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5/5/2015 Take Test: Exam 3 – FIN360­40_2154_22156https://toro.csudh.edu/webapps/assessment/take/launch.jsp?course_assessment_id=_154836_1&course_id=_181923_1&content_id=_3645971_1&step=null 1/8

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Exams Take Test: Exam 3?

Take Test: Exam 3Test InformationDescription Exam 3 is closed book. It tests your understanding on contents in Chapter 8, 9, and 10. Exam 3contains 30 multiple choice questions and problems. Exam 3 is available between 10:00 am 5/7(Thursday) to 10:00 am 5/10 (Sunday). You have 90 minutes to finish it. You can do the exam twice. Ifyou are not satisfied with the score in your first attempt, you can go over the relevant contents and dothe exam a second time before it’s ended. If you plan to do Exam 3 only once, you should start doingthe exam no later than 7:30 am on 5/10/2015. Once the time is over, the exam will be stopped, andyour results will be automatically saved and submitted. The higher score of your two attempts will becounted. No extention will be given if a student does not complete the exam during the scheduledperiod.InstructionsTimed Test This test has a time limit of 3 hours.This test will save and submit automatically when the time expires.Warnings appear when half the time, 5 minutes, 1 minute, and 30 seconds remain.

MultipleThis test allows 2 attempts. This is attempt number 1.

Attempts

Save All Answers Save and SubmitThe appropriate cost of capital for a project depends ona.the interest rate on the firm’s outstanding long­term bondsb.the risk associated with the projectc. the type of assets used in the project (that is, whether theyare current or fixed assets)d.the type of security issued to finance the project

Question 1
3.33 points Saved

Cash flows on an alternative investment that a firm decides notto make are a(n):

Question 2
3.33 points Saved

Question Completion Status:Remaining Time: 1 hour, 04minutes, 06 seconds.Courses Organizations Portfolios MyBb Library Mail System Check HelpLeon Guy 15/5/2015 Take Test: Exam 3 – FIN360­40_2154_22156https://toro.csudh.edu/webapps/assessment/take/launch.jsp?course_assessment_id=_154836_1&course_id=_181923_1&content_id=_3645971_1&step=null 2/8

a.opportunity cost.b.sunk cost.c. terminal value.d.incremental cash flow.

Cash Flows that occur if and only if a project is accepted are:a.terminal costs.b.incremental cash flows.c. current cash flows.d.sunk costs.Question 33.33 points Saved

Net working capital increases whena.cost of goods sold falls, or interest rate risesb.inventory increases, accounts receivable increases, oraccounts payable fallsc. inventory falls, accounts receivable falls, or accountspayable increasesd.operating expenses fall, or current assets decreaseQuestion 43.33 points Saved

Nalcoa Corp. is financing a project that is in the same industryas its current portfolio of projects. If Nalcoa has a beta of1.2 and the expected market risk premium is 5% while the riskfree rate is 4% then what is the weighted average cost ofcapital for Nalcoa if it is, and plans to continue to be an allequity financed firm?a.there is not enough information to calculate the WACCb.9.5%c. 10.0%d.12.0%Question 53.33 points Saved

A project’s discount ratea.must be lower than the cost of funds for the firm’s currentlist of projects.b.must be high enough to compensate investors for the project’srisk.c. must be less than the WACC of the the firm.d.must be greater than the WACC of the the firm.Question 63.33 points Saved

5/5/2015 Take Test: Exam 3 – FIN360­40_2154_22156https://toro.csudh.edu/webapps/assessment/take/launch.jsp?course_assessment_id=_154836_1&course_id=_181923_1&content_id=_3645971_1&step=null 3/8must be greater than the WACC of the the firm.

The Commerce Company is evaluating a project with the following cash flows:Cash Flow 0: ­$10,000Year 1: $ 4,000,Year 2: $ 6,000Year 3: $ 8,000What is the net present value of the proposed Commerce Companyproject if the discount rate is 9%?a.$4,897.27b.$5,347.52c. $5,198.39d.$3,357.41Question 73.33 points Saved

Other things the same, if the market interest rates decrease, the IRR of a project:a.decreases.b.increases.c. is unaffected.d.cannot be determined without knowing the discount rate.Question 83.33 points Saved

Alpha Car Rental purchased 6 cars for a total of $120,000 threeyears ago. Now it is replacing the cars with newer vehicles. Thebook value company has depreciated 93% of the old cars, and soldthese cars for a total of $ 30,000. Assume a tax rate of 40%.What is the cash inflow from the sale of these vehicles?a.$30,000b.$19,672c. $18,000d.$21,360Question 93.33 points Saved

Future Semiconductor is considering the purchase of photolithographyequipment that will cost $80,000. The equipment requires maintenance of$6,000 at the end of each of the next four years. After four years it willhave no value at all. Assume a cost of capital of 10%. What is the presentvalue of the cost of the equipment?a.$102,168b.$99,019Question 103.33 points Saved

