subscription price.D) submit the required number of rights along with a payment for the underwriting fee.E) submit the required number of rights along with the subscription price.46) The value of a right depends upon the number of rights required for each new share as well as the:A) subscription price and book value per share.B) market and book values per share.C) market price, book value, and subscription price.D) market and subscription prices.E) difference between the market and book values per share.47) Before a seasoned stock offering, you owned 500 shares of a firm that had 20,000 shares outstanding. After the seasoned offering, you still owned 500 shares but the number of shares outstanding rose to 25,000. Which one of the following terms best describes this situation?A) OverallotmentB) Percentage ownership dilutionC) Green Shoe allocationD) Red herring allotmentE) Abnormal event48) Which one of the following statements concerning dilution is correct?A) Dilution of percentage ownership occurs whenever an investor fully participates in a rights offer.B) Market value dilution increases as the net present value of a project increases.C) Market value dilution occurs when the net present value of a project is negative.D) Neither book value dilution nor market value dilution has any direct bearing on individual shareholders.E) Book value dilution is the cause of market value dilution.49) Roy owns 200 shares of RTF Inc. He has opted not to participate in the current rights offering by this company. As a result, Roy will most likely be subject to:A) an oversubscription cost.B) underpricing.C) dilution.D) the Green Shoe provision.E) a locked-in period.50) Direct business loans typically ranging from one to five years are called:A) private placements.B) debt SEOs.C) notes payable.D) debt IPOs.E) term loans.51) The High-End mutual fund recently loaned $13.6 million to Henderson Hardware for 15 years at 6.8 percent interest. This loan is best described as a:A) private placement.B) debt SEO.C) note payable.D) debt IPO.E) term loan.52) Which one of the following statements is correct concerning the issuance of long-term debt?A) A direct private long-term loan has to be registered with the SEC.B) Direct placement debt tends to have more restrictive covenants than publicly issued debt.C) Distribution costs are lower for public debt than for private debt.D) It is easier to renegotiate public debt than private debt.E) Wealthy individuals tend to dominate the private debt market.53) Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent:A) 3 months.B) 6 months.C) 180 days.D) 2 years.E) 5 years.54) Pearson Electric recently registered 180,000 shares of stock under SEC Rule 415. The company plans to sell 100,000 shares this year and the remaining 80,000 shares next year. What type of registration was this?A) Standby registrationB) Shelf registrationC) Regulation A registrationD) Regulation Q registrationE) Private placement registration55) The Boat Works decided to go public by offering a total of 135,000 shares of common stockto the public. The company hired an underwriter who arranged a firm commitment underwriting and an initial selling price of $24 a share with a spread of 8.3 percent. As it turned out, the underwriters only sold 122,400 shares to the public. What is the amount paid to the issuer?A) $2,227,280B) $3,074,420C) $2,971,080D) $2,692,820E) $2,477,38056) Nelson Paints recently went public by offering 50,000 shares of common stock to the public. The underwriters provided their services in a best efforts underwriting. The offering price was set at $17.50 a share and the gross spread was $2.30. After completing their sales efforts, the underwriters determined that they sold a total of 47,500 shares. How much cash did the company receive from its IPO?A) $722,000B) $717,000C) $735,000D) $705,000E) $748,00057) LC Delivery has decided to sell 1,800 shares of stock through a Dutch auction. The bids received are as follows: 600 shares at $37 a share, 800 shares at $36, 900 shares at $35, 200 shares at $34, and 100 shares at $32 a share. How much will the company receive in total from selling the 1,800 shares? Ignore all transaction and flotation costs.A) $63,100B) $52,500C) $63,000D) $58,800E) $52,10058) Bakers' Town Bread is selling 1,500 shares of stock through a Dutch auction. The bids received are as follows: 200 shares at $17 a share, 400 shares at $15, 700 shares at $14, 400 shares at $13, and 200 shares at $11 a share. How much cash will the company receive from selling these shares of stock? Ignore all transaction and flotation costs.A) $22,000B) $22,500C) $23,000D) $24,500E) $20,20059) Eastern Electric is offering 2,100 shares of stock in a Dutch auction. The bids include: 1,400 shares at $32 a share, 1,500 shares at $31, 1,400 shares at $30, and 900 shares at $29 a share. How much cash will Eastern Electric receive from selling these shares? Ignore all transaction and flotation costs.A) $62,100B) $64,200C) $60,000D) $63,000E) $63,30060) You have been instructed to place an order for a client to purchase 500 shares of every IPO that comes to market. The next two IPOs are each priced at $26 a share and will begin trading on the same day. The client is allocated 500 shares of IPO A and 240 shares of IPO B. At the end of the first day of trading, IPO A was selling for $23.90 a share and IPO B was selling for $29.40 a share. What is the client's total profit or loss on these two IPOs as of the end of the first day of trading?A) − $286B) − $234C) − $148D) $275E) $32961) Richard placed an order for 1,000 shares in each of three IPOs at $28 a share. He was allocated 1,000 shares of IPO A, 200 shares of IPO B, and 600 shares of IPO C. On the first day of trading, IPO A opened at $28 a share and ended the day at $24.25 a share. IPO B opened at $30 a share and finished the day at $37 a share. IPO C opened at $28 a share and ended the day at $27.65 a share. What is the total profit or loss on these three IPO purchases as of the end of the first day of trading?A) − $2,160B) − $1,850C) − $1,950D) $2,240E) $2,17562) Two IPOs will commence trading next week. Scott places an order to buy 600 shares of IPOA. Steve places an order to purchase 600 shares of IPO A and 600 shares of IPOB. Both IPOs are priced at $21 a share. Scott is allocated 300 shares of IPO A. Steve is allocated 300 shares of IPO A and 600 shares of IPO B. At the end of the first day of trading, IPO A is selling for $23.30 a share and IPO B is selling for $17.75 a share. How much additional profit did Steve have at the end of the first day of trading as compared to Scott?A) $1,950B) $1,260C) $1,870D) −$1,950E) −$1,26063) Davis Bros. and The Storage Shed have both announced IPOs at $32 per share. One of these is undervalued by $9, and the other is overvalued by $4, but you have no way of knowing whichis which. You plan on buying 1,000 shares of each issue. If an issue is underpriced, it will be rationed, and only half your order will be filled. What is the amount of the difference between your expected profit and the amount of profit you could earn if you could get 1,000 shares of both IPO offerings?A) $4,500B) $5,000C) $4,000D) $5,500E) $6,00064) Wear Ever is expanding and needs $6.8 million to help fund this growth. The company estimates it can sell new shares of stock for $43 a share. It also estimates it will cost an additional $352,000 for filing and legal fees related to the stock issue. The underwriters have agreed to a spread of 7.5 percent. How many shares of stock must be sold for the company to fund its expansion?A) 170,376B) 185,127C) 179,811D) 154,209E) 61,80665) Mountain Teas wants to raise $13.6 million to open a new production facility. The company estimates the issue costs for legal and accounting fees will be $386,000. The underwriters have set the stock price at $27.50 a share and the underwriting spread at 8.15 percent. How many shares of stock must be sold to meet this cash need?A) 528,414B) 553,709C) 569,315D) 492,144E) 501,90966) Outdoor Goods needs $3.8 million to modernize its production equipment. The underwriters set the stock price at $29.50 a share with an underwriting spread of 7.35 percent. This would be a firm commitment underwriting. The estimated issue costs are $272,000. How many shares of stock must be sold to finance this project?A) 148,984B) 188,917C) 152,311D) 186,299E) 162,40067) Flagler Inc. needs to raise $11.6 million, including all accounting and legal fees, to finance its expansion so has decided to sell new shares of equity via a general cash offering. The offer price is $22.50 per share and the underwriting spread is 7.85 percent. How many shares need to be sold?A) 559,474B) 604,011C) 566,667D) 571,008E) 538,40968) New Education needs to raise $8.79 million to finance its expansion and has decided to sell new shares of equity via a general cash offering. The offer price is $31.40 per share, the underwriting spread is 7.32 percent, and the associated administrative expenses and fees are $517,600. How many shares need to be sold?A) 348,907B) 361,222C) 311,111D) 329,937E) 319,83269) The Huff Co. has just gone public. Under a firm commitment agreement, the company received $17.64 for each of the 3.2 million shares sold. The initial offering price was $22.50 per share, and the stock rose to $24.15 per share in the first day of trading. The company paid $984,900 in direct legal and other costs and incurred $340,000 in indirect costs. What was the flotation cost as a percentage of the net amount raised?A) 38.56 percentB) 40.32 percentC) 41.68 percentD) 40.20 percentE) 39.09 percent70) Mountain Mining requires $3.3 million to expand its current operations and has decided to raise these funds through a rights offering at a subscription price of $18 a share. The current market price of the company's stock is $24.70 a share. How many shares of stock must be sold to fund the expansion plans?A) 140,015B) 133,603C) 148,909D) 183,333E) 195,60771) Northwest Rail wants to raise $27.8 million through a rights offering to upgrade its rail lines. How many shares of stock need to be sold if the current market price is $30.34 a share and the subscription price is $26.50 a share?A) 916,282B) 937,856C) 985,065D) 1,058,604E) 1,049,05772) S&S wants to raise $11.3 million through a rights offering with a subscription price of $15 a share. The company has 1.24 million shares outstanding and a market price of $17.50 a share. Each shareholder will receive one right for each share of stock owned. How many rights will be needed to purchase one new share of stock in this offering?A) 1.42B) 1.75C) 1.65D) 1.82E) 1.5573) P&T wants to raise $2.8 million through a rights offering with a subscription price of $20 a share. Currently, the company has 750,000 shares of stock outstanding at a market price of $24.50 a share. One right will be granted for each share of stock outstanding. How many rights are required to purchase one new share of stock in this offering?A) 5.36B) 6.02C) 5.55D) 6.56E) 6.6774) Miller Fruit wants to expand and needs $1.6 million to do so. Currently, the firm has 465,000 shares of stock outstanding at a market price per share of $32.50. The firm decided on a rights offering with one right granted for each share of outstanding stock. The subscription price is $28 a share. How many rights are needed to purchase one new share of stock in this offering?A) 8.14B) 7.17C) 8.22D) 8.63E) 9.45。

公司理财精要版原书第12版习题库答案Ross12e_Chapter01_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter01_TB

Fundamentals of Corporate Finance, 12e (Ross)Chapter 1 Introduction to Corporate Finance1) Which one of the following functions should be the responsibility of the controller rather than the treasurer?A) Depositing cash receiptsB) Processing cost reportsC) Analyzing equipment purchasesD) Approving credit for a customerE) Paying a vendor2) The treasurer of a corporation generally reports directly to the:A) board of directors.B) chairman of the board.C) chief executive officer.D) president.E) vice president of finance.3) Which one of the following correctly defines the upward chain of command in a typical corporate organizational structure?A) The vice president of finance reports to the chairman of the board.B) The chief executive officer reports to the president.C) The controller reports to the chief financial officer.D) The treasurer reports to the president.E) The chief operations officer reports to the vice president of production.4) An example of a capital budgeting decision is deciding:A) how many shares of stock to issue.B) whether or not to purchase a new machine for the production line.C) how to refinance a debt issue that is maturing.D) how much inventory to keep on hand.E) how much money should be kept in the checking account.5) When evaluating the timing of a project's projected cash flows, a financial manager is analyzing:A) the amount of each expected cash flow.B) only the start-up costs that are expected to require cash resources.C) only the date of the final cash flow related to the project.D) the amount by which cash receipts are expected to exceed cash outflows.E) when each cash flow is expected to occur.6) Capital structure decisions include determining:A) which one of two projects to accept.B) how to allocate investment funds to multiple projects.C) the amount of funds needed to finance customer purchases of a new product.D) how much debt should be assumed to fund a project.E) how much inventory will be needed to support a project.7) The decision to issue additional shares of stock is an example of:A) working capital management.B) a net working capital decision.C) capital budgeting.D) a controller's duties.E) a capital structure decision.8) Which one of the following questions is a working capital management decision?A) Should the company issue new shares of stock or borrow money?B) Should the company update or replace its older equipment?C) How much inventory should be on hand for immediate sale?D) Should the company close one of its current stores?E) How much should the company borrow to buy a new building?9) Which one of the following is a working capital management decision?A) What type(s) of equipment is (are) needed to complete a current project?B) Should the firm pay cash for a purchase or use the credit offered by the supplier?C) What amount of long-term debt is required to complete a project?D) How many shares of stock should the firm issue to fund an acquisition?E) Should a project should be accepted?10) Working capital management decisions include determining:A) the minimum level of cash to be kept in a checking account.B) the best method of producing a product.C) the number of employees needed to work during a particular shift.D) when to replace obsolete equipment.E) if a competitor should be acquired.11) Which one of the following terms is defined as the management of a firm's long-term investments?A) Working capital managementB) Financial allocationC) Agency cost analysisD) Capital budgetingE) Capital structure12) Which one of the following terms is defined as the mixture of a firm's debt and equity financing?A) Working capital managementB) Cash managementC) Cost analysisD) Capital budgetingE) Capital structure13) A firm's short-term assets and its short-term liabilities are referred to as the firm's:A) working capital.B) debt.C) investment capital.D) net capital.E) capital structure.14) Which one of the following questions is least likely to be addressed by financial managers?A) How should a product be marketed?B) Should customers be given 30 or 45 days to pay for their credit purchases?C) Should the firm borrow more money?D) Should the firm acquire new equipment?E) How much cash should the firm keep on hand?15) A business owned by a solitary individual who has unlimited liability for the firm's debt is called a:A) corporation.B) sole proprietorship.C) general partnership.D) limited partnership.E) limited liability company.16) A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:A) corporation.B) sole proprietorship.C) general partnership.D) limited partnership.E) limited liability company.17) A business partner whose potential financial loss in the partnership will not exceed his or her investment in that partnership is called a:A) general partner.B) sole proprietor.C) limited partner.D) corporate shareholder.E) zero partner.18) A business created as a distinct legal entity and treated as a legal "person" is called a(n):A) corporation.B) sole proprietorship.C) general partnership.D) limited partnership.E) unlimited liability company.19) Which one of the following statements concerning a sole proprietorship is correct?A) A sole proprietorship is designed to protect the personal assets of the owner.B) The profits of a sole proprietorship are subject to double taxation.C) The owner of a sole proprietorship is personally responsible for all of the company's debts.D) There are very few sole proprietorships remaining in the U.S. today.E) A sole proprietorship is structured the same as a limited liability company.20) Which one of the following statements concerning a sole proprietorship is correct?A) The life of a sole proprietorship is limited.B) A sole proprietor can generally raise large sums of capital quite easily.C) Transferring ownership of a sole proprietorship is easier than transferring ownership of a corporation.D) A sole proprietorship is taxed the same as a C corporation.E) A sole proprietorship is the most regulated form of organization.21) Which of the following individuals have unlimited liability for a firm's debts based on their ownership interest?A) Only general partnersB) Only sole proprietorsC) All stockholdersD) Both limited and general partnersE) Both general partners and sole proprietors22) The primary advantage of being a limited partner is:A) the receipt of tax-free income.B) the partner's active participation in the firm's activities.C) the lack of any potential financial loss.D) the daily control over the business affairs of the partnership.E) the partner's maximum loss is limited to their capital investment.23) A general partner:A) is personally responsible for all partnership debts.B) has no say over a firm's daily operations.C) faces double taxation whereas a limited partner does not.D) has a maximum loss equal to his or her equity investment.E) receives a salary in lieu of a portion of the profits.24) A limited partnership:A) has an unlimited life.B) can opt to be taxed as a corporation.C) terminates at the death of any one limited partner.D) has at least one partner who has unlimited liability for all of the partnership's debts.E) consists solely of limited partners.25) A partnership with four general partners:A) distributes profits based on percentage of ownership.B) has an unlimited partnership life.C) limits the active involvement in the firm to a single partner.D) limits each partner's personal liability to 25 percent of the partnership's total debt.E) must distribute 25 percent of the profits to each partner.26) One disadvantage of the corporate form of business ownership is the:A) limited liability of its shareholders for the firm's debts.B) double taxation of distributed profits.C) firm's greater ability to raise capital than other forms of ownership.D) firm's potential for an unlimited life.E) firm's ability to issue additional shares of stock.27) Which one of the following statements is correct?A) The majority of firms in the U.S. are structured as corporations.B) Corporate profits are taxable income to the shareholders when earned.C) Corporations can have an unlimited life.D) Shareholders are protected from all potential losses.E) Shareholders directly elect the corporate president.28) Which one of the following statements is correct?A) A general partnership is legally the same as a corporation.B) Income from both sole proprietorships and partnerships that is taxable is treated as individual income.C) Partnerships are the most complicated type of business to form.D) All business organizations have bylaws.E) Only firms organized as sole proprietorships have limited lives.29) The articles of incorporation:A) describe the purpose of the firm and set forth the number of shares of stock that can be issued.B) are amended periodically especially prior to corporate elections.C) explain how corporate directors are to be elected and the length of their terms.D) sets forth the procedures by which a firm regulates itself.E) include only the corporation's name and intended life.30) Corporate bylaws:A) must be amended should a firm decide to increase the number of shares authorized.B) cannot be amended once adopted.C) define the name by which the firm will operate.D) describe the intended life and purpose of the organization.E) determine how a corporation regulates itself.31) A limited liability company:A) can only have a single owner.B) is comprised of limited partners only.C) is taxed similar to a partnership.D) is taxed similar to a C corporation.E) generates totally tax-free income.32) Which business form is best suited to raising large amounts of capital?A) Sole proprietorshipB) Limited liability companyC) CorporationD) General partnershipE) Limited partnership33) A ________ has all the respective rights and privileges of a legal person.A) sole proprietorshipB) general partnershipC) limited partnershipD) corporationE) limited liability company34) Sam, Alfredo, and Juan want to start a small U.S. business. Juan will fund the venture but wants to limit his liability to his initial investment and has no interest in the daily operations. Sam will contribute his full efforts on a daily basis but has limited funds to invest in the business. Alfredo will be involved as an active consultant and manager and will also contribute funds. Sam and Alfredo are willing to accept liability for the firm's debts as they feel they have nothing to lose by doing so. All three individuals will share in the firm's profits and wish to keep the initial organizational costs of the business to a minimum. Which form of business entity should these individuals adopt?A) Sole proprietorshipB) Joint stock companyC) Limited partnershipD) General partnershipE) Corporation35) Sally and Alicia are equal general partners in a business. They are content with their current management and tax situation but are uncomfortable with their unlimited liability. Which form of business entity should they consider as a replacement to their current arrangement assuming they wish to remain the only two owners of the business?A) Sole proprietorshipB) Joint stock companyC) Limited partnershipD) Limited liability companyE) Corporation36) The growth of both sole proprietorships and partnerships is frequently limited by the firm's:A) double taxation.B) bylaws.C) inability to raise cash.D) limited liability.E) agency problems.37) Corporate dividends are:A) tax-free because the income is taxed at the personal level when earned by the firm.B) tax-free because they are distributions of aftertax income.C) tax-free since the corporation pays tax on that income when it is earned.D) taxed at both the corporate and the personal level when the dividends are paid to shareholders.E) taxable income of the recipient even though that income was previously taxed.38) Financial managers should primarily focus on the interests of:A) stakeholders.B) the vice president of finance.C) their immediate supervisor.D) shareholders.E) the board of directors.39) Which one of the following best states the primary goal of financial management?A) Maximize current dividends per shareB) Maximize the current value per shareC) Increase cash flow and avoid financial distressD) Minimize operational costs while maximizing firm efficiencyE) Maintain steady growth while increasing current profits40) Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?A) An increase in the amount of the quarterly dividendB) A decrease in the per unit production costsC) An increase in the number of shares outstandingD) A decrease in the net working capitalE) An increase in the market value per share41) Financial managers should strive to maximize the current value per share of the existingstock to:A) guarantee the company will grow in size at the maximum possible rate.B) increase employee salaries.C) best represent the interests of the current shareholders.D) increase the current dividends per share.E) provide managers with shares of stock as part of their compensation.42) Decisions made by financial managers should primarily focus on increasing the:A) size of the firm.B) growth rate of the firm.C) gross profit per unit produced.D) market value per share of outstanding stock.E) total sales.43) The Sarbanes-Oxley Act of 2002 is a governmental response to:A) decreasing corporate profits.B) the terrorist attacks on 9/11/2001.C) a weakening economy.D) deregulation of the stock exchanges.E) management greed and abuses.44) Which one of the following is an unintended result of the Sarbanes-Oxley Act?A) More detailed and accurate financial reportingB) Increased management awareness of internal controlsC) Corporations delisting from major exchangesD) Increased responsibility for corporate officersE) Identification of internal control weaknesses45) A firm which opts to "go dark" in response to the Sarbanes-Oxley Act:A) must continue to provide audited financial statements to the public.B) must continue to provide a detailed list of internal control deficiencies on an annual basis.C) can provide less information to its shareholders than it did prior to "going dark".D) can continue publicly trading its stock but only on the exchange on which it was previously listed.E) ceases to exist.46) The Sarbanes-Oxley Act of 2002 holds a public company's ________ responsible for the accuracy of the company's financial statements.A) managersB) internal auditorsC) external legal counselD) internal legal counselE) Securities and Exchange Commission agent47) Which one of the following actions by a financial manager is most apt to create 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) Refusing to expand the company if doing so will lower the value of the equityD) Agreeing to pay bonuses based on the market value of the company's stock rather than on its level of salesE) Increasing current profits when doing so lowers the value of the company's equity48) Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.A) Compensation based on the value of the stockB) Stock option plansC) Threat of a company takeoverD) Threat of a proxy fightE) Increasing managers' base salaries49) Agency problems are most associated with:A) sole proprietorships.B) general partnerships.C) limited partnerships.D) corporations.E) limited liability companies.50) Which one of the following is an agency cost?A) Accepting an investment opportunity that will add value to the firmB) Increasing the quarterly dividendC) Investing in a new project that creates firm valueD) Hiring outside accountants to audit the company's financial statementsE) Closing a division of the firm that is operating at a loss51) Which one of the following is a means by which shareholders can replace company management?A) Stock optionsB) PromotionC) Sarbanes-Oxley ActD) Agency playE) Proxy fight52) Which one of the following grants an individual the right to vote on behalf of a shareholder?A) ProxyB) By-lawsC) Indenture agreementD) Stock optionE) Stock audit53) Which one of the following parties has ultimate control of a corporation?A) Chairman of the boardB) Board of directorsC) Chief executive officerD) Chief operating officerE) Shareholders54) Which of the following parties are considered stakeholders of a firm?A) Employees and the governmentB) Long-term creditorsC) Government and common stockholdersD) Common stockholdersE) Long-term creditors and common stockholders55) Which one of the following represents a cash outflow from a corporation?A) Issuance of new securitiesB) Payment of dividendsC) New loan proceedsD) Receipt of tax refundE) Initial sale of common stock56) Which one of the following is a cash flow from a corporation into the financial markets?A) Borrowing of long-term debtB) Payment of government taxesC) Payment of loan interestD) Issuance of corporate debtE) Sale of common stock57) Which one of the following is a primary market transaction?A) Sale of currently outstanding stock by a dealer to an individual investorB) Sale of a new share of stock to an individual investorC) Stock ownership transfer from one shareholder to another shareholderD) Gift of stock from one shareholder to another shareholderE) Gift of stock by a shareholder to a family member58) Shareholder A sold 500 shares of ABC stock on the New York Stock Exchange. This transaction:A) took place in the primary market.B) occurred in a dealer market.C) was facilitated in the secondary market.D) involved a proxy.E) was a private placement.59) Public offerings of debt and equity must be registered with the:A) New York Board of Governors.B) Federal Reserve.C) NYSE Registration Office.D) Securities and Exchange Commission.E) Market Dealers Exchange.60) Which one of the following statements is generally correct?A) Private placements must be registered with the SEC.B) All secondary markets are auction markets.C) Dealer markets have a physical trading floor.D) Auction markets match buy and sell orders.E) Dealers arrange trades but never own the securities traded.61) Which one of the following statements concerning stock exchanges is correct?A) NASDAQ is a broker market.B) The NYSE is a dealer market.C) The exchange with the strictest listing requirements is NASDAQ.D) Some large companies are listed on NASDAQ.E) Most debt securities are traded on the NYSE.62) Shareholder A sold shares of Maplewood Cabinets stock to Shareholder B. The stock is listed on the NYSE. This trade occurred in which one of the following?A) Primary, dealer marketB) Secondary, dealer marketC) Primary, auction marketD) Secondary, auction marketE) Secondary, OTC market63) Which one of the following statements is correct concerning the NYSE?A) The publicly traded shares of a NYSE-listed firm must be worth at least $250 million.B) The NYSE is the largest dealer market for listed securities in the United States.C) The listing requirements for the NYSE are more stringent than those of NASDAQ.D) Any corporation desiring to be listed on the NYSE can do so for a fee.E) The NYSE is an OTC market functioning as both a primary and a secondary market.11。

公司理财精要版原书第12版习题库答案Ross12e_Chapter20_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter20_TB

Fundamentals of Corporate Finance, 12e (Ross)Chapter 20 Credit and Inventory Management1) Brown's Hardware offers a discount of two percent on their commercial accounts if payment is received within ten days. Otherwise, payment is due within 30 days. This credit offering is referred to as the:A) terms of sale.B) credit analysis.C) collection policy.D) payables policy.E) collection float.2) Jillian was recently hired to determine the probability that individual customers of a major retailer will fail to pay for their charge sales. Jillian's job best relates to which one of the following?A) Terms of saleB) Credit analysisC) Collection policyD) Payables policyE) Customer service3) Town Hardware sells goods on credit with payment due 30 days after purchase. If payment is not received by the 30th day, the store mails a friendly reminder to the customer. If payment is not received by the 45th day, the store calls the customer and requests payment and also stops offering credit to that customer. These procedures are referred to as the store's:A) customer service policy.B) credit policy.C) collection policy.D) payables policy.E) disbursements policy.4) The terms of sale generally include all of the following except the:A) credit period.B) cash discount.C) type of credit instrument.D) discount period.E) customer's credit capacity.5) The primary purpose of credit analysis is to:A) determine the optimal credit period.B) analyze the effects of granting a cash discount.C) determine the optimal discount period, if any.D) summarize the frequency and amount of sales by customer.E) evaluate whether or not a customer will pay.6) The period of time that extends from the day a credit sale is made until the day the bank credits the seller's account with the payment for that sale is known as the ________ period.A) floatB) cash collectionC) salesD) accounts receivableE) discount7) Which one of the following will increase a firm's investment in accounts receivables?A) An increase in the number of days for which credit is grantedB) A decrease in credit salesC) An increase in cash salesD) A decrease in the average collection periodE) A decrease in average daily credit sales8) A firm's total investment in accounts receivables depends primarily on the firm's:A) total sales and cash discount period.B) cash to credit sales ratio.C) bad debt ratio.D) average collection period and amount of credit sales.E) amount of credit sales and cash discount percentage.9) Which one of the following statements is correct if you purchase an item with credit termsof 3/15, net 45?A) If you pay within 3 days, you will receive a discount of 15 percent.B) If you pay within 15 days, you will receive a discount of 3 percent.C) If you do not pay within 15 days, you will be charged interest at a rate of 3 percent per month.D) If you pay 3 percent of your purchases within 15 days, you will have 45 days to pay for the remainder.E) One-third of your purchase is due in 15 days and the rest is due in 45 days.10) Assume you put your purchases on your credit card and then take advantage of any cash discounts offered. Which one of these credit terms do you prefer?A) 1/10, net 20B) 2/5, net 30C) 2/10, net 30D) 1/15, net 45E) 2/15, net 3011) You need to charge your purchases and know that you will not be able to pay within the discount period. Which one of these credit terms is best-suited to you?A) 1/5, net 15B) 2/5, net 30C) 2/5, net 20D) 1/10, net 45E) 2/10, net 3012) Which one of the following statements is correct?A) The credit period begins when the discount period ends.B) The discount period is the length of time granted to a customer to pay for a purchase.C) The credit period begins on the invoice date.D) With terms of 2/10, net 30, the net credit period is 20 days.E) With EOM dating, all sales are assumed to have occurred on the 15th of each month.13) Which one of these is frequently cited as an appropriate upper limit to the credit period offered by a seller?A) The buyer's inventory periodB) The seller's inventory periodC) The seller's operating cycleD) The buyer's operating cycleE) The buyer's receivables period14) Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the ROG. Thus, the customers' credit period begins when they:A) review and approve the print order.B) renew their contract on a revolving print order.C) reorder a previously approved print job.D) receive their print jobs.E) request a new job be printed.15) Scott purchased a shovel, a rake, and a wheelbarrow from The Local Hardware Store yesterday. Today, the store issued a bill for these items and mailed it to Scott. What is the name given to this bill?A) Ledger statementB) WarrantyC) IndentureD) ReceiptE) Invoice16) Geoff Industries offers its credit customers a two percent discount if they pay within ten days. This discount is referred to as a ________ discount.A) cashB) purchaseC) collectionD) marketE) receivables17) Any written proof that a customer owes you money for goods or services provided is referred to as a(n):A) account document.B) sales draft.C) credit instrument.D) commercial paper.E) letter of debt.18) Which one of the following factors most supports a longer credit period being offered to customers?A) Higher consumer demandB) Lower priced merchandiseC) Increased credit riskD) More perishable merchandiseE) Increased competition19) Which one of the following statements related to credit periods is correct?A) Longer credit periods are granted for sales of perishable items.B) Inexpensive goods tend to have longer credit periods.C) Smaller accounts tend to have longer credit periods.D) Sellers may offer different credit periods to different customers.E) Newer products tend to have shorter credit periods.20) A trade discount of 2/5th, EOM terms:A) grants customers five days to pay after month end.B) offers no credit to customers.C) means the full amount is due by the 5th of the month following the month of sale.D) means the invoice is overdue only after month-end.E) means the full amount is due the last day of the month following the month of sale.21) Under credit terms of 1/5, net 15, customers should:A) Always pay on the 15th day.B) take the discount and pay immediately.C) take the discount and pay on the day following the day of sale.D) either take the discount or pay on the 15th day.E) both take the discount and pay on the 15th day.22) A 2/10, net 30 credit policy:A) is an expensive form of short-term credit if a buyer forgoes the discount.B) provides cheap financing to the buyer for 30 days.C) is an inexpensive means of reducing the seller's collection period if every customer takes the discount.D) tends to have little effect on the seller's collection period.E) tends to increase the seller's investment in receivables as compared to a straight net 30 policy.23) The Painted House offers credit terms of 2/10th, EOM. Assume you purchase an item on credit from this store on Monday, November 3. When is payment due for this purchase if you do not take the discount?A) November 3B) November 13C) November 30D) December 31E) December 1024) Which one of the following credit instruments is commonly used in international commerce?A) Open accountB) Sight draftC) Time draftD) Banker's acceptanceE) Promissory note25) A conditional sales contract:A) passes title to the goods sold to the buyer at the time the contract is signed.B) normally calls for one lump sum payment on the contract payment date.C) allows the seller to retain ownership of the goods sold until the customer has fully paid for the purchase.D) is payable immediately upon receipt.E) is a formal bid for a project.26) Which one of these statements is correct?A) A firm's cash cycle generally decreases when it switches from a cash to a credit policy, all else equal.B) Most customers will forgo the discount and pay at the end of the credit period.C) Total revenues generally decrease if both the quantity sold and the price per unit increase when credit is granted.D) Only the cost of default should be considered before granting credit.E) A firm may have to increase its long-term borrowing if it decides to grant credit to its customers.27) When considering a switch from an all-cash credit policy to a net 30 credit policy all of the following should be considered except the:A) revenue effects.B) effects on the variable costs.C) cost of the discount.D) probability of default.E) change in the fixed costs.28) The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental:A) decrease in the cash cycle.B) benefit from decreasing the inventory level.C) cash flows from increased sales.D) increase in bad debts.E) gain in net profits.29) Assume you are viewing a graph that compares costs with the amount of credit extended. Both the carrying costs and the opportunity costs of credit are depicted. What is the function called that represents the summation of these carrying and opportunity costs?A) Opportunity cost curveB) Credit extension curveC) Credit cost curveD) Terms of sale graphE) Optimal sales graph30) Assume that RSF is a wholly owned subsidiary of the Rolled Steel Company. RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company. Which one of the following terms describes RSF?A) Credit departmentB) Parent companyC) Captive finance companyD) Credit unionE) Service unit31) When credit policy is at the optimal point, the:A) total costs of granting credit will be maximized.B) carrying costs of credit will be equal to zero.C) opportunity cost of credit will be equal to zero.D) carrying costs will equal the opportunity costs.E) total costs will equal the opportunity costs.32) Which of the following characteristics are most associated with a firm that adopts a liberal credit policy?A) Mostly one-time customers and excess capacityB) Low carrying costs and full productionC) Low carrying costs and high variable costsD) Low variable costs and predominately repeat customersE) Excess capacity and high variable costs33) If you extend credit for a one-time sale to a new customer, you risk an amount equal to the:A) sales price of the item sold.B) variable cost of the item sold.C) fixed cost of the item sold.D) profit margin on the item sold.E) fixed and variable costs of the item sold.34) Which one of the following statements is correct?A) If the majority of a firm's new customers become repeat customers, then there is a strong argument against extending credit even if the default rate is low.B) A customer's past payment history reveals little information in relation to his or her future tendency to pay.C) A suggested policy for offering credit to new customers is to limit the amount of their initial credit purchase.D) The risk of issuing credit is the same for a new customer as it is for an existing customer.E) The recommended policy for new customers is to extend an offer of a high credit limit as an enticement to get their business.35) When evaluating the creditworthiness of a customer, the term capital refers to the:A) type of goods the customer wishes to obtain.B) customer's financial reserves.C) types of assets the customer wants to pledge as collateral.D) customer's willingness to pay bills in a timely fashion.E) nature of the customer's line of work.36) Which one of the five Cs of credit refers to a customer's willingness to pay its bills?A) CharacterB) CapacityC) CollateralD) ConditionsE) Capital37) Which one of the five Cs of credit refers to the general economic situation in the customer's line of business?A) CapacityB) CharacterC) ConditionsD) CapitalE) Collateral38) The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are:A) conditions, control, cessation, capital, and capacity.B) conditions, character, capital, control, and capacity.C) capital, collateral, control, character, and capacity.D) character, capacity, control, cessation, and collateral.E) capacity, character, collateral, capital, and conditions.39) Roger's Home Appliances offers credit to customers it deems qualified based on a numerical value that estimates the probability that the customer will default if credit is granted to them. Theprocess of computing this numerical value is referred to as:A) credit scoring.B) Credit capacity.C) receipts assessment.D) conditions for credit.E) consumer analysis.40) You are an accounting intern and today you are compiling a spreadsheet with column headings of: Invoice number; Customer number; < 30 days; 31-60 days; 61-90 days; > 90 days. You will list every unpaid invoice with the amount owed entered into the appropriate column based on the number of days between the sale date and today. Once you have completed that, you will sort the report by customer number and total the amounts listed in each column. What is this report called?A) Credit reportB) Aging scheduleC) Risk assessment reportD) Turnover delineationE) Receivables consolidation report41) Which one of the following statements is correct?A) Firms may opt to refuse additional credit to a delinquent customer.B) Seasonal sales have little, if any, impact on aging schedule percentages.C) Normally, firms call their delinquent customers prior to sending them a past due letter.D) If a firm wishes to sell a delinquent receivable, it must do so prior to the customer filing for bankruptcy.E) Expected decreases in the average collection period are a cause of concern.42) Which one of the following inventory items is probably the least liquid?A) Plywood held in inventory by a home builderB) A wheel barrow held in inventory by a garden centerC) A partially assembled interior for a new vehicleD) A set of tires owned by an automobile manufacturerE) A toy owned by a retail toy store43) Which one of the following inventory items is probably the most liquid?A) A custom made set of kitchen cabinetsB) Metal cabinets for dishwashersC) Wheat stored in a grain siloD) A customized drill pressE) A partially built modular home44) Which one of the following inventory-related costs is considered a shortage cost?A) Storage costsB) Insurance costC) Loss of customer goodwillD) Theft costE) Opportunity cost of capital used for inventory purchases45) The ABC approach to inventory management is based on the concept that:A) inventory should arrive at the time it is needed in the manufacturing process.B) the inventory period should be constant for all inventory items.C) basic inventory items that are essential to production and also inexpensive should be ordered in small quantities only.D) a small percentage of inventory items represents a large percentage of inventory cost.E) one-third of a year's inventory needs should be on hand, another third should be on order, and the last third should be unordered.46) The EOQ model is designed to determine how much:A) total inventory a firm needs during any one year.B) total inventory costs will be for any one given year.C) inventory should be purchased at one time.D) inventory will be sold per day.E) a firm loses in sales per day when an inventory item is depleted.47) A particular inventory manager orders items only in quantities that minimize inventory costs. What is this restocking quantity called?A) Short order quantityB) Refill unit quantityC) Economic order quantityD) Minimum stock levelE) Re-order limit48) Allison has developed a set of procedures for determining the amount of each raw material she needs to have in inventory if she is to keep the assembly lines operating efficiently. These procedures are commonly referred to by which one of the following terms?A) First-in, first-out methodB) The Baumol modelC) Net working capital planningD) Economic order proceduresE) Materials requirements planning49) Which one of the following is a characteristic of a just-in-time inventory system?A) High level of dependence on supplier performanceB) Low inventory turnover ratesC) Long inventory periodsD) Unusually high inventory levelsE) Large, infrequent re-orders of raw materials50) At the optimal order quantity size, the:A) total cost of holding inventory is fully offset by the restocking costs.B) carrying costs are equal to zero.C) restocking costs are equal to zero.D) total costs equal the carrying costs.E) carrying costs equal the restocking costs.51) The EOQ model is designed to minimize:A) production costs.B) inventory obsolescence.C) the carrying costs of inventory.D) the costs of replenishing inventory.E) the total costs of holding inventory.52) Which one of the following items is most likely a derived-demand inventory item?A) Wrenches held in inventory by a hardware storeB) Tires held in inventory by a tractor manufacturerC) Shoes on display in a retail storeD) Toys just received by a toy storeE) Wheat harvested by a farmer53) Inventory needs under a derived-demand inventory system are:A) primarily dependent upon the competitive demands placed on a firm's suppliers.B) based on the anticipated demand for the finished product.C) based on minimizing the cost of restocking inventory.D) held constant over time.E) determined by a Kanban system.54) A just-in-time inventory system:A) eliminates all inventory costs.B) reduces the inventory turnover rate.C) averages long-term inventory needs.D) focuses on immediate production needs.E) maximizes inventory costs.55) The incremental investment in receivables under the accounts receivable approach is equal to:A) P −νQ'.B) PQ'.C) PQ + ν(Q'− Q).D) P(Q'− Q).E) PQ(Q'− Q).56) The accounts receivable approach to credit policy supports the theory that:A) a firm's risk of offering credit to a new customer is limited to the cost of the items sold.B) the best credit policy is an all-cash policy.C) the cost of offering credit to a new customer is the same as the cost of offering credit to an existing customer.D) increasing receivables guarantees increasing profits.E) the default risk of a credit policy is the same as the default risk under an all cash-policy if your customers remain the same.57) Which two of the following are the key elements in determining the break-even default rate on a credit policy?A) Credit price and cash price assuming a zero default rateB) Required rate of return and percentage discount for cash customersC) Variable cost per unit and required rate of returnD) Sales price and variable cost per unit for credit customersE) Credit price and discount rate for cash customers58) On average, CT Motors has daily credit sales of $42,390, an inventory period of 53 days, anda collection period of 26 days. What is the average accounts receivable balance?A) $757,900B) $968,810C) $1,102,140D) $1,015,500E) $896,30059) Music City has an average collection period of 34.6 days and an average daily investment in receivables of $71,407. What are the annual credit sales given a 365-day year?A) $668,407B) $577,109C) $753,282D) $625,893E) $767,12360) Turner's offers credit terms of net 30 with payments received an average of 2.8 days past their due date. Annual credit sales are $2.38 million. What is the average book value of accounts receivable? Assume a 365-day year.A) $213,874B) $223,333C) $211,667D) $215,407E) $223,59361) Winters' just purchased $42,911 of goods from its supplier with credit terms of 1/5, net 25. What is the discounted price?A) $40,765B) $41,209C) $42,482D) $42,911E) $43,30062) Today, October 12, Nadine's Fashions purchased merchandise from a supplier. The credit terms are 2/10, net 30. By what day does Nadine's have to make the payment to receive the discount? Assume a 30-day month.A) October 12B) October 14C) October 22D) October 27E) November 1263) The Green Hornet offers credit terms of 2/5, net 20. Based on experience, 93 percent of all customers will take the discount. The firm sells 487 units each month at a price of $649 each. What is the average book value of accounts receivable? Assume a 365-day year.A) $60,274B) $68,272C) $62,866D) $67,012E) $65,38764) A firm offers credit terms of 2/15, net 45. What effective annual interest rate does the firm earn when a customer forgoes the discount?A) 18.67 percentB) 20.45 percentC) 23.37 percentD) 25.34 percentE) 27.86 percent65) A supplier grants credit terms of 1/5, net 30. What is the effective annual rate of the discount on a purchase of $5,000?A) 17.24 percentB) 15.80 percentC) 18.80 percentD) 19.03 percentE) 12.27 percent66) Cape May Products currently sells 487 units a month at a price of $79 a unit. The firm believes it can increase its sales by an additional 42 units if it switches to a net 30 credit policy. The monthly interest rate is .25 percent and the variable cost per unit is $31.50. What is the incremental cash inflow from the proposed credit policy switch?A) $1,774B) $1,995C) $2,746D) $3,318E) $3,37567) Home Accents currently sells 219 units a month at a price of $46 a unit. If it switches to a net 30 credit policy, monthly sales are expected to increase by 28 units. The monthly interest rateis .57 percent and the variable cost per unit is $21. What is the net present value of the proposed credit policy switch?A) $112,145B) $108,895C) $106,507D) $586,799E) $621,13568) Currently, Glasgow Importers sells 855 units a month at a price of $39 a unit. By switching to a net 30 credit policy, sales should increase to 950 units while the price remains constant. The monthly interest rate is .61 percent and the variable cost per unit is $8. What is the net present value of the proposed credit policy switch?A) $513,360B) $516,892C) $490,200D) $537,520E) $448,68269) Currently, Tanner's sells 69 units a month at an average price of $499 a unit. The company thinks it can increase sales by an additional 32 units a month if it switches to a net 30 credit policy. The monthly interest rate is .48 percent and the variable cost per unit is $216. What is the incremental cash inflow of the proposed credit policy switch?A) $10,120B) $9,056C) $12,760D) $17,810E) $15,96870) New Products currently sells a product with a variable cost per unit of $23 and a unit selling price of $49. At the present time, the firm only sells on a cash basis with monthly sales of 733 units. The monthly interest rate is .48 percent. What is the value of Q' at the switch break-even point if the firm adopted a net 30 credit policy? Assume the selling price per unit and the variable costs per unit remain constant.A) 739.66 unitsB) 736.34 unitsC) 728.47 unitsD) 740.29 unitsE) 743.18 units71) Quest is considering a change in its cash-only sales policy. The new terms of sale would be net one month. The required return is .98 percent per month. Currently, the firm sells 420 units per month at $736 per unit. Under the new policy, the firm expects sales of 475 units also at $736 per unit. The variable cost per unit is $426. What is the NPV of switching?A) $1,228,750B) $1,407,246C) $1,335,021D) $1,238,250E) $1,056,78472) Saucier Co. currently sells 1,208 units a month for total monthly sales of $209,600. The firm is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $106 and the monthly interest rate is .71 percent. What is the new sales quantity at the switch break-even level of sales? Assume the selling price per unit and the variable costs per unit remain constant.A) 1,143 unitsB) 1,267 unitsC) 1,230 unitsD) 1,306 unitsE) 1,148 units73) The Cellar Door currently sells 1,849 units a month for total monthly sales of $627,800. The company is considering replacing its current cash only credit policy with a net 30 policy. The variable cost per unit is $214 and the monthly interest rate is .87 percent. What is the new sales quantity at the switch break-even level of sales?A) 1,711 unitsB) 1,779 unitsC) 1,814 unitsD) 1,957 unitsE) 1,893 units74) The Dilana Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 1.5 percent per period. The firm has current sales of 3,500 units per month at a price of $71 per unit. The new policy is expected to increase sales to 3,550 units at a price of $71 per unit. The cost per unit is constant at $38. What is the incremental cash inflow of the new policy?A) $1,880B) $1,420C) $1,500D) $1,995E) $1,65075) A new customer has placed an order for a turbine engine that has a variable cost of $1.12 million per unit and a credit sales price of $1.64 million. Credit is extended for one period. Based on historical experience, payment for about 1 out of every 178 such orders is never collected. The required return is 2.1 percent per period. What is the NPV per unit if this is a one-time order?A) $516,407B) $421,819C) $477,244D) $534,290E) $351,05676) You can make a one-time sale if you will grant a new customer 30 days to pay. This customer wants to purchase an item with a sales price of $499 and a variable cost of $287. You estimate the probability of default at 33 percent. The monthly interest rate is .98 percent. Should you grant credit to this customer? Why or why not?A) Yes; because the NPV of the potential sale is $33.05B) Yes; because the NPV of the potential sale is $44.09C) Yes; because the NPV of the potential sale is $13.02D) No; because the NPV of the potential sale is −$13.05E) No; because the NPV of the potential sale is −$2.6577) The Cycle Shoppe has decided to offer credit to its customers during the spring selling season. Sales are expected to be 64 bikes with an average cost of $329 each. Four percent of customers are expected to default. To help identify those individuals, the shop is considering subscribing to a credit agency. The initial charge for their services is $250 with an additional charge of $7.50 per individual report. What is the amount of the net savings from subscribing to the credit agency?A) $108B) $92C) $84D) $112E) $10378) Assume all sales are one-time credit sales with a probability of collection of 96 percent. The variable cost per unit is $1.67, the sales price per unit is $4.99, and the monthly interest rate is1.35 percent. What is the NPV of a credit sale of one item?A) $3.18B) $2.87C) $3.38D) $2.92E) $3.0679) Assume a sales price of $119 per unit, a $76 per unit variable cost, an average default rate of 3 percent, and a monthly interest rate of 1.25 percent. What is the net present value of a new repeat customer who never defaults on his or her payment?A) $5,733B) $3,364C) $2,617D) $8,817E) $9,52080) Assume an average selling price of $547 per unit, a variable cost per unit of $339, a monthly interest rate of 1.1 percent, and a default rate of 3.1 percent. What is the NPV of extending credit for 30 days to all who are expected to become repeat customers?A) $17,984B) $19,787C) $12,304D) $18,662E) $13,60981) Lakeside Market sells 848 units of an item priced at $49 each year. The carrying cost per unit is $2.26 and the fixed costs per order are $46. What is the economic order quantity?A) 192 unitsB) 221 unitsC) 197 unitsD) 186 unitsE) 163 units82) High Mountain consistently sells 2,400 pairs of $189 skates annually. The fixed order costs is $56 and the carrying costs are $3.85 a pair. What is the economic order quantity?A) 246 pairsB) 215 pairsC) 229 pairsD) 264 pairsE) 248 pairs。

