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Which of the following statements is true regarding the payback method?
The payback method determines the number of years that it will take for a company to recoup or be paid back for its investment. The payback method does not consider the time value of money.
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Which of the following phrases could be used to describe the Discounted Cash Flow formula?
The Discounted Cash Flow formulas involving dividends, price, and growth is also known as the cost of retained earnings.
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Which one of a firm's sources of new capital usually has the lowest after-tax cost?
Debt is a cheaper source of financing than equity. In addition, there is a tax deduction for interest paid on debt.
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Which of the following rates is most commonly compared to the internal rate of return to evaluate whether to make an investment?
WACC is used as the hurdle rate within capital budgeting techniques. Investments that provide a return that exceeds the WACC should continuously add to the value of the firm.
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Which one of the following factors might cause a firm to increase the debt in its financial structure?
Interest on debt financing is tax-deductible whereas dividends from equity are not. An increase in tax rates might cause a firm to increase debt financing.
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The marketable securities with the least amount of default risk are:
Default risk is the risk that the security will not be paid. US Treasury securities are issued by the Treasury Department which has no risk of non payment.
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Which of the following measurement models is being used if a calculation includes risk-free rate, beta coefficient, rate of return, and required rate of return?
These factors are included in the calculation of CAPM.
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Which of the following would never be included in the WACC formula?
Risk is not assessed in calculating the WACC. WACC is used to determine the cost of financing for a firm.
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If a firm's credit terms require payment within 45 days but allow a discount of 2 percent if paid within 15 days (using a 360 day year), the approximate cost/benefit of the trade credit terms is:
\[360 / (45 - 15)\] * \[2% / (100% - 2%)\]
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If a retailer's terms of trade are 3/10, net 45 with a particular supplier, what is the cost on an annual basis of not taking the discount? Assume a 360 day year.
\[360 / (45 - 10)\] * \[3% / (100% - 3%)\]
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A firm purchased $10,000 of merchandise inventory on May 1. The terms of the purchase were 2/10, net 30. The company would pay what amount on May 9?
A 2% discount on $10,000 = a $200 discount. $10,000 - $200 = $9,800.
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If the dollar price of the euro rises, which of the following will occur?
If the dollar price of the euro rises, then the euro is getting more expensive, thus the dollar is getting less expensive.
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One euro will buy US $1.48 and a British pound will buy US $2.06. What is the cross rate of euros per pound?
2.06/1.48=1.39
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A discount on accounts payables would encourage which of the following activities?
When offering a discount to a customer for paying earlier, a firm would forfeit some income in order to increase cash on hand.
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Which of the following rates is most commonly compared to the internal rate of return to evaluate whether to make an investment?
WACC is used as the hurdle rate within capital budgeting techniques. Investments that provide a return that exceeds the WACC should continuously add to the value of the firm.
Compare your answer with the correct one above
Which one of the following factors might cause a firm to increase the debt in its financial structure?
Interest on debt financing is tax-deductible whereas dividends from equity are not. An increase in tax rates might cause a firm to increase debt financing.
Compare your answer with the correct one above
The marketable securities with the least amount of default risk are:
Default risk is the risk that the security will not be paid. US Treasury securities are issued by the Treasury Department which has no risk of non payment.
Compare your answer with the correct one above
Which of the following measurement models is being used if a calculation includes risk-free rate, beta coefficient, rate of return, and required rate of return?
These factors are included in the calculation of CAPM.
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Which of the following would never be included in the WACC formula?
Risk is not assessed in calculating the WACC. WACC is used to determine the cost of financing for a firm.
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Which one of a firm's sources of new capital usually has the lowest after-tax cost?
Debt is a cheaper source of financing than equity. In addition, there is a tax deduction for interest paid on debt.
Compare your answer with the correct one above