公司理财精要版原书第12版习题库答案Ross12e_Chapter11_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter11_TB

Fundamentals of Corporate Finance, 12e (Ross)Chapter 11 Project Analysis and Evaluation1) Forecasting risk is defined as the possibility that:A) some proposed projects will be rejected.B) some proposed projects will be temporarily delayed.C) incorrect decisions will be made due to erroneous cash flow projections.D) some projects will be mutually exclusive.E) tax rates could change over the life of a project.2) The key means of defending against forecasting risk is to:A) rely primarily on the net present value method of analysis.B) increase the discount rate assigned to a project.C) shorten the life of a project.D) identify sources of value within a project.E) ignore any potential salvage value that might be realized.3) Steve is fairly cautious when analyzing a new project and thus he projects the most optimistic, the most realistic, and the most pessimistic outcome that can reasonably be expected. Which type of analysis is he using?A) Simulation testingB) Sensitivity analysisC) Break-even analysisD) Rationing analysisE) Scenario analysis4) Scenario analysis is best suited to accomplishing which one of the following when analyzing a project?A) Determining how fixed costs affect NPVB) Estimating the residual value of fixed assetsC) Identifying the potential range of reasonable outcomesD) Determining the minimal level of sales required to break-even on an accounting basisE) Determining the minimal level of sales required to break-even on a financial basis5) Which one of the following will be used in the computation of the best-case analysis of a proposed project?A) Minimal number of units that are expected to be produced and soldB) The lowest expected salvage value that can be obtained for a project's fixed assetsC) The most anticipated sales price per unitD) The lowest variable cost per unit that can reasonably be expectedE) The highest level of fixed costs that is actually anticipated6) The base case values used in scenario analysis are the values considered to be the most:A) optimistic.B) desired by management.C) pessimistic.D) likely to create a positive net present value.E) likely to occur.7) Which of the following variables will be forecast at their highest expected level under a best-case scenario?A) Fixed costs and units valueB) Variable costs and sales priceC) Fixed costs and sales priceD) Salvage value and units soldE) Initial cost and variable costs8) When you assign the lowest anticipated sales price and the highest anticipated costs to a project, you are analyzing the project under the condition known as:A) best-case sensitivity analysis.B) worst-case sensitivity analysis.C) best-case scenario analysis.D) worst-case scenario analysis.E) base-case scenario analysis.9) Which one of the following statements concerning scenario analysis is correct?A) The pessimistic case scenario determines the maximum loss, in current dollars, that a firm could possibly incur from a given project.B) Scenario analysis defines the entire range of results that could be realized from a proposed investment project.C) Scenario analysis determines which variable has the greatest impact on a project's final outcome.D) Scenario analysis helps managers analyze various outcomes that are possible given reasonable ranges for each of the assumptions.E) Management is guaranteed a positive outcome for a project when the worst-case scenario produces a positive NPV.10) Sensitivity analysis determines the:A) range of possible outcomes given that most variables are reliable only within a stated range.B) degree to which the net present value reacts to changes in a single variable.C) net present value range that can be realized from a proposed project.D) degree to which a project relies on its initial costs.E) ideal ratio of variable costs to fixed costs for profit maximization.11) Assume you graph a project's net present value given various sales quantities. Which one of the following is correct regarding the resulting function?A) The steepness of the function relates to the project's degree of operating leverage.B) The steeper the function, the less sensitive the project is to changes in the sales quantity.C) The resulting function will be a hyperbole.D) The resulting function will include only positive values.E) The slope of the function measures the sensitivity of the net present value to a change in sales quantity.12) As the degree of sensitivity of a project to a single variable rises, the:A) less important the variable is to the final outcome of the project.B) less volatile the project's net present value is to that variable.C) greater is the importance of accurately predicting the value of that variable.D) greater is the sensitivity of the project to the other variable inputs.E) less volatile is the project's outcome.13) A firm's managers realize they cannot monitor all aspects of their projects but do want to maintain a constant focus on the key aspect of each project in an attempt to maximize their firm's value. Given this specific desire, which type of analysis should they require for each project and why?A) Sensitivity analysis; to identify the key variable that affects a project's profitabilityB) Scenario analysis; to guarantee each project will be profitableC) Cash breakeven; to ensure the firm recoups its initial investmentD) Accounting breakeven; to ensure each project earns its required rate of returnE) Financial breakeven; to ensure each project has a positive NPV14) Which type of analysis identifies the variable, or variables, that are most critical to the success of a particular project?A) ScenarioB) SimulationC) Break-evenD) SensitivityE) Cash flow15) Simulation analysis is based on assigning a ________ and analyzing the results.A) narrow range of values to a single variableB) narrow range of values to multiple variables simultaneouslyC) wide range of values to a single variableD) wide range of values to multiple variables simultaneouslyE) single value to each of the variables16) Which one of the following types of analysis is the most complex to conduct?A) ScenarioB) Break-evenC) SensitivityD) Degree of operating leverageE) Simulation17) Scenario analysis is defined as the:A) determination of the initial cash outlay required to implement a project.B) determination of changes in NPV estimates when what-if questions are posed.C) isolation of the effect that a single variable has on the NPV of a project.D) separation of a project's sunk costs from its opportunity costs.E) analysis of the effects that a project's terminal cash flows has on the project's NPV.18) An analysis of the change in a project's NPV when a single variable is changed is called ________ analysis.A) forecastingB) scenarioC) sensitivityD) simulationE) break-even19) Combining scenario analysis with sensitivity analysis can yield a crude form of ________ analysis.A) forecastingB) combinedC) complexD) simulationE) break-even20) Variable costs can be defined as the costs that:A) remain constant for all time periods.B) remain constant over the short run.C) vary directly with sales.D) are classified as noncash expenses.E) are inversely related to the number of units sold.21) Fixed costs:A) change as a small quantity of output produced changes.B) are constant over the short-run regardless of the quantity of output produced.C) are defined as the change in total costs when one more unit of output is produced.D) are subtracted from sales to compute the contribution margin.E) can be ignored in scenario analysis since they are constant over the life of a project.22) The change in revenue that occurs when one more unit of output is sold is referred to as:A) marginal revenue.B) average revenue.C) total revenue.D) erosion.E) scenario revenue.23) The change in variable costs that occurs when production is increased by one unit is referred to as the:A) marginal cost.B) average cost.C) total cost.D) scenario cost.E) net cost.24) By definition, which one of the following must equal zero at the accounting break-even point?A) Net present valueB) DepreciationC) Contribution marginD) Net incomeE) Operating cash flow25) Which one of these combinations must increase the contribution margin?A) Increasing both the sales price and the variable cost per unitB) Increasing the sales quantity and increasing the variable cost per unitC) Decreasing the sales price and increasing the sales quantityD) Decreasing both fixed costs and depreciation expenseE) Increasing the sales price and decreasing the variable cost per unit26) Which of the following are inversely related to variable costs per unit?A) Sales quantity and sales priceB) Net profit per unit and sales quantityC) Operating cash flow and sales quantityD) Operating cash flow per unit and contribution margin per unitE) Contribution margin per unit and marginal costs27) Steve, the sales manager for TL Products, wants to sponsor a one-week "Customer Appreciation Sale" where the firm offers to sell additional units of a product at the lowest price possible without negatively affecting the firm's profits. Which one of the following represents the price that should be charged for the additional units during this sale?A) Average variable costB) Average total costC) Average total revenueD) Marginal revenueE) Marginal cost28) The president of Global Wholesalers would like to offer special sale prices to the firm's best customers under the following terms:1. The prices will apply only to units purchased in excess of the quantity normally purchased bya customer.2. The units purchased must be paid for in cash at the time of sale.3. The total quantity sold under these terms cannot exceed the excess capacity of the firm.4. The net profit of the firm should not be affected.5. The prices will be in effect for one week only.Given these conditions, the special sale price should be set equal to the:A) average variable cost of materials only.B) average cost of all variable inputs.C) sensitivity value of the variable costs.D) marginal cost of materials only.E) marginal cost of all variable inputs.29) The contribution margin per unit is equal to the:A) sales price per unit minus the total costs per unit.B) variable cost per unit minus the fixed cost per unit.C) sales price per unit minus the variable cost per unit.D) pretax profit per unit.E) aftertax profit per unit.30) Which of the following values will be equal to zero when a firm is operating at the accounting break-even level of output?A) IRR and OCFB) Net income and contribution marginC) IRR and net incomeD) OCF and NPVE) Net income and NPV31) A decrease in which one of the following will increase the accounting break-even quantity? Assume straight-line depreciation is used and ignore taxes.A) Sales price per unitB) Management salariesC) Variable labor costs per unitD) Initial fixed asset purchasesE) Fixed costs32) Webster Iron Works started a new project last year. As it turns out, the project has been operating at its accounting break-even level of output and is now expected to continue at that level over its lifetime. Given this, you know that the project:A) will never pay back.B) has a zero net present value.C) is operating at a higher level than if it were operating at its cash break-even level.D) is operating at a higher level than if it were operating at its financial break-even level.E) is lowering the total net income of the firm.33) A project that has a payback period exactly equal to the project's life is operating at:A) its maximum capacity.B) the financial break-even point.C) the cash break-even point.D) the accounting break-even point.E) a zero level of output.34) Valerie just completed analyzing a project. Her analysis indicates that the project will have a six-year life and require an initial cash outlay of $120,000. Annual sales are estimated at $189,000 and the tax rate is 21 percent. The net present value is negative $120,000. Based on this analysis, the project is expected to operate at the:A) maximum possible level of production.B) minimum possible level of production.C) financial break-even point.D) accounting break-even point.E) cash break-even point.35) A project that has a projected IRR of negative 100 percent will also have a(n):A) discounted payback period equal to the life of the project.B) operating cash flow that is positive and equal to the depreciation.C) net present value that is negative and equal to the initial investment.D) payback period that is exactly equal to the life of the project.E) net present value that is equal to zero.36) Which one of the following characteristics relates to the cash break-even point for a given project?A) The project never pays back.B) The discounted payback period equals the project's life.C) The NPV is equal to zero.D) The IRR equals the required rate of return.E) The OCF is equal to the depreciation expense.37) When the operating cash flow of a project is equal to zero, the project is operating at the:A) maximum possible level of production.B) minimum possible level of production.C) financial break-even point.D) accounting break-even point.E) cash break-even point.38) Which one of the following represents the level of output where a project produces a rate of return just equal to its requirement?A) Capital break-evenB) Cash break-evenC) Accounting break-evenD) Financial break-evenE) Internal break-even39) Which one of these is most associated with an IRR of negative 100 percent?A) Degree of operating leverageB) Accounting break-even pointC) Contribution marginD) Simulation analysisE) Cash break-even point40) You would like to know the minimum level of sales that is needed for a project to be accepted based on its net present value. To determine that sales level you should compute the:A) contribution margin per unit and set that margin equal to the fixed costs per unit.B) degree of operating leverage at the current sales level.C) accounting break-even point.D) cash break-even point.E) financial break-even point.41) Theresa is analyzing a project that currently has a projected NPV of zero. Which one of the following changes that she is considering is most apt to cause that project to produce a positive NPV instead? Consider each change independently.A) Decrease the sales priceB) Increase the materials cost per unitC) Decrease the labor hours per unit producedD) Decrease the sales quantityE) Increase the amount of the initial investment in net working capital42) Given the following, which feature identifies the most desirable level of output for a project?A) Operating cash flow equal to the depreciation expenseB) Payback period equal to the project's lifeC) Discounted payback period equal to the project's lifeD) Zero IRRE) Zero operating cash flow43) Assume both the discount and tax rates are positive values. At the financial break-even point, the:A) payback period equals the project's life.B) NPV is negative.C) OCF is zero.D) contribution margin per unit equals the fixed costs per unit.E) IRR equals the required return.44) By definition, which one of the following must equal zero at the cash break-even point?A) Net present valueB) Internal rate of returnC) Contribution marginD) Net incomeE) Operating cash flow45) Assume a project has a discounted payback that equals the project's life. The project's sales quantity must be at which one of these break-even points?A) AccountingB) LeveragedC) MarginalD) CashE) Financial46) Operating leverage is the degree of dependence a firm places on its:A) variable costs.B) fixed costs.C) sales.D) operating cash flows.E) depreciation tax shield.47) Which one of the following is the relationship between the percentage change in operating cash flow and the percentage change in quantity sold?A) Degree of sensitivityB) Degree of operating leverageC) Accounting break-evenD) Cash break-evenE) Contribution margin48) You are considering a project and are concerned about the reliability of the cash flow forecasts. To reduce any potentially harmful results from accepting this project, you should consider:A) lowering the degree of operating leverage.B) lowering the contribution margin per unit.C) increasing the initial cash outlay.D) increasing the fixed costs per unit.E) lowering the operating cash flow.49) Which one of the following characteristics best describes a project that has a low degree of operating leverage?A) High variable costs relative to the fixed costsB) Relatively high initial cash outlayC) OCF that is highly sensitive to the sales quantityD) High level of forecasting riskE) High depreciation expense50) Which one of the following will best reduce the risk of a project by lowering the degree of operating leverage?A) Hiring additional employees rather than using temporary outside contractorsB) Subcontracting portions of the project rather than purchasing new equipment to do all the work in-houseC) Buying equipment rather than leasing it short-termD) Lowering the projected selling price per unitE) Changing the proposed labor-intensive production method to a more capital intensive method51) The degree of operating leverage is equal to:A) 1 + OCF/(FC + VC).B) 1 + OCF/FC.C) 1 + FC/OCF.D) 1 + VC/OCF.E) 1 − (FC + VC)/OCF.52) Uptown Promotions has three divisions. As part of the planning process, the CFO requested that each division submit its capital budgeting proposals for next year. These proposals represent positive net present value projects that fall within the long-range plans of the firm. The requests from the divisions are $4.2 million, $3.1 million, and $6.8 million. For the firm as a whole, management has limited spending to $10 million for new projects next year even though the firm could afford additional investments. This is an example of:A) scenario analysis.B) sensitivity analysis.C) an operating leverage application.D) soft rationing.E) hard rationing.53) Bell Weather Goods has several proposed independent projects that have positive NPVs. However, the firm cannot initiate any of the projects due to a lack of financing. This situation is referred to as:A) financial rejection.B) project rejection.C) soft rationing.D) marginal rationing.E) capital rationing.54) The procedure of allocating a fixed amount of funds for capital spending to each business unit is called:A) marginal spending.B) capital preservation.C) soft rationing.D) hard rationing.E) marginal rationing.55) PC Enterprises wants to commence a new project but is unable to obtain the financing under any circumstances. This firm is facing:A) financial deferral.B) financial allocation.C) capital allocation.D) marginal rationing.E) hard rationing.56) Brubaker & Goss has received requests for capital investment funds for next year from each of its five divisions. All requests represent positive net present value projects. All projects are independent. Senior management has decided to allocate the available funds based on the profitability index of each project since the company has insufficient funds to fulfill all of the requests. Management is following a practice known as:A) scenario analysis.B) sensitivity analysis.C) leveraging.D) hard rationing.E) soft rationing.57) The CFO of Edward's Food Distributors is continually receiving capital funding requests from its division managers. These requests are seeking funding for positive net present value projects. The CFO continues to deny all funding requests due to the financial situation of the company. Apparently, the company is:A) operating at the accounting break-even point.B) operating at the financial break-even point.C) facing hard rationing.D) operating with zero leverage.E) operating at maximum capacity.58) New Town Instruments is analyzing a proposed project. The company expects to sell 1,600 units, ±3 percent. The expected variable cost per unit is $220 and the expected fixed costs are $438,000. Cost estimates are considered accurate within a ±2 percent range. The depreciation expense is $64,000. The sales price is estimated at $647 per unit, ±2 percent. What is the sales revenue under the worst-case scenario?A) $1,086,825B) $896,201C) $984,061D) $1,014,496E) $932,01759) Precise Machinery is analyzing a proposed project that is expected to have sales of 2,450 units, ±8 percent. The expected variable cost per unit is $246 and the expected fixed costs are $309,000. Cost estimates are considered accurate within a ±3 percent range. The depreciation expense is $106,000. The sales price is estimated at $599 per unit, ±2 percent. What is the amount of the total costs per unit under the worst-case scenario?A) $448.58B) $404.16C) $366.67D) $338.23E) $394.5860) Precise Machinery is analyzing a proposed project. The company expects to sell 7,500 units, ±10 percent. The expected variable cost per unit is $314 and the expected fixed costs are $647,000. Cost estimates are considered accurate within a ±4 percent range. The depreciation expense is $187,000. The sales price is estimated at $849 per unit, give or take 2 percent. The tax rate is 21 percent. The company is conducting a sensitivity analysis on the sales price using a sales price estimate of $850. What is the operating cash flow based on this analysis?A) $2,703,940B) $2,293,089C) $1,986,675D) $2,354,874E) $2,284,83761) The Creamery is analyzing a project with expected sales of 5,700 units, ±5 percent. The expected variable cost per unit is $168 and the expected fixed costs are $424,000. Cost estimates are considered accurate within a ±3 percent range. The depreciation expense is $156,000. The sales price is estimated at $339 per unit, ±5 percent. The tax rate is 21 percent. The company is conducting a sensitivity analysis with fixed costs of $425,000. What is the OCF given this analysis?A) $416,511B) $385,350C) $467,023D) $394,874E) $421,30062) HiLo Mfg. is analyzing a project with anticipated sales of 12,500 units, ±2 percent. The variable cost per unit is $13, ± 2 percent, and the expected fixed costs are $237,000, ±1 percent.The sales price is estimated at $69 a unit, ±3 percent. The depreciation expense is $68,000 and the tax rate is 22 percent. What is the earnings before interest and taxes under the base-case scenario?A) $368,500B) $421,000C) $395,000D) $414,900E) $427,50063) Assume a project has a sales quantity of 7,400 units, ±6 percent and a sales price of $59 a unit, ±1 percent. The expected variable cost per unit is $13, ±3 percent, and the expected fixed costs are $214,000, ±2 percent. The depreciation expense is $63,000 and the tax rate is 23 percent. What is the operating cash flow under the best-case scenario?A) $136,759B) $118,470C) $145,705D) $134,208E) $124,22064) Windows and More is reviewing a project with sales of 6,200 units, ±2 percent, at a sales price of $29, ±1 percent, per unit. The expected variable cost per unit is $11, ±3 percent, and the expected fixed costs are $87,000, ±1 percent. The depreciation expense is $68,000 and the tax rate is 21 percent. What is the net income under the worst-case scenario?A) −$38,578B) −$39,713C) $15,846D) –$28,704E) $4,69665) Stellar Plastics is analyzing a proposed project with annual depreciation of $28,750 and a tax rate of 23 percent. The company expects to sell 16,500 units, ±3 percent. The expected variable cost per unit is $1.87, ±1 percent, and the expected fixed costs are $24,900, ±1 percent. The sales price is estimated at $7.99 a unit, ±2 percent. What is the operating cash flow for a sensitivity analysis using total fixed costs of $26,000?A) $54,208B) $64,347C) $63,591D) $62,408E) $60,54066) Your company is reviewing a project with estimated labor costs of $14.68 per unit, estimated raw material costs of $43.18 a unit, and estimated fixed costs of $18,000 a month. Sales are projected at 15,500 units, ±5 percent, over the one-year life of the project. Cost estimates are accurate within a range of ±3 percent. What are the total variable costs for the best-case scenario?A) $869,925B) $861,560C) $913,421D) $951,960E) $891,96067) A project has base-case earnings before interest and taxes of $36,408, fixed costs of $42,700,a selling price of $24 a unit, and a sales quantity of 22,000 units. All estimates are accurate within ±2 percent. Depreciation is $16,700. What is the base-case variable cost per unit?A) $22.16B) $23.84C) $19.65D) $22.23E) $17.1868) Consider a 5-year project with an initial fixed asset investment of $324,000, straight-line depreciation to zero over the project's life, a zero salvage value, a selling price of $34, variable costs of $17, fixed costs of $189,700, a sales quantity of 94,000 units, and a tax rate of 21 percent. What is the sensitivity of OCF to changes in the sales price?A) $74,260 per $1 of salesB) $61,600 per $1 of salesC) $78,700 per $1 of salesD) $59,470 per $1 of salesE) $68,850 per $1 of sales69) You are considering a new product launch. The project will have an initial cost for fixed assets of $1,150,000, a three-year life, and no salvage value; depreciation is straight-line to zero. Sales are projected at 230 units per year, price per unit will be $7,500, variable cost per unit will be $3,900, and fixed costs will be $122,000 per year. The required return is 14.5 percent and the relevant tax rate is 24 percent. Based on your experience, you think the unit sales and price are accurate within a ±2 percent range while costs may vary by ±3 percent. What is the worst-case NPV?A) −$117,907B) $156,446C) −$78,517D) $162,134E) −$118,02070) Shoe Supply has decided to produce a new line of shoes that will have a selling price of $68 and a variable cost of $27 per pair. The company spent $187,000 for a marketing study that determined the company should sell 85,000 pairs of the new shoes each year for three years. The marketing study also determined that the company will lose sales of 24,000 pairs of its high-priced shoes that sell for $129 and have variable costs of $63 a pair. The company will also increase sales of its inexpensive shoes by 19,000 pairs. The inexpensive shoes sell for $39 and have variable costs of $15 per pair. The fixed costs each year will be $1.42 million. The company has also spent $1.29 million on research and development for the new shoes. The initial fixed asset requirement is $4.2 million and will be depreciated on a straight-line basis over the life of the project. The new shoes will also require an increase in net working capital of $447,000 that will be returned at the end of the project. Sales and cost projections have a ±2 percent range. The tax rate is 21 percent, and the cost of capital is 12 percent. What is the NPV for the new line of shoes assuming the base-case scenario?A) −$1,844,788B) −$806,318C) $102,311D) $687,415E) $520,90971) A suggested project requires initial fixed assets of $227,000, has a life of 4 years, and has no salvage value. Assume depreciation is straight-line to zero over the life of the project. Sales are projected at 31,000 units per year, the price per unit is $47, variable cost per unit is $23, and fixed costs are $842,900 per year. The tax rate is 23 percent and the required return is 11.5 percent. Suppose the projections given for price and quantity can vary by ±4 percent while variable and fixed cost estimates are accurate to within ±2 percent. What is the best-case NPV?A) $4,613B) −$67,008C) $127,511D) $82,409E) −$132,19472) A project has expected sales of 54,000 units, ±5 percent, variable cost per unit of $87, ±2 percent, fixed costs of $287,000, ±1 percent, and a sales price per unit of $219, ±2 percent. The depreciation expense is $47,000 and the tax rate is 23 percent. What is the contribution margin per unit for a sensitivity analysis using a variable cost per unit of $85?A) $132B) $134C) $135D) $136E) $133。

公司理财精要版原书第12版习题库答案Ross12e_Chapter25_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter25_TB

Fundamentals of Corporate Finance, 12e (Ross)Chapter 25 Mergers and Acquisitions1) Last month, Keyser Design acquired all of the assets and liabilities of Tenor Machine Works. The combined firm is known as Keyser Design. Tenor Machine Works no longer exists as a separate entity. This acquisition is best described as a:A) merger.B) consolidation.C) tender offer.D) spinoff.E) divestiture.2) The Cat Box acquired The Dog House. As part of this transaction, both firms ceased to exist in their prior form and combined to create an all-new entity, Animal World. Which one of the following terms best describes this transaction?A) DivestitureB) ConsolidationC) Tender offerD) SpinoffE) Conglomeration3) The Daily News published an ad today wherein it announced its desire to purchase shares of a competing newspaper, the Oil Town Gossip. Which one of the following terms is best described by this announcement?A) Merger requestB) ConsolidationC) Tender offerD) SpinoffE) Divestiture4) Which one of these statements is false?A) Acquisitions are sometimes unfriendly.B) Shareholders of the target firm must vote to approve an acquisition by stock.C) The cost of a stock acquisition can be higher than the cost of a merger if the target firm's management resists.D) The complete absorption of one firm by another requires a merger.E) In stock acquisitions the bidding firm deals directly with the target firm's shareholders.5) A group of individual investors is in the process of acquiring all of the publicly traded shares of OM Outfitters. Once the shares are acquired, they will no longer be publicly traded. Which of the following terms applies to this process?A) Tender offerB) Proxy contestC) Going-private transactionD) MergerE) Consolidation6) The current officers of MTC have decided to form a private investment group for the sole purpose of purchasing MTC. These individuals will borrow 90 percent of their offer price. Thepurchase of this firm is referred to as a:A) conglomeration.B) proxy contest.C) merger.D) management buyout.E) consolidation.7) Johnson Co. and Peabody Enterprises are both manufacturers of plastic products. These two firms have decided to work together to find a more efficient way to recycle rejected products. Thus, the two companies are each going to assign two engineers to this project and have agreed to share any and all costs. This project is an example of a:A) consolidation.B) merged alliance.C) joint venture.D) takeover project.E) strategic alliance.8) Diet Soda and High Caffeine are two firms that compete in the soft drink market. These two competitors have decided to invest $10 million to form a new company, Fruit Tea, which will manufacture flavored teas. This new firm is defined as a:A) consolidation.B) strategic alliance.C) joint venture.D) merged alliance.E) takeover project.9) Which one of the following statements correctly applies to a legally defined merger?A) The acquiring firm retains its identity and absorbs only the assets of the acquired firm.B) The acquired firm is completely absorbed and ceases to exist as a separate legal entity.C) A new firm is created that includes all the assets and liabilities of the acquiring firm plus the assets only of the acquired firm.D) A new firm is created from the assets and liabilities of both the acquiring and acquired firms.E) A merger reclassifies the acquired firm into a new entity that becomes a subsidiary of the acquiring firm.10) Which one of the following statements correctly applies to a merger?A) The acquiring firm does not have to seek approval for the merger from its shareholders.B) The shareholders of the target firm must approve the merger.C) The acquiring firm will acquire the assets but not the debt of the target firm.D) The merged firm will have a new company name.E) The titles to individual assets of the target firm must be transferred into the acquiring firm's name.11) In a merger the:A) legal status of both the acquiring firm and the target firm is terminated.B) acquiring firm retains its pre-merger legal status.C) acquiring firm acquires the assets, but not the liabilities, of the target firm.D) shareholders of the target firm have little, if any, say as to whether or not the merger occurs.E) target firm continues to exist but will be a wholly owned subsidiary of the acquiring firm.12) Which one of the following is a disadvantage of a merger?A) Transferring the title to all the target firm's assetsB) Disbanding the operations of the target firmC) Hiring an underwriter to distribute the IPO sharesD) Incurring the costs of creating a new legal entityE) Seeking approval of the shareholders of both firms13) KN Markets has decided to acquire a controlling interest in BJ's by purchasing shares of BJ stock in the public markets. Which one of these statements correctly applies to this acquisition?A) This method of acquisition guarantees a quick and efficient merger.B) KN Markets is limited by law to obtaining a maximum of 49 percent of the shares prior to obtaining the approval of BJ management.C) The purchase of publicly traded shares may be more expensive than an outright merger.D) Once KN Markets obtains 80 percent of BJ's shares, the remaining BJ shareholders will be required to sell their shares to KN.E) KN Markets must obtain the approval of BJ's board of directors before purchasing shares.14) Biltwell Hotels is acquiring all of the assets of Green Roof Inns. As a result, Green Roof Inns:A) will become a fully owned subsidiary of Biltwell Hotels.B) will remain as a shell corporation unless the shareholders opt to dissolve it.C) will be fully merged into Biltwell Hotels and will no longer exist as a separate entity.D) and Biltwell Hotels will both cease to exist and a new firm will be formed.E) will automatically be dissolved.15) An automaker recently acquired a windshield manufacturer. Which type of an acquisition was this?A) HorizontalB) LongitudinalC) ConglomerateD) VerticalE) Indirect16) If GE, a highly diversified company, were to acquire Ocean Freight Limited, the acquisition would be classified as a ________ acquisition.A) horizontalB) longitudinalC) conglomerateD) verticalE) integrated17) If Food Markets were to acquire Meat Processors, the acquisition would be classified as a________ acquisition.A) verticalB) longitudinalC) conglomerateD) horizontalE) integrated18) All of the following are related to a takeover except a:A) tender offer.B) consolidation.C) going private transaction.D) proxy contest.E) strategic alliance.19) Firms A and B formally agree to each put up $25 million to create firm C. Firm C will perform environmental testing on the products produced by both Firm A and Firm B. Which one of the following terms describes Firm C?A) Joint ventureB) Going-private transactionC) ConglomerateD) SubsidiaryE) Leveraged buyout20) Dixie and ten of her wealthy friends formed a group and borrowed the funds necessary to acquire all of the outstanding shares of Southern Fried Chicken. This transaction is known as a:A) proxy contest.B) management buyout.C) vertical acquisition.D) leveraged buyout.E) unfriendly takeover.21) In a tax-free acquisition, the shareholders of the target firm:A) receive income that is considered to be tax-exempt.B) gift their shares to a tax-exempt organization and therefore have no taxable gain.C) are viewed as having exchanged shares on a dollar-for-dollar basis.D) sell their shares to a qualifying entity thereby avoiding both income and capital gains taxes.E) sell their shares at cost thereby avoiding the capital gains tax.22) Which one of the following is not required for an acquisition to be considered tax-free?A) The continuity of equity interestB) A business purpose, other than avoiding taxes, for the acquisitionC) The obtainment of equity shares in the acquirer by the target firm's shareholdersD) A cash payment to the target firm's shareholdersE) An exchange that is considered to be of equal value23) Which one of the following statements is correct?A) The shareholders of an acquired firm are generally given a choice of accepting either cash or shares of stock when the acquisition is tax free.B) To be a tax-free acquisition, the shareholders of an acquired firm must receive shares in the acquiring firm that are equal to 25 percent or less of the value of the shares held in the acquired firm.C) The assets of an acquired firm are recorded on the books of the acquiring firm at their current book value regardless of the tax status of the acquisition.D) Target firm shareholders demand a higher selling price when an acquisition is a nontaxable event.E) If the assets of a firm are written up as part of the acquisition process, the increase in value is considered to be a taxable gain.24) The purchase accounting method requires that:A) the excess of the purchase price over the fair market value of the target firm be recorded as a one-time expense on the income statement of the acquiring firm.B) goodwill be amortized on a yearly basis for financial statement purposes.C) the equity of the acquiring firm be reduced by the excess of the purchase price over the fair market value of the target firm.D) the assets of the target firm be recorded at their fair market value on the balance sheet of the acquiring firm.E) the excess amount paid for the target firm be recorded as a tangible asset on the books of the acquiring firm.25) For financial statement purposes, goodwill created by an acquisition:A) must be amortized on a straight-line basis over 10 years.B) must be reviewed each year and amortized to the extent that it has lost value.C) is expensed evenly over a 20-year period.D) never affects the profits of the acquiring firm.E) is recorded in an amount equal to the fair market value of the assets of the target firm.26) If a merger creates synergy, then the:A) merger is classified as a taxable transaction.B) acquiring firm's shareholders will receive a one-time cash payment.C) equity of the target firm will be increased by the amount of the synergy.D) value of the merged firm exceeds the combined value of the separate firms.E) price paid by the acquiring firm will be reduced by the amount of that synergy.27) All of the following are examples of cost reductions that can result from an acquisition except:A) reducing the number of management personnel required.B) lowering office costs by combining job functions.C) allocating fixed overhead across a wider range of products.D) benefiting from economies of scale when purchasing raw materials.E) increasing the firm's market share.28) A potential merger that produces synergy:A) should be rejected due to the projected negative cash flows.B) should be rejected because the synergy will dilute the benefits of the merger.C) has a net present value of zero.D) creates value and therefore should be pursued.E) reduces the anticipated net income from the target firm.29) A proposed acquisition is most apt to create synergy by:A) decreasing the market power of the combined firm.B) disbanding the distribution network of the combined firm.C) eliminating any strategic advantages of the target firm.D) increasing the utilization of the acquiring firm's assets.E) increasing the overhead costs.30) All of the following represent potential tax benefits that can directly result from an acquisition except:A) increasing the depreciation expense.B) using tax losses.C) increasing surplus funds.D) increasing the use of leverage.E) increasing interest expense.31) When evaluating an acquisition you should:A) concentrate on book values and ignore market values.B) focus on the total cash flows of the merged firm but ignore incremental cash flows.C) apply the rate of return that is relevant to the incremental cash flows.D) ignore any one-time acquisition fees or transaction costs.E) ignore any potential changes in management.32) Which one of the following best defines synergy given the following?V A = Value of Firm AV B = Value of Firm BV AB = Value of merged Firm ABA) (V A + V B) − V ABB) V AB− (V A + V B)C) Max[(V A + V B) − V AB, 0]D) Max[V AB− (V A + V B, 0]E) Max[V AB− V B, 0]33) Which one of the following statements is correct?A) The IRS automatically approves acquisitions that are primarily designed to lower federal taxes.B) The leverage associated with an acquisition increases the tax liability of the acquiring firm.C) A firm may benefit from an acquisition if it can lower its capital requirements.D) Firms can always benefit from economies of scale if they increase the size of their firm through acquisitions.E) If a firm uses its surplus cash to acquire another firm, then the shareholders of the acquiring firm immediately incur a tax liability related to the transaction.34) Which one of the following pairs of businesses could probably benefit the most by sharing complementary resources?A) Roofer and architectB) Tennis court and pharmacyC) Ski resort and golf courseD) Dry cleaner and insurance officeE) Trucking company and lawn service35) Assume the shareholders of a target firm benefit from being acquired in a stock transaction. Given this, these shareholders are most apt to realize the largest benefit if the:A) acquiring firm has the better management team and replaces the target firm's managers.B) management of the target firm is more efficient than the management of the acquiring firm which replaces them.C) management of both the acquiring firm and the target firm are as equivalent as possible.D) current management team of the target firm is kept in place even though the managers of the acquiring firm are more suited to manage the target firm's situation.E) new management team is technologically knowledgeable but yet ineffective.36) All of the following represent potential gains from an acquisition except the:A) tax loss carryforwards acquired in the acquisition.B) lower costs per unit realized.C) diseconomies of scale related to increased labor demand.D) use of surplus funds.E) obtainment of a beachhead.37) The value of a target firm to the acquiring firm is equal to the:A) value of the target firm as a separate entity plus the incremental value derived from the acquisition.B) purchase cost of the target firm.C) value of the merged firm minus the value of the target firm as a separate entity.D) purchase cost plus the incremental value derived from the acquisition.E) incremental value derived from the acquisition.38) Black Teas recently acquired Green Teas in a transaction that had a net present value of $1.23 million. The $1.23 million is referred to as:A) the agency effect.B) the consolidating value.C) the diversification benefit.D) the consolidation effect.E) synergy.39) Which one of the following does not represent a potential tax gain from an acquisition?A) The use of surplus fundsB) The use of tax loss carryforwardsC) The write-up of depreciable assetsD) The use of unused debt capacityE) The increase in taxable income40) If an acquisition does not create value and the market is smart, then the:A) earnings per share of the acquiring firm must be the same both before and after the acquisition.B) earnings per share can change but the stock price of the acquiring firm should remain constant.C) price per share of the acquiring firm should increase because of the growth of the firm.D) earnings per share will most likely increase while the price-earnings ratio remains constant.E) price-earnings ratio should remain constant regardless of any changes in the earnings per share.41) An acquisition completed simply to diversify a firm will:A) create excessive synergy in almost all situations.B) lower systematic risk and increase the value of the firm.C) benefit the firm by eliminating unsystematic risk.D) benefit the shareholders by providing otherwise unobtainable diversification.E) generally not add any value to the firm.42) Which one of the following statements is correct?A) An increase in the earnings per share as a result of an acquisition will increase the price pershare of the acquiring firm.B) The price-earnings ratio must remain constant as a result of an acquisition that fails to create value.C) If firm A acquires firm B then the number of shares in AB will equal the number of shares of A plus the number of shares of B.D) The price-earnings ratio can decrease even when the net present value of a merger is equal to zero.E) Diversification is one of the greatest benefits derived from an acquisition.43) Which one of these statements is correct regarding acquisitions?A) The cost of a cash acquisition to the acquiring firm is equal to the cash paid minus the taxes incurred by the target firm's shareholders.B) Neither cash nor share acquisitions affect the control of the acquiring firm.C) Share financing is generally more common than cash financing for smaller acquisitions.D) Target firm shareholders share in both the gains and losses resulting from a stock acquisition.E) Cash acquisitions create a tax liability for the acquiring firm's shareholders.44) Roger is a major shareholder in RB Industrial Supply. Currently, Roger is quite unhappy with the direction the firm is headed and is rumored to be considering an attempt to take over the firm by soliciting the votes of other shareholders. To head off this potential attempt, the board of RB Industrial Supply has decided to offer Roger $36 a share for all the shares he owns in the firm. The current market value per share is $32. This offer to purchase Roger's shares is commonly referred to as:A) a golden parachute.B) standstill payments.C) greenmail.D) a poison pill.E) a white knight.45) Which one of the following generally has a flip-in provision that significantly increases the cost to a shareholder who is attempting to gain control over a firm?A) Golden parachuteB) Standstill agreementC) GreenmailD) Poison pillE) White knight46) Melvin was attempting to gain control of Western Wood Products until he realized that the existing shareholders in the firm had the right to purchase additional shares at a below-market price given his hostile takeover attempt. Thus, Melvin decided to forgo investing in this firm. What term applies to the tactic used by Western Wood Products to stave off this takeover attempt?A) "Pac-man" defenseB) Bear hugC) Golden parachute provisionD) Greenmail provisionE) Share rights plan47) The primary purpose of a flip-in provision is to:A) increase the number of shares outstanding while also increasing the value per share.B) dilute a corporate raider's ownership position.C) reduce the market value of each share of stock.D) give the existing corporate directors the sole right to remove a poison pill.E) provide additional compensation to any senior manager who loses his or her job as a result ofa corporate takeover.48) If a firm sells its crown jewels when threatened with a takeover attempt, the firm is employing a strategy commonly referred to as a ________ strategy.A) scorched earthB) shark repellentC) bear hugD) white knightE) lockup49) Which one of the following defensive tactics is designed to prevent a "two-tier" takeover offer?A) Bear hugB) Poison putC) Shark repellentD) Dual class capitalizationE) Fair price provision50) The shareholders in the acquiring firm may not realize any significant gains from an acquisition. Which one of the following has not been suggested as a reason for this lack of gain?A) Management may have priorities other than the interests of the stockholders.B) The price paid for the target firm might equal the target firm's total value to the acquirer.C) Any synergy produced was paid to the target firm's shareholders.D) Target firm shares were exchanged for an equal value of acquiring firm shares.E) Anticipated merger gains may not be fully achieved.51) Studies conducted on mergers and acquisitions have generally concluded that:A) both acquiring and target firm's shareholders benefit approximately equally in most situations.B) all involved shareholders tend to neither gain nor lose much as a result of these transactions.C) only highly leveraged acquisitions produce any shareholder gains.D) these transactions are financially beneficial to target shareholders.E) acquiring firm's shareholders gain at the expense of the target firm's shareholders.52) Global Distributors has decided to sell its manufacturing operations and concentrate solely on its global distribution operations. This sale is referred to as a(n):A) liquidation.B) divestiture.C) merger.D) allocation.E) restructuring.53) Nationwide Markets is a diversified company with many divisions. It is also the sole shareholder of a wholly owned subsidiary. Management has decided to implement an IPO offering for 25 percent of the ownership of the subsidiary. Which one of these terms applies to this offering?A) Split-upB) Equity carve-outC) Tender offerD) White knight transactionE) Lockup transaction54) Family Travel is the sole shareholder in its subsidiary, FT Insurance. Family Travel has decided to divest itself of its insurance operations and does so by distributing the shares in the subsidiary to the shareholders of Family Travel. This distribution of shares is called a(n):A) lockup transaction.B) bear hug.C) equity carve-out.D) spin-off.E) split-up.55) Davidson Global proposed splitting itself into four separate firms and its shareholders agreed. This split is referred to as a(n):A) lockup transaction.B) divestiture.C) equity carve-out.D) spin-off.E) split-up.56) Which one of these is the least probable reason why a firm may want to divest itself of some of its assets?A) To cash out a profitable operationB) To raise cashC) To improve the strategic fit of its various divisionsD) To comply with antitrust regulationsE) To increase market share57) Which one of the following statements is correct?A) An equity carve-out frequently follows a spin-off.B) A split-up frequently follows a spin-off.C) An equity carve-out is a specific type of acquisition.D) A spin-off involves an initial public offering.E) Split-ups may unlock value within a firm.58) Firm X has total earnings of $49,000, a market value per share of $64, a book value per share of $38, and has 25,000 shares outstanding. Firm Y has total earnings of $34,000, a market value per share of $21, a book value per share of $12, and has 22,000 shares outstanding. Assume Firm X acquires Firm Y by paying cash for all the shares outstanding at a merger premium of $2 per share. Also assume neither firm has any debt before or after the merger. What is the value of the total equity of the combined firm, XY, if the purchase method of accounting is used?A) $1,274,000B) $1,316,000C) $1,456,000D) $1,412,000E) $1,427,00059) The balance sheet of MT Co. shows current assets of $14,000, net fixed assets of $21,800, current liabilities of $4,300, long-term debt of $2,600, and equity of $28,900. The balance sheet of LF Inc. has current assets of $4,700, net fixed assets of $8,100, current liabilities of $2,200, long-term debt of $1,200, and equity of $9,400. The market value of LF's fixed assets is $14,100. MT purchases LF for $20,000 and raises the funds through an issue of long-term debt. What will be the value of the equity account on the post- merger balance sheet assuming the purchase accounting method is used?A) $29,600B) $33,600C) $28,900D) $39,600E) $43,00060) The balance sheet of Meat Co. reflects current assets of $6,000, net fixed assets of $8,400, current liabilities of $1,800, long-term debt of $1,100, and equity of $11,500. The balance sheet of Loaf Inc. shows current assets of $2,000, net fixed assets of $3,300, current liabilities of $900, long-term debt of $500, and equity of $3,900. Suppose the fair market value of Loaf's fixed assets is $4,100 versus the $3,300 book value shown. Meat pays $5,200 for Loaf and raises the needed funds through an issue of long-term debt. Assume the purchase method of accounting is used. The post-merger balance sheet of Meat Co. will have total debt of ________ and total equity of ________.A) $1,600; $11,500B) $1,600; $15,400C) $10,200; $15,400D) $9,500; $11,500E) $14,500; $15,40061) Silver Enterprises has acquired All Gold Mining in a merger transaction. The pre-merger balance sheet for Silver Enterprises has current assets of $1,500, other assets of $400, net fixed assets of $2,300, current liabilities of $1,000, long-term debt of $500 and owners' equity of$,2700. The pre-merger balance sheet for All Gold Mining shows current assets of $600, other assets of $210, net fixed assets of $1,600, current liabilities of $500, and equity of $1,910. Assume the merger is treated as a purchase for accounting purposes. The market value of All Gold Mining's fixed assets is $2,900; the market values for current and other assets are the same as the book values. Assume that Silver Enterprises issues $4,000 in new long-term debt to finance the acquisition. The post-merger balance sheet will reflect goodwill of ________ and total equity of ________.A) $640; $2,700B) $790; $4,610C) $790; $2,700D) $890; $4,610E) $890; $2,70062) Nadine's Home Fashions has $2.12 million in net working capital. The firm has fixed assets with a book value of $31.64 million and a market value of $33.9 million. The firm has no long-term debt. The Home Centre is buying Nadine's for $37.5 million in cash. The acquisition will be recorded using the purchase accounting method. What is the amount of goodwill that The Home Centre will record on its balance sheet as a result of this acquisition?A) $1.48 millionB) $3.34 millionC) $3.74 millionD) $4.14 millionE) $5.86 million63) Rosie's has 2,200 shares outstanding at a market price per share of $28.15. Sandy's has 4,500 shares outstanding at a market price of $38 a share. Neither firm has any debt. Sandy's is acquiring Rosie's. The incremental value of the acquisition is $1,800. What is the value of Rosie's to Sandy's?A) $107,270B) $48,770C) $54,300D) $68,700E) $63,73064) Sue's Bakery is planning on merging with Ted's Deli. Sue's will pay Ted's shareholders the current value of their stock in shares of Sue's Bakery. Sue's currently has 6,500 shares of stock outstanding at a market price of $26 a share. Ted's has 2,300 shares outstanding at a price of $18 a share. What is the value of the merged firm if the synergy created by the merger is $3,200?A) $206,500B) $210,400C) $225,400D) $213,600E) $231,30065) News Express has 26,200 shares outstanding at a market price of $33.30 a share. Nu-News has 15,000 shares outstanding at a price of $54 a share. The News Express is acquiring Nu-News. Both firms are all-equity financed. The incremental value of the acquisition is $2,500. What is the value of Nu-News to News Express?A) $874,960B) $804,960C) $869,960D) $807,500E) $812,50066) Pearl, Inc. has offered $218 million cash for all of the common stock in Jam Corporation. Based on recent market information, Jam is worth $215 million as an independent operation. If the merger makes economic sense for Pearl, what is the minimum estimated value of the synergistic benefits from the merger?A) $0B) $5 millionC) $3 millionD) $1 millionE) $4 million。

公司理财精要版原书第12版习题库答案Ross12e_Chapter06_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter06_TB

Fundamentals of Corporate Finance, 12e (Ross)Chapter 6 Discounted Cash Flow Valuation1) Which one of the following statements correctly defines a time value of money relationship?A) Time and future values are inversely related, all else held constant.B) Interest rates and time are positively related, all else held constant.C) An increase in a positive discount rate increases the present value.D) An increase in time increases the future value given a zero rate of interest.E) Time and present value are inversely related, all else held constant.2) Project X has cash flows of $8,500, $8,000, $7,500, and $7,000 for Years 1 to 4, respectively. Project Y has cash flows of $7,000, $7,500, $8,000, and $8,500 for Years 1 to 4, respectively. Which one of the following statements is true concerning these two projects given a positive discount rate? (No calculations needed)A) Both projects have the same future value at the end of Year 4.B) Both projects have the same value at Time 0.C) Both projects are ordinary annuities.D) Project Y has a higher present value than Project X.E) Project X has both a higher present and a higher future value than Project Y.3) Project A has cash flows of $4,000, $3,000, $0, and $3,000 for Years 1 to 4, respectively. Project B has cash flows of $2,000, $3,000, $2,000, and $3,000 for Years 1 to 4, respectively. Which one of the following statements is correct assuming the discount rate is positive? (No calculations needed)A) The cash flows for Project B are an annuity, but those of Project A are not.B) Both sets of cash flows have equal present values as of Time 0.C) The present value at Time 0 of the final cash flow for Project A will be discounted using an exponent of three.D) Both projects have equal values at any point in time since they both pay the same total amount.E) Project B is worth less today than Project A.4) You are comparing two investment options that each pay 6 percent interest, compounded annually. Both options will provide you with $12,000 of income. Option A pays $2,000 the first year followed by two annual payments of $5,000 each. Option B pays three annual payments of $4,000 each. Which one of the following statements is correct given these two investment options? Assume a positive discount rate. (No calculations needed.)A) Both options are of equal value since they both provide $12,000 of income.B) Option A has the higher future value at the end of Year 3.C) Option B has a higher present value at Time 0.D) Option B is a perpetuity.E) Option A is an annuity.5) Which one of the following statements related to annuities and perpetuities is correct?A) An ordinary annuity is worth more than an annuity due given equal annual cash flows for 10 years at 7 percent interest, compounded annually.B) A perpetuity comprised of $100 monthly payments is worth more than an annuity of $100 monthly payments provided the discount rates are equal.C) Most loans are a form of a perpetuity.D) The present value of a perpetuity cannot be computed but the future value can.E) Perpetuities are finite but annuities are not.6) Which one of these statements related to growing annuities and perpetuities is correct?A) You can compute the present value of a growing annuity but not a growing perpetuity.B) In computing the present value of a growing annuity, you discount the cash flows using the growth rate as the discount rate.C) The future value of an annuity will decrease if the growth rate is increased.D) An increase in the rate of growth will decrease the present value of an annuity.E) The present value of a growing perpetuity will decrease if the discount rate is increased.7) You are comparing two annuities that offer regular payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities?A) These annuities have equal present values but unequal future values.B) These two annuities have both equal present and equal future values.C) Annuity B is an annuity due.D) Annuity A has a smaller future value than annuity B.E) Annuity B has a smaller present value than annuity A.8) An ordinary annuity is best defined as:A) increasing payments paid for a definitive period of time.B) increasing payments paid forever.C) equal payments paid at the end of regular intervals over a stated time period.D) equal payments paid at the beginning of regular intervals for a limited time period.E) equal payments that occur at set intervals for an unlimited period of time.9) A perpetuity is defined as:A) a limited number of equal payments paid in even time increments.B) payments of equal amounts that are paid irregularly but indefinitely.C) varying amounts that are paid at even intervals forever.D) unending equal payments paid at equal time intervals.E) unending equal payments paid at either equal or unequal time intervals.10) A Canadian consol is best categorized as a(n):A) ordinary annuity.B) amortized cash flow.C) annuity due.D) discounted loan.E) perpetuity.11) The interest rate that is most commonly quoted by a lender is referred to as the:A) annual percentage rate.B) compound rate.C) effective annual rate.D) simple rate.E) common rate.12) The actual interest rate on a loan that is compounded monthly but expressed as an annual rate is referred to as the ________ rate.A) statedB) discounted annualC) effective annualD) periodic monthlyE) consolidated monthly13) Your credit card charges you .85 percent interest per month. This rate when multiplied by12 is called the ________ rate.A) effective annualB) annual percentageC) periodic interestD) compound interestE) episodic interest14) Which one of the following statements related to loan interest rates is correct?A) The annual percentage rate considers the compounding of interest.B) When comparing loans you should compare the effective annual rates.C) Lenders are most apt to quote the effective annual rate.D) Regardless of the compounding period, the effective annual rate will always be higher than the annual percentage rate.E) The more frequent the compounding period, the lower the effective annual rate given a fixed annual percentage rate.15) Which one of the following statements concerning interest rates is correct?A) Savers would prefer annual compounding over monthly compounding given the same annual percentage rate.B) The effective annual rate decreases as the number of compounding periods per year increases.C) The effective annual rate equals the annual percentage rate when interest is compounded annually.D) Borrowers would prefer monthly compounding over annual compounding given the same annual percentage rate.E) For any positive rate of interest, the annual percentage rate will always exceed the effective annual rate.16) Which one of the following compounding periods will yield the lowest effective annual rate given a stated future value at Year 5 and an annual percentage rate of 10 percent?A) AnnualB) Semi-annualC) MonthlyD) DailyE) Continuous17) A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) ________ loan.A) amortizedB) continuousC) balloonD) pure discountE) interest-only18) A loan that calls for periodic interest payments and a lump sum principal payment is referred to as a(n) ________ loan.A) amortizedB) modifiedC) balloonD) pure discountE) interest-only19) Amortized loans must have which one of these characteristics over its life?A) Either equal or unequal principal paymentsB) One lump-sum principal paymentC) Increasing paymentsD) Equal interest paymentsE) Declining periodic payments20) A(n) ________ loan has regular payments that include both principal and interest but these payments are insufficient to pay off the loan.A) perpetualB) continuingC) balloonD) pure discountE) interest-only21) The entire repayment of a(n) ________ loan is computed simply by computing one single future value.A) interest-onlyB) balloonC) amortizedD) pure discountE) bullet22) With an interest-only loan the principal is:A) forgiven over the loan period; thus it does not have to be repaid.B) repaid in decreasing increments and included in each loan payment.C) repaid in one lump sum at the end of the loan period.D) repaid in equal annual payments.E) repaid in increasing increments through regular monthly payments.23) An amortized loan:A) requires the principal amount to be repaid in even increments over the life of the loan.B) may have equal or increasing amounts applied to the principal from each loan payment.C) requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term.D) requires that all payments be equal in amount and include both principal and interest.E) repays both the principal and the interest in one lump sum at the end of the loan term.24) You need $25,000 today and have decided to take out a loan at 7 percent interest for five years. Which one of the following loans would be the least expensive for you? Assume all loans require monthly payments and that interest is compounded on a monthly basis.A) Interest-only loanB) Amortized loan with equal principal paymentsC) Amortized loan with equal loan paymentsD) Discount loanE) Balloon loan where 50 percent of the principal is repaid as a balloon payment25) Southern Tours is considering acquiring Holiday Vacations. Management believes Holiday Vacations can generate cash flows of $218,000, $224,000, and $238,000 over the next three years, respectively. After that time, they feel the business will be worthless. If the desired rate of return is 14.5 percent, what is the maximum Southern Tours should pay today to acquire Holiday Vacations?A) $519,799.59B) $538,615.08C) $545,920.61D) $595,170.53E) $538,407.7126) You are considering two savings options. Both options offer a rate of return of 7.6 percent. The first option is to save $2,500, $2,500, and $3,000 at the end of each year for the next three years, respectively. The other option is to save one lump sum amount today. You want to have the same balance in your savings account at the end of the three years, regardless of the savings method you select. If you select the lump sum method, how much do you need to save today?A) $7,414.59B) $6,289.74C) $6,660.00D) $6,890.89E) $6,784.2027) Your parents have made you two offers. The first offer includes annual gifts of $5,000, $6,000, and $8,000 at the end of each of the next three years, respectively. The other offer is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 6.2 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer?A) $16,707.06B) $16,407.78C) $16,360.42D) $17,709.48E) $17,856.4228) You want to start a business that you believe can produce cash flows of $5,600, $48,200, and $125,000 at the end of each of the next three years, respectively. At the end of three years you think you can sell the business for $250,000. At a discount rate of 16 percent, what is this business worth today?A) $258,803.02B) $314,011.33C) $280,894.67D) $325,837.81E) $297,077.1729) You are considering a project with cash flows of $16,500, $25,700, and $18,000 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a discount rate of 7.9 percent?A) $54,877.02B) $51,695.15C) $55,429.08D) $46,388.78E) $53,566.6730) You just signed a consulting contract that will pay you $38,000, $42,000, and $45,000 annually at the end of the next three years, respectively. What is the present value of this contract given a discount rate of 10.5?A) $102,138.76B) $108,307.67C) $112,860.33D) $92,433.27E) $96,422.1531) You have some property for sale and have received two offers. The first offer is for $89,500 today in cash. The second offer is the payment of $35,000 today and an additional guaranteed $70,000 two years from today. If the applicable discount rate is 11.5 percent, which offer should you accept and why?A) You should accept the $89,500 today because it has the higher net present value.B) You should accept the $89,500 today because it has the lower future value.C) You should accept the first offer as it is a lump sum payment.D) You should accept the second offer because it has the larger net present value.E) It does not matter which offer you accept as they are equally valuable.32) Your anticipated wedding is three years from today. You don't know who your spouse will be but you do know that you are saving $10,000 today and $17,000 one year from today for this purpose. You also plan to pay the final $12,000 of anticipated costs on your wedding day. At a discount rate of 5.5 percent, what is the current cost of your upcoming wedding?A) $36,333.11B) $41,065.25C) $36,895.17D) $38,411.08E) $35,248.1633) One year ago, JK Mfg. deposited $12,000 in an investment account for the purpose of buying new equipment four years from today. Today, it is adding another $15,000 to this account. The company plans on making a final deposit of $10,000 to the account one year from today. How much cash will be available when the company is ready to buy the equipment assuming an interest rate of 5.5 percent?A) $43,609.77B) $45,208.61C) $44,007.50D) $46,008.30E) $47,138.0934) Troy will receive $7,500 at the end of Year 2. At the end of the following two years, he will receive $9,000 and $12,500, respectively. What is the future value of these cash flows at the end of Year 6 if the interest rate is 8 percent?A) $38,418.80B) $32,907.67C) $36,121.08D) $39,010.77E) $33,445.4435) Sue plans to save $4,500, $0, and $5,500 at the end of Years 1 to 3, respectively. What will her investment account be worth at the end of the Year 3 if she earns an annual rate of 4.15 percent?A) $10,583.82B) $10,381.25C) $10,609.50D) $11,526.50E) $10,812.0736) A proposed project has cash flows of $2,000, $?, $1,750, and $1,250 at the end of Years 1 to 4. The discount rate is 7.2 percent and the present value of the four cash flows is $6,669.25. What is the value of the Year 2 cash flow?A) $2,450B) $2,750C) $2,500D) $2,250E) $2,80037) Waldo expects to save the following amounts: Year 1 = $50,000; Year 2 = $28,000; Year 3 = $12,000. If he can earn an average annual return of 10.5 percent, how much will he have saved in this account exactly 25 years from the time of the first deposit?A) $1,172,373B) $935,334C) $806,311D) $947,509E) $1,033,54538) A charity plans to invest annual payments of $60,000, $70,000, $75,000, and $50,000, respectively, over the next four years. The first payment will be invested one year fromtoday. Assuming the investment earns 5.5 percent annually, how much will the charity have available four years from now?A) $263,025B) $236,875C) $277,491D) $328,572E) $285,73739) Your broker is offering 1.2 percent compounded daily on its money market account. If you deposit $7,500 today, how much will you have in your account 15 years from now?A) $8,979.10B) $9,714.06C) $8,204.50D) $9,336.81E) $9,414.1440) Your grandmother will be gifting you $150 at the end of each month for four years while you attend college. At a discount rate of 3.7 percent, what are these payments worth to you on the day you enter college?A) $6,201.16B) $6,682.99C) $6,539.14D) $6,608.87E) $6,870.2341) You just won the grand prize in a national writing contest! As your prize, you will receive $500 a month for 50 months. If you can earn 7 percent on your money, what is this prize worth to you today?A) $21,629.93B) $18,411.06C) $21,338.40D) $20,333.33E) $19,450.2542) Phil can afford $240 a month for five years for a car loan. If the interest rate is 8.5 percent, how much can he afford to borrow to purchase a car?A) $11,750.00B) $12,348.03C) $11,697.88D) $10,266.67E) $10,400.0043) As the beneficiary of a life insurance policy, you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. If you can earn 6 percent on your money, which option should you take and why?A) You should accept the payments because they are worth $202,414 to you today.B) You should accept the payments because they are worth $201,846 to you today.C) You should accept the payments because they are worth $201,210 to you today.D) You should accept the $200,000 because the payments are only worth $189,311 to you today.E) You should accept the $200,000 because the payments are only worth $195,413 to you today.44) Assume you work for an employer who will contribute $60 a week for the next 20 years intoa retirement plan for your benefit. At a discount rate of 9 percent, what is this employee benefit worth to you today?A) $28,927.38B) $27,618.46C) $29,211.11D) $25,306.16E) $25,987.7445) The Distribution Point plans to save $2,000 a month for the next 3 years for future emergencies. The interest rate is 4.5 percent compounded monthly. The first monthly deposit will be made today. What would today's deposit amount have to be if the firm opted for one lump sum deposit that would yield the same amount of savings as the monthly deposits after 3 years?A) $70,459.07B) $67,485.97C) $69,068.18D) $69,333.33E) $67,233.8446) You need some money today and the only friend you have that has any is a miser. He agrees to loan you the money you need, if you make payments of $30 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 2 percent interest per month. How much total interest is he charging?A) $4.50B) $3.60C) $9.50D) $4.68E) $8.6047) Sue just purchased an annuity that will pay $24,000 a year for 25 years, starting today. What was the purchase price if the discount rate is 8.5 percent?A) $241,309B) $245,621C) $251,409D) $258,319E) $266,49848) Marcus is scheduled to receive annual payments of $3,600 for each of the next 12 years. The discount rate is 8 percent. What is the difference in the present value if these payments are paid at the beginning of each year rather than at the end of each year?A) $2,170.39B) $2,511.07C) $2,021.18D) $2,027.94E) $2,304.9649) Two annuities have equal present values and an applicable discount rate of 7.25 percent. One annuity pays $2,500 on the first day of each year for 15 years. How much does the second annuity pay each year for 15 years if it pays at the end of each year?A) $2,331.00B) $2,266.67C) $2,500.00D) $2,390.50E) $2,681.2550) Trish receives $450 on the first of each month. Josh receives $450 on the last day of each month. Both Trish and Josh will receive payments for next four years. At a discount rate of 9.5 percent, what is the difference in the present value of these two sets of payments?A) $141.80B) $151.06C) $154.30D) $159.08E) $162.5051) What is the future value of $1,575 a year for 25 years at 6.3 percent interest, compounded annually?A) $76,919.04B) $72,545.78C) $90,152.04D) $92,006.08E) $91,315.0952) What is the future value of $8,500 a year for 40 years at 10.8 percent interest, compounded annually?A) $3,278,406.16B) $4,681,062.12C) $2,711,414.14D) $3,989,476.67E) $4,021,223.3353) Rosina plans on saving $2,000 a year and expects to earn an annual rate of 6.9 percent. How much will she have in her account at the end of 37 years?A) $406,429.10B) $338,369.09C) $297,407.17D) $313,274.38E) $308,316.6754) Theresa adds $1,500 to her savings account on the first day of each year. Marcus adds $1,500 to his savings account on the last day of each year. They both earn 6.5 percent annual interest. What is the difference in their savings account balances at the end of 35 years?A) $12,093.38B) $12,113.33C) $12,127.04D) $12,211.12E) $12,219.4655) You just obtained a loan of $16,700 with monthly payments for four years at 6.35 percent interest, compounded monthly. What is the amount of each payment?A) $387.71B) $391.40C) $401.12D) $419.76E) $394.8956) You borrowed $185,000 for 30 years to buy a house. The interest rate is 4.35 percent, compounded monthly. If you pay all of your monthly payments as agreed, how much total interest will you pay on this mortgage? (Round the monthly payment to the nearest whole cent.)A) $150,408B) $147,027C) $146,542D) $154,319E) $141,40657) Travis International has a one-time expense of $1.13 million that must be paid two years from today. The firm can earn 4.3 percent, compounded monthly, on its savings. How much must the firm save each month to fund this expense if the firm starts investing equal amounts each month starting at the end of this month?A) $38,416.20B) $45,172.02C) $51,300.05D) $47,411.08E) $53,901.1558) Nadine is retiring today and has $96,000 in her retirement savings. She expects to earn 5.5 percent, compounded monthly. How much can she withdraw from her retirement savings each month if she plans to spend her last penny 18 years from now?A) $809.92B) $847.78C) $919.46D) $616.08E) $701.1059) Island News purchased a piece of property for $1.79 million. The firm paid a down payment of 20 percent in cash and financed the balance. The loan terms require monthly payments for 20 years at an APR of 4.75 percent, compounded monthly. What is the amount of each mortgage payment?A) $9,253.92B) $10,419.97C) $8,607.11D) $11,567.40E) $12,301.1660) You estimate that you will owe $40,200 in student loans by the time you graduate. If you want to have this debt paid in full within 10 years, how much must you pay each month if the interest rate is 4.35 percent, compounded monthly?A) $411.09B) $413.73C) $414.28D) $436.05E) $442.5061) Phil purchased a car today at a price of $8,500. He paid $300 down in cash and financed the balance for 36 months at 5.75 percent, compounded monthly. What is the amount of each monthly loan payment?A) $248.53B) $270.23C) $318.47D) $305.37E) $257.6262) An insurance annuity offers to pay you $1,000 per quarter for 20 years. If you want to earn arate of return of 6.5 percent, compounded quarterly, what is the most you are willing to pay as a lump sum today to obtain this annuity?A) $32,008.24B) $34,208.16C) $44,591.11D) $43,008.80E) $38,927.5963) Your car dealer is willing to lease you a new car for $190 a month for 36 months. Payments are due on the first day of each month starting with the day you sign the lease contract. If your cost of money is 6.5 percent, what is the current value of the lease?A) $10,331.03B) $6,232.80C) $9,197.74D) $7,203.14E) $11,008.3164) Your great aunt left you an inheritance in the form of a trust. The trust agreement states that you are to receive $2,500 on the first day of each year, starting immediately and continuing for 20 years. What is the value of this inheritance today if the applicable discount rate is 4.75 percent?A) $24,890.88B) $31,311.16C) $33,338.44D) $28,909.29E) $29,333.3365) Chris has three options for settling an insurance claim. Option A will provide $1,500 a month for 6 years. Option B will pay $1,025 a month for 10 years. Option C offers $85,000 as a lump sum payment today. The applicable discount rate is 6.8 percent, compounded monthly. Which option should Chris select, and why, if he is only concerned with the financial aspects of the offers?A) Option A: It provides the largest monthly payment.B) Option B: It pays the largest total amount.C) Option C: It is all paid today.D) Option B: It pays the greatest number of payments.E) Option B: It has the largest value today.66) Racing Motors wants to save $825,000 to buy some new equipment three years from now. The plan is to set aside an equal amount of money on the first day of each quarter starting today. How much does the company need to save each quarter to achieve its goal if it can earn 4.45 percent on its savings?A) $63,932.91B) $62,969.70C) $63,192.05D) $62,925.00E) $64,644.1767) Stephanie is going to contribute $160 on the first of each month, starting today, to her retirement account. Her employer will provide a match of 50 percent. In other words, her employer will add $80 to the amount Stephanie saves. If both Stephanie and her employer continue to do this and she can earn a monthly interest rate of .45 percent, how much will she have in her retirement account 35 years from now?A) $336,264.14B) $204,286.67C) $199,312.04D) $268,418.78E) $299,547.9768) An annuity that pays $12,500 a year at an annual interest rate of 5.45 percent costs $150,000 today. What is the length of the annuity time period?A) 25 yearsB) 18 yearsC) 15 yearsD) 20 yearsE) 22 years69) You want to be a millionaire when you retire in 30 years and expect to earn 8.5 percent, compounded monthly. How much more will you have to save each month if you wait 10 years to start saving versus if you start saving at the end of this month?A) $947.22B) $1,046.80C) $808.47D) $841.15E) $989.1070) You are the recipient of a gift that will pay you $25,000 one year from now and every year thereafter for the following 24 years. The payments will increase in value by 2.5 percent each year. If the appropriate discount rate is 8.5 percent, what is the present value of this gift?A) $416,667B) $316,172C) $409,613D) $311,406E) $386,10171) You are preparing to make monthly payments of $100, beginning at the end of this month, into an account that pays 5 percent interest, compounded monthly. How many payments will youhave made when your account balance reaches $10,000?A) 97.30B) 83.77C) 89.46D) 100.00E) 91.1272) You want to borrow $27,500 and can afford monthly payments of $650 for 48 months, but no more. Assume monthly compounding. What is the highest APR rate you can afford?A) 6.33 percentB) 6.67 percentC) 5.82 percentD) 7.01 percentE) 7.18 percent73) Today, you borrowed $3,200 on a credit card that charges an interest rate of 12.9 percent, compounded monthly. How long will it take you to pay off this debt assuming that you do not charge anything else and make regular monthly payments of $60?A) 6.87 yearsB) 6.28 yearsC) 6.64 yearsD) 7.23 yearsE) 7.31 years74) The Rodriquez family is determined to purchase a $250,000 home without incurring any debt. The family plans to save $2,500 a quarter for this purpose and expects to earn 6.65 percent, compounded quarterly. How long will it be until the family can purchase a home?A) 23.09 yearsB) 14.85 yearsC) 35.46 yearsD) 48.82 yearsE) 59.39 years75) Today, you are retiring. You have a total of $289,416 in your retirement savings. You want to withdraw $2,500 at the beginning of every month, starting today and expect to earn 4.6 percent, compounded monthly. How long will it be until you run out of money?A) 29.97 yearsB) 8.56 yearsC) 22.03 yearsD) 12.71 yearsE) 18.99 years。

公司理财精要版原书第12版习题库答案Ross12e_Chapter18_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter18_TB

Fundamentals of Corporate Finance, 12e (Ross)Chapter 18 Short-Term Finance and Planning1) Which one of the following actions represents a source of cash?A) Granting credit to a customerB) Purchasing new machineryC) Making a payment on a bank loanD) Purchasing inventoryE) Accepting credit from a supplier2) Which one of these actions represents a use of cash?A) Collecting a receivableB) Paying employee wagesC) Selling inventory for cashD) Obtaining a bank loanE) Purchasing inventory on credit3) Which one of these activities represents a source of cash?A) Increasing accounts receivableB) Decreasing inventoryC) Increasing fixed assetsD) Decreasing accounts payableE) Decreasing common stock4) Which one of the following actions will increase net working capital? Assume the current ratio is greater than 1.0.A) Paying a supplier for a previous purchaseB) Paying off a long-term debtC) Selling inventory at cost for cashD) Purchasing inventory on creditE) Selling inventory at a profit on credit5) Which one of the following will decrease net working capital? Assume the current ratio is greater than 1.0.A) Selling inventory at costB) Collecting payment from a customerC) Paying a dividend to shareholdersD) Selling a fixed asset for less than book valueE) Paying a supplier for prior purchases6) Which one of these actions will increase the operating cycle? Assume all else held constant.A) Decreasing the payables periodB) Decreasing the receivables turnover rateC) Increasing the payables periodD) Decreasing the average inventory levelE) Increasing the inventory turnover rate7) The operating cycle is equal to the:A) cash cycle plus the accounts receivable period.B) inventory period plus the accounts receivable period.C) inventory period plus the accounts payable period.D) accounts payable period minus the cash cycle.E) accounts payable period plus the accounts receivable period.8) Which one of the following will decrease the operating cycle?A) Decreasing the inventory turnover rateB) Decreasing the accounts payable periodC) Increasing the accounts receivable turnover rateD) Increasing the accounts payable periodE) Increasing the accounts receivable period9) The operating cycle describes how a product:A) is priced.B) is sold.C) moves through the current asset accounts.D) moves through the production process.E) generates a profit.10) Which one of these affects the length of the cash cycle but not the operating cycle?A) Inventory periodB) Accounts payable periodC) Both the accounts receivable and inventory periodsD) Accounts receivable periodE) Both the accounts receivable and the accounts payable periods11) Which one of these will decrease the cash cycle, all else held constant?A) Increasing the accounts receivable turnover rateB) Decreasing the accounts payable periodC) Increasing the inventory periodD) Decreasing the inventory turnover rateE) Increasing the accounts receivable period12) A decrease in which one of the following will increase the cash cycle, all else held constant?A) Payables turnoverB) Days sales in inventoryC) Operating cycleD) Inventory turnover rateE) Accounts receivable period13) Metal Designs historically produced products for inventory. Now, they only produce a product when an actual order is received from a customer. All else equal, this change will:A) increase the operating cycle.B) lengthen the accounts receivable period.C) shorten the accounts payable period.D) decrease the cash cycle.E) decrease the inventory turnover rate.14) Which one of these statements is correct? Assume all else held constant.A) A decrease in the accounts receivable turnover rate decreases the cash cycle.B) The cash cycle is equal to the operating cycle minus the inventory period.C) A negative cash cycle is preferable to a positive cash cycle.D) A decrease in the accounts payable period shortens the cash cycle.E) The cash cycle plus the accounts receivable period is equal to the operating cycle.15) Which one of the following statements is correct concerning the cash cycle?A) The longer the cash cycle, the more likely a company will need external financing.B) Increasing the accounts payable period increases the cash cycle.C) Accepting a supplier's discount for early payment decreases the cash cycle.D) The cash cycle can exceed the operating cycle if the payables period is equal to zero.E) Offering early payment discounts to customers will tend to increase the cash cycle.16) Which one of the following actions will tend to increase the inventory period?A) Discontinuing all slow-selling merchandiseB) Selling obsolete inventory below cost just to get rid of itC) Buying raw materials only as needed for the manufacturing processD) Producing goods on demand versus for inventoryE) Increasing inventory selection to attract more customers17) Which one of the following actions will tend to increase the accounts receivable period from its current 14 days?A) Tightening the standards for granting credit to customersB) Refusing to grant additional credit to any customer who pays lateC) Increasing the finance charges applied to all customer balances outstanding over 30 daysD) Granting discounts for cash salesE) Eliminating the discount for early payment by credit customers18) An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?A) Bad debtsB) Accounts receivable turnover rateC) Accounts receivable periodD) Credit salesE) Operating cycle19) Assume all else held constant. If you pay your suppliers three days sooner, then:A) your payables turnover rate will decrease.B) you may require additional funds from other sources to fund the cash cycle.C) the cash cycle will decrease.D) your operating cycle will decrease.E) the accounts receivable period will decrease.20) Which one of the following will increase the accounts payable period, all else held constant?A) A decrease in the inventory periodB) An increase in the ending accounts payable balanceC) An increase in the cash cycleD) A decrease in the operating cycleE) An increase in the accounts payable turnover rate21) Which one of the following managers determines which customers must pay cash and which can charge their purchases?A) Purchasing managerB) Credit managerC) ControllerD) Production managerE) Payables manager22) Which one of the following managers determines when a supplier will be paid?A) ControllerB) Payables managerC) Credit managerD) Purchasing managerE) Production manager23) The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:A) operating cycle.B) inventory period.C) accounts receivable period.D) accounts payable period.E) cash cycle.24) The length of time that elapses between the day at item of inventory is purchased and the day that item sells is called the:A) operating cycle.B) inventory period.C) accounts receivable period.D) accounts payable period.E) cash cycle.25) The length of time between the sale of inventory and the collection of the payment for that sale is called the:A) operating cycle.B) inventory period.C) accounts receivable period.D) accounts payable period.E) cash cycle.26) The length of time between the day an item is purchased from a supplier until the day that supplier is paid for that purchase is called the:A) operating cycle.B) inventory period.C) accounts receivable period.D) accounts payable period.E) cash cycle.27) Central Supply paid off an accounts payable for a toboggan it had purchased on credit three weeks ago. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:A) operating cycle.B) inventory period.C) accounts receivable period.D) accounts payable period.E) cash cycle.28) Costs that increase as a firm acquires additional current assets are called ________ costs.A) carryingB) shortageC) orderD) safetyE) trading29) Costs that decrease as a company acquires additional current assets are called ________ costs.A) carryingB) shortageC) debtD) equityE) payables30) A firm with a flexible short-term financial policy will:A) maintain a low balance in accounts receivables.B) only have minimal amounts, if any, invested in marketable securities.C) invest heavily in inventory.D) have low cash balances.E) have tight restrictions on granting credit to customers.31) Which one of these is indicative of a short-term restrictive financial policy?A) Purchasing inventory on an as-needed basisB) Granting credit to all customersC) Investing heavily in marketable securitiesD) Maintaining a large accounts receivable balanceE) Keeping inventory levels high32) If a company adheres to a restrictive short-term financial policy, then they will generally have:A) little, if any, investment in marketable securities.B) low inventory turnover rates.C) liberal credit terms for customers.D) few, if any, stockouts.E) high cash balances.33) The Lumber Mart recently replaced its management team. As a result, they are implementinga restrictive short-term financial policy in place of the flexible policy under which they had been operating. Which one of the following should the employees expect as a result of this policy change?A) Increasing monthly sales as compared to the prior yearB) Greater inventory selectionC) Fewer out-of-stock occurrencesD) Loss of credit customersE) More liberal credit terms34) A flexible short-term financial policy:A) increases the need for long-term financing.B) minimizes net working capital.C) avoids bad debts by only selling items for cash.D) maximizes fixed assets and minimizes current assets.E) is most appropriate when carrying costs are high and shortage costs are low.35) A flexible short-term financial policy:A) maximizes cashouts.B) increases shortage costs due to frequent cash-outs.C) tends to decrease sales as compared to a restrictive policy.D) incurs more carrying costs than a restrictive policy.E) requires only a minimum investment in current assets.36) Shortage costs are least associated with:A) stockouts and cashouts.B) lost customer goodwill.C) disruptions of production schedules.D) inventory ordering costs.E) opportunity costs incurred by high levels of working capital.37) The optimal investment in current assets for an active company occurs at the point where:A) both shortage costs and carrying costs equal zero.B) shortage costs are equal to zero.C) carrying costs are equal to zero.D) carrying costs exceed shortage costs.E) shortage costs and carrying costs are equal.38) A company:A) with a restrictive financing policy secures sufficient long-term financing to fund all its assets.B) with a flexible financing policy frequently invests in marketable securities.C) with a flexible financing policy tends to use short-term financing on an ongoing basis.D) will tend to avoid short-term financing under both restrictive and flexible financing policies.E) with seasonal sales must select flexible financing policies.39) Which one of the following statements is correct?A) Seasonal needs are financed with short-term loans when companies adhere to a flexible financing policy.B) A flexible financing policy tends to increase the risk of encountering financial distress.C) Long-term interest rates tend to be less volatile than short-term rates.D) Most companies tend to finance inventory with long-term debt.E) Short-term interest rates are generally higher than long-term rates.40) Which one of these best describes a characteristic of a flexible financing policy?A) All of a company's assets are financed with long-term debt.B) Only long-term assets are financed with long-term debt.C) Short-term financing will be used to finance seasonal peaks.D) Inventory is purchased with cash.E) Low levels of inventory are maintained.41) With a compromise financial policy companies will:A) borrow only long-term funds and refuse any loans that require compensating balances.B) borrow short-term funds and also invest in marketable securities.C) finance all of their assets with various short-term loans.D) finance their seasonal asset peaks with short-term debt and the remainder of their assets with equity.E) finance half of their fixed assets with long-term debt and half with short-term debt.42) Assume each month has 30 days and a company has a 30-day accounts receivable period. During the second calendar quarter of the year, that company will collect payment for the sales it made during which of the following months?A) February, March, and AprilB) April, May and JuneC) December, January, and FebruaryD) January, February, and MarchE) March, April, and May43) The Harvester collects 55 percent of sales in the month of sale, 40 percent of sales in the month following the month of sale, and 5 percent of sales in the second month following themonth of sale. During the month of April, they will collect:A) 55 percent of February sales.B) 5 percent of April sales.C) 40 percent of March sales.D) 5 percent of March sales.E) 40 percent of February sales.44) Timko has a 90-day collection period and produces seasonal merchandise. Sales are lowest during the first calendar quarter of a year and the highest during the third quarter. The company maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters. This company is most apt to face a cash-out situation in:A) the first quarter.B) the second quarter.C) the third quarter.D) the fourth quarter.E) any quarter with equal probabilities of occurrence.45) Summertime Adventures is a seasonal firm that enjoys its highest sales during July and August. The company purchases inventory one month before it is sold and pays for its purchases 60 days after the invoice date. Which one of the following statements is supported by this information?A) Inventory purchases will be highest during the months of July and August.B) Inventory purchases will be highest during the months of May and June.C) Payments to suppliers will be highest during the months of June and July.D) Payments to suppliers will be highest during the months of July and August.E) Payments to suppliers will be highest during the months of August and September.46) Which one of the following combinations is most apt to cause a company that is generally financially sound to have a negative net cash inflow for a particular quarter?A) Low fixed expenses and level monthly salesB) A one-time asset purchase and approaching high seasonal salesC) Highly seasonal sales and a flexible financing policyD) A flexible financing policy and level monthly salesE) A large cash sale and low fixed expenses47) Which one of the following statements is correct concerning a company's cash balance?A) Most firms attempt to maintain a zero cash balance at all times.B) The cumulative cash surplus shown on a cash budget is equal to the ending cash balance plus the minimum desired cash balance.C) On a cash balance report, the cumulative cash surplus at the end of May is used as June's beginning cash balance.D) A cumulative cash deficit indicates a borrowing need.E) The ending cash balance must equal the minimum desired cash balance.48) A cumulative cash deficit indicates a company:A) has at least a short-term need for external funding.B) is facing long-term financial distress.C) will go out of business within the year.D) is capable of funding all of its needs internally.E) is using its cash wisely.49) Steve has estimated the cash inflows and outflows for his hardware store for next year. The report that he has prepared recapping these cash flows is called a:A) pro forma income statement.B) sales projection.C) cash budget.D) receivables analysis.E) credit analysis.50) Taylor Supply has made an agreement with its bank that allows it to borrow up to $10,000 at any time over the next year. This arrangement is called a(n):A) floor loan.B) open loan.C) compensating balance.D) line of credit.E) bank note.51) Money deposited by a borrower with a bank in a low or non-interest-bearing account as a condition of a loan agreement is called a:A) compensating balance.B) secured credit deposit.C) letter of credit.D) line of cash.E) pledge.52) Brustle's Pottery either factors or assigns all of its receivables to other firms. This is known as:A) accounts receivable financing.B) pledged financing.C) capital funding.D) daily funding.E) capital financing.53) Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n):A) debenture.B) line of credit.C) banker's acceptance.D) working loan.E) inventory loan.54) The most common way to finance a temporary cash deficit is with a:A) long-term secured bank loan.B) short-term secured bank loan.C) short-term issue of corporate bonds.D) long-term unsecured bank loan.E) short-term unsecured bank loan.55) The primary difference between a line of credit and a revolving credit arrangement is the:A) type of collateral used to secure the loan.B) length of the credit period.C) fact that the line of credit is a secured loan and the revolving credit arrangement is unsecured.D) fact that the line of credit is an unsecured loan and the revolving credit arrangement is secured.E) loan's classification as either a committed or a non-committed loan.56) A compensating balance:A) is required when a company acquires any bank financing other than a line of credit.B) is often used by banks as a means of rewarding their best credit customers.C) decreases the cost of short-term bank financing.D) only applies to zero-interest rate loans.E) may be required even if a company never borrows funds.57) High Point Hotel (HPH) has $218,000 in accounts receivable. To finance a major purchase, the company assigns these receivables to Cross Town Bank. Which one of the following statements correctly describes this transaction?A) HPH will immediately receive $218,000 and will have no further obligation related to these receivables.B) HPH will receive some amount of cash immediately while maintaining full responsibility for any uncollected receivables.C) Cross Town Bank accepts full responsibility for the collection of the accounts receivables and, in exchange, immediately pays HPH a discounted value for its receivables.D) Cross Town Bank accepts full responsibility for collecting the accounts receivables and pays HPH a discounted price for the accounts collected after the normal collection period has elapsed.E) HPH receives the full amount of its receivables upon assignment but must reimburse Cross Town Bank for any uncollected account.58) Which one of the following statements is correct?A) The assignment of receivables involves selling accounts receivables at full price.B) Lines of credit frequently require a cleanup period.C) With maturity factoring, the borrower receives the loan amount immediately.D) Commercial paper is short-term financing offered to highly rated corporations by major banks.E) Credit card receivables funding is a relatively inexpensive method of borrowing on a short-term basis.59) Which type of arrangement is a hardware store most apt to use to finance its inventory?A) Accounts receivable assignmentB) Blanket inventory lienC) Trust receiptD) Commercial paperE) Field warehouse financing60) An orange grower is most apt to use which type of financing for its crop?A) Accounts receivable assignmentB) Blanket inventory lienC) Trust receiptD) Commercial paperE) Field warehouse financing61) All of the following are benefits derived from short-term financial planning with the exception of:A) having advance notice of when your firm should require external financing.B) knowing for certain what your cash balance will be six months in advance.C) knowing if excess funds should be available for investing.D) being able to determine the approximate extent of time for which a loan is required.E) having the ability to time capital expenditures in order to place the least financial burden possible on a firm.62) Auto Detailers has a book net worth of $29,700. Long-term debt is $4,800. Net working capital, other than cash, is $3,700 and fixed assets are $27,400. How much cash does the company have?A) $3,900B) $4,800C) $4,300D) $3,400E) $3,70063) New Products has sales of $749,500 and cost of goods sold of $368,600. Beginning inventory is $54,700 and ending inventory is $58,200. What is the length of the inventory period?A) 15.01 daysB) 17.89 daysC) 55.90 daysD) 90.53 daysE) 113.67 days64) Mid-Western Markets has sales of $1,389,400 and costs of goods sold of $892,700. Beginning inventory is $94,300 and ending inventory is $110,200. What is the inventory turnover rate?A) 8.73 timesB) 10.78 timesC) 13.59 timesD) 11.37 timesE) 12.64 times65) North Side Wholesalers has sales of $1,648,900. The cost of goods sold is equal to 71 percent of sales and the average inventory is $75,800. How many days on average does it take to sell the inventory?A) 28.30 daysB) 23.63 daysC) 20.48 daysD) 33.28 daysE) 21.68 days66) The Bear Rug has sales of $647,000. The cost of goods sold is equal to 66 percent of sales. Accounts receivable has a beginning balance of $53,400 and an ending balance of $49,600. How long on average does it take to collect the receivables?A) 12.56 daysB) 29.05 daysC) 18.58 daysD) 20.44 daysE) 19.17 days67) Morning Star has credit sales of $1,032,800, costs of goods sold of $662,350, average accounts receivable of $86,300, and average accounts payable of $92,600. On average, how long does it take Morning Star's credit customers to pay for their purchases?A) 11.97 daysB) 39.24 daysC) 30.50 daysD) 21.88 daysE) 19.56 days68) The Mountain Top Shoppe has sales of $828,000, average accounts receivable of $64,100 and average accounts payable of $72,700. The cost of goods sold is equivalent to 68 percent of sales. How long does it take The Mountain Top Shoppe to pay its suppliers?A) 69.31 daysB) 68.38 daysC) 47.13 daysD) 35.89 daysE) 36.97 days69) HG Livery Supply has a beginning accounts payable balance of $68,800 and an ending accounts payable balance of $72,700. Sales for the period were $942,800 and costs of goods sold were $534,200. What is the payables turnover rate?A) 7.55 timesB) 8.39 timesC) 7.02 timesD) 13.33 timesE) 12.85 times70) Bradley's has an inventory turnover rate of 7.6, a payables turnover rate of 11.4, and a receivables turnover rate of 12.6. How long is the operating cycle?A) 20.20 daysB) 76.99 daysC) 70.63 daysD) 30.13 daysE) 24.11 days71) Meryl Enterprises currently has an operating cycle of 76.4 days. The company is implementing some operational changes that are expected to increase the accounts receivable period by 2.2 days, decrease the inventory period by 5.3 days, and increase the accounts payable period by 1.5 days. What is the new operating cycle expected to be?A) 78.0 daysB) 74.8 daysC) 73.3 daysD) 79.5 daysE) 71.8 days72) On average, Furniture & More is able to sell its inventory in 54.2 days and takes 65.3 days on average to pay for its purchases. Its average customer pays with a credit card which allows the company to collect its receivables in 2.9 days. Given this information, what is the length of operating cycle?A) 57.1 daysB) 88.3 daysC) −8.2 daysD) 116.6 daysE) 122.4 days73) Interior Designs has an inventory period of 84.6 days, an accounts payable period of 43.2 days, and an accounts receivable period of 41.7 days. Management is considering an offer from their suppliers to pay within 10 days and receive a discount of 2 percent. If the new discount is taken, the accounts payable period is expected to decline by 30.4 days. What will be the new operating cycle given the change in the payables period?A) 95.9 daysB) 115.0 daysC) 97.4 daysD) 126.3 daysE) 139.1 days74) Metal Products Co. has an inventory period of 94.2 days, an accounts payable period of 40.4 days, and an accounts receivable turnover rate of 17.6. What is the length of the cash cycle?A) 71.40 daysB) 74.54 daysC) 96.28 daysD) 114.94 daysE) 108.28 days75) West Chester Automation has an inventory turnover of 9.1 and an accounts payable turnover of 10.6. The accounts receivable period is 32.8 days. What is the length of the cash cycle?A) 35.67 daysB) 38.48 daysC) 41.02 daysD) 46.47 daysE) 48.81 days76) Peterson's Antiquities currently has a 32.6-day cash cycle. Assume the company changes its operations such that it decreases its receivables period by 3.1 days, increases its inventory period by 1.8 days, and increases its payables period by 2.2 days. What will the length of the cash cycle be after these changes?A) 33.5 daysB) 36.1 daysC) 30.2 daysD) 29.1 daysE) 27.6 days77) Rossiter's currently has a cash cycle of 43.4 days. Assume the operations are changed such that the receivables period decreases by 2.6 days, the inventory period by increases by 1.3 days, and the payables period increases by 3.4 days. What will be the length of the cash cycle after these changes?A) 39.2 daysB) 45.5 daysC) 38.7 daysD) 41.3 daysE) 48.1 days78) AC Corporation has beginning inventory of $11,062, accounts payable of $8,010, and accounts receivable of $7,844. The end of year values are $11,362 for inventory, $7,898 foraccounts payable, and $8,029 for accounts receivable. Net sales are $109,100 and costs of goods sold are $56,220. How many days are in the cash cycle?A) 47.7 daysB) 80.2 daysC) 55.8 daysD) 97.9 daysE) 67.8 days79) Wake-Up Coffee has projected next year's quarterly sales at $960, $890, $980, and $1,050 for Quarters 1 to 4, respectively. Accounts receivable at the beginning of the year are $212 and the collection period is 18 days. What is the amount of the accounts receivable balance at the end of Quarter 2? Assume a year has 360 days.A) $212B) $207C) $178D) $184E) $16780) Tall Guys Clothing has a 30-day collection period. Sales for the next calendar year are estimated at $1,950, $2,100, $2,650 and $3,200, respectively, by quarter, starting with the first quarter of the year. Given this information, which one of the following statements is correct? Assume a year has 360 days.A) The Quarter 2 collections will be $2,000.B) The accounts receivable balance at the beginning of Quarter 4 will be $940.C) The Quarter 3 collections will be $2,375.D) The end of Quarter 4 accounts receivable balance will be $2,133.E) The Quarter 4 collections will be $3,017.81) Plant Mart has a beginning receivables balance on February 1 of $1,648. Sales for February through May are $2,670, $2,940, $3,820, and $4,450, respectively. The accounts receivable period is 15 days. What is the amount of the April collections? Assume a year has 360 days.A) $3,010B) $3,380C) $2,805D) $3,545E) $3,470。

公司理财精要版原书第12版习题库答案Ross12e_Chapter05_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter05_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter05_TBFundamentals of Corporate Finance, 12e (Ross)Chapter 5 Introduction to Valuation: The Time Value of Money1) Andy deposited $3,000 this morning into an account that pays 5 percent interest, compounded annually. Barb also deposited $3,000 this morning at 5 percent interest, compounded annually. Andy will withdraw his interest earnings and spend it as soon as possible. Barb will reinvest her interest earnings into her account. Given this, which one of the following statements is true?A) Barb will earn more interest in Year 1 than Andy will.B) Andy will earn more interest in Year 3 than Barb will.C) Barb will earn more interest in Year 2 than Andy.D) After five years, Andy and Barb will both have earned the same amount of interest.E) Andy will earn compound interest.2) Nan and Neal are twins. Nan invests $5,000 at 7 percent at age 25. Neal invests $5,000 at 7 percent at age 30. Both investments compound interest annually. Both twins retire at age 60 and neither adds nor withdraws funds prior to retirement. Which statement is correct?A) Nan will have less money when she retires than Neal.B) Neal will earn more interest on interest than Nan.C) Neal will earn more compound interest than Nan.D) If both Nan and Neal wait to age 70 to retire they will have equal amounts of savings.E) Nan will have more money than Neal at any age.3) You are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now?A) Future valueB) Present valueC) Principal amountD) Discounted valueE) Invested principal4) Christina invested $3,000 five years ago and earns 2 percent annual interest. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as:A) simplifying.B) compounding.C) aggregating.D) accumulating.E) discounting.A) free interest.B) bonus income.C) simple interest.D) interest on interest.E) present value interest.6) The interest earned on both the initial principal and the interest reinvested from prior periods is called:A) free interest.B) dual interest.C) simple interest.D) interest on interest.E) compound interest.7) Renee invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning?A) Free interestB) Complex interestC) Simple interestD) Interest on interestE) Compound interest8) Kurt won a lottery and will receive $1,000 a year for the next 50 years. The current value of these winnings is called the:A) single amount.B) future value.C) present value.D) simple amount.E) compounded value.9) Terry is calculating the present value of a bonus he will receive next year. The process he is using is called:A) growth analysis.B) discounting.C) accumulating.D) compounding.E) reducing.10) Steve just computed the present value of a $10,000 bonus he will receive next year. The interest rate he used in his computation is referred to as the:A) current yield.B) effective rate.C) compound rate.E) discount rate.11) The process of determining the present value of future cash flows in order to know their value today is referred to as:A) compound interest valuation.B) interest on interest valuation.C) discounted cash flow valuation.D) future value interest factoring.E) complex factoring.12) Sam just opened a savings account paying 3.5 percent interest, compounded annually. After four years, the savings account will be worth $5,000. Assume there are no additional deposits or withdrawals. Given this, Sam:A) will earn the same amount of interest each year for four years.B) will earn simple interest on his savings every year for four years.C) could have deposited less money today and still had $5,000 in four years if the account paid a higher rate of interest.D) has an account currently valued at $5,000.E) could earn more interest on this account if the interest earnings were withdrawn annually.13) This afternoon, you deposited $1,000 into a retirement savings account. The account will compound interest at 6 percent annually. You will not withdraw any principal or interest until you retire in 40 years. Which one of the following statements is correct?A) The interest you earn in Year 6 will equal the interest you earn in Year 10.B) The interest amount you earn will double in value every year.C) The total amount of interest you will earn will equal $1,000 × .06 × 40.D) The present value of this investment is equal to $1,000.E) The future value of this amount is equal to $1,000 × (1 + 40).06.14) Your grandmother has promised to give you $10,000 when you graduate from college. If you speed up your graduation by one year and graduate two years from now rather than the expected three years, the present value of this gift will:A) remain constant.B) increase.C) decrease.D) equal $10,000.E) be less than $10,000.15) Chang Lee is going to receive $20,000 six years from now. Soo Lee is going to receive $20,000 nine years from now. Which one of the following statements is correct if both individuals apply a discount rate of 7 percent?A) The present values of Chang Lee's and Soo Lee's money are equal.B) In future dollars, Soo Lee's money is worth more than Chang Lee's money.C) In today's dollars, Chang Lee's money is worth more than Soo Lee's.D) Twenty years from now, the value of Chang Lee's money will equal the value of Soo Lee's money.E) Soo Lee's money is worth more than Chang Lee's money given the 7 percent discount rate.A) Present valueB) Future valueC) Interest rateD) Number of time periodsE) There is no exponent in the present value formula.17) Your goal is to have $1 million in your retirement savings on the day you retire. To fund this goal, you will make one lump sum deposit today. If you plan to retire ________ rather than________ and earn a ________ rate of interest, then you can deposit a smaller lump sum today.A) sooner; later; lowB) sooner; later; highC) later; sooner; highD) later; sooner; lowE) today; later; high18) Which one of the following will produce the lowest present value interest factor?A) 6 percent interest for 5 yearsB) 6 percent interest for 8 yearsC) 6 percent interest for 10 yearsD) 8 percent interest for 5 yearsE) 8 percent interest for 10 years19) Which one of these will increase the present value of a set amount to be received sometime in the future?A) Increase in the time until the amount is receivedB) Increase in the discount rateC) Decrease in the future valueD) Decrease in the interest rateE) Decrease in both the future value and the number of time periods20) What is the relationship between the present value and future value interest factors?A) The present value and future value factors are equal to each other.B) The present value factor is the exponent of the future value factor.C) The future value factor is the exponent of the present value factor.D) The factors are reciprocals of each other.E) There is no relationship between these two factors.21) Phillippe invested $1,000 ten years ago and expected to have $1,800 today He has neither added nor withdrawn any money since his initial investment. All interest was reinvested and compounded annually. As it turns out, he only has $1,680 in his account today. Which one of the following must be true?A) He earned simple interest rather than compound interest.D) He ignored the Rule of 72 which caused his account to decrease in value.E) The future value interest factor turned out to be higher than he expected.22) Al invested $3,630 in an account that pays 6 percent simple interest. How much money will he have at the end of five years?A) $4,910B) $5,056C) $4,719D) $4,678E) $5,29923) Alex invested $2,550 in an account that pays 5 percent simple interest. How much money will he have at the end of four years?A) $2,650.00B) $3,100.26C) $3,060.00D) $3,250.00E) $3,099.5424) Marti's coin collection contains fifty 1948 silver dollars. Her grandparents purchased them at their face value in 1948. These coins have appreciated by 7.6 percent annually. How much will the collection be worth in 2025?A) $13,611.18B) $18,987.56C) $14,122.01D) $11,218.27E) $14,077.1625) You invested $6,500 at 6 percent simple interest. How much more could you have earned over a 10-year period if the interest had compounded annually?A) $1,049.22B) $930.11C) $1,182.19D) $1,201.15E) $1,240.5126) Travis invested $8,000 in an account that pays 4 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually?A) $291.41B) $287.45C) $302.16D) $266.6727) What is the future value of $11,600 invested for 17 years at 7.25 percent compounded annually?A) $32,483.60B) $27,890.87C) $38,991.07D) $41,009.13E) $38,125.2028) Today, you earn a salary of $31,000. What will be your annual salary ten years from now if you receive annual raises of2.2 percent?A) $38,536.36B) $37,414.06C) $38,235.24D) $37,122.08E) $36,736.0029) You own a classic car currently valued at $64,000. If the value increases by 2.5 percent annually, how much will the car be worth 15 years from now?A) $94,035.00B) $86,008.17C) $80,013.38D) $92,691.08E) $91,480.1830) You hope to buy your dream car five years from now. Today, that car costs $62,500. You expect the price to increase by an average of 2.9 percent per year. How much will your dream car cost by the time you are ready to buy it?A) $73,340.00B) $68,666.67C) $72,103.59D) $66,818.02E) $69,023.1631) This morning, DJ's invested $225,000 to help fund future projects. How much additional money will the firm have three years from now if it can earn an annual interest rate of 4 percent rather than 3.5 percent?A) $3,391.90B) $3,632.88C) $3,008.17D) $4,219.68E) $3,711.0832) You just invested $49,000 that you received as an insurance settlement. How much more will this account be worth in 40 years if you earn an average return of 7.6 percent rather than just 7.1 percent?C) $140,423.33D) $155,986.70E) $138,342.9133) You have a savings account valued at $1,500 today that earns an annual interest rate of 8.7 percent. How much more would this account be worth if you wait to spend the entire balance in25 years rather than in 20 years?A) $6,306.16B) $4,658.77C) $3,311.18D) $6,907.17E) $4,117.6434) You will receive $15,000 in two years when you graduate. You plan to invest this at an annual interest rate of 6.5 percent. How much money will you have 8 years from now?A) $24,824.94B) $19,381.16C) $21,887.13D) $23,209.19E) $20,414.7335) You just received a $5,000 gift from your grandmother which you have decided to save and then gift to your grandchildren 50 years from now. How much additional money will you gift if you earn 7.5 percent interest rather than 7 percent interest over the next 50 years?A) $39,318.09B) $39,464.79C) $38,211.16D) $37,811.99E) $38,663.6036) You are depositing $4,500 today at an annual interest rate of 7.2 percent. How much additional interest will you earn if you leave the money invested for 45 years instead of 40 years?A) $25,723.08B) $30,185.14C) $22,441.56D) $6,370.69E) $11,590.9337) Today, you have two coins each of which is valued at $100. One coin is expected to appreciate by 5.2 percent annually while the other coin should appreciate by 5.7 percent annually. What will be the difference in the value of the two coins 50 years from now?C) $191.79D) $128.32E) $380.1538) Your father invested a lump sum 28 years ago at 4.05 percent annual interest. Today, he gave you the proceeds of that investment, totalling $48,613.24. How much did your father originally invest?A) $14,929.47B) $16,500.00C) $15,994.70D) $15,500.00E) $16,099.4539) Suppose the first comic book of a classic series was sold in 1954. In 2017, the estimated price for this comic book was $310,000, which is an annual return of 22 percent. For this to be true, what was the original price of the comic book in 1954?A) $1.00B) $.97C) $1.33D) $1.12E) $1.2040) Twenty years from now, you want to spend $175,000 for a fancy car. How much must you deposit as a lump sum today to achieve this goal at an annual interest rate of 6.6 percent?A) $54,208.16B) $48,740.95C) $57,911.08D) $40,019.82E) $51,446.6041) What is the present value of $45,000 to be received 50 years from today if the discount rate is 8 percent?A) $959.46B) $1,147.07C) $841.41D) $1,106.18E) $1,291.0642) You would like to give your child $100,000 to start a career 25 years from now. How much money must you set aside today for this purpose if you can earn 7.5 percent on your investments?A) $15,388.19B) $16,397.91C) $16,817.6743) You want to have $30,000 saved 5 years from now to buy a house. How much less do you have to deposit today to reach this goal if you can earn 3.5 percent rather than 2.5 percent on your savings? Today's deposit is the only deposit you will make to this savings account.A) $1,256.43B) $891.18C) $1,124.60D) $945.11E) $1,219.0244) Your older sister deposited $2,500 today at 6.5 percent interest for 15 years. However, you can only earn 6.25 percent interest. How much more money must you deposit today than your sister did if you are to have the same amount saved at the end of the 15 years?A) $92.19B) $89.70C) $88.78D) $90.21E) $93.3945) Duane and Thad plan on retiring 27 years from today and plan to have the same amount saved at that time. In preparation for this, Duane is depositing $15,000 today at an annual interest rate of 5.2 percent. How will Thad's deposit amount vary from Duane's if Thad also makes a deposit today but earns an annual interest rate of 6.2 percent?A) $4,118.42 moreB) $4,333.33 lessC) $3,417.09 moreD) $4,274.12 lessE) $3,381.39 less46) When you retire 45 years from now, you want to have $1.25 million saved. You think you can earn an average of 7.6 percent on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum five years from today to fund this goal. How much more will you have to deposit if you wait for five years before making the deposit?A) $17,414.14B) $21,319.47C) $19,891.11D) $20,468.85E) $13,406.7847) Theo wants to have $40,000 for a down payment on a house five years from now. He can either deposit one lump sum today or he can wait one year and deposit a lump sum. Assume an annual interest rate of 3.5 percent. How much additional money must he deposit if he waits for one year rather than making the deposit today?A) $1,001.98B) $986.13E) $1,020.1848) Friendly Companies has an unfunded pension liability of $327 million that must be paid in16 years. What is the present value of this liability at a discount rate of 6.24 percent?A) $129,803,162.22B) $111,438,907.11C) $124,147,723.50D) $134,519,484.14E) $121,511,366.6749) You have just received notification that you have won the $1.25 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday, 79 years from now. The appropriate discount rate is 6.4 percent. What is the present value of your winnings?A) $11,288.16B) $9,300.82C) $10,309.91D) $8,333.33E) $10,500.0050) One year ago, you invested $1,750. Today it is worth $1,815.48. What rate of interest did you earn?A) 3.59 percentB) 4.33 percentC) 3.88 percentD) 3.74 percentE) 4.01 percent51) According to the Rule of 72, you can do which one of the following?A) Approximately double your money in five years at 7.24 percent interestB) Double your money in 7.2 years at 8 percent interestC) Approximately double your money in 11 years at 6.55 percent interestD) Triple your money in 7.2 years at 7.2 percent interestE) Approximately triple your money in 7.2 years at 10 percent interest52) Sixty years ago, your mother invested $4,500. Today, that investment is worth $430,065.11. What is the average annual rate of return she earned on this investment?A) 6.67 percentB) 11.71 percentC) 7.90 percentD) 10.40 percent$800. Assume each account continues to earn its respective rate of return. Which one of the following statements is correct concerning these investments?A) Three years from today, Trek's investment will be worth more than Saul's.B) One year ago, Saul's investment was worth less than Trek's investment.C) Trek earns a higher rate of return than Saul.D) Trek has earned an average annual interest rate of 9.86 percent.E) Saul has earned an average annual interest rate of 12.64 percent.54) Towne Station is saving money to build a new loading platform. Three years ago, they set aside $23,000 for this purpose. Today, that account is worth $31,406. What rate of interest is Towne Station earning on this investment?A) 8.39 percentB) 9.47 percentC) 10.94 percentD) 8.23 percentE) 9.01 percent55) Ten years ago, Jackson Supply set aside $125,000 in case of a financial emergency. Today, that account has increased in value to $278,592. What rate of interest is the firm earning on this money?A) 8.80 percentB) 8.34 percentC) 7.75 percentD) 8.01 percentE) 7.87 percent56) Twelve years ago, your parents set aside $8,000 to help fund your college education. Today, that fund is valued at $23,902. What rate of interest is being earned on this account?A) 8.99 percentB) 9.42 percentC) 9.67 percentD) 9.55 percentE) 9.06 percent57) Some time ago, Tracie purchased two acres of land costing $67,900. Today, that land is valued at $64,800. How long has she owned this land if the price of the land has been decreasing by 1.5 percent per year?A) 3.33 yearsB) 2.48 yearsC) 3.09 yearsD) 2.97 yearsE) 2.08 years58) On your tenth birthday, you received $300 which you invested at 4.5 percent interest, compounded annually. Your investment is now worth $756. How old are you today?A) Age 20B) Age 31C) Age 30D) Age 23E) Age 2159) Assume the total cost of a college education will be $245,000 when your child enters college in 15 years. You presently have $108,000 to invest for this purpose. What rate of interest must you earn to cover the cost of your child's college education?A) 5.79 percentB) 5.50 percentC) 5.61 percentD) 6.25 percentE) 6.81 percent60) At 5 percent interest, how long would it take to triple your money?A) 26.55 yearsB) 25.64 yearsC) 24.87 yearsD) 22.52 yearsE) 20.01 years61) Assume the average vehicle selling price in the United States last year was $36,420. The average price five years earlier was $31,208. What was the annual increase in the selling price over this time period?A) 1.67 percentB) 3.14 percentC) 2.56 percentD) 3.01 percentE) 2.89 percent62) You're trying to save to buy a new $68,000 sports car. Currently, you have saved $36,840 which is invested at 4.9 percent annual interest. How many years will it be before you purchase the car, assuming the price of the car remains constant?A) 9.67 yearsB) 17.18 yearsC) 12.81 yearsD) 16.91 yearsE) 10.84 years63) In 1903, the winner of a competition was paid $50. In 2017, the winner's prize was $235,000. What will the winner's prize be in 2040 if the prize continues increasing at the same rate? (Do not round intermediate calculations. Round your answer to the nearest $500.)A) $1,080,000B) $1,176,500C) $1,250,000D) $1,294,000E) $1,188,50064) You will receive $4,000 at graduation 3 years from now. You plan on investing this money at 5 percent annual interest until you have accumulated $50,000. How many years from today will it be when this occurs?A) 51.42 yearsB) 49.08 yearsC) 54.77 yearsD) 48.42 yearsE) 51.77 years。

公司理财精要版原书第12版习题库答案Ross12e_Chapter17_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter17_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter17_TBFundamentals of Corporate Finance, 12e (Ross)Chapter 17 Dividends and Payout Policy1) Which one of the following statements related to cash dividends is correct?A) Extra cash dividends cannot be repeated in the future.B) A dividend is never a liability of the issuer until it has been declared.C) If a firm has paid regular quarterly dividends for at least five consecutive years, it is legally obligated to continue doing so.D) Regular cash dividends reduce paid-in capital.E) The dividend yield expresses the annual dividend as a percentage of net income.2) United Foods declared a dividend of $.62 a share on Thursday, October 16. The dividend will be paid on Monday, November 10, to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date?A) Tuesday, October 28B) Wednesday, October 29C) Thursday, October 30D) Wednesday, November 5E) Thursday, November 63) Bailey's decided on Friday, March 7, to pay a dividend of $.28 a share on Monday, April 7. The ex-dividend date is Tuesday, March 18. What is the date of record?A) Friday, March 7B) Monday, March 17C) Friday, March 14D) Thursday, March 20E) Friday, March 214) The last date on which you can purchase shares of stock and still receive the next dividend is the date that is ________ business day(s) prior to the date of record.A) oneB) twoC) threeD) fourE) five5) Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7. Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8. Fast Deliveries declared a dividend on June 20 to shareholders of record on July 12 and payable on August 1. Which one of the following statements concerning the dividend paid on August 1 is correct given this information?A) Neither Kate nor Ted is entitled to the dividend.B) Kate is entitled to the dividend but Ted is not.C) Ted is entitled to the dividend but Kate is not.D) Both Ted and Kate are entitled to the dividend.E) Both Ted and Kate are entitled to one-half of the dividend amount.6) All else equal, the market value of a stock will tend to decrease by roughly the aftertax value of the dividend on the:A) dividend declaration date.B) ex-dividend date.C) date of record.D) date of payment.E) day after the date of payment.7) Green Roof Motels has more cash on hand than itsoperations require. Thus, it has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called?A) DividendsB) Stock paymentsC) RepurchasesD) Payments-in-kindE) Stock splits8) Frozen Foods just paid out $3.62 a share to its shareholders. The cash for these payments came from a large sale of assets, not from any earnings of the firm. What are these payments to shareholders called?A) DividendsB) DistributionsC) RepurchasesD) Payments-in-kindE) Stock splits9) A $.45 quarterly cash payment paid by Jones & Co. to its shareholders in the normal course of business becomes a liability of the company on the:A) day prior to the ex-dividend date.B) date-of-record.C) declaration date.D) payment date.E) ex-dividend date.10) The board of directors of Wilson Sporting Equipment met this afternoon and passed a resolution to pay a cash dividend of $.42 a share next month. In relation to this dividend, today is referred to as which one of the following dates?A) Decision dateB) Date-of-recordC) Declaration dateD) Payment dateE) Ex-dividend date11) The ex-dividend date is defined as ________ business day(s) prior to the date of recordA) 1B) 2C) 3D) 5E) 1012) Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?A) Ex-rights dateB) Ex-dividend dateC) Date of recordD) Date of paymentE) Declaration date13) Which type of dividend is considered to be a one-time event that will not be repeated?A) Stock dividendB) Extra cash dividendC) Partial liquidating dividendD) Special dividendE) Regular cash dividend14) Which one of the following refers to the ability of shareholders to undo a company's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock?A) Perfect foresight modelB) PersonalizationC) RecapitalizationD) Offsetting leverageE) Homemade dividend15) Which one of the following statements related to dividend policy is correct?A) The primary question related to dividend policy is whether or not a dividend should ever be paid.B) Both dividends and dividend policy are irrelevant.C) Dividend policy focuses on the timing of dividend payments.D) Homemade dividends increase the importance of a company's dividend policy decisions.E) Whether or not a company ever pays a dividend is irrelevant to equity valuation.16) Automatic dividend reinvestment plans:A) require that participating stockholders reinvest all of the dividends to which they are entitled.B) grant all participants a discount on share purchases.C) increase the relevance of corporate dividend policies.D) help shareholders create their own homemade dividend policies.E) are no longer available in the U.S.17) Which one of the following tends to decrease the ability of a shareholder to create his or her own homemade dividend policy?A) Low taxes on capital gainsB) Large holdings of sharesC) Dividend reinvestment plansD) Low-cost equity purchasesE) High transaction fees18) Which one of the following favors a low dividend policy?A) The tax on capital gains is deferred until the gain is realized.B) Few, if any, positive net present value projects are available to a firm.C) A majority of the shareholders have a low tax rate.D) A majority of the shareholders have better investment opportunities than the firm.E) The presence of an agency conflict with the company's senior managers.19) The fact that flotation costs can be significant is an argument for:A) issuing larger regular dividends than the industry norm.B) maintaining a constant dividend policy even if the firm frequently has to issue new shares.C) periodic extra dividend payments.D) maintaining a constant dividend policy even when profits decline significantly.E) maintaining a low dividend policy and rarely issuing extra dividends.20) As of 2018, the maximum tax rate any individual would pay on dividend income is:A) 10 percent.B) 5 percent.C) 20 percent.D) 25 percent.E) 21 percent.21) Which one of the following factors tends to increase cash dividends?A) Capital gains tax defermentB) Terms contained in bond indenturesC) Corporate investorsD) Flotation costsE) Homemade dividends22) An investor is more likely to prefer a high dividend payout if that investor:A) has a high marginal tax rate on dividends.B) is a corporation.C) pays a higher tax rate than the dividend payer.D) does not require additional cash flows.E) pays taxes on dividends but not on capital gains.23) The information content of a dividend increase generally signals that:A) the payer has a one-time surplus of cash.B) the payer has few, if any, net present value projects to pursue.C) management believes earnings growth will be strong going forward.D) the payer has more cash than it needs due to a decline in future orders.E) dividends thereafter will be lower.24) Moffatt Construction has paid a quarterly dividend of $1.25 per share for the last three years. Which one of the following is most apt to cause the company to reduce the amount of its next dividend payment?A) Decrease in the next quarter's revenueB) Decrease in the next quarter's net incomeC) Loss of a major customer which lowers the overall company's outlook for the next few yearsD) Major lump sum cash outflow next month to start a new projectE) Increase in the number of new projects under consideration as compared to prior years25) The dividend market is in equilibrium when:A) all companies adopt a low dividend policy.B) half of the companies adopt a low dividend policy and half adopt a high dividend policy.C) all clienteles are satisfied.D) dividends remain constant and no special dividends are declared.E) the total amount of the annual dividends is equal to the net income for the year.26) What is the information content effect?A) Any type of new information that causes a company to cease paying dividendsB) Any news announcement that was anticipated and thus produces no reaction from investorsC) The primary contributing data that helps directors determine the amount of a particular dividend paymentD) Any type of reaction from a shareholder in response to a news announcement related to the stock issuerE) The financial market's reaction to a change in the amount of a company's dividend27) The common stock of Dayton Dry Goods has historically had a low dividend yield that is expected to continue. As a result, the majority of its shareholders are individuals who prefer capital gains over cash dividends for tax reasons. The fact that most of these shareholders have similar characteristics is referred to as the ________ effect.A) information contentB) clienteleC) investorD) distributionE) market reaction28) HJ Corporation has excess cash and has opted to buy some of its outstanding shares. What is this process of buying called?A) Stock dividendB) Stock splitC) Stock repurchaseD) Reverse stock splitE) Stock repeal29) Which one of the following statements related to stock repurchases is correct?A) An open market stock repurchase increases the total wealth of a shareholder if you ignore taxes, costs, and market imperfections.B) Targeted repurchases must be offered to all shareholders but can be done in steps such that only a portion of the shareholders have the option to sell at any one point in time.C) When a company wishes to repurchase shares in the open market, it will do so in a special trading session that is set up by the SEC.D) A company may spend more cash over the course of a year on stock repurchases than it does on cash dividends.E) Tender offer prices must be set equal to the opening market price on the day the tender offer is announced.30) Which one of the following statements related to stock repurchases is correct?A) U.S. industrial firms have increased their stock repurchases every year for each of the past 20 years.B) The tax law change in May 2003 led to a huge increase in stock repurchases and a reduction in dividend payments.C) A tender offer indicates that a company is willing and able to purchase as many shares as shareholders wish to sell.D) All stock repurchases must be identified as such to the selling party.E) Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders.31) A stock repurchase program:A) requires all shareholders to sell a fraction of their shares.B) is preferred over a high-dividend program only by tax-exempt shareholders.C) decreases both the number of shares outstanding and the market price per share.D) has no effect on a company's financial statements.E) is essentially the same as a cash dividend program provided there are no taxes or other costs.32) Which one of the following is a result of a stock repurchase?A) Increase in the number of shares outstandingB) Increase in the market price per shareC) Increase in the total equity of the repurchasing firmD) Decrease in EPSE) PE ratio equal to that resulting from a comparable cash dividend33) If you ignore taxes and costs, a stock repurchase will:A) increase the total assets of the firm.B) increase the earnings per share.C) increase the total equity of the firm.D) reduce the PE ratio more than an equivalent stock dividend.E) not affect the company's total assets.34) Aaron owns 1,600 shares of LP Gas stock which he purchased six years ago at a price of $18a share. Today, these shares are selling for $26 each. Assume a tax rate of 20 percent applies to both dividend income and capital gains received by individuals. Ignore costs. Given this hypothetical assumption, from Aaron's point of view a stock repurchase today would:A) be equivalent to a cash dividend.B) be more desirable than a cash dividend in respect to taxes.C) result in the same tax liability as an equivalent cash dividend.D) be more highly taxed than a cash dividend.E) be totally unacceptable to him.35) Which one of the following statements is correct?A) A reduction in personal tax rates tends to lead to lower dividends.B) Dividends tend to fluctuate significantly from quarter to quarter.C) Earnings growth tends to lag dividend growth.D) Dividend payments are highly concentrated in a relatively small set of large companies.E) Non-dividend-paying companies are generally more apt to commence paying regular dividends than to implement a stock repurchase program.36) Which one of the following statements appears to be supported by the current dividend policies of U.S. industrial firms?A) Companies tend to increase the dividend amount per share, even when it's unclear if the increase can be maintained.B) Investors no longer react to changes, either up or down, in dividends.C) Newer, high-growth firms tend to pay larger dividends than mature firms.D) Dividends are still viewed by shareholders as a signal of a company's future outlook.E) Managers are no longer hesitant to lower dividend payments.37) Which one of the following statements is correct?A) Companies prefer to cut dividend payments rather than borrow money to fund a short-term cash need.B) Share repurchases tend to increase agency costs.C) Maintaining a steady dividend is a key goal of most dividend-paying companies.D) Short-term fluctuations in cash flows are the key factor in determining a company's dividend policy.E) Stock prices tend to ignore unexpected changes in dividend payments.38) Which one of the following involves a payment in shares that increases the number of sharesa shareholder owns but also decreases the value per share?A) Cash dividendB) Stock dividendC) Stock repurchaseD) Stock splitE) Reverse stock split39) Which one of the following does not affect the total equity of a company but does increase the number of sharesoutstanding?A) Special dividendB) Stock splitC) Share repurchaseD) Rights offerE) Liquidating dividend40) Bell Weather Markets has recently sold for as little as $8a share and as much as $15 a share. The difference between these two prices is referred to as the:A) price variance.B) bid-ask spread.C) trading range.D) opening price.E) closing price.41) A reverse stock split is defined as a(n):A) increase in the number of shares outstanding.B) company buying back existing shares of its stock on the open market.C) company issuing additional shares to its existing shareholders.D) decrease in the number of shares outstanding without affecting total owners' equity.E) decrease in both the number of shares outstanding and the market price per share.42) A small stock dividend:A) increases the common stock account by the market price of each share issued.B) reduces cash by the total market value of the issued shares.C) affects the par value per share but not the equity account balances.D) reduces retained earnings by the market price of each share issued.E) does not affect the capital in excess of par value account.43) A small stock dividend is defined as a stock dividend of less than ________ percent.A) 10 to 15B) 15 to 20C) 20 to 25D) 25 to 30E) 30 to 3544) Which one of the following is a result of a small stock dividend?A) Increase in the retained earnings account balanceB) Decrease in total owner's equityC) Decrease in cashD) Decrease in capital in excess of par valueE) Increase in the common stock account balance45) A large stock dividend:A) reduces retained earnings by the total market value of the issued shares.B) reduces the par value per share.C) reduces retained earnings by the par value of each share issued.D) increases the capital in excess of par value by the market value minus the par value of each share issued.E) does not affect the equity accounts or the par value per share.46) Revol-Tech is a technology company with excellent growth prospects. The company wishes to do something to acknowledge the loyalty of its shareholders but needs all of itsavailable cash to fund its rapid growth. The market price of the stock is currently trading at the upper end of its preferred trading range. The company is most apt to consider which one of the following in this situation?A) Liquidating dividendB) Stock splitC) Reverse stock splitD) Extra cash dividendE) Special cash dividend47) Which one of the following is the best justification for a reverse stock split?A) Improve the stock's respectabilityB) Avoid delistingC) Reduce transaction costs for shareholdersD) Improve the stock's liquidityE) Increase the par value per share48) A stock split:A) increases the total value of the common stock account.B) decreases the value of the retained earnings account.C) increases the par value per share.D) increases the value of the capital in excess of par account.E) decreases the market value per share.49) Stock splits can be used to:A) adjust the market price of a stock so it falls within a preferred trading range.B) decrease a company's excess cash thereby lowering agency costs.C) increase the par value per share while decreasing the market price per share.D) increase the total equity of a firm.E) adjust the debt-equity ratio to its preferred level.50) Which one of the following is a direct result of a two-for-one stock split?A) A 100 percent increase in the number of shareholdersB) A 100 percent increase in the common stock account balanceC) A 100 percent decrease in the stock priceD) A 50 percent increase in the number of shares outstandingE) A 50 percent decrease in the par value per share51) Alta Gems stock is currently trading at $36 a share. The company believes its primary clientele can afford to spend between $2,000 and $2,500 to purchase a round lot of 100 shares. This company should consider a:A) reverse stock split.B) liquidating dividend.C) stock dividend.D) stock split.E) special dividend.52) A one-for-four reverse stock split will increase:A) the par value by 25 percent.B) the number of shares outstanding by 400 percent.C) the market value but not affect the par value per share.D) a $1 par value to $4.E) a $1 par value to $5.53) A company wants to maintain a stock price around $16 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The company should consider a ________ stock split.A) 3-for-1B) 4-for-1C) 1-for-3 reverseD) 1-for-4 reverseE) 1-for-5 reverse54) Plyler Cabinets declared a dividend of $1.32 per share on May 30 to holders of record on Monday, June 12. The dividend is payable on June 16. Sara purchased 300 shares of this stock on Thursday, June 8. How much dividend income will she receive on June 12 from these shares?A) $0B) $396C) $167D) $198E) $13255) The market value balance sheet for Apple Pie Corp. reflects cash of $42,000, fixed assets of $319,000, and equity of $237,000. There are 7,500 shares of stock outstanding with a par value of $1 per share. The company has declared a dividend of $1.03 per share. The stock goes ex dividend tomorrow. Ignore any tax effects. What will be the price of the stock tomorrow morning?A) $32.38B) $32.20C) $30.57D) $32.15E) $31.6056) The Green Fiddle has declared a dividend of $2.60 per share. Suppose capital gains are not taxed but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Green Fiddle stock closed at $36.80 per share today and the stock goes ex dividendtomorrow. What will be the ex-dividend price?A) $34.59B) $39.40C) $36.80D) $34.20E) $34.7057) Aaron purchased 500 shares of KMP stock on May 8. On May 16, he purchased another 200 shares and then on May 20 he purchased a final 100 shares of KMP stock. The company declared a dividend of $.94 a share on May 6 to holders of record on Friday, May 22. The dividend is payable on June 12. How much dividend income will Steve receive on June 12?A) $752B) $640C) $658D) $728E) $68058) On July 9, you purchased 800 shares of Blue Water stock for $32 a share. On August 4, you sold 200 shares of this stock for $33 a share. You sold an additional 200 shares on August 14 at a price of $34.50 a share. The company declared a dividend of $.76 per share on August 3 to holders of record as of Monday, August 17. This dividend is payable on September 15. How much dividend income will you receive on September 15?A) $304B) $418C) $456D) $360E) $60859) You own 900 shares of Dell Hardware. The company planson issuing a dividend of $1.98 a share one year from now and then issuing a final liquidating dividend of $11.32 a share after one additional year. Your required rate of return on this security is 16.5 percent. Ignoring taxes, what is the value of one share of this stock to you today?A) $10.30B) $9.43C) $10.04D) $9.92E) $10.3260) You own 600 shares of stock in Avondale Corporation. The company plans to pay a dividend of $2.48 per share in one year and a final liquidating dividend of $20.10 per share two years from now. The required return on Avondale stock is 16.3 percent. What will your dividend income be this year if you use homemade dividends to create two equal annual dividend payments?A) $6,270B) $6,712C) $5,667D) $6,376E) $6,40061) You own 400 shares of stock in A-Z Tours. The company plans to pay a dividend of $.65 in Year 1 and a final liquidating dividend of $28.50 per share in Year 2. The required return is 15.6 percent. If you only want $200 total in dividends in the first year, what will be your homemade dividend in the second year?A) $12,696B) $10,764C) $11,469D) $11,402E) $12,87862) Al owns 250 shares of M&M Enterprises and earns 12.9 percent on his investment. M&M recently stated that it will pay dividends per share of $.69 this year and $.72 next year. Al does not want any dividend income this year but does want as much dividend income as possible next year. Ignoring taxes, what will Al's total homemade dividend be next year?A) $352.50B) $366.38C) $330.50D) $341.80E) $374.7563) Water Mills has a market value equal to its book value. Currently, the company has excess cash of $1,368, other assets of $35,807, and equity valued at $23,750. There are 2,500 shares of stock outstanding and net income is $470. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?A) $.19B) $.33C) $.26D) $.08E) $.1364) Webster United is paying a dividend of $1.09 per share today. There are 225,000 shares outstanding with a market price of $31.17 per share prior to the dividend payment. Ignore taxes. Before the dividend, the company had earnings per share of $2.11. As a result of this dividend, the:A) retained earnings will decrease by $225,000.B) retained earnings will increase by $245,250.C) total value of the company will not change.D) earnings per share will increase to $3.20.E) price-earnings ratio will be 14.26.65) TJ's has a market value equal to its book value. Currently, the firm has excess cash of $218,500, other assets of $897,309, and equity of $547,200. The firm has 40,000 shares of stock outstanding and net income of $59,800. Management has decided to spend 15 percent of the excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?A) 47,937B) 48,050C) 37,604D) 35,578E) 41,58466) The market value balance sheet for Cherry Pie Corp. reflects cash of $31,020, fixed assets of $539,750, and equity of $286,800. There are 6,000 shares of stock outstanding with a par value of $1 per share. The company has announced that it is going to repurchase $20,000 of stock. What will the price of the stock be after this repurchase?A) $47.80B) $46.60C) $46.20D) $47.60E) $46.8067) Tucker's National Distributing has a current market value of equity of $32,400. Currently, the firm has excess cash of $2,100, total assets of $22,400, net income of $3,210, and 800 shares ofstock outstanding. The company is going to use all of its excess cash to repurchase shares of stock. What will the stock price per share be after the stock repurchase is completed?A) $40.87B) $39.94C) $40.06D) $40.50E) $39.4268) The equity of Blooming Roses has a total market value of $148,900. Currently, the firm has excess cash of $4,200 and net income of $21,400. There are 1,100 shares of stock outstanding. What will be the percentage change in the stock price per share if the company pays out all of its excess cash as a cash dividend?A) ?3.14 percentB) ?2.82 percentC) ?2.75 percentD) ?3.08 percentE) 0 percent69) Delaware Trust has 2,400 shares of common stock outstanding at a market price per share of $63. Currently, the firm has excess cash of $3,500, total assets of $728,900, and net income of $41,320. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after this dividend is paid?A) $9.69B) $12.86C) $17.22D) $13.07E) $19.2470) Built Rite Corp. is evaluating an extra dividend versus ashare repurchase. In either case, $7,500 would be spent. Current earnings are $1.24 per share, and the stock currently sells for $32 per share. There are 5,000 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ________ as compared to ________ if the company opts for a share repurchase.A) $30.50; $30.50B) $27.50; $32.00C) $27.50; $30.50D) $27.50; $27.50E) $32.00; $32.0071) Josh's Inc. has 4,800 shares of stock outstanding with a par value of $1 per share and a market value of $19 a share. The balance sheet shows $149,000 in the capital in excess of par account, $4,800 in the common stock account, and $192,800 in the retained earnings account. The firm just announced a stock dividend of 10 percent. What is the value of the capital in excess of par account after the dividend?A) $161,300B) $149,000C) $152,280D) $157,640E) $164,40072) Randall's has 34,000 shares of stock outstanding with a par value of $1 per share. The market value is $23 per share. The balance sheet shows $152,000 in the capital in excess of par account, $34,000 in the common stock account, and $67,500 in the retained earnings account. The firm just announced a 5 percent (small) stock dividend. What will be the balance in the。

公司理财精要版原书第12版习题库答案Ross12e_Chapter13_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter13_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter13_TBFundamentals of Corporate Finance, 12e (Ross)Chapter 13 Return, Risk, and the Security Market Line1) You own a stock that you think will produce a return of 11 percent in a good economy and 3 percent in a poor economy. Given the probabilities of each state of the economy occurring, you anticipate that your stock will earn 6.5 percent next year. Which one of the following terms applies to this 6.5 percent?A) Arithmetic returnB) Historical returnC) Expected returnD) Geometric returnE) Required return2) The expected return on a stock given various states of the economy is equal to the:A) highest expected return given any economic state.B) arithmetic average of the returns for each economic state.C) summation of the individual expected rates of return.D) weighted average of the returns for each economic state.E) return for the economic state with the highest probability of occurrence.3) The expected return on a stock computed using economic probabilities is:A) guaranteed to equal the actual average return on the stock for the next five years.B) guaranteed to be the minimal rate of return on the stock over the next two years.C) guaranteed to equal the actual return for the immediatetwelve month period.D) a mathematical expectation based on a weighted average and not an actual anticipated outcome.E) the actual return you should anticipate as long as the economic forecast remains constant.4) The expected risk premium on a stock is equal to the expected return on the stock minus the:A) expected market rate of return.B) risk-free rate.C) inflation rate.D) standard deviation.E) variance.5) Suzie owns five different bonds and twelve different stocks. Which one of the following terms most applies to her investments?A) IndexB) PortfolioC) CollectionD) GroupingE) Risk-free6) Steve has invested in twelve different stocks that have a combined value today of $121,300. Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is a measure of which one of the following?A) Portfolio returnB) Portfolio weightC) Degree of riskD) Price-earnings ratioE) Index value7) The expected rate of return on a stock portfolio is aweighted average where the weights are based on the:A) number of shares owned of each stock.B) market price per share of each stock.C) market value of the investment in each stock.D) original amount invested in each stock.E) cost per share of each stock held.8) The expected return on a portfolio considers which of the following factors?I. Percentage of the portfolio invested in each individual securityII. Projected states of the economyIII. The performance of each security given various economic statesIV. Probability of occurrence for each state of the economyA) I and III onlyB) II and IV onlyC) I, III, and IV onlyD) II, III, and IV onlyE) I, II, III, and IV9) The expected return on a portfolio:I. can never exceed the expected return of the best performing security in the portfolio.II. must be equal to or greater than the expected return of the worst performing security in the portfolio.III. is independent of the unsystematic risks of the individual securities held in the portfolio. IV. is independent of the allocation of the portfolio amongst individual securities.A) I and III onlyB) II and IV onlyC) I and II onlyD) I, II, and III onlyE) I, II, III, and IV10) If a stock portfolio is well diversified, then the portfolio variance:A) will equal the variance of the most volatile stock in the portfolio.B) may be less than the variance of the least risky stock in the portfolio.C) must be equal to or greater than the variance of the least risky stock in the portfolio.D) will be a weighted average of the variances of the individual securities in the portfolio.E) will be an arithmetic average of the variances of the individual securities in the portfolio.11) The standard deviation of a portfolio:A) is a weighted average of the standard deviations of the individual securities held in the portfolio.B) can never be less than the standard deviation of the most risky security in the portfolio.C) must be equal to or greater than the lowest standard deviation of any single security held in the portfolio.D) is an arithmetic average of the standard deviations of the individual securities which comprise the portfolio.E) can be less than the standard deviation of the least risky security in the portfolio.12) The standard deviation of a portfolio:A) is a measure of that portfolio's systematic risk.B) is a weighted average of the standard deviations of the individual securities held in that portfolio.C) measures the amount of diversifiable risk inherent in theportfolio.D) serves as the basis for computing the appropriate risk premium for that portfolio.E) can be less than the weighted average of the standard deviations of the individual securities held in that portfolio.13) Which one of the following statements is correct concerning a portfolio of 20 securities with multiple states of the economy when both the securities and the economic states have unequal weights?A) Given the unequal weights of both the securities and the economic states, the standard deviation of the portfolio must equal that of the overall market.B) The weights of the individual securities have no effect on the expected return of a portfolio when multiple states of the economy are involved.C) Changing the probabilities of occurrence for the various economic states will not affect the expected standard deviation of the portfolio.D) The standard deviation of the portfolio will be greater than the highest standard deviation of any single security in the portfolio given that the individual securities are well diversified.E) Given both the unequal weights of the securities and the economic states, an investor might be able to create a portfolio that has an expected standard deviation of zero.14) Which one of the following events would be included in the expected return on Sussex stock?A) The chief financial officer of Sussex unexpectedly resigned.B) The labor union representing Sussex's employees unexpectedly called a strike.C) This morning, Sussex confirmed that its CEO is retiring atthe end of the year as was anticipated.D) The price of Sussex stock suddenly declined in value because researchers accidentally discovered that one of the firm's products can be toxic to household pets.E) The board of directors made an unprecedented decision to give sizeable bonuses to the firm's internal auditors for their efforts in uncovering wasteful spending.15) Which one of the following statements is correct?A) The unexpected return is always negative.B) The expected return minus the unexpected return is equal to the total return.C) Over time, the average return is equal to the unexpected return.D) The expected return includes the surprise portion of news announcements.E) Over time, the average unexpected return will be zero.16) Which one of the following statements related to unexpected returns is correct?A) All announcements by a firm affect that firm's unexpected returns.B) Unexpected returns over time have a negative effect on the total return of a firm.C) Unexpected returns are relatively predictable in the short-term.D) Unexpected returns generally cause the actual return to vary significantly from the expected return over the long-term.E) Unexpected returns can be either positive or negative in the short term but tend to be zero over the long-term.17) Which one of the following is an example of systematic risk?A) Investors panic causing security prices around the globe to fall precipitouslyB) A flood washes away a firm's warehouseC) A city imposes an additional one percent sales tax on all productsD) A toymaker has to recall its top-selling toyE) Corn prices increase due to increased demand for alternative fuels18) Unsystematic risk:A) can be effectively eliminated by portfolio diversification.B) is compensated for by the risk premium.C) is measured by beta.D) is measured by standard deviation.E) is related to the overall economy.19) Which one of the following is an example of unsystematic risk?A) An across the board increase in income taxesB) Adoption of a national sales taxC) Decrease in the national level of inflationD) An increased feeling of global prosperityE) National decrease in consumer spending on entertainment20) Which one of the following is a risk that applies to most securities?A) UnsystematicB) DiversifiableC) SystematicD) Asset-specificE) Industry21) A news flash just appeared that caused about a dozenstocks to suddenly increase in value by12 percent. What type of risk does this news flash best represent?A) PortfolioB) Non-diversifiableC) MarketD) UnsystematicE) Expected22) The principle of diversification tells us that:A) concentrating an investment in two or three large stocks will eliminate all of the unsystematic risk.B) concentrating an investment in three companies all within the same industry will greatly reduce the systematic risk.C) spreading an investment across five diverse companies will not lower the total risk.D) spreading an investment across many diverse assets will eliminate all of the systematic risk.E) spreading an investment across many diverse assets will eliminate some of the total risk.23) Which one of the following is least apt to reduce the unsystematic risk of a portfolio?A) Reducing the number of stocks held in a portfolioB) Adding bonds to a stock portfolioC) Adding international securities into a portfolio of U.S. stocksD) Adding U.S. Treasury bills to a risky portfolioE) Adding technology stocks to a portfolio of industrial stocks24) Which one of the following statements related to risk is correct?A) The beta of a portfolio must increase when a stock with a high standard deviation is added to the portfolio.B) Every portfolio that contains 25 or more securities is free of unsystematic risk.C) The systematic risk of a portfolio can be effectively lowered by adding T-bills to the portfolio.D) Adding five additional stocks to a diversified portfolio will lower the portfolio's beta.E) Stocks that move in tandem with the overall market have zero betas.25) Which one of the following risks is irrelevant to a well-diversified investor?A) Systematic riskB) Unsystematic riskC) Market riskD) Non-diversifiable riskE) Systematic portion of a surprise26) Which of the following are examples of diversifiable risk?I. An earthquake damages an entire townII. The federal government imposes a $100 fee on all business entitiesIII. Employment taxes increase nationallyIV. All toymakers are required to improve their safety standardsA) I and III onlyB) II and IV onlyC) II and III onlyD) I and IV onlyE) I, III, and IV only27) Which one of the following is the best example of adiversifiable risk?A) Interest rates increaseB) Energy costs increaseC) Core inflation increasesD) A firm's sales decreaseE) Taxes decrease28) The primary purpose of portfolio diversification is to:A) increase returns and risks.B) eliminate all risks.C) eliminate asset-specific risk.D) eliminate systematic risk.E) lower both returns and risks.29) Which one of the following indicates a portfolio is being effectively diversified?A) An increase in the portfolio betaB) A decrease in the portfolio betaC) An increase in the portfolio rate of returnD) An increase in the portfolio standard deviationE) A decrease in the portfolio standard deviation30) How many diverse securities are required to eliminate the majority of the diversifiable risk from a portfolio?A) 5B) 10C) 2D) 40E) 7531) Which of the following statements concerning risk are correct?I. Non-diversifiable risk is measured by beta.II. The risk premium increases as diversifiable risk increases.III. Systematic risk is another name for non-diversifiable risk.IV. Diversifiable risks are market risks you cannot avoid.A) I and III onlyB) II and IV onlyC) I and II onlyD) III and IV onlyE) I, II, and III only32) Which of the following statements are correct concerning diversifiable risks?I. Diversifiable risks can be essentially eliminated by investing in 30 unrelated securities.II. There is no reward for accepting diversifiable risks.III. Diversifiable risks are generally associated with an individual firm or industry.IV. Beta measures diversifiable risk.A) I and III onlyB) II and IV onlyC) I and IV onlyD) I, II and III onlyE) I, II, III, and IV33) Which one of the following statements is correct concerning unsystematic risk?A) An investor is rewarded for assuming unsystematic risk.B) Eliminating unsystematic risk is the responsibility of the individual investor.C) Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk.D) Beta measures the level of unsystematic risk inherent in an individual security.E) Standard deviation is a measure of unsystematic risk.34) Systematic risk is measured by:A) the mean.B) beta.C) the geometric average.D) the standard deviation.E) the arithmetic average.35) Which one of the following statements is correct concerning a portfolio beta?A) Portfolio betas range between ?1.0 and +1.0.B) A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio.C) A portfolio beta cannot be computed from the betas of the individual securities comprising the portfolio because some risk is eliminated via diversification.D) A portfolio of U.S. Treasury bills will have a beta of +1.0.E) The beta of a market portfolio is equal to zero.36) The systematic risk of the market is measured by a:A) beta of 1.B) beta of 0.C) standard deviation of 1.D) standard deviation of 0.E) variance of 1.37) Total risk is measured by ________ and systematic risk is measured by ________.A) beta; alphaB) beta; standard deviationC) alpha; betaD) standard deviation; betaE) standard deviation; variance38) The ________ tells us that the expected return on a riskyasset depends only on that asset's nondiversifiable risk.A) efficient markets hypothesisB) systematic risk principleC) open markets theoremD) law of one priceE) principle of diversification39) Which one of the following measures the amount of systematic risk present in a particular risky asset relative to the systematic risk present in an average risky asset?A) BetaB) Reward-to-risk ratioC) Risk ratioD) Standard deviationE) Price-earnings ratio40) Which one of the following is most directly affected by the level of systematic risk in a security?A) Variance of the returnsB) Standard deviation of the returnsC) Expected rate of returnD) Risk-free rateE) Market risk premium41) At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset?I. Asset's standard deviationII. Asset's betaIII. Risk-free rate of returnIV. Market risk premiumA) I and III onlyB) II and IV onlyC) III and IV onlyD) I, III, and IV onlyE) I, II, III, and IV42) Which one of the following is a positively sloped linear function that is created when expected returns are graphed against security betas?A) Reward-to-risk matrixB) Portfolio weight graphC) Normal distributionD) Security market lineE) Market real returns43) Which one of the following is represented by the slope of the security market line?A) Reward-to-risk ratioB) Market standard deviationC) Beta coefficientD) Risk-free interest rateE) Market risk premium44) Which one of the following is the formula that explains the relationship between the expected return on a security and the level of that security's systematic risk?A) Capital asset pricing modelB) Time value of money equationC) Unsystematic risk equationD) Market performance equationE) Expected risk formula45) The intercept point of the security market line is the rate of return which corresponds to:A) the risk-free rate.B) the market rate.C) a return of zero.D) a return of 1.0 percent.E) the market risk premium.46) A stock with an actual return that lies above the security market line has:A) more systematic risk than the overall market.B) more risk than that warranted by CAPM.C) a higher return than expected for the level of risk assumed.D) less systematic risk than the overall market.E) a return equivalent to the level of risk assumed.47) Standard deviation measures which type of risk?A) TotalB) Non-diversifiableC) UnsystematicD) SystematicE) Economic48) Assume the market rate of return is 10.1 percent and the risk-free rate of return is 3.2 percent. Lexant stock has 2 percent less systematic risk than the market and has an actual return of10.2 percent. This stock:A) is underpriced.B) is correctly priced.C) will plot below the security market line.D) will plot on the security market line.E) will plot to the right of the overall market on a security market line graph.49) Which one of the following will be constant for all securities if the market is efficient and securities are priced fairly?A) VarianceB) Standard deviationC) Reward-to-risk ratioD) BetaE) Risk premium50) The reward-to-risk ratio for Stock A is less than the reward-to-risk ratio of Stock B. Stock A has a beta of .82 and Stock B has a beta of 1.29. This information implies that:A) Stock A is riskier than Stock B and both stocks are fairly priced.B) Stock A is less risky than Stock B and both stocks are fairly priced.C) either Stock A is underpriced or Stock B is overpriced or both.D) either Stock A is overpriced or Stock B is underpriced or both.E) both Stock A and Stock B are correctly priced since StockA is less risky than Stock B.51) The market risk premium is computed by:A) adding the risk-free rate of return to the inflation rate.B) adding the risk-free rate of return to the market rate of return.C) subtracting the risk-free rate of return from the inflation rate.D) subtracting the risk-free rate of return from the market rate of return.E) multiplying the risk-free rate of return by a beta of 1.0.52) The excess return earned by an asset that has a beta of1.34 over that earned by a risk-free asset is referred to as the:A) market risk premium.B) risk premium.C) systematic return.D) total return.E) real rate of return.53) The ________ of a security divided by the beta of that security is equal to the slope of the security market line if the security is priced fairly.A) real returnB) actual returnC) nominal returnD) risk premiumE) expected return54) The capital asset pricing model (CAPM) assumes which of the following?I. A risk-free asset has no systematic risk.II. Beta is a reliable estimate of total risk.III. The reward-to-risk ratio is constant.IV. The market rate of return can be approximated.A) I and III onlyB) II and IV onlyC) I, III, and IV onlyD) II, III, and IV onlyE) I, II, III, and IV55) According to CAPM, the amount of reward an investor receives for bearing the risk of an individual security depends upon the:A) amount of total risk assumed and the market risk premium.B) market risk premium and the amount of systematic risk inherent in the security.C) risk-free rate, the market rate of return, and the standard deviation of the security.D) beta of the security and the market rate of return.E) standard deviation of the security and the risk-free rate of return.56) Which one of the following should earn the highest risk premium based on CAPM?A) Diversified portfolio with returns similar to the overall marketB) Stock with a beta of 1.38C) Stock with a beta of .74D) U.S. Treasury billE) Portfolio with a beta of 1.0157) Treynor Industries is investing in a new project. The minimum rate of return the firm requires on this project is referred to as the:A) average arithmetic return.B) expected return.C) market rate of return.D) internal rate of return.E) cost of capital.58) Consider the following information on three stocks:State of EconomyProbability ofState of EconomyRate of Returnif State OccursStock A Stock B Stock CBoom .25 .27 .15 .11Normal .65 .14 .11 .09Bust .10 ?.19 ?.04 .05A portfolio is invested 45 percent each in Stock A and StockB and 10 percent in Stock C. What is the expected riskpremium on the portfolio if the expected T-bill rate is 3.2 percent?A) 11.47 percentB) 12.38 percentC) 1.67 percentD) 4.29 percentE) 8.71 percent59) You recently purchased a stock that is expected to earn 19 percent in a booming economy, 12 percent in a normal economy, and lose 8 percent in a recessionary economy. The probability of a boom economy is 16 percent while the probability of a normal economy is 78 percent. What is your expected rate of return on this stock?A) 12.40 percentB) 10.25 percentC) 11.92 percentD) 12.54 percentE) 13.50 percent60) The common stock of Manchester & Moore is expected to earn 14 percent in a recession, 7 percent in a normal economy, and lose 4 percent in a booming economy. The probability of a boom is 15 percent while the probability of a recession is 5 percent. What is the expected rate of return on this stock?A) 8.5 percentB) 8.7 percentC) 5.7 percentD) 7.5 percentE) 6.2 percent61) If the economy is normal, Charleston Freight stock is expected to return 14.3 percent. If the economy falls into a recession, the stock's return is projected at a negative 8.7 percent.The probability of a normal economy is 80 percent. What is the variance of the returns on this stock?A) .100346B) .008464C) .007420D) .073927E) .09431562) The rate of return on the common stock of Lancaster Woolens is expected to be 18 percent ina boom economy, 8 percent in a normal economy, and only2 percent in a recessionary economy. The probabilities of these economic states are 12 percent for a boom and 10 percent for a recession. What is the variance of the returns on this common stock?A) .001150B) .001306C) .001524D) .001389E) .00142163) The returns on the common stock of New Image Products are quite cyclical. In a boom economy, the stock is expected to return 23 percent in comparison to 14 percent in a normal economy and a negative 18 percent in a recessionary period. The probability of a recession is 18 percent while the probability of a boom is 22 percent. What is the standard deviation of the returns on this stock?A) 13.71 percentB) 11.56 percentC) 15.83 percentD) 12.08 percentE) 14.77 percent64) What is the standard deviation of the returns on a stock given the following information?State of EconomyProbability ofState of EconomyRate of Returnif State OccursBoom .28 .175 Normal .67 .128 Recession .05 .026A) 3.57 percentB) 3.28 percentC) 3.89 percentD) 3.42 percentE) 4.01 percent65) What is the expected return and standard deviation for the following stock?State of EconomyProbability ofState of EconomyRate of Returnif State OccursBoom .06 ?.06 Normal .74 .07 Recession .20 .18A) 8.53 percent; 5.69 percentB) 8.53 percent; 5.74 percentC) 8.42 percent; 5.69 percentD) 8.80 percent; 5.74 percentE) 8.42 percent; 5.74 percent66) You are comparing Stock A to Stock B. Given the following information, what is the difference in the expected returns of these two securities?State of EconomyProbability ofState of EconomyRate of Returnif State OccursStock A Stock BNormal .75 .13 .16Recession .25 ?.05 ?.21A) 5.25 percentB) 1.75 percentC) 3.05 percentD) 2.45 percentE) 1.55 percent67) You own a portfolio that has $2,800 invested in Stock A and $3,250 invested in Stock B. The expected returns on these stocks are 14.7 percent and 9.3 percent, respectively. What is the expected return on the portfolio?A) 12.06 percentB) 12.36 percentC) 11.80 percentD) 11.13 percentE) 11.41 percent68) You have $21,600 to invest in a stock portfolio. Your choices are Stock X with an expected return of 14.3 percent and Stock Y with an expected return of 8.1 percent. Your goal is to create a portfolio with an expected return of 12.5 percent. All money must be invested. How much will you invest in Stock X?A) $15,800B) $18,273C) $14,600D) $15,329E) $19,20869) What is the expected return of an equally weighted portfolio comprised of the following three stocks?State of EconomyProbability ofState of EconomyRate of Returnif State OccursStock A Stock B Stock CBoom .25 .19 .13 .07 Normal .72 .15 .05 .13Bust .03 ?.29 ?.14 .22A) 9.82 percentB) 10.96 percentC) 9.67 percentD) 10.48 percentE) 11.33 percent70) Your portfolio is invested 25 percent each in Stocks A and C, and 50 percent in Stock B. What is the standard deviation of your portfolio given the following information?State of EconomyProbability ofState of EconomyRate of Returnif State OccursStock A Stock B Stock CBoom .07 .28 .14 .11Good .55 .19 .12 .09Poor .36 ?.21 .07 .06Bust .02 ?.65 .03 ?.03A) 6.52 percentB) 9.64 percentC) 12.72 percentD) 10.89 percentE) 7.39 percent71) You have a portfolio consisting solely of Stock A and Stock B. The portfolio has an expected return of 10.2 percent. Stock A has an expected return of 11.7 percent while Stock B is expected to return 8.3 percent. What is the portfolio weight of Stock A?A) 57.01 percentB) 55.88 percentC) 63.13 percentD) 61.20 percentE) 59.97 percent72) You own the following portfolio of stocks. What is the portfolio weight of Stock C?Stock Numberof SharesPriceper ShareA 650 $ 15.82B 320 $ 11.09C 400 $ 39.80D 100 $ 7.60A) 52.18 percentB) 53.86 percentC) 53.41 percentD) 51.09 percentE) 52.65 percent73) You own a portfolio with the following expected returns given the various states of the economy. What is the overall portfolio expected return?State of EconomyProbability ofState of EconomyRate of Returnif State OccursBoom .25 .185 Normal .60 .143 Bust .15 .032A) 14.49 percentB) 14.64 percentC) 13.87 percentD) 13.69 percentE) 14.23 percent74) What is the expected return on a portfolio that is invested 22 percent in Stock A, 36 percent in Stock B, and the remainder in Stock C?State of EconomyProbability ofState of EconomyRate of Returnif State OccursStock A Stock B Stock CBoom .05 .18 .11 .13 Normal .92 .09 .08 .06 Bust .03 ?.07 .05 ? .14A) 7.06 percentB) 7.38 percentC) 6.99 percentD) 7.29 percentE) 6.84 percent。

公司理财精要版原书第12版习题库答案Ross12e_Chapter02_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter02_TB

Fundamentals of Corporate Finance, 12e (Ross)Chapter 2 Financial Statements, Taxes, and Cash Flow1) Which one of the following is classified as a tangible fixed asset?A) Accounts receivableB) Production equipmentC) CashD) PatentE) Inventory2) Which one of the following is a current asset?A) Accounts payableB) TrademarkC) Accounts receivableD) Notes payableE) Equipment3) Which one of the following is included in a firm's market value but yet is excluded from the firm's accounting value?A) Real estate investmentB) Good reputation of the companyC) Equipment owned by the firmD) Money due from a customerE) An item held by the firm for future sale4) Which one of the following is a current liability?A) Note payable to a supplier in 13 monthsB) Amount due from a customer in two weeksC) Account payable to a supplier that is due next weekD) Loan payable to the bank in 18 monthsE) Amount due from a customer that is past due5) Which one of the following will decrease the value of a firm's net working capital?A) Using cash to pay a supplierB) Depreciating an assetC) Collecting an accounts receivableD) Purchasing inventory on creditE) Selling inventory at a loss6) Which one of the following statements concerning net working capital is correct?A) Net working capital increases when inventory is purchased with cash.B) Net working capital excludes inventory.C) Total assets must increase if net working capital increases.D) Net working capital may be a negative value.E) Net working capital is the amount of cash a firm currently has available for spending.7) Which one of the following statements concerning net working capital is correct?A) A firm's ability to meet its current obligations increases as the firm's net working capital decreases.B) An increase in net working capital must also increase current assets.C) Net working capital increases when inventory is sold for cash at a profit.D) Firms with equal amounts of net working capital are also equally liquid.E) Net working capital is a part of the operating cash flow.8) Which one of the following accounts is the most liquid?A) InventoryB) BuildingC) Accounts ReceivableD) EquipmentE) Land9) Which one of the following represents the most liquid asset?A) $100 account receivable that is discounted and collected for $96 todayB) $100 of inventory that is sold today on credit for $103C) $100 of inventory that is discounted and sold for $97 cash todayD) $100 of inventory that is sold today for $100 cashE) $100 of accounts receivable that will be collected in full next week10) Which one of the following statements related to liquidity is correct?A) Liquid assets tend to earn a high rate of return.B) Liquid assets are valuable to a firm.C) Liquid assets are defined as assets that can be sold quickly regardless of the price obtained.D) Inventory is more liquid than accounts receivable because inventory is tangible.E) Any asset that can be sold is considered liquid.11) Shareholders' equity:A) is referred to as a firm's financial leverage.B) is equal to total assets plus total liabilities.C) decreases whenever new shares of stock are issued.D) includes patents, preferred stock, and common stock.E) represents the residual value of a firm.12) As the degree of financial leverage increases, the:A) probability a firm will encounter financial distress increases.B) amount of a firm's total debt decreases.C) less debt a firm has per dollar of total assets.D) number of outstanding shares of stock increases.E) accounts payable balance decreases.13) The book value of a firm is:A) equivalent to the firm's market value provided that the firm has some fixed assets.B) based on historical cost.C) generally greater than the market value when fixed assets are included.D) more of a financial than an accounting valuation.E) adjusted to the market value whenever the market value exceeds the stated book value.14) The value of which one of the following is included in the market value of a firm but is excluded from the firm's book value?A) Office equipmentB) CopyrightC) Distribution warehouseD) Employee's experienceE) Land acquired over 25 years ago15) You recently purchased a grocery store. At the time of the purchase, the store's market value and its book value were equal. The purchase included the building, fixtures, and inventory. Which one of the following is most apt to cause the market value of this store to be less than its book value?A) A sudden and unexpected increase in inflationB) The replacement of old inventory items with more desirable productsC) Improvements to the surrounding area by other store ownersD) Construction of a new restricted access highway located between the store and the surrounding residential areasE) Addition of a stop light at the main entrance to the store's parking lot16) Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?A) Income statementB) Creditor's statementC) Balance sheetD) Statement of cash flowsE) Dividend statement17) Net working capital is defined as:A) total liabilities minus shareholders' equity.B) current liabilities minus shareholders' equity.C) fixed assets minus long-term liabilities.D) total assets minus total liabilities.E) current assets minus current liabilities.18) Which one of these sets forth the common set of standards and procedures by which audited financial statements are prepared?A) Matching principleB) Cash flow identityC) Generally Accepted Accounting PrinciplesD) Financial Accounting Reporting PrinciplesE) Standard Accounting Value Guidelines19) Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?A) Income statementB) Balance sheetC) Statement of cash flowsD) Tax reconciliation statementE) Market value report20) Noncash items refer to:A) fixed expenses.B) inventory items purchased using credit.C) the ownership of intangible assets such as patents.D) expenses that do not directly affect cash flows.E) sales that are made using store credit.21) Which one of the following is true according to generally accepted accounting principles?A) Depreciation is recorded based on the market value principle.B) Income is recorded based on the realization principle.C) Costs are recorded based on the realization principle.D) Depreciation is recorded based on the recognition principle.E) Costs of goods sold are recorded based on the recognition principle.22) Which one of these is most apt to be a fixed cost?A) Raw materialsB) Manufacturing wagesC) Management bonusesD) Office salariesE) Shipping and freight23) Which one of the following statements is correct assuming accrual accounting is used?A) The addition to retained earnings is equal to net income plus dividends paid.B) Credit sales are recorded on the income statement when the cash from the sale is collected.C) The labor costs for producing a product are expensed when the product is sold.D) Interest is a non-cash expense.E) Depreciation increases the marginal tax rate.24) The percentage of the next dollar you earn that must be paid in taxes is referred to as the________ tax rate.A) meanB) residualC) totalD) averageE) marginal25) The ________ tax rate is equal to total taxes divided by total taxable income.A) deductibleB) residualC) totalD) averageE) marginal26) Which one of the following statements related to corporate taxes is correct?A) A company's marginal tax rate must be equal to or lower than its average tax rate.B) The tax for a company is computed by multiplying the marginal tax rate times the taxable income.C) Additional income is taxed at a firm's average tax rate.D) The marginal tax rate will always exceed a company's average tax rate.E) The marginal tax rate for a company can be either higher than or equal to the average tax rate.27) Which one of the following statements concerning corporate income taxes is correct for 2018?A) All corporations are exempt from federal taxation.B) Corporations pay no tax on their first $50,000 of income.C) The federal income tax on corporations is a flat-rate tax with the same rate applying to all levels of taxable income.D) The marginal tax rate will always be lower than the average tax rate.E) The first 25 percent of corporate income is exempt from taxation.28) The cash flow that is available for distribution to a corporation's creditors and stockholders is called the:A) operating cash flow.B) net capital spending.C) net working capital.D) cash flow from assets.E) cash flow to stockholders.29) Which term relates to the cash flow that results from a company's ongoing, normal business activities?A) Operating cash flowB) Capital spendingC) Net working capitalD) Cash flow from assetsE) Cash flow to creditors30) Cash flow from assets is also known as the firm's:A) capital structure.B) equity structure.C) hidden cash flow.D) free cash flow.E) historical cash flow.31) The cash flow related to interest payments less any net new borrowing is called the:A) operating cash flow.B) capital spending cash flow.C) net working capital.D) cash flow from assets.E) cash flow to creditors.32) Cash flow to stockholders is defined as:A) the total amount of interest and dividends paid during the past year.B) the change in total equity over the past year.C) cash flow from assets plus the cash flow to creditors.D) operating cash flow minus the cash flow to creditors.E) dividend payments less net new equity raised.33) Which one of the following is an expense for accounting purposes but is not an operating cash flow for financial purposes?A) Interest expenseB) TaxesC) Cost of goods soldD) Labor costsE) Administrative expenses34) Depreciation for a tax-paying firm:A) increases expenses and lowers taxes.B) increases the net fixed assets as shown on the balance sheet.C) reduces both the net fixed assets and the costs of a firm.D) is a noncash expense that increases the net income.E) decreases net fixed assets, net income, and operating cash flows.35) Which one of the following statements related to an income statement is correct?A) Interest expense increases the amount of tax due.B) Depreciation does not affect taxes since it is a non-cash expense.C) Net income is distributed to dividends and paid-in surplus.D) Taxes reduce both net income and operating cash flow.E) Interest expense is included in operating cash flow.36) Which one of the following statements is correct concerning a corporation with taxable income of $125,000?A) Taxable income minus dividends paid will equal the ending retained earnings for the year.B) An increase in depreciation will increase the operating cash flow.C) Net income divided by the number of shares outstanding will equal the dividends per share.D) Interest paid will be included in both net income and operating cash flow.E) An increase in the tax rate will increase both net income and operating cash flow.37) Which one of the following will increase the cash flow from assets, all else equal?A) Decrease in cash flow to stockholdersB) Decrease in operating cash flowC) Decrease in the change in net working capitalD) Decrease in cash flow to creditorsE) Increase in net capital spending38) For a tax-paying firm, an increase in ________ will cause the cash flow from assets to increase.A) depreciationB) net capital spendingC) the change in net working capitalD) taxesE) production costs39) Which one of the following must be true if a firm had a negative cash flow from assets?A) The firm borrowed money.B) The firm acquired new fixed assets.C) The firm had a net loss for the period.D) The firm utilized outside funding.E) Newly issued shares of stock were sold.40) An increase in the interest expense for a firm with a taxable income of $123,000 will:A) increase net income.B) increase gross income.C) increase the cash flow from assets.D) decrease the cash flow from equity.E) decrease the operating cash flow.41) Which one of the following is excluded from the cash flow from assets?A) Accounts payableB) InventoryC) SalesD) Interest expenseE) Cost of goods sold42) Net capital spending:A) is equal to ending net fixed assets minus beginning net fixed assets.B) is equal to zero if the decrease in the net fixed assets is equal to the depreciation expense.C) reflects the net changes in total assets over a stated period of time.D) is equivalent to the cash flow from assets minus the operating cash flow minus the change in net working capital.E) is equal to the net change in the current accounts.43) Which one of the following statements related to the cash flow to creditors must be correct?A) If the cash flow to creditors is positive, then the firm must have borrowed more money than it repaid.B) If the cash flow to creditors is negative, then the firm must have a negative cash flow from assets.C) A positive cash flow to creditors represents a net cash outflow from the firm.D) A positive cash flow to creditors means that a firm has increased its long-term debt.E) If the cash flow to creditors is zero, then a firm has no long-term debt.44) A positive cash flow to stockholders indicates which one of the following with certainty?A) The dividends paid exceeded the net new equity raised.B) The amount of the sale of common stock exceeded the amount of dividends paid.C) No dividends were distributed, but new shares of stock were sold.D) Both the cash flow to assets and the cash flow to creditors must be negative.E) Both the cash flow to assets and the cash flow to creditors must be positive.45) A firm has $680 in inventory, $2,140 in fixed assets, $210 in accounts receivables, $250 in accounts payable, and $80 in cash. What is the amount of the net working capital?A) $970B) $720C) $640D) $3,110E) $2,86046) A firm has net working capital of $560. Long-term debt is $3,970, total assets are $7,390, and fixed assets are $3,910. What is the amount of the total liabilities?A) $2,050B) $2,920C) $4,130D) $7,950E) $6,89047) A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400,current assets of $5,900, and fixed assets of $21,200. What is the amount of the shareholders' equity?A) $6,900B) $15,300C) $18,700D) $23,700E) $35,50048) Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and short-term debt of $1,400. What is the amount of net working capital?A) −$100B) $300C) $600D) $1,700E) $1,80049) Bonner Automotive has shareholders' equity of $218,700. The firm owes a total of $141,000 of which 40 percent is payable within the next year. The firm has net fixed assets of $209,800. What is the amount of the net working capital?A) $149,900B) $93,500C) $125,600D) −$47,500E) $56,50050) Four years ago, Ship Express purchased a mailing machine at a cost of $218,000. This equipment is currently valued at $97,400 on today's balance sheet but could actually be sold for $92,900. This is the only fixed asset the firm owns. Net working capital is $41,300 and long-term debt is $102,800. What is the book value of shareholders' equity?A) $31,400B) $47,700C) $35,900D) $249,400E) $253,90051) The What-Not Shop owns the building in which it is located. This building initially cost $647,000 and is currently appraised at $819,000. The fixtures originally cost $148,000 and are currently valued at $65,000. The inventory has a book value of $319,000 and a market value equal to 1.1 times the book value. The shop expects to collect 96 percent of the $21,700 in accounts receivable. The shop has $26,800 in cash and total debt of $414,700. What is the market value of the shop's equity?A) $867,832B) $900,166C) $695,832D) $775,632E) $1,190,33252) The Widget Co. purchased all of its fixed assets three years ago for $4 million. These assets can be sold today for $2 million. The current balance sheet shows net fixed assets of $2,500,000, current liabilities of $1,375,000, and net working capital of $725,000. If all the current assets were liquidated today, the company would receive $1.9 million in cash. The book value of the total assets today is ________ and the market value of those assets is ________.A) $4,600,000; $3,900,000B) $4,600,000; $3,125,000C) $5,000,000; $3,125,000D) $5,000,000; $3,900,000E) $6,500,000; $3,900,00053) JJ Enterprises has inventory of $11,600, fixed assets of $22,400, total liabilities of $12,900, cash of $1,900, accounts receivable of $8,700, and long-term debt of $6,500. What is the net working capital?A) $44,600B) $15,700C) $12,600D) $15,800E) $9,30054) The River Side Stop has a current market value of $26,400 and owes its creditors $31,300. What is the market value of the shareholders' equity?A) −$4,900B) −$5,200C) $0D) $4,900E) $5,20055) Jensen Enterprises paid $700 in dividends and $320 in interest this past year. Common stock remained constant at $6,800 and retained earnings decreased by $180. What is the net income for the year?A) $180B) $520C) $1,020D) $880E) $1,20056) Andre's Bakery has sales of $487,000 with costs of $263,000. Interest expense is $26,000 and depreciation is $42,000. The tax rate is 21 percent. What is the net income?A) $142,750B) $123,240C) $109,000D) $128,700E) $134,55057) Hayes Bakery has sales of $30,600, costs of $15,350, an addition to retained earnings of $4,221, dividends paid of $469, interest expense of $1,300, and a tax rate of 21 percent. What is the amount of the depreciation expense?A) $4,820.13B) $5,500.89C) $8,013.29D) $8,180.01E) $9,500.0058) Last year, Kaylor Equipment had $15,900 of sales, $500 of net new equity, dividend payments of $75, an addition to retained earnings of $418, depreciation of $680, and $511 of interest expense. What are the earnings before interest and taxes at a tax rate of 21 percent?A) $589.46B) $1,135.05C) $1,331.54D) $1,560.85E) $949.4659) Galaxy Interiors income statement shows depreciation of $1,611, sales of $21,415, interest paid of $1,282, net income of $1,374, and costs of goods sold of $16,408. What is the amount of the noncash expenses?A) $2,893B) $1,282C) $740D) $1,611E) $2,35160) Beach Front Industries has sales of $546,000, costs of $295,000, depreciation expense of $37,000, interest expense of $15,000, and a tax rate of 21 percent. The firm paid $59,000 in cash dividends. What is the addition to retained earnings?A) $98,210B) $81,700C) $95,200D) $103,460E) $121,68061) Keisler's has cost of goods sold of $11,518, interest expense of $315, dividends of $420, depreciation of $811, and a change in retained earnings of $296. What is the taxable income given a tax rate of 21 percent?A) $955.38B) $967.78C) $906.33D) $776.41E) $646.1562) What is the average tax rate for a firm with taxable income of $118,740 in 2017?Taxable Income Tax Rate$ 0 - 50,000 15 %50,001 - 75,000 2575,001 - 100,000 34100,001 - 335,000 39A) 26.68 percentB) 34.87 percentC) 24.89 percentD) 36.67 percentE) 39.00 percent63) For 2017, Nevada Mining had projected taxable income of $94,800. Its actual taxable income exceeded this projection by $21,000. How much additional tax did the firm owe due to the $21,000 increase in taxable income?Taxable Income Tax Rate$ 0 - 50,000 15 %50,001 - 75,000 2575,001 - 100,000 34100,001 - 335,000 39A) $7,930B) $8,036C) $8,150D) $7,682E) $8,19764) In 2017, Boyer Enterprises had $76,700 in taxable income. What was the firm's average tax rate for the year?Taxable Income Tax Rate$ 0 - 50,000 15 %50,001 - 75,000 2575,001 - 100,000 34100,001 - 335,000 39A) 28.25 percentB) 18.68 percentC) 26.48 percentD) 20.14 percentE) 29.03 percent65) Winston Industries had sales of $843,800 and costs of $609,900. The company paid $38,200 in interest and $35,000 in dividends. The depreciation was $76,400. The firm has a combined tax rate of 24 percent. What was the addition to retained earnings for the year?A) $55,668B) $57,240C) $61,060D) $56,200E) $68,40066) RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 and the tax rate is 21 percent. The firm is all-equity financed. What is the operating cash flow?A) $108,410B) $108,320C) $109,924D) $106,417E) $109,08567) Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of $209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the year was $42,822. What is the amount of net capital spending?A) $33,763B) $40,706C) $58,218D) $65,161E) $67,40868) At the beginning of the year, a firm had current assets of $121,306 and current liabilities of $124,509. At the end of the year, the current assets were $122,418 and the current liabilities were $103,718. What is the change in net working capital?A) −$19,679B) −$11,503C) $19,387D) $15,497E) $21,90369) At the beginning of the year, the long-term debt of a firm was $72,918 and total debt was $138,407. At the end of the year, long-term debt was $68,219 and total debt was $145,838. The interest paid was $6,430. What is the amount of the cash flow to creditors?A) $1,731B) −$1,001C) $11,129D) $13,861E) $19,17270) Ernie's Home Repair had beginning long-term debt of $51,207 and ending long-term debt of $36,714. The beginning and ending total debt balances were $59,513 and $42,612, respectively. The interest paid was $2,808. What is the amount of the cash flow to creditors?A) −$11,685B) −$11,272C) $17,301D) $17,418E) $11,17471) The Daily News has projected annual net income of $272,600, of which 28 percent will be distributed as dividends. Assume the company will have net sales of $75,000 worth of common stock. What will be the cash flow to stockholders if the tax rate is 21 percent?A) −$75,000B) $1,328C) $24,623.52D) $76,328E) $151,32872) The Lakeside Inn had operating cash flow of $48,450. Depreciation was $6,700 and interest paid was $2,480. A net total of $2,620 was paid on long-term debt. The firm spent $24,000 on fixed assets and decreased net working capital by $1,330. What was the amount of the cash flow to stockholders?A) $5,100B) $7,830C) $18,020D) $19,998E) $20,68073) For the past year, Galaxy Interiors had depreciation of $2,419, beginning total assets of $23,616, and ending total assets of $21,878. Current assets decreased by $1,356. What was the amount of net capital spending for the year?A) −$382B) $2,037C) $2,801D) $1,993E) $1,17274) Carlisle Express paid $1,282 in interest and $975 in dividends last year. Current assets increased by $2,700, current liabilities decreased by $420, and long-term debt increased by $2,200. What was the cash flow to creditors?A) −$530B) −$918C) $1,839D) 2,132E) $3,09475) CBC Industries has sales of $21,415, interest paid of $1,282, costs of $9,740, and depreciation of $1,480. What is the operating cash flow if the tax rate is 22 percent?A) $10,114.14B) $9,900.86C) $8,985.86D) $8,536.67E) $9,714.1476) Williamsburg Markets has an operating cash flow of $4,267 and depreciation of $1,611. Current assets decreased by $1,356 while current liabilities decreased by $2,662, and net fixed assets decreased by $382 during the year. What is free cash flow for the year?A) $1,732B) $2,247C) $2,961D) $3,915E) $4,26777) Up Towne Cleaners has taxable income of $48,900 and a tax rate of 21 percent. What is the change in retained earnings if the firm pays $20,200 in dividends for the year?A) $18,942B) $19,948C) $19,374D) $18,431E) $18,57478) For the year, B&K United increased current liabilities by $1,400, decreased cash by $1,200, increased net fixed assets by $340, increased accounts receivable by $200, and decreased inventory by $150. What is the annual change in net working capital?A) −$2,550B) −$70C) $590D) $550E) −$2,21079) TJH, Inc. purchased $145,000 in new equipment and sold equipment with a net book value of $68,400 during the year. What is the amount of net capital spending if the depreciation was $38,600?A) $115,200B) $76,600C) $94,200D) $38,000E) −$38,00080) Nu Furniture has sales of $241,000, depreciation of $32,200, interest expense of $35,700, costs of $103,400, and taxes of $14,637. What is the operating cash flow for the year?A) $108,229B) $121,367C) $122,963D) $117,766E) $128,03781) HiWay Furniture has sales of $316,000, depreciation of $47,200, interest expense of $41,400, costs of $148,200, and taxes of $16,632. The firm has net capital spending of $36,400 and a decrease in net working capital of $14,300. What is the cash flow from assets for the year?A) $145,985B) $129,068C) $119,655D) $120,810E) $134,58582) At the beginning of the year, Trees Galore had current liabilities of $15,932 and total debt of $68,847. By year end, current liabilities were $13,870 and total debt was $72,415. What is the amount of net new borrowing for the year?A) $5,630B) −$2,480C) $3,568D) $4,677E) −$2,06283) JJ Enterprises has current assets of $10,406, long-term debt of $4,780, and current liabilities of $9,822 at the beginning of the year. At year end, current assets are $11,318, long-term debt is $5,010, and current liabilities are $9,741. The firm paid $277 in interest and $320 in dividends during the year. What is the cash flow to creditors for the year?A) −$47B) −$507C) −$97D) $47E) $50784) BK Enterprises neither sold nor repurchased any shares of stock during the year. The firm had annual sales of $7,202, depreciation of $1,196, cost of goods sold of $4,509, interest expense of $318, taxes of $248, beginning-of-year shareholders' equity of $4,808, and end-of-year shareholders' equity of $4,922. What is the amount of dividends paid during the year?A) $817B) $1,009C) $864D) $709E) $51585) Carlisle Carpets has cost of goods sold of $92,511, interest expense of $4,608, dividends paid of $3,200, depreciation of $14,568, an increase in retained earnings of $11,920, and a tax rate of 21 percent. What is the operating cash flow?A) $34,296.00B) $42,122.42C) $36,462.58D) $31,543.10E) $36,741.42。

公司理财精要版原书第12版习题库答案Ross12e_Chapter03_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter03_TB

Fundamentals of Corporate Finance, 12e (Ross)Chapter 3 Working with Financial Statements1) Which one of the following is a source of cash for a tax-exempt firm?A) Increase in accounts receivableB) Increase in depreciationC) Decrease in accounts payableD) Increase in common stockE) Increase in inventory2) Which one of the following is a use of cash?A) Decrease in fixed assetsB) Decrease in inventoryC) Increase in long-term debtD) Decrease in accounts receivablesE) Decrease in accounts payable3) Which one of the following is a source of cash?A) Repurchase of common stockB) Acquisition of debtC) Purchase of inventoryD) Payment to a supplierE) Granting credit to a customer4) Which one of the following is a source of cash?A) Increase in accounts receivableB) Decrease in common stockC) Increase in fixed assetsD) Decrease in accounts payableE) Decrease in inventory5) On the statement of cash flows, which one of the following is considered a financing activity?A) Increase in inventoryB) Decrease in accounts payableC) Increase in net working capitalD) Dividends paidE) Decrease in fixed assets6) On the statement of cash flows, which one of the following is considered an operating activity?A) Increase in net fixed assetsB) Decrease in accounts payableC) Purchase of equipmentD) Dividends paidE) Repayment of long-term debt7) According to the statement of cash flows, an increase in inventory will ________ the cash flow from ________ activities.A) increase; operatingB) decrease; financingC) decrease; operatingD) increase; financingE) increase; investment8) According to the statement of cash flows, an increase in interest expense will ________ the cash flow from ________ activities.A) decrease; operatingB) decrease; financingC) increase; operatingD) increase; financingE) Increase; investment9) Activities of a firm that require the spending of cash are known as:A) sources of cash.B) uses of cash.C) cash collections.D) cash receipts.E) cash on hand.10) The sources and uses of cash over a stated period of time are reflected on the:A) income statement.B) balance sheet.C) tax reconciliation statement.D) statement of cash flows.E) statement of operating position.11) A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of:A) total assets.B) total equity.C) net income.D) taxable income.E) sales.12) Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?A) Statement of standardizationB) Statement of cash flowsC) Common-base year statementD) Common-size statementE) Base reconciliation statement13) On a common-size balance sheet all accounts for the current year are expressed as a percentage of:A) sales for the period.B) the base year sales.C) total equity for the base year.D) total assets for the current year.E) total assets for the base year.14) On a common-base year financial statement, accounts receivables for the current year will be expressed relative to which one of the following?A) Current year salesB) Current year total assetsC) Base-year salesD) Base-year total assetsE) Base-year accounts receivables15) Which one of the following ratios is a measure of a firm's liquidity?A) Cash coverage ratioB) Profit marginC) Debt-equity ratioD) Quick ratioE) NWC turnover16) An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.A) Increase in the cash ratioB) Increase in the net working capital to total assets ratioC) Decrease in the quick ratioD) Decrease in the cash coverage ratioE) Increase in the current ratio17) An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?A) Accounts payableB) CashC) InventoryD) Accounts receivableE) Fixed assets18) A supplier, who requires payment within 10 days, should be most concerned with which one of the following ratios when granting credit?A) CurrentB) CashC) Debt-equityD) QuickE) Total debt19) A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which one of the following?A) Pay all of its debts that are due within the next 48 hoursB) Pay all of its debts that are due within the next 48 daysC) Cover its operating costs for the next 48 hoursD) Cover its operating costs for the next 48 daysE) Meet the demands of its customers for the next 48 hours20) Ratios that measure a firm's liquidity are known as ________ ratios.A) asset managementB) long-term solvencyC) short-term solvencyD) profitabilityE) book value21) Which one of the following statements is correct?A) If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0.B) Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5.C) The debt-equity ratio can be computed as 1 plus the equity multiplier.D) An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity.E) An increase in the depreciation expense will not affect the cash coverage ratio.22) If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?A) 0B) .5C) 1.0D) 1.5E) 2.023) The cash coverage ratio directly measures the ability of a company to meet its obligation to pay:A) an invoice to a supplier.B) wages to an employee.C) interest to a lender.D) principal to a lender.E) a dividend to a shareholder.24) All-State Moving had sales of $899,000 in 2017 and $967,000 in 2018. The firm's current accounts remained constant. Given this information, which one of the following statements must be true?A) The total asset turnover rate increased.B) The days' sales in receivables increased.C) The net working capital turnover rate increased.D) The fixed asset turnover decreased.E) The receivables turnover rate decreased.25) The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?A) Decrease in the inventory turnover rateB) Decrease in the net working capital turnover rateC) Increase in the fixed asset turnover rateD) Decrease in the day's sales in inventoryE) Decrease in the total asset turnover rate26) RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?A) Utilizing its fixed assets more efficiently than Sam'sB) Utilizing its total assets more efficiently than Sam'sC) Generating $1 in sales for every $1.26 in net fixed assetsD) Generating $1.26 in net income for every $1 in net fixed assetsE) Maintaining the same level of current assets as Sam's27) Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ________ ratios.A) asset managementB) long-term solvencyC) short-term solvencyD) profitabilityE) turnover28) If a company produces a return on assets of 14 percent and also a return on equity of 14 percent, then the firm:A) may have short-term, but not long-term debt.B) is using its assets as efficiently as possible.C) has no net working capital.D) has a debt-equity ratio of 1.0.E) has an equity multiplier of 1.0.29) Which one of the following will decrease if a firm can decrease its operating costs, all else constant?A) Return on equityB) Return on assetsC) Profit marginD) Total asset turnoverE) Price-earnings ratio30) Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?A) Al's has more net income than Ben's.B) Ben's is increasing its earnings at a faster rate than Al's.C) Al's has a higher market value per share than does Ben's.D) Ben's has a lower market-to-book ratio than Al's.E) Al's has a higher earnings growth rate than Ben's.31) Tobin's Q relates the market value of a firm's assets to which one of the following?A) Initial cost of creating the firmB) Current book value of the firmC) Average asset value of similar firmsD) Average market value of similar firmsE) Today's cost to duplicate those assets32) The price-sales ratio is especially useful when analyzing firms that have:A) volatile market prices.B) negative earnings.C) positive PEG ratios.D) a high Tobin's Q.E) increasing sales.33) Mortgage lenders probably have the most interest in the ________ ratios.A) return on assets and profit marginB) long-term debt and times interest earnedC) price-earnings and debt-equityD) market-to-book and times interest earnedE) return on equity and price-earnings34) Relationships determined from a company's financial information and used for comparison purposes are known as:A) financial ratios.B) identities.C) dimensional analysis.D) scenario analysis.E) solvency analysis.35) DL Farms currently has $600 in debt for every $1,000 in equity. Assume the company uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?A) Equity multiplierB) Total asset turnoverC) Profit marginD) Return on assetsE) Return on equity36) Which one of these identifies the relationship between the return on assets and the return on equity?A) Profit marginB) Profitability determinantC) Balance sheet multiplierD) DuPont identityE) Debt-equity ratio37) Which one of the following accurately describes the three parts of the DuPont identity?A) Equity multiplier, profit margin, and total asset turnoverB) Debt-equity ratio, capital intensity ratio, and profit marginC) Operating efficiency, equity multiplier, and profitability ratioD) Return on assets, profit margin, and equity multiplierE) Financial leverage, operating efficiency, and profitability ratio38) An increase in which of the following must increase the return on equity, all else constant?A) Total assets and salesB) Net income and total equityC) Total asset turnover and debt-equity ratioD) Equity multiplier and total equityE) Debt-equity ratio and total debt39) Which one of the following is a correct formula for computing the return on equity?A) Profit margin × ROAB) ROA × Equity multiplierC) Profit margin × Total asset turnover × Debt-equity ratioD) Net income/Total assetsE) Debt-equity ratio × ROA40) The DuPont identity can be used to help managers answer which of the following questions related to a company's operations?I. How many sales dollars are being generated per each dollar of assets?II. How many dollars of assets have been acquired per each dollar in shareholders' equity? III. How much net profit is being generating per dollar of sales?IV. Does the company have the ability to meet its debt obligations in a timely manner?A) I and III onlyB) II and IV onlyC) I, II, and III onlyD) II, III and IV onlyE) I, II, III, and IV41) The U.S. government coding system that classifies a company by the nature of its business operations is known as the:A) Centralized Business Index.B) Peer Grouping codes.C) Standard Industrial Classification codes.D) Governmental ID codes.E) Government Engineered Coding System.42) Which one of the following statements is correct?A) Book values should always be given precedence over market values.B) Financial statements are rarely used as the basis for performance evaluations.C) Historical information is useful when projecting a company's future performance.D) Potential lenders place little value on financial statement information.E) Reviewing financial information over time has very limited value.43) The most acceptable method of evaluating the financial statements is to compare the company's current financial:A) ratios to the company's historical ratios.B) statements to the financial statements of similar companies operating in other countries.C) ratios to the average ratios of all companies located within the same geographic area.D) statements to those of larger companies in unrelated industries.E) statements to the projections that were created based on Tobin's Q.44) All of the following issues represent problems encountered when comparing the financial statements of two separate entities except the issue of the companies:A) being conglomerates with unrelated lines of business.B) having geographically varying operations.C) using differing accounting methods.D) differing seasonal peaks.E) having the same fiscal year.45) Which one of these is the least important factor to consider when comparing the financial situations of utility companies that generate electric power and have the same SIC code?A) Type of ownershipB) Government regulations affecting the firmC) Fiscal year endD) Methods of power generationE) Number of part-time employees46) At the beginning of the year, Brick Makers had cash of $183, accounts receivable of $392, accounts payable of $463, and inventory of $714. At year end, cash was $167, accounts payables was $447, inventory was $682, and accounts receivable was $409. What is the amount of the net source or use of cash by working capital accounts for the year?A) Net use of $16 cashB) Net use of $17 cashC) Net source of $17 cashD) Net source of $15 cashE) Net use of $15 cash47) During the year, Al's Tools decreased its accounts receivable by $160, increased its inventory by $115, and decreased its accounts payable by $70. How did these three accounts affect the sources of uses of cash by the firm?A) Net source of cash of $120B) Net source of cash of $205C) Net source of cash of $45D) Net use of cash of $115E) Net use of cash of $2548) Lani's generated net income of $911, depreciation expense was $47, and dividends paid were $25. Accounts payables increased by $15, accounts receivables increased by $28, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?A) $776B) $865C) $959D) $922E) $98549) For the past year, Jenn's Floral Arrangements had taxable income of $198,600, beginning common stock of $68,000, beginning retained earnings of $318,750, ending common stock of $71,500, ending retained earnings of $316,940, interest expense of $11,300, and a tax rate of 21 percent. What is the amount of dividends paid during the year?A) $157,280B) $159,935C) $163,200D) $153,555E) $158,70450) The Floor Store had interest expense of $38,400, depreciation of $28,100, and taxes of $19,600 for the year. At the start of the year, the firm had total assets of $879,400 and current assets of $289,600. By year's end total assets had increased to $911,900 while current assets decreased to $279,300. What is the amount of the cash flow from investment activity for the year?A) −$51,150B) $21,850C) $29,300D) −$70,900E) −$89,40051) Williamsburg Market is an all-equity firm that has net income of $96,200, depreciation expense of $6,300, and an increase in net working capital of $2,800. What is the amount of the net cash from operating activity?A) $91,300B) $99,700C) $93,400D) $105,300E) $113,70052) The accounts payable of a company changed from $136,100 to $104,300 over the course of a year. This change represents a:A) use of $31,800 of cash as investment activity.B) source of $31,800 of cash as an operating activity.C) source of $31,800 of cash as a financing activity.D) source of $31,800 of cash as an investment activity.E) use of $31,800 of cash as an operating activity.53) Oil Creek Auto has sales of $3,340, net income of $274, net fixed assets of $2,600, and current assets of $920. The firm has $430 in inventory. What is the common-size statement value of inventory?A) 12.22 percentB) 44.16 percentC) 16.54 percentD) 13.36 percentE) 46.74 percent54) Pittsburgh Motors has sales of $4,300, net income of $320, total assets of $4,800, and total equity of $2,950. Interest expense is $65. What is the common-size statement value of the interest expense?A) .89 percentB) 1.51 percentC) 1.69 percentD) 2.03 percentE) 1.35 percent55) Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $223, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61,accounts receivable of $204, inventory of $527, and net fixed assets of $1,216. What is this year's common-base-year value of inventory?A) .67B) .91C) .88D) 1.04E) 1.1856) Duke's Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value of the quick ratio?A) 2.25B) .53C) .71D) .89E) 1.3557) Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio?A) .31B) .42C) .47D) .51E) .5658) DJ's has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure?A) 31.47 daysB) 47.52 daysC) 56.22 daysD) 68.05 daysE) 104.62 days59) Corner Books has a debt-equity ratio of .57. What is the total debt ratio?A) .36B) .30C) .44D) 2.27E) 2.7560) SS Stores has total debt of $4,910 and a debt-equity ratio of 0.52. What is the value of the total assets?A) $16,128.05B) $7,253.40C) $9,571.95D) $11,034.00E) $14,352.3161) JK Motors has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 21 percent. What is the value of the cash coverage ratio?A) 15.21B) 12.14C) 17.27D) 23.41E) 12.6862) Terry's Pets paid $2,380 in interest and $2,200 in dividends last year. The times interest earned ratio is 2.6 and the depreciation expense is $680. What is the value of the cash coverage ratio?A) 1.42B) 2.72C) 2.94D) 2.89E) 2.4663) The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $123,900, and accounts receivable of $78,900. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?A) 74.19 daysB) 84.69 daysC) 78.07 daysD) 96.46 daysE) 71.01 days64) Flo's Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit?A) 11.88 daysB) 22.20 daysC) 16.23 daysD) 14.50 daysE) 18.67 days65) The Harrisburg Store has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars' worth of sales are generated from every $1 in total assets?A) $1.08B) $1.14C) $1.19D) $84E) $9366) TJ's has annual sales of $813,200, total debt of $171,000, total equity of $396,000, and a profit margin of 5.78 percent. What is the return on assets?A) 8.29 percentB) 6.48 percentC) 9.94 percentD) 7.78 percentE) 8.02 percent67) Frank's Used Cars has sales of $807,200, total assets of $768,100, and a profit margin of 6.68 percent. The firm has a total debt ratio of 54 percent. What is the return on equity?A) 13.09 percentB) 12.04 percentC) 11.03 percentD) 8.56 percentE) 15.26 percent68) Bernice's has $823,000 in sales. The profit margin is 4.2 percent and the firm has 7,500 shares of stock outstanding. The market price per share is $16.50. What is the price-earnings ratio?A) 3.58B) 3.98C) 4.32D) 3.51E) 4.2769) Hungry Lunch has net income of $73,402, a price-earnings ratio of 13.7, and earnings per share of $.43. How many shares of stock are outstanding?A) 13,520B) 12,460C) 165,745D) 171,308E) 170,70270) A firm has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 21.3, and a book value per share of $7.92. What is the market-to-book ratio?A) 2.12B) 1.84C) 1.39D) 2.45E) 2.6971) Taylor's Men's Wear has a debt-equity ratio of 48 percent, sales of $829,000, net income of $47,300, and total debt of $206,300. What is the return on equity?A) 19.29 percentB) 11.01 percentC) 15.74 percentD) 18.57 percentE) 14.16 percent72) Nielsen's has inventory of $29,406, accounts receivable of $46,215, net working capital of $4,507, and accounts payable of $48,919. What is the quick ratio?A) 1.55B) .49C) 1.32D) .94E) .9273) The Strong Box has sales of $859,700, cost of goods sold of $648,200, net income of $93,100, and accounts receivable of $102,300. How many days of sales are in receivables?A) 57.60 daysB) 40.32 daysC) 54.53 daysD) 29.41 daysE) 43.43 days74) Corner Books has sales of $687,400, cost of goods sold of $454,200, and a profit margin of 5.5 percent. The balance sheet shows common stock of $324,000 with a par value of $5 a share, and retained earnings of $689,500. What is the price-sales ratio if the market price is $43.20 per share?A) 4.28B) 12.74C) 6.12D) 4.07E) 14.5175) Gem Jewelers has current assets of $687,600, total assets of $1,711,000, net working capital of $223,700, and long-term debt of $450,000. What is the debt-equity ratio?A) .87B) .94C) 1.21D) 1.15E) 1.0676) Russell's has annual sales of $649,200, cost of goods sold of $389,400, interest of $23,650, depreciation of $121,000, and a tax rate of 21 percent. What is the cash coverage ratio for the year?A) 8.43B) 10.99C) 11.64D) 5.87E) 18.2277) Lawn Care, Inc., has sales of $367,400, costs of $183,600, depreciation of $48,600, interest of $39,200, and a tax rate of 25 percent. The firm has total assets of $422,100, long-term debt of $102,000, net fixed assets of $264,500, and net working capital of $22,300. What is the return on equity?A) 24.26 percentB) 15.38 percentC) 38.96 percentD) 29.96 percentE) 17.06 percent78) Frank's Welding has net fixed assets of $36,200, total assets of $51,300, long-term debt of $22,000, and total debt of $29,700. What is the net working capital to total assets ratio?A) 12.18 percentB) 16.82 percentC) 14.42 percentD) 17.79 percentE) 9.90 percent79) The Green Fiddle has current liabilities of $28,000, sales of $156,900, and cost of goods sold of $62,400. The current ratio is 1.22 and the quick ratio is .71. How many days on average does it take to sell the inventory?A) 128.13 daysB) 74.42 daysC) 199.81 daysD) 147.46 daysE) 83.53 days80) Green Yard Care has net income of $62,300, a tax rate of 21 percent, and a profit margin of 6.7 percent. Total assets are $1,100,500 and current assets are $328,200. How many dollars of sales are being generated from every dollar of net fixed assets?A) $2.83B) $1.37C) $.84D) $1.20E) $1.2381) Jensen's Shipping has total assets of $694,800 at year's end. The beginning owners' equity was $362,400. During the year, the company had sales of $711,000, a profit margin of 5.2 percent, a tax rate of 21 percent, and paid $12,500 in dividends. What is the equity multiplier at year-end?A) 1.67B) 1.72C) 1.93D) 1.80E) 1.8682) Western Gear has net income of $12,400, a tax rate of 21 percent, and interest expense of $1,600. What is the times interest earned ratio for the year?A) 9.63B) 7.75C) 10.81D) 14.97E) 10.9783) Big Tree Lumber has earnings per share of $1.36. The firm's earnings have been increasing at an average rate of 2.9 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $23.40. What is the firm's PEG ratio?A) 2.27B) 11.21C) 4.85D) 3.94E) 5.9384) Townsend Enterprises has a PEG ratio of 5.3, net income of $49,200, a price-earnings ratio of 17.6, and a profit margin of 7.1 percent. What is the earnings growth rate?A) 2.48 percentB) 1.06 percentC) 3.32 percentD) 5.20 percentE) 10.60 percent85) A firm has total assets with a current book value of $71,600, a current market value of $82,300, and a current replacement cost of $90,400. What is the value of Tobin's Q?A) .85B) .87C) .90D) .94E) .9186) Dixie Supply has total assets with a current book value of $368,900 and a current replacement cost of $486,200. The market value of these assets is $464,800. What is the value of Tobin's Q?A) .79B) .76C) .96D) 1.26E) 1.0587) Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $101,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market-to-book ratio?A) 2.75 timesB) 3.18 timesC) 3.54 timesD) 4.01 timesE) 4.20 times88) The Tech Store has annual sales of $416,000, a price-earnings ratio of 18, and a profit margin of 3.7 percent. There are 12,000 shares of stock outstanding. What is the price-sales ratio?A) .97B) .67C) 1.08D) 1.15E) .8689) Lassiter Industries has annual sales of $328,000 with 8,000 shares of stock outstanding. The firm has a profit margin of 4.5 percent and a price-sales ratio of 1.20. What is the firm's price-earnings ratio?A) 21.9B) 17.4C) 18.6D) 26.7E) 24.390) Drive-Up has sales of $31.4 million, total assets of $27.6 million, and total debt of $14.9 million. The profit margin is 3.7 percent. What is the return on equity?A) 6.85 percentB) 9.15 percentC) 11.08 percentD) 13.31 percentE) 14.21 percent91) Corner Supply has a current accounts receivable balance of $246,000. Credit sales for the year just ended were $2,430,000. How many days on average did it take for credit customers to pay off their accounts during this past year?A) 44.29 daysB) 55.01 daysC) 55.50 daysD) 36.95 daysE) 41.00 days92) BL Industries has ending inventory of $302,800, annual sales of $2.33 million, and annual cost of goods sold of $1.41 million. On average, how long did a unit of inventory sit on the shelf before it was sold?A) 47.43 daysB) 22.18 daysC) 78.38 daysD) 61.78 daysE) 83.13 days93) Billings Inc. has net income of $161,000, a profit margin of 7.6 percent, and an accounts receivable balance of $127,100. Assume that 66 percent of sales are on credit. What is the days' sales in receivables?A) 21.90 daysB) 27.56 daysC) 33.18 daysD) 35.04 daysE) 36.19 days94) Stone Walls has a long-term debt ratio of .6 and a current ratio of 1.2. Current liabilities are $800, sales are $7,800, the profit margin is 6.5 percent, and return on equity is 15.5 percent. What is the amount of the firm's net fixed assets?A) $8,880.15B) $8,017.43C) $7,666.67D) $5,848.15E) $8,977.43。

公司理财精要版原书第12版习题库答案Ross12e_Chapter12_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter12_TB

公司理财精要版原书第12版习题库答案Ross12e_Chapter12_TBFundamentals of Corporate Finance, 12e (Ross)Chapter 12 Some Lessons from Capital Market History1) Stacy purchased a stock last year and sold it today for $4a share more than her purchase price. She received a total of $1.15 per share in dividends. Which one of the following statements is correct in relation to this investment?A) The dividend yield is expressed as a percentage of the par value.B) The capital gain would have been less had Stacy not received the dividends.C) The total dollar return per share is $2.85.D) The capital gains yield is positive.E) The dividend yield is greater than the capital gains yield.2) Which one of the following correctly describes the dividend yield?A) Next year's annual dividend divided by today's stock priceB) This year's annual dividend divided by today's stock priceC) This year's annual dividend divided by next year's expected stock priceD) Next year's annual dividend divided by this year's annual dividendE) The increase in next year's dividend over this year's dividend divided by this year's dividend3) Bayside Marina just announced it is decreasing its annual dividend from $1.48 per share to $1.45 per share effective immediately. If the dividend yield remains at its pre-announcement level, then you know the stock price:A) was unaffected by the announcement.B) increased proportionately with the dividend decrease.C) decreased proportionately with the dividend decrease.D) decreased by $.03 per share.E) increased by $.03 per share.4) Which one of the following statements related to capital gains is correct?A) The capital gains yield includes only realized capital gains.B) An increase in an unrealized capital gain will increase the capital gains yield.C) The capital gains yield must be either positive or zero.D) The capital gains yield is expressed as a percentage of a security's total return.E) The capital gains yield represents the total return earned by an investor.5) Which of the following yields on a stock can be negative?A) Dividend yieldB) Capital gains yieldC) Capital gains yield and total returnD) Dividend yield, capital gains yield, and total returnE) Dividend yield and total return6) Small-company stocks, as the term is used in the textbook, are best defined as the:A) 500 newest corporations in the U.S.B) companies whose stock trades OTC.C) smallest 20 percent of the companies listed on the NYSE.D) smallest 25 percent of the companies listed on NASDAQ.E) companies whose stock is listed on NASDAQ.7) The historical record for the period 1926–2016 supports which one of the following statements?A) When large-company stocks have a negative return, they will have a negative return for at least two consecutive years.B) The return on U.S. Treasury bills exceeds the inflation rate by at least .5 percent each year.C) There was only one year during the period when double-digit inflation occurred.D) Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year.E) The inflation rate was positive each year throughout the period.8) Which one of the following time periods is associated with low rates of inflation?A) 1941–1942B) 1973–1974C) 2014–2015D) 1979–1980E) 1946–19479) For the period 1926–2016, U.S. Treasury bills always:A) provided an annual rate of return that exceeded the annual inflation rate.B) had an annual rate of return in excess of 1.2 percent.C) provided a positive annual rate of return.D) earned a higher annual rate of return than long-term government bonds.E) had a greater variation in returns year-over-year than did long-term government bonds.10) Which one of the following statements is a correct reflection of the U.S. financial markets for the period 1926–2016?A) U.S. Treasury bill returns never exceeded a return of 9 percent in any one year.B) U.S. Treasury bills had an annual return in excess of 10 percent in three or more years.C) Inflation equaled or exceeded the return on U.S. Treasury bills every year during the period.D) Long-term government bonds outperformed U.S. Treasury bills every year during the period.E) National deflation occurred in at least one year during every decade during the period.11) For the period 2009–2016, U.S. Treasury bills had an annual rate of return that was:A) between .5 and 1 percent.B) between 1 and 2 percent.C) negative in at least one year.D) negative for two or more years.E) between 0 and .25 percent.12) Which one of the following categories of securities had the highest average annual return for the period 1926–2016?A) U.S. Treasury billsB) Large-company stocksC) Small-company stocksD) Long-term corporate bondsE) Long-term government bonds13) Which one of the following categories of securities had the lowest average risk premium for the period 1926–2016?A) Long-term government bondsB) Small-company stocksC) Large-company stocksD) Long-term corporate bondsE) U.S. Treasury bills14) The rate of return on which type of security is normallyused as the risk-free rate of return?A) Long-term Treasury bondsB) Long-term corporate bondsC) Treasury billsD) Intermediate-term Treasury bondsE) Intermediate-term corporate bonds15) For the period 1926–2016, the average risk premium on large-company stocks was about:A) 12.7 percent.B) 10.4 percent.C) 8.6 percent.D) 6.9 percent.E) 7.3 percent.16) Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return?A) Risk premiumB) Geometric average returnC) Arithmetic average returnD) Standard deviationE) Variance17) Which one of the following statements correctly applies to the period 1926–2016?A) Large-company stocks earned a higher average risk premium than did small-company stocks.B) The average inflation rate exceeded the average return on U.S. Treasury bills.C) Large-company stocks had an average annual return of14.7 percent.D) Inflation averaged 2.6 percent for the period.E) Long-term corporate bonds outperformed long-term government bonds.18) The excess return is computed as the:A) return on a security minus the inflation rate.B) return on a risky security minus the risk-free rate.C) risk premium on a risky security minus the risk-free rate.D) risk-free rate plus the inflation rate.E) risk-free rate minus the inflation rate.19) Which one of the following earned the highest risk premium over the period 1926–2016?A) Long-term corporate bondsB) U.S. Treasury billsC) Small-company stocksD) Large-company stocksE) Long-term government bonds20) What was the average rate of inflation over the period of 1926–2016?A) Less than 2.0 percentB) Between 2.0 and 2.4 percentC) Between 2.4 and 2.8 percentD) Between 2.8 and 3.2 percentE) Greater than 3.2 percent21) Assume you invest in a portfolio of long-term corporate bonds. Based on the period 1926–2016, what average annual rate of return should you expect to earn?A) Less than 5 percentB) Between 5 and 6 percentC) Between 6 and 7 percentD) Between 7 and 8 percentE) More than 8 percent22) The average annual return on small-company stocks was about ________ percent greater than the average annual return on large-company stocks over the period 1926–2016.A) 3B) 5C) 7D) 9E) 1123) Based on the period 1926-2016, the actual real return on large-company stocks has been around:A) 9 percent.B) 10 percent.C) 6 percent.D) 7 percent.E) 8 percent.24) To convince investors to accept greater volatility, you must:A) decrease the risk premium.B) increase the risk premium.C) decrease the real return.D) decrease the risk-free rate.E) increase the risk-free rate.25) Which one of the following best defines the variance of an investment's annual returns over a number of years?A) The average squared difference between the arithmetic and the geometric average annual returnsB) The squared summation of the differences between the actual returns and the average geometric returnC) The average difference between the annual returns andthe average return for the periodD) The difference between the arithmetic average and the geometric average return for the periodE) The average squared difference between the actual returns and the arithmetic average return26) Which one of the following categories of securities had the most volatile annual returns over the period 1926–2016?A) Long-term corporate bondsB) Large-company stocksC) Intermediate-term government bondsD) U.S. Treasury billsE) Small-company stocks27) If the variability of the returns on large-company stocks were to decrease over the long-term, you would expect which one of the following as related to large-company stocks to occur as a result?A) Increase in the risk premiumB) Increase in the average long-term rate of returnC) Decrease in the 68 percent probability range of returnsD) Increase in the standard deviationE) Increase in the geometric average rate of return28) Which one of the following statements is correct based on the historical record for the period 1926–2016?A) The standard deviation of returns for small-company stocks was double that of large-company stocks.B) U.S. Treasury bills had a zero standard deviation of returns because they are considered to be risk-free.C) Long-term government bonds had a lower return but a higher standard deviation on average than did long-term corporate bonds.D) Inflation was less volatile than the returns on U.S. Treasury bills.E) Long-term government bonds were less volatile than intermediate-term government bonds.29) What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average?A) 1.0 percentB) 2.5 percentC) 5.0 percentD) 16 percentE) 32 percent30) Which one of the following is a correct ranking of securities based on the volatility of their annual returns over the period of 1926–2016? Rank from highest to lowest.A) Large-company stocks, U.S. Treasury bills, long-term government bondsB) Small-company stocks, long-term corporate bonds, large-company stocksC) Long-term government bonds, long-term corporate bonds, intermediate-term government bondsD) Large-company stocks, small-company stocks, long-term government bondsE) Intermediate-term government bonds, long-term corporate bonds, U.S. Treasury bills31) Which one of the following had the least volatile annual returns over the period of 1926–2016?A) Large-company stocksB) InflationC) Long-term corporate bondsD) U.S. Treasury billsE) Intermediate-term government bonds32) Which one of the following statements is correct based on the period 1926–2016?A) Long-term government bonds had more volatile annual returns than did the long-term corporate bonds.B) The standard deviation of the annual rate of inflation was less than 3 percent.C) U.S Treasury bills have a zero variance in returns because they are risk-free.D) The risk premium on small-company stocks was less than10 percent.E) The risk premium on all U.S. government securities is 0 percent.33) Generally speaking, which of the following best correspond to a wide frequency distribution?A) High standard deviation, low rate of returnB) Low rate of return, large risk premiumC) Small risk premium, high rate of returnD) Small risk premium, low standard deviationE) High standard deviation, large risk premium34) Standard deviation is a measure of which one of the following?A) Average rate of returnB) VolatilityC) ProbabilityD) Risk premiumE) Real returns35) Which one of the following is defined by its mean and its standard deviation?A) Arithmetic nominal returnB) Geometric real returnC) Normal distributionD) VarianceE) Risk premium36) Which of the following statements are true based on the historical record for 1926–2016?A) Risk-free securities produce a positive real rate of return each year.B) Bonds are generally a safer, or less risky, investment than are stocks.C) Risk and potential reward are inversely related.D) The normal distribution curve for large-company stocks is narrower than the curve for small-company stocks.E) Returns are more predictable over the short term than they are over the long term.37) Estimates of the rate of return on a security based on the historical arithmetic average will probably tend to ________ the expected return for the long-term and estimates using the historical geometric average will probably tend to ________ the expected return for the short-term.A) overestimate; overestimateB) overestimate; underestimateC) underestimate; overestimateD) underestimate; underestimateE) accurately estimate; accurately estimate38) The primary purpose of Blume's formula is to:A) compute an accurate historical rate of return.B) determine a stock's true current value.C) consider compounding when estimating a rate of return.D) determine the actual real rate of return.E) project future rates of return.39) The average compound return earned per year over a multiyear period is called the ________ average return.A) arithmeticB) standardC) variantD) geometricE) real40) The return earned in an average year over a multiyear period is called the ________ average return.A) arithmeticB) standardC) variantD) geometricE) real41) Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock market under these conditions?A) Riskless marketB) Evenly distributed marketC) Zero volatility marketD) Blume's marketE) Efficient capital market42) Which one of the following statements best defines the efficient market hypothesis?A) Efficient markets limit competition.B) Security prices in efficient markets remain steady as new information becomes available.C) Mispriced securities are common in efficient markets.D) All securities in an efficient market are zero net present value investments.E) All securities provide the same positive rate of return when the market is efficient.43) Which one of the following is the most likely reason whya stock price might not react at all on the day that new information related to the stock's issuer is released? Assume the market is semistrong form efficient.A) Company insiders were aware of the information prior to the announcement.B) Investors do not pay attention to daily news.C) Investors tend to overreact.D) The news was positive.E) The information was expected.44) Which one of the following is most indicative of a totally efficient stock market?A) Extraordinary returns earned on a routine basisB) Positive net present values on stock investments over the long-termC) Zero net present values for all stock investmentsD) Arbitrage opportunities which develop on a routine basisE) Realizing negative returns on a routine basis45) Which one of the following statements is correct concerning market efficiency?A) Real asset markets are more efficient than financial markets.B) If a market is efficient, arbitrage opportunities should be common.C) In an efficient market, some market participants will have an advantage over others.D) A firm will generally receive a fair price when it issues new shares of stock if the market is efficient.E) New information will gradually be reflected in a stock's price to avoid any sudden price changes in an efficient market.46) Efficient financial markets fluctuate continuously because:A) the markets are continually reacting to old information as that information is absorbed.B) the markets are continually reacting to new information.C) arbitrage trading is limited.D) current trading systems require human intervention.E) investments produce varying levels of net present values.47) Inside information has the least value when financial markets are:A) weak form efficient.B) semiweak form efficient.C) semistrong form efficient.D) strong form efficient.E) inefficient.48) Evidence seems to support the view that studying public information to identify mispriced stocks is:A) effective as long as the market is only semistrong form efficient.B) effective provided the market is only weak form efficient.C) ineffective.D) effective only in strong form efficient markets.E) ineffective only in strong form efficient markets.49) Which one of the following statements related to market efficiency tends to be supported by current evidence?A) It is easy for investors to earn abnormal returns.B) Short-run price movements are easy to predict.C) Markets are most likely only weak form efficient.D) Mispriced stocks are easy to identify.E) Markets tend to respond quickly to new information.50) Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst?A) WeakB) SemiweakC) SemistrongD) StrongE) Perfect51) You are aware that your neighbor trades stocks based on confidential information he overhears at his workplace. This information is not available to the general public. This neighbor continually brags to you about the profits he earns on these trades. Given this, you would tend to argue that the financial markets are at best ________ form efficient.A) weakB) semiweakC) semistrongD) strongE) perfect52) The U.S. Securities and Exchange Commission periodically charges individuals with insider trading and claims those individuals have made unfair profits. Given this, you would be most apt to argue that the markets are less than ________ form efficient.A) weakB) semiweakC) semistrongD) strongE) perfect53) Individual investors who continually monitor the financial markets seeking mispriced securities:A) earn excess profits on all of their investments.B) make the markets increasingly more efficient.C) are never able to find a security that is temporarily mispriced.D) are overwhelmingly successful in earning abnormal profits.E) are always quite successful using only historical price information as their basis of evaluation.54) One year ago, you purchased a stock at a price of $43.20 per share. The stock pays quarterly dividends of $.18 per share. Today, the stock is selling for $45.36 per share. What is your capital gain on this investment?A) $1.44B) $2.16C) $2.80D) $1.74E) $2.3455) Six months ago, you purchased 300 shares of stock in Global Trading at a price of $26.19 a share. The stock pays a quarterly dividend of $.12 a share. Today, you sold all of your shares for $27.11 per share. What is the total amount of your dividend income on this investment?A) $36B) $72C) $348D) $144E) $20456) One year ago, you purchased 200 shares of SL Industries stock at a price of $18.97 a share. The stock pays an annual dividend of $1.42 per share. Today, you sold all of your shares for $17.86 per share. What is your total dollar return on this investment?A) $50B) $91C) $58D) $62E) $8257) You own 850 shares of Western Feed Mills stock valued at $53.15 per share. What is the dividend yield if your total annual dividend income is $1,256?A) 2.67 percentB) 2.78 percentC) 1.83 percentD) 2.13 percentE) 2.54 percent58) West Wind Tours stock is currently selling for $52.30 a share. The stock has a dividend yield of 2.48 percent. How much dividend income will you receive per year if you purchase 600 shares of this stock?A) $824.96B) $836.20C) $724.80D) $762.00E) $778.2259) One year ago, you purchased a stock at a price of $38.22a share. Today, you sold the stock and realized a total loss of 11.09 percent on your investment. Your capital gain was –$4.68 a share.What was your dividend yield?A) 1.15 percentB) .88 percentC) 1.02 percentD) .67 percentE) .38 percent60) You just sold 427 shares of stock at a price of $19.07 a share. You purchased the stock for $18.83 a share and have received total dividends of $614. What is the total capital gain on this investment?A) $716.48B) $511.52C) $102.48D) $618.48E) $476.5261) Last year, you purchased 400 shares of Analog stock for $12.92 a share. You have received a total of $136 in dividends and $4,301 in proceeds from selling the shares. What is your capital gains yield on this stock?A) 9.09 percentB) 6.73 percentC) ?16.78 percentD) ?14.14 percentE) ?11.02 percent62) Today, you sold 540 shares of stock and realized a total return of 7.3 percent. You purchased the shares one year ago at a price of $24 a share and have received a total of $86 in dividends. What is your capital gains yield on this investment?A) 5.68 percentB) 6.64 percentC) 6.39 percentD) 7.26 percentE) 7.41 percent63) Four months ago, you purchased 900 shares of LBM stock for $7.68 a share. Last month, you received a dividend payment of $.12 a share. Today, you sold the shares for $9.13 a share. What is your total dollar return on this investment?A) $1,305B) $1,413C) $1,512D) $1,394E) $1,08064) One year ago, you purchased 100 shares of Best Wings stock at a price of $38.19 a share. The company pays an annual dividend of $.46 per share. Today, you sold for the shares for $37.92 a share. What is your total percentage return on this investment?A) 2.62 percentB) 1.93 percentC) 2.72 percentD) 1.08 percentE) .50 percent65) Suppose a stock had an initial price of $76 per share, paida dividend of $1.42 per share during the year, and had an ending share price of $81. What was the capital gains yield?A) 6.17 percentB) 6.69 percentC) 7.05 percentD) 6.58 percentE) 5.44 percent66) Suppose you bought a $1,000 face value bond with a coupon rate of 5.6 percent one year ago. The purchase price was $987.50. You sold the bond today for $994.20. If the inflation rate last year was 2.6 percent, what was your exact real rate of return on this investment?A) 4.88 percentB) 5.32 percentC) 3.65 percentD) 3.78 percentE) 4.47 percent67) Leo purchased a stock for $63.80 a share, received a dividend of $2.68 a share and sold the shares for $59.74 each. During the time he owned the stock, inflation averaged 2.8 percent. What is his approximate real rate of return on this investment?A) ?.64 percentB) ?4.96 percentC) ?2.16 percentD) 2.16 percentE) 4.96 percent68) Christina purchased 500 shares of stock at a price of $62.30 a share and sold the shares for $64.25 each. She also received $738 in dividends. If the inflation rate was 3.9 percent, what was her exact real rate of return on this investment?A) 4.20 percentB) 1.54 percentC) 1.60 percentD) 3.95 percentE) 5.50 percent69) What is the amount of the risk premium on a U.S.Treasury bill if the risk-free rate is 3.1 percent, the inflation rate is2.6 percent, and the market rate of return is 7.4 percent?A) 0 percentB) 2.8 percentC) .5 percentD) 1.7 percentE) 4.3 percent70) You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 7 percent, 13 percent, 19 percent, ?8 percent, and 15 percent. Suppose the average inflation rate over this time period was 2.6 percent and the average T-bill rate was 3.1 percent. Based on this information, what was the average nominal risk premium?A) 6.6 percentB) 6.1 percentC) 9.2 percentD) 1.2 percentE) 3.5 percent71) You bought one of Shark Repellant's 6 percent coupon bonds one year ago for $867. These bonds pay annual payments, have a face value of $1,000, and mature 12 years from now. Suppose you decide to sell your bonds today when the required return on the bonds is 7.4 percent. The inflation rate over the past year was 2.9 percent. What was your total real return on this investment?A) 6.48 percentB) 6.61 percentC) 8.18 percentD) 7.44 percentE) 9.70 percent72) You find a certain stock that had returns of 8 percent, ?3 percent, 12 percent, and 17 percent for four of the last five years. The average return of the stock for the past five-year period was 6 percent. What is the standard deviation of the stock's returns for the five-year period?A) 10.39 percentB) 4.98 percentC) 7.16 percentD) 9.25 percentE) 5.38 percent73) A stock had returns of 5 percent, 14 percent, 11 percent, ?8 percent, and 6 percent over the past five years. What is the standard deviation of these returns?A) 7.74 percentB) 8.21 percentC) 9.68 percentD) 8.44 percentE) 7.49 percent74) The common stock of Air Express had annual returns of 11.7 percent, 8.8 percent,16.7 percent, and ?7.9 percent over the last four years, respectively. What is thestandard deviation of these returns?A) 8.29 percentB) 9.14 percentC) 11.54 percentD) 7.78 percentE) 10.66 percent75) A stock had annual returns of 5.3 percent, ?2.7 percent, 16.2 percent, and 13.6 percentover the past four years. Which one of the following best describes the probability that this stock will produce a return of20 percent or more in a single year?A) Less than 2.5 percent but more than .5 percentB) More than 16 percentC) Less than .5 percentD) Less than 1 percent but more than .5 percentE) Less than 16 percent but more than 2.5 percent76) A stock has an expected rate of return of 9.8 percent anda standard deviation of 15.4 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year?A) less than 16 percentB) less than .5 percentC) less than 1.0 percentD) less than 2.5 percentE) less than 5.0 percent77) A stock had annual returns of 11.3 percent, 9.8 percent, ?7.3 percent, and 14.6percent for the past four years. Based on this information, what is the 95 percentprobability range of returns for any one given year?A) ?2.4 to 17.5 percentB) ?2.60 to 11.80 percentC) ?12.5 to 26.7 percentD) ?10.4 to 12.3 percentE) ?10.9 to 25.1 percent78) Aimee is the owner of a stock with annual returns of 17.6 percent, ?11.7 percent, 5.6 percent, and 9.7 percent for the past four years. She thinks the stock may achieve a returnof 17 percent again this coming year. What is the probability that your friend is correct?A) Less than .5 percentB) Greater than .5 percent but less than 1 percentC) Greater than 1 percent but less than 2.5 percentD) Greater than 2.5 percent but less than 16 percentE) Greater than 16 percent79) A stock had returns of 3 percent, 12 percent, 26 percent, ?14 percent, and ?1 percent for the past five years. Based on these returns, what is the approximate probability that this stock will return at least 20 percent in any one given year?A) Approximately .1 percentB) Approximately 5 percentC) Approximately 2.5 percentD) Approximately .5 percentE) Approximately 16 percent80) A stock had returns of 14 percent, 13 percent, ?10 percent, and 7 percent for thepast four years. Which one of the following best describes the probability that this stockwill lose no more than 10 percent in any one year?A) Greater than .5 but less than 1.0 percentB) Greater than 1 percent but less than 2.5 percentC) Greater than 2.5 percent but less than 16 percentD) Greater than 84 percent but less than 97.5 percentE) Greater than 95 percent81) Over the past five years, a stock produced returns of 11 percent, 14 percent, 4percent, ?9 percent, and 5 percent. What is the probability that an investor in this stock。

公司理财精要版原书第12版教师手册RWJ_Fund_12e_IM_Chapter16

公司理财精要版原书第12版教师手册RWJ_Fund_12e_IM_Chapter16

Chapter 16FINANCIAL LEVERAGE AND CAPITAL STRUCTURE POLICYSLIDES16.1Chapter 1616.2Key Concepts and Skills16.3Chapter Outline16.4Capital Restructuring16.5Choosing a Capital Structure16.6The Effect of Leverage16.7Example: Financial Leverage, EPS and ROE – Part I16.8Example: Financial Leverage, EPS and ROE – Part II16.9Break-Even EBIT16.10Example: Break-Even EBIT16.11Corporate Borrowing Conclusions16.12Corporate Borrowing and Homemade Leverage16.13Example: Homemade Leverage16.14Table 16.516.15Capital Structure Theory16.16Capital Structure Theory under Three Special Cases16.17Case I – Propositions I and II16.18Case I – Equations16.19Figure 16.316.20Example: Case I16.21The CAPM, the SML and Proposition II16.22Business Risk and Financial Risk16.23Case II – Cash Flow16.24Example: Case II16.25Interest Tax Shield16.26Case II – Proposition I16.27Example: Case II – Proposition I16.28Figure 16.416.29Case II – Proposition II16.30Example: Case II – Proposition II16.31Figure 16.516.32Case III16.33Bankruptcy Costs16.34More Bankruptcy Costs16.35Figure 16.616.36Figure 16.716.37Conclusions16.38Figure 16.816.39Managerial Recommendations16.40Figure 16.916.41The Value of the Firm16.42The Pecking-Order Theory16.43Observed Capital Structure16.44Work the Web Example16.45Bankruptcy Process – Part I16.46Bankruptcy Process – Part II16.47Quick Quiz16.48Ethics Issues16.49Comprehensive Problem16.50End of ChapterCHAPTER WEB SITESCHAPTER ORGANIZATION16.1The Capital Structure QuestionFirm Value and Stock Value: An ExampleCapital Structure and the Cost of Capital16.2The Effect of Financial LeverageThe Basics of Financial LeverageCorporate Borrowing and Homemade Leverage16.3Capital Structure and the Cost of Equity CapitalM&M Proposition I: The Pie ModelThe Cost of Equity and Financial Leverage: M&M Proposition IIBusiness and Financial Risk16.4M&M Propositions I and II with Corporate TaxesThe Interest Tax ShieldTaxes and M&M Proposition ITaxes, the WACC, and Proposition IIConclusion16.5Bankruptcy CostsDirect Bankruptcy CostsIndirect Bankruptcy Costs16.6Optimal Capital StructureThe Static Theory of Capital StructureOptimal Capital Structure and the Cost of CapitalOptimal Capital Structure: A RecapCapital Structure: Some Managerial Recommendations16.7The Pie AgainThe Extended Pie ModelMarketed Claims versus Nonmarketed Claims16.8The Pecking-Order TheoryInternal Financing and the Pecking OrderImplications of the Pecking Order16.9Observed Capital Structures16.10 A Quick Look at the Bankruptcy ProcessLiquidation and ReorganizationFinancial Management and the Bankruptcy ProcessAgreements to Avoid Bankruptcy16.11Summary and ConclusionsANNOTATED CHAPTER OUTLINESlide 1: Chapter 16Slide 2: Key Concepts and SkillsSlide 3: Chapter Outline16.1.The Capital Structure QuestionSlide 4: Capital RestructuringA.Firm Value and Stock Value: An ExampleThe value of the firm equals the market value of the debt plus themarket value of the equity (firm value identity). This is just V = D+ E. When the market value of debt is given and constant, anychange in the value of the firm results in an identical change in thevalue of the equity. The key to this reasoning lies in the fixednature of debt and the derivative nature of stock. (In a futurechapter, you will cover the topic of viewing a firm’s equity as acall option on the firm’s assets.)B.Capital Structure and the Cost of CapitalSlide 5: Choosing a Capital StructureThe “optimal” or “target” capital structure is that debt/equity mixthat simultaneously (a) maximizes the value of the firm, (b)minimizes the weighted average cost of capital, and (c) maximizesthe market value of the common stock.Maximizing the value of the firm is the goal of managing capitalstructure.Lecture Tip: Students sometimes fail to understand the mechanicsof why “minimizing WACC maximizes firm value.” Remindstudents that a firm is just a portfolio of projects, some withpositive NPVs and some with negative NPVs when evaluated at theWACC. The value of the firm is the sum of the NPVs of itscomponent projects. We already know that lower discount ratesincrease NPVs; consequently, decreasing the WACC will increasefirm value.16.2.The Effect of Financial LeverageSlide 6: The Effect of LeverageA.The Basics of Financial LeverageExample (additional example from the one in the book)Current Proposed Assets $5,000,000 $5,000,000Debt 0 2,500,000Equity 5,000,000 2,500,000D/E ratio 0 1 Share price (assume it doesn’t change when$10 $10shares are repurchased)Shares outstanding 500,000 250,000Interest Rate N/A 10% Slide 7: Example: Financial Leverage, EPS and ROE – Part ISlide 8: Example: Financial Leverage, EPS and ROE – Part IICurrent capital structure: No debtRecession Expected ExpansionEBIT $300,000 $650,000 $1,000,000Interest Expense 0 0 0Net Income $300,000 $650,000 $1,000,000ROE 6% 13% 20%EPS $0.60 $1.30 $2.00Proposed capital structure: D/E = 1; interest rate = 10%Recession Expected ExpansionEBIT $300,000 $650,000 $1,000,000Interest Expense 250,000 250,000 250,000Net Income $50,000 $400,000 $750,000ROE 2% 16% 30%EPS $0.20 $1.60 $3.00Slide 9: Break-Even EBITSlide 10: Example: Break-Even EBITLecture Tip: You may wish to provide the following example tobetter solidify the students’ understanding of the variability inROE due to leverage. Ask the class to consider the differencebetween ROE and ROA for an all equity firm given various saleslevels. It’s easy to show that ROE = ROA in this case because totalequity = total assets. The substitution of debt for equity results inROE equaling ROA at only one level of sales. The fixed interestexpense and lower number of common shares outstanding causeROE to change by a larger percentage than the change in ROA forany given change in sales.Slide 11: Corporate Borrowing ConclusionsWe can conclude that:-The effect of financial leverage depends on EBIT-Financial leverage increases ROE and EPS when EBIT isgreater than the cross-over point-The variability of EPS and ROE is increased as leverageincreasesLecture Tip: Many students feel that if a company expects toachieve the break-even EBIT, it should automatically issue debt.You should emphasize that this is a break-even point relative toEBIT and EPS. Beyond this point, EPS will be larger under thedebt alternative, but with additional debt, the firm will haveadditional financial risk that would increase the required return onits common stock. A higher required return might offsetthe increase in EPS, resulting in a lower firm value despite thehigher EPS. The M&M models, described in upcoming sections,will offer key points to make about this relationship.B.Corporate Borrowing and Homemade LeverageSlide 12: Corporate Borrowing and Homemade LeverageHomemade leverage – if all market participants have equal accessto the capital markets, there’s nothing sp ecial about corporateborrowingSlide 13: Example: Homemade LeverageSlide 14: Table 16.5Suppose the firm in the previous example does not change itscapital structure. An investor can replicate the returns of theproposed borrowing by making her own D/E ratio equal to 1 forthe investment. Suppose an investor buys 50 shares with her ownmoney and 50 shares by borrowing $500 at 10% interest. Thepayoffs are:Recession Expected Expansion EPS – unlevered firm $0.60 $1.30 $2.00Earnings for 100 shares $60.00 $130.00 $200.00Less interest on $500 at 10% 50.00 50.00 50.00Net earnings $10.00 $80.00 $150.00Return on investment = net earnings / $500 2% 16% 30%The investor has been able to convert her return to what she wouldhave gotten if the company had undertaken the proposed capitalstructure and she had just purchased $500 worth of stock.Suppose instead the firm does switch to the proposed capitalstructure. An investor can “unlever” the firm by purchasing boththe firm’s stock and bonds. Consider an investor who invests $250in the stock and $250 in the bonds paying 10%. (Note that in bothsituations, the investor’s total cash outlay is $500.)Recession Expected Expansion EPS – levered firm $0.20 $1.60 $3.00Earnings for 25 shares 5.00 40.00 75.00Plus interest on $250 at 10% 25.00 25.00 25.00Net earnings $30.00 $65.00 $100.006% 13% 20% Return on investment = net earnings /$500In this case, the investor is able to earn the same return as shewould have earned if the firm did not change capital structure andshe just invested in stock.16.3.Capital Structure and the Cost of Equity CapitalSlide 15: Capital Structure TheorySlide 16: Capital Structure Theory under Three Special CasesA.M&M Proposition I: The Pie ModelSlide 17: Case I – Propositions I and IISlide 18: Case I – EquationsSlide 19: Figure 16.3Slide 20: Example – Case IM&M Proposition I – without corporate taxes and bankruptcycosts, the firm cannot affect its value by altering its capitalstructure.B.The Cost of Equity and Financial Leverage: M&M Proposition II Slide 21: The CAPM, the SML and Proposition IIM&M Proposition II –a firm’s cost of equity capital is a positivelinear function of its capital structure (still assuming no taxes):WACC = R A = (E/V)R E + (D/V)R D;R E = R A + (R A– R D)(D/E)As more debt is used, the return on equity increases, but the changein the proportion of debt versus equity just offsets that increase andthe WACC does not change.Lecture Tip: Many students wonder why we are even consideringa situation in which taxes do not exist. We are trying to determinewhat risk-return trade-off is best for the firm’s stockholders. Oneway to get a good understanding of what is relevant to the capitalstructure decision is to start in a “perfect” world and then relaxassumptions as we go. By relaxing one assumption at a time, wecan get a better idea of the impact on the capital structuredecision. This is the classic process of “model building” ineconomics—start simple and add complexity one step at a time.Lecture Tip:According to Proposition II,R E = R A + (R A− R D)(D/E). An alternative explanation is asfollows: In the absence of debt, the required return on equityequals the return on the firm’s assets, R A. As we add debt, weincrease the variability of cash flows available to stockholders,thereby increasing stockholder risk.C.Business and Financial RiskSlide 22: Business Risk and Financial RiskYou may wish to skip over the distinction between the asset betaand the equity beta. The key point is that Proposition II shows thatreturn on equity depends on both business risk and financial risk.Business risk – the risk i nherent in a firm’s operations. I t dependson the systematic risk of the firm’s assets and it determines the firstcomponent of the required return on equity, R A.Financial risk – the extra risk to stockholders that results from debtfinancing. It determines the second component of the requiredreturn on equity, (R A− R D)(D/E).Lecture Tip: Some students may be confused by the concepts offinancial risk and default risk. Proposition II suggests that even ifa firm could issue risk-free debt, its financial risk would exceedzero. Point out that the focus here is on the risk (and requiredreturn) to the shareholder. Regardless of the certainty associatedwith the promised returns to bondholders (default risk), higherlevels of debt imply greater volatility of earnings to stockholders.16.4.M&M Propositions I and II with Corporate TaxesSlide 23: Case II – Cash FlowSlide 24: Example: Case IIA.The Interest Tax ShieldSlide 25: Interest Tax ShieldTax savings arise from the deductibility of interest. It is the keybenefit from borrowing over issuing equity.All else equal, a lower tax rate reduces the value of the tax shield.Thus, the recent Tax Cuts and Jobs Act, which reduced corporatetax rates, may induce firms to reduce the amount of debt in theirstructure.Taxes and M&M Proposition ISlide 26: Case II – Proposition ISlide 27: Example: Case II – Proposition ISlide 28: Figure 16.4Annual interest tax savings = D(R D)(T C)If we assume perpetual debt, then the present value of the interesttax savings = D(R D)(T C) ⁄ R D = DT CWe also assume perpetual cash flows to the firm. This is done forsimplicity, but the ultimate result is the same even if you use cashflows that change through time.Value of an unlevered firm, V U = EBIT(1 − T C)/R U, where R U isthe cost of capital for an all equity firm.Value of a levered firm, V L = V U + DT CSlide 29: Case II – Proposition IISlide 30: Example: Case II – Proposition IILecture Tip:This is a good point at which to digress a bit on theidea that financing decisions can generate positive NPVs. Putsimply, a positive NPV decision is one for which the firm obtainssomething for less than market value. Just as the relativeinefficiency of the physical asset markets makes the search forpositive NPV projects worthwhile, the efficiency of the financialmarkets makes positive NPV financing projects unlikely. This canchange in the presence of market imperfections. Differential taxtreatment between interest and dividends is a big marketimperfection. Further discussion of the successes and failures offinancial engineering may serve to illustrate the core concepts: (1)firm value comes largely from the asset side of the balance sheetand (2) positive NPV financing projects can also be created, but ingeneral, financing is a zero-NPV proposition.B.ConclusionSlide 31: Figure 16.5As a firm increases its debt-equity ratio, WACC declines.16.5.Bankruptcy CostsSlide 32: Case IIIReal-World Tip: In 1997, the remaining assets of FruehaufCorporation, described by Barrons as “the once-dominant”manufacturer of truck trailers, were sold off for a mere $50million, bringing an end to the story of a great firm laid low byover-reliance on debt financing.Founded in the 1940’s, the firm controlled one-third of the trailermarket in the early 1980’s, but then went private in a leveragedbuyout in 1986 to avoid a hostile takeover bid. Saddled with debt itfound difficult to service, the firm went through a number ofrestructurings until the firm filed for chapter 11 in 1996. At thattime its shares were delisted from the NYSE. And, as Barronsnotes, “… the shareholders had been wiped out, leaving thecarcass to be picked over by those with secure claims toFruehauf’s assets … [b]lood was in the water.” By 1997, the lastdivision was sold and the remaining assets were sold to WabashNational.A.Direct Bankruptcy CostsSlide 33: Bankruptcy CostsThe key disadvantage of the use of debt is bankruptcy costs.Direct bankruptcy costs are the legal and administrative expensesdirectly associated with bankruptcy. Generally, these costs arequantifiable and measurable.B.Indirect Bankruptcy CostsSlide 34: More Bankruptcy CostsIndirect bankruptcy costs (e.g., difficulties in hiring and retaininggood people because the firm is in financial difficulty) are hard tomeasure and generally take the form of forgone revenues,opportunity costs, etc.Financial distress costs – the direct and indirect costs of avoidingbankruptcy.16.6.Optimal Capital StructureA.The Static Theory of Capital StructureSlide 35: Figure 16.6-Firms borrow because tax shields are valuable-Borrowing is constrained by the costs of financial distress-The optimal capital structure balances the incremental benefitsand costs of borrowingB.Optimal Capital Structure and the Cost of CapitalSlide 36: Figure 16.6The optimal capital structure is the debt-equity mix that minimizesthe WACC.C.Optimal Capital Structure: A RecapSlide 37: ConclusionsSlide 38: Figure 16.8Case I – No taxes or bankruptcy costs; firm value is unaffected bythe choice of capital structureCase II – Corporate taxes, no bankruptcy costs; firm value ismaximized when the firm uses as much debt as possible due to theinterest tax shieldCase III – Corporate taxes and bankruptcy costs; firm value ismaximized where the additional benefit from the interest tax shieldis just offset by the increase in expected bankruptcy costs—there isan optimal capital structureD.Capital Structure: Some Managerial RecommendationsSlide 39: Managerial RecommendationsTaxes – tax shields are more important for firms with highmarginal tax rates. While firms all face the same 21 percent federaltax rate beginning in 2018, other taxes (such as state taxes) createdifferent effective tax rates. The higher the effective tax rate, thegreater the incentive to borrow.Financial distress – the lower the risk (or cost) of distress, the morelikely a firm is to borrow fundsInternational Note: In theory, the static model of capital structuredescribed in this section applies to multinational firms as well asto domestic firms. The multinational firm should seek to minimizeits global cost of capital by balancing the debt-related tax shieldsacross all of the countries in which the firm does business againstglobal agency and bankruptcy costs. However, this assumes thatworldwide capital markets are well-integrated and that foreignexchange markets are highly efficient. In such an environment,financial managers would seek the optimal global capitalstructure. In practice, of course, the existence of capital marketsegmentation, differential taxes, and regulatory frictions make thedetermination of the global optimum much more difficult than thetheory would suggest.16.7.The Pie AgainA.The Extended Pie ModelSlide 40: Figure 16.9Cash Flow = Payments to stockholders (E) + Payments to creditors(D) + Payments to the government (G) + Payments to bankruptcycourts and lawyers (B) + Payments to all other claimantsB.Marketed Claims versus Nonmarketed ClaimsSlide 41: The Value of the FirmMarketed claims – claims against cash flow that can be bought andsold (bonds, stock)Nonmarketed claims – claims against cash flow that cannot bebought and sold (taxes)V M = value of marketed claimsV N = value of nonmarketed claimsV T = value of all claims = V M + V N= E + D + G + B + …Given the firm’s cash flows, the optimal capital structure is the onethat maximizes V M or minimizes V N.16.8.The Pecking-Order TheorySlide 42: The Pecking-Order TheoryAsymmetric information between buyers and sellers means thatexisting firm owners know more than potential investors. The viewis that existing owners will sell equity when it is overvalued, whichis a negative signal to investors. Thus, this is avoided at all costs,particularly since equity issuance is also costly.A.Internal Financing and the Pecking OrderRules of the pecking order:#1: Use internal financing first#2: Issue debt next#3: New equity lastB.Implications of the Pecking OrderThe pecking-order theory is in contrast to the tradeoff theory inthat:-there is no target D/E ratio.-profitable firms will use less debt.-companies like financial slack.16.9.Observed Capital StructuresSlide 43: Observed Capital StructureSlide 44: Work the Web ExampleTable 16.7 lists ratios of debt to total capital for several U.S. industries.16.10.A Quick Look at the Bankruptcy ProcessSlide 45: Bankruptcy Process – Part IFinancial distress:•Business failure – business terminates with a loss to creditors•Legal bankruptcy – bankruptcy is a legal proceeding for liquidating or reorganizing•Technical insolvency – when a firm defaults on a legal obligation•Accounting insolvency – when total book liabilities exceed total book assets•Bankruptcy – the transfer of some, or all, of the firm’s assets tocreditorsA.Liquidation and ReorganizationSlide 46: Bankruptcy Process – Part IILiquidation – termination of the business, selling off all assetsReorganization – keeping the business going, often issuing newsecurities to replace oldBankruptcy liquidation (Chapter 7 or straight liquidation) – assetsare sold and distributed to creditors in the order of the absolutepriority ruleBankruptcy reorganization (Chapter 11) – involves a legalproceeding in which the company restructures its debt obligations.A plan is filed with the court and the various stakeholders have toagree on the plan.Lecture Tip: It has been said that Carl Icahn’s takeover of TWA inthe early 1980s represents the quintessential example o f the “80stwo-step”—borrow extensively to take the firm private, then file forbankruptcy. Icahn, one of the most noted takeover artists of theperiod, was not as successful at running TWA as he had been withsome of his other businesses. Following repeated losses, he soldthe firm to the employees, who struggled mightily to put the firmback on its feet. Nonetheless, TWA filed for bankruptcyreorganization in 1992 and again in 1995. In each case, a portionof firm ownership was transferred from the owners to the creditorsin return for the latter’s willingness to eliminate a portion of theoutstanding debt.B.Financial Management and the Bankruptcy ProcessThe right to go bankrupt is valuable because it stops creditors fromfurther draining assets from the firm and may be used to improvethe firm’s strategic position vis-à-vis its competitors.C.Agreements to Avoid BankruptcyVoluntary arrangements to restructure debt are often made. Anextension postpones the date of payment, while compositioninvolves a reduced payment.16.11.Summary and ConclusionsSlide 47: Quick QuizSlide 48: Ethics IssuesSlide 49: Comprehensive ProblemSlide 50: End of Chapter。

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Fundamentals of Corporate Finance, 12e (Ross)Chapter 16 Financial Leverage and Capital Structure Policy1) Which one of these statements is correct?A) Capital structure has no effect on shareholder value.B) The optimal capital structure occurs when the cost of equity is minimized.C) The optimal capital structure maximizes shareholder value.D) Shareholder value is maximized when WACC is also maximized.E) Unlevered firms have more value than levered firms when firms are profitable.2) A firm should select the capital structure that:A) produces the highest cost of capital.B) maximizes the value of the firm.C) minimizes taxes.D) is fully unlevered.E) equates the value of debt with the value of equity.3) The value of a firm is maximized when the:A) cost of equity is maximized.B) tax rate equals the cost of capital.C) levered cost of capital is maximized.D) weighted average cost of capital is minimized.E) debt-equity ratio is minimized.4) The optimal capital structure has been achieved when the:A) debt-equity ratio is equal to 1.B) weight of equity is equal to the weight of debt.C) cost of equity is maximized given a pretax cost of debt.D) debt-equity ratio is such that the cost of debt exceeds the cost of equity.E) debt-equity ratio results in the lowest possible weighted average cost of capital.5) Assume you are reviewing a graph that plots earnings per share (EPS) against earnings before interest and taxes (EBIT). The steeper the slope of the plotted line the:A) lower the impact of financial leverage.B) lower the debt-equity ratio.C) higher the tax rate.D) greater the sensitivity of EPS to changes in EBIT.E) lower the probability of a negative EPS.6) You have computed the break-even point between a levered and an unlevered capital structure. Ignore taxes. At the break-even level, the:A) company is earning just enough to pay for the cost of the debt.B) company's earnings before interest and taxes are equal to zero.C) earnings per share for the levered option are exactly double those of the unlevered option.D) advantages of leverage exceed the disadvantages of leverage.E) company has a debt-equity ratio of .50.7) Which one of the following statements is correct concerning the relationship between a levered and an unlevered capital structure? Ignore taxes.A) At the break-even point, there is no advantage to debt.B) The earnings per share will equal zero when EBIT is zero for a levered firm.C) The advantages of leverage are inversely related to the level of EBIT.D) The use of leverage at any level of EBIT increases the EPS.E) EPS are more sensitive to changes in EBIT when a firm is unlevered.8) Jessica invested in QRT stock when the company was unlevered. Since then, QRT has changed its capital structure and now has a debt-equity ratio of .36. To unlever her position, Jessica needs to:A) borrow some money and purchase additional shares of QRT stock.B) maintain her current equity position as the debt of the firm does not affect her personally.C) sell 36 percent of her shares of QRT stock and hold the proceeds in cash.D) sell 36 percent of her shares of QRT stock and loan out the sale proceeds.E) create a personal debt-equity ratio of .36.9) Which one of the following makes the capital structure of a company irrelevant?A) TaxesB) Interest tax shieldC) 100 percent dividend payout ratioD) Debt-equity ratio that is greater than 0 but less than 1E) Homemade leverage10) Homemade leverage is:A) the incurrence of debt by a corporation in order to pay dividends to shareholders.B) the exclusive use of debt to fund a corporate expansion project.C) the use of personal borrowing to alter an individual's exposure to financial leverage.D) best defined as an increase in a company's debt level.E) the term used to describe the capital structure of a levered firm.11) The concept of homemade leverage is most associated with:A) M&M Proposition I with no tax.B) M&M Proposition II with no tax.C) M&M Proposition I with tax.D) M&M Proposition II with tax.E) the static theory proposition.12) Which one of the following statements is correct in relation to M&M Proposition II, without taxes?A) The cost of equity remains constant as the debt-equity ratio increases.B) The cost of equity is inversely related to the debt-equity ratio.C) The required return on assets is equal to the weighted average cost of capital.D) Financial risk determines the return on assets.E) Financial risk is unaffected by the debt-equity ratio.13) M&M Proposition II, without taxes, is the proposition that:A) the capital structure of a company has no effect on that company's value.B) the cost of equity depends on the return on debt, the debt-equity ratio, and the tax rate.C) a company's cost of equity is a linear function with a slope equal to (R A− R D).D) the cost of equity is equivalent to the required rate of return on assets.E) the size of the pie does not depend on how the pie is sliced.14) The business risk of a company:A) depends on the company's level of unsystematic risk.B) is inversely related to the required return on the company's assets.C) is dependent upon the relative weights of the debt and equity used to finance the company.D) has a positive relationship with the company's cost of equity.E) has no relationship with the required return on a company's assets according to M&M theory.15) Financial risk is:A) the risk inherent in a company's operations.B) a type of unsystematic risk.C) inversely related to the cost of equity.D) dependent upon a company's capital structure.E) irrelevant to the value of a company.16) Which one of the following states that the value of a company is unrelated to the company's capital structure?A) Homemade leverageB) M&M Proposition I, no taxC) M&M Proposition II, no taxD) Pecking-order theoryE) Static theory of capital structure17) Which one of the following states that the cost of equity capital is directly and proportionally related to capital structure?A) Static theory of capital structureB) M&M Proposition IC) M&M Proposition IID) Homemade leverageE) Pecking-order theory18) Which one of the following is the equity risk that is most related to the daily operations of a firm?A) Market riskB) Systematic riskC) Extrinsic riskD) Business riskE) Financial risk19) Which one of the following is the equity risk related to capital structure policy?A) Market riskB) Systematic riskC) Static riskD) Business riskE) Financial risk20) M&M Proposition I with no tax supports the argument that:A) business risk has no effect on the return on assets.B) the cost of equity rises as leverage rises.C) a company's debt-equity ratio is completely irrelevant.D) business risk is irrelevant.E) homemade leverage is irrelevant.21) Westover Mills reduced its taxes last year by $210 by increasing its interest expense by $1,000. Which one of the following terms is used to describe this tax savings?A) Interest tax shieldB) Interest creditC) Homemade leverage shieldD) Current tax yieldE) Tax-loss interest22) M&M Proposition I with tax implies that the:A) weighted average cost of capital decreases as the debt-equity ratio increases.B) value of a company is inversely related to the amount of leverage used by that company.C) value of an unlevered company equals the value of a levered company plus the value of the interest tax shield.D) cost of capital is the same regardless of the mix of debt and equity used.E) cost of equity increases as the debt-equity ratio decreases.23) M&M Proposition I with taxes is based on the concept that:A) the optimal capital structure is the one that is totally financed with equity.B) capital structure is irrelevant because investors and companies have differing tax rates.C) WACC is unaffected by a change in the company's capital structure.D) the value of a taxable company increases as the level of debt increases.E) the cost of equity increases as the debt-equity ratio increases.24) M&M Proposition II with taxes:A) has the same general implications as M&M Proposition II without taxes.B) states that capital structure is irrelevant to shareholders.C) supports the argument that business risk is determined by the capital structure decision.D) supports the argument that the cost of equity decreases as the debt-equity ratio increases.E) concludes that the capital structure decision is irrelevant to the value of a firm.25) The present value of the interest tax shield is expressed as:A) T C D/R A.B) V U + T C D.C) T C DR A.D) [EBIT(T C D)]/R A.E) T C D.26) The interest tax shield is a key reason why:A) the required rate of return on assets rises when debt is added to the capital structure.B) the value of an unlevered company is equal to the value of a levered company.C) the net cost of debt is generally less than the cost of equity.D) the cost of debt is equal to the cost of equity for a levered company.E) companies prefer equity financing over debt financing.27) Based on M&M Proposition I with taxes, the weighted average cost of capital:A) is equal to the aftertax cost of debt.B) has a linear relationship with the cost of equity capital.C) is unaffected by the tax rate.D) decreases as the debt-equity ratio increases.E) is equal to R U(1 − T C).28) The symbol "R U" refers to the cost of capital for a(n) ________ while "R A" represents the:A) privately owned entity; unlevered cost of capital.B) all-equity company; weighted average cost of capital.C) levered company; cost of capital for an all-equity company.D) levered company; weighted average cost of capital.E) unlevered company; average cost of equity.29) The explicit costs, such as legal and administrative expenses, associated with corporate default are classified as ________ costs.A) flotationB) issueC) direct bankruptcyD) indirect bankruptcyE) unlevered30) Which one of the following is a direct cost of bankruptcy?A) Bypassing a positive NPV project to avoid additional debtB) Investing in cash reservesC) Maintaining a debt-equity ratio that is lower than the optimal ratioD) Losing a key company employeeE) Paying an outside accountant to prepare bankruptcy reports31) The costs incurred by a business in an effort to avoid bankruptcy are classified as ________ costs.A) flotationB) direct bankruptcyC) indirect bankruptcyD) financial solvencyE) capital structure32) The proposition that a company borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs is called:A) the static theory of capital structure.B) M&M Proposition I, with taxes.C) M&M Proposition II, with taxes.D) the pecking-order theory.E) the open markets theorem.33) If a company has the optimal amount of debt, then the:A) direct financial distress costs must equal the present value of the interest tax shield.B) value of the levered company will exceed the value of the unlevered company.C) company has no financial distress costs.D) Value of the firm is equal to V L + T C D.E) debt-equity ratio is equal to 1.34) Which one of the following provides the greatest tendency to increase the percentage of debt included in a company's optimal capital structure?A) Exceptionally high depreciation expensesB) Very low marginal tax rateC) Substantial tax shields from other sourcesD) Low probability of financial distressE) Minimal taxable income35) The capital structure that maximizes the value of a company also:A) minimizes financial distress costs.B) minimizes the cost of capital.C) maximizes the present value of the tax shield on debt.D) maximizes the value of the debt.E) maximizes the present value of the bankruptcy costs.36) The optimal capital structure:A) will be the same for all companies within the same industry.B) will remain constant over time unless the company changes its primary operations.C) will vary over time as taxes and market conditions change.D) places more emphasis on operations than on financing.E) is unaffected by changes in the financial markets.37) The static theory of capital structure advocates that the optimal capital structure for a company:A) is highly dependent upon a constant debt-equity ratio over time.B) remains fixed over time.C) is independent of the company's tax rate.D) is independent of the company's debt-equity ratio.E) equates marginal tax savings from additional debt to the marginal increased bankruptcy costs of that debt.38) The basic lesson of M&M theory is that the value of a company is dependent upon:A) the company's capital structure.B) the total cash flows of that company.C) minimizing the marketed claims.D) the amount of the company's marketed claims.E) size of the stockholders' claims.39) Which one of the following is a marketed claim against the cash flows of a company?A) Tax payment to the IRSB) Dividend payment to shareholdersC) Payment of employees' wagesD) Payment for warranty work on a product produced by the companyE) Payment of legal claim against the company40) The optimal capital structure of a company:A) minimizes the company's tax payments.B) maximizes the value of that company's marketed claims.C) minimizes both the marketed and nonmarketed claims against that company.D) eliminates all nonmarketed claims against that company.E) equates the company's marketed and nonmarketed claims.41) Which form of financing do companies prefer to use first according to the pecking-order theory?A) Regular debtB) Convertible debtC) Common stockD) Preferred stockE) Internal funds42) Which one of the following is correct according to pecking-order theory?A) There is a direct relationship between a company's profits and its debt levels.B) Companies avoid external debt except as a last resort.C) A company's capital structure is independent of its need for external funding.D) Companies stockpile internally generated cash.E) Every company has an optimal capital structure.43) With the exception of a few industries, most corporations in the U.S. tend to:A) minimize taxes.B) underutilize debt.C) rely equally on debt and equity.D) have relatively similar debt-equity ratios across industry lines.E) rely more heavily on debt than on equity.44) In general, the capital structures of U.S. firms:A) tend to overweigh debt in relation to equity.B) generally result in debt-equity ratios between .45 and .55.C) are fairly standard for all SIC codes.D) tend to exceed a debt-equity ratio of .45.E) vary significantly across industries.45) Edwards Farm Products was unable to meet its financial obligations and was forced into using legal proceedings to restructure itself so that it could continue as a viable business. The process this company underwent is known as a:A) merger.B) repurchase program.C) liquidation.D) reorganization.E) divestiture.46) Which one of these actions generally occurs first in a bankruptcy reorganization?A) Filing proofs of claimB) Dividing creditors into classesC) Confirming the reorganization planD) Distributing cash, property, and securities to creditorsE) Submitting a reorganization plan47) Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, how long after a company firm files for bankruptcy protection do creditors have to wait before submitting their own reorganization plan to the court?A) 60 daysB) 45 daysC) 180 daysD) 12 monthsE) 18 months48) The absolute priority rule determines:A) when a firm must be declared officially bankrupt.B) how a distressed firm is reorganized.C) which judge is assigned to a particular bankruptcy case.D) how long a reorganized firm is allowed to remain under bankruptcy protection.E) which parties receive payment first in a bankruptcy proceeding.49) Bankruptcy:A) occurs when total equity is negative.B) is a legal proceeding.C) occurs when a company cannot meet its financial obligations.D) refers to a loss of value for debt holders.E) is an inexpensive means of reorganizing a company.50) A company is technically insolvent when:A) it has a negative book value.B) its total debt exceeds its total equity.C) it is unable to meet its financial obligations.D) it files for bankruptcy protection.E) the market value of its stock is less than its book value.51) Which one of the following statements related to Chapter 7 bankruptcy is correct?A) A company in Chapter 7 bankruptcy is reorganizing its operations such that it can return to being a viable concern.B) Under a Chapter 7 bankruptcy, a trustee will assume control of the company's assets until those assets can be liquidated.C) Chapter 7 bankruptcies are always involuntary on the part of the firm.D) Under a Chapter 7 bankruptcy, the claims of creditors are paid prior to the administrative costs of the bankruptcy.E) Chapter 7 bankruptcy allows a firm to restructure its equity such that new shares of stock can be issued.52) Which one of the following will generally have the highest priority when assets are distributed in a bankruptcy proceeding?A) Consumer claimsB) Dividend payment to preferred shareholdersC) Company contribution to the employees' retirement accountD) Payment to an unsecured creditorE) Payment of employees' wages53) Which one of these statements related to Chapter 11 bankruptcy is correct?A) Prepacks apply only to Chapter 7, not Chapter 11, bankruptcies.B) Senior management must be replaced prior to exiting a Chapter 11 bankruptcy.C) A company can only file for Chapter 11 after it becomes totally insolvent.D) Companies sometimes file for Chapter 11 in an attempt to gain a competitive advantage.E) Chapter 11 involves the total liquidation of the bankrupt firm.54) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005:A) permits creditors to file a prepack immediately after a firm files for bankruptcy protection.B) prevents creditors from submitting any reorganization plans.C) prevents companies from filing for bankruptcy protection more than once.D) permits key employee retention plans only if the affected employee(s) has another job offer.E) allows the payment of bonuses to all key employees to entice those employees to remain in the company's employ.55) Katlin Markets is debating between a levered and an unlevered capital structure. The all-equity capital structure would consist of 60,000 shares of stock. The debt and equity option would consist of 45,000 shares of stock plus $250,000 of debt with an interest rate of 7.25 percent. What is the break-even level of earnings before interest and taxes between these two options? Ignore taxes.A) $50,500B) $68,200C) $81,400D) $66,667E) $72,50056) Holly's is currently an all-equity firm that has 7,200 shares of stock outstanding at a market price of $41 a share. The firm has decided to leverage its operations by issuing $60,000 of debt at an interest rate of 7.6 percent. This new debt will be used to repurchase shares of the outstanding stock. The restructuring is expected to increase the earnings per share. What is the minimum level of earnings before interest and taxes that the firm is expecting? Ignore taxes.A) $22,435B) $19,516C) $26,400D) $17,141E) $25,02057) Paradise Travels is an all-equity firm that has 9,000 shares of stock outstanding at a market price of $27 a share. Management has decided to issue $25,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 7.3 percent. What are the earnings per share at the break-even level of earnings before interest and taxes? Ignore taxes.A) $2.28B) $1.97C) $1.67D) $2.12E) $1.9258) Miller's Dry Goods is an all-equity firm with 40,000 shares of stock outstanding at a market price of $50 a share. The company's earnings before interest and taxes are $160,000. Miller's has decided to add leverage to its financial operations by issuing $200,000 of debt at 7 percent interest and using the proceeds to repurchase shares of stock. Jen owns 500 shares of Miller's stock and can loan out funds at 7 percent interest. How many shares of Miller's stock must Jen sell to offset the leverage that Miller's is assuming? (Assume Jen loans out all of the funds she receives from the sale of stock. Ignore taxes.)A) 125 sharesB) 100 sharesC) 50 sharesD) 25 sharesE) 75 shares59) Theo currently owns 700 shares of JKL, which is an all-equity firm with 320,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $160,000. JKL has decided to issue $500,000 of debt at 7.5 percent interest and use the proceeds to repurchase shares of stock. How many shares of JKL stock must Theo sell to unlever his position if he can loan out funds at 7.5 percent interest? (Assume partial shares can be sold.)A) 38.50B) 42.50C) 50.00D) 43.75E) 46.6760) Naylor's is an all-equity firm with 48,000 shares of stock outstanding at a market price of $25 a share. The company has earnings before interest and taxes of $87,000. Naylor's has decided to issue $400,000 of debt at 7.3 percent and use the proceeds to repurchase shares. Currently, Angela owns 600 shares of Naylor's stock. How many shares of this stock will she continue to own if she unlevers this position? Assume she can loan out funds at 7.3 percent interest. Ignore taxes.A) 200B) 333C) 400D) 425E) 26761) Eastern Markets has no debt outstanding and a total market value of $346,500. Earnings before interest and taxes, EBIT, are projected to be $14,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 13 percent higher. If there is a recession, then EBIT will be 32 percent lower. The firm is considering a debt issue of $16,000 with an interest rate of 6.8 percent. The proceeds will be used to repurchase shares of stock. There are currently 4,500 shares outstanding. Ignore taxes. What will be the percentage change in EPS if the economy enters a recessionary period?A) −35 percentB) −41 percentC) −32 percentD) −28 percentE) −30 percent62) North Side Inc. has no debt outstanding and a total market value of $168,000. Earnings before interest and taxes, EBIT, are projected to be $18,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 22 percent higher. If there is a recession, then EBIT will be 35 percent lower. The company is considering a $50,000 debt issue with an interest rate of 7.4 percent. The proceeds will be used to repurchase shares of stock. There are currently 5,000 shares outstanding and the tax rate is 21 percent. What will be the percentage change in EPS if the economy has a strong expansion?A) 28.80 percentB) 31.26 percentC) 27.69 percentD) 25.45 percentE) 22.00 percent63) Galaxy Products is comparing two different capital structures, an all-equity plan (Plan I) anda levered plan (Plan II). Under Plan I, the company would have 112,000 shares of stock outstanding. Under Plan II, there would be 75,000 shares of stock outstanding and $600,000 in debt. The interest rate on the debt is 6.7 percent and there are no taxes. What is the break-even EBIT?A) $87,879B) $121,686C) $101,111D) $133,333E) $91,41464) ABC and XYZ are identical firms in all respects except for their capital structures. ABC is all-equity financed with $530,000 in stock. XYZ has the same total value but uses both stock and perpetual debt; its stock is worth $310,000 and the interest rate on its debt is 7.9 percent. Both firms expect EBIT to be $62,222. Ignore taxes. The cost of equity for ABC is ________ percent and for XYZ it is ________ percent.A) 11.74; 9.82B) 11.74; 12.48C) 11.74; 14.47D) 12.09; 9.82E) 12.09; 12.4865) Lamont Corp. is debt-free and has a weighted average cost of capital of 12.7 percent. The current market value of the equity is $2.3 million and there are no taxes. According to M&M Proposition I, what will be the value of the company if it changes to a debt-equity ratio of .85?A) $18,110,236B) $1,955,000C) $15,393,701D) $2,705,882E) $2,300,00066) Ignoring taxes, Pewter & Glass has a weighted average cost of capital of 10.82 percent. The company can borrow at 7.4 percent. What is the cost of equity if the debt-equity ratio is .68?A) 12.87%B) 13.15%C) 11.09%D) 15.85%E) 12.49%67) The Jean Outlet is an all-equity firm that has 64,000 shares of stock outstanding. The company has decided to borrow $120,000 to repurchase 1,500 shares of its stock from the estate of a deceased shareholder. What is the total value of the firm if you ignore taxes?A) $5,340,000B) $4,638,000C) $5,068,700D) $4,950,000E) $5,120,00068) Noelle owns 12 percent of The Toy Factory. She has decided to retire and wants to sell all of her shares in this closely held, all-equity firm. The other shareholders have agreed to have the company borrow the $248,000 needed to repurchase her shares of stock. What is the total market value of the company? Ignore taxes.A) $2,066,667B) $2,489,111C) $2,608,515D) $2,414,141E) $2,333,33369) Winter's Toyland has a debt-equity ratio of .57. The pretax cost of debt is 8.2 percent and the required return on assets is 14.7 percent. What is the company's cost of equity if you ignoretaxes?A) 14.70 percentB) 19.74 percentC) 15.29 percentD) 17.46 percentE) 18.41 percent70) Roy's Welding has a cost of equity of 14.1 percent and a pretax cost of debt of 7.7 percent. The required return on the assets is 13.2 percent. What is the debt-equity ratio based on M&M II with no taxes?A) .164B) .217C) .408D) .108E) .58371) The Corner Bakery has a debt-equity ratio of .53. The required return on assets is 13.5 percent and its cost of equity is 15.8 percent. What is the pretax cost of debt based on M&M Proposition II with no taxes?A) 8.78 percentB) 10.68 percentC) 9.16 percentD) 7.56 percentE) 8.40 percent72) L.A. Clothing has expected earnings before interest and taxes of $63,300, an unlevered cost of capital of 14.7 percent, and a combined tax rate of 23 percent. The company also has $11,000 of debt that carries a coupon rate of 7 percent. The debt is selling at par value. What is the value of this company?A) $342,579B) $273,333C) $284,108D) $334,101E) $305,476。

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