5/5/2015 Take Test: Exam 3 – FIN360­40_2154_22156https://toro.csudh.edu/webapps/assessment/take/launch.jsp?course_assessment_id=_154836_1&course_id=_181923_1&content_id=_3645971_1&step=null 4/8

c. $96,761d.$87,562

A firm has a capital structure of 40% debt and 60% equity. Debtcan be issued at a return of 9%, while the cost of equity forthe firm is 12%. What is the firm’s WACC if the tax rate facingthe firm is 30%?a.10.35%b.9.72%c. 11.78%d.8.92%Question 113.33 points Saved

Suppose a particular investment project will require an initialcash outlay of $800,000 and will generate a cash inflow of$350,000 in each of the next three years. What is the project’sIRR? Suppose a company’s required rate of return is 10%, shouldit accept the project?a.9.72%; accept the projectb.13.82%; reject the projectc. 8.93%; reject the projectd.14.93%; accept the projectQuestion 123.43 points Saved

CapCo has a capital structure that is composed of $20 million ofdebt and $80 million of common equity. If CapCo is in the 35%marginal tax rate, what is its WACC if the yield to investors onCapCo debt is 8% and the cost of CapCo common equity is 10%?a.9.75%b.8.35%c. 9.04%d.8.63%Question 133.33 points Saved

Everything else being equal a lower corporate tax ratea.will not affect the WACC of a firm with debt in its capitalstructureb.will decrease the WACC of a firm with only equity in itscapital structureQuestion 143.33 points Saved

c. will increase the WACC of a firm with debt and equity in its
5/5/2015 Take Test: Exam 3 – FIN360­40_2154_22156https://toro.csudh.edu/webapps/assessment/take/launch.jsp?course_assessment_id=_154836_1&course_id=_181923_1&content_id=_3645971_1&step=null 5/8c.

will increase the WACC of a firm with debt and equity in itscapital structured.will decrease the WACC of a firm with some debt in itscapital structure

Gamma Electronics is considering the purchase of testing equipment that will cost $600,000 toreplace old equipment. Assume the new machine will generate after‐tax savings of $200,000 peryear over the next four years. What’s the payback period for the investment?a.3.0 yearsb.2.0 yearsc. 2.5 yearsd.3.5 yearsQuestion 15 3.33 points Saved

Which of the following is a capital component?a.debtb.accounts receivablec. preferred stockd.a and c aboveQuestion 163.33 points Saved

When a firm introduces a new product and some of the newproduct’s sales come at the expense of the firm’s existingproducts, this is known as:a.incremental costs.b.marginal costs.c. cannibalization.d.sunk costs.Question 173.33 points Saved

Bavarian Sausage has a beta of 0.8. The risk free rate is 3% andthe expected market risk premium is 5.6%. What is the company’scost of equity?a.8.6%b.7.0%c. 7.48%d.11.6%Question 183.33 points Saved

5/5/2015 Take Test: Exam 3 – FIN360­40_2154_22156https://toro.csudh.edu/webapps/assessment/take/launch.jsp?course_assessment_id=_154836_1&course_id=_181923_1&content_id=_3645971_1&step=null 6/8

Capital budgeting must be placed on an incremental basis. This means that ______ must be consideredand _______ must be ignored.a.opportunity cost; sunk costb.cannibalization; opportunity costc. sunk cost; opportunity costd.sunk cost; financing costQuestion 193.33 points Saved

Which of the following is not a potential problem in using theIRR as a capital budgeting technique?a.no real solution for IRRb.multiple IRRsc. the scale problemd.none of the aboveQuestion 203.33 points Saved

Other things the same, if the market interest rates decrease, the NPV of aproject:a.decreases.b.is unaffected.c. cannot be determined without knowing the discount rate.d.increases.Question 213.33 points Saved

XYZ Inc. is considering the purchase of a set of new equipmentthat will have 4 year life and a total NPV cost of $105,000.Assume a cost of capital of 9%. What is the equivalent annualcost of the equipment (EAC)?$31,832$35,734$31,250$32,410Question 223.33 points Saved

A firm pays annual dividend of $4.50 per shares to its preferredstock holders, and the preferred stock’s current market price isQuestion 233.33 points Saved

$52.00 per share. What is the firm’s cost of preferred stock?
5/5/2015 Take Test: Exam 3 – FIN360­40_2154_22156https://toro.csudh.edu/webapps/assessment/take/launch.jsp?course_assessment_id=_154836_1&course_id=_181923_1&content_id=_3645971_1&step=null 7/8$52.00 per share. What is the firm’s cost of preferred stock?

a.11.2%b.9.02%c. 8.65%d.12.5%

You must know all the cash flows of an investment project tocompute itsa.NPV, IRR, PI, and discount payback periodb.NPV, payback period, IRR, PIc. NPV, IRR, PI, payback period, and discount payback periodd.NPV, PI, IRRQuestion 243.33 points Saved

Roger is considering the expansion of his business into aproperty he purchased two years ago. Which of the followingitems should be included in the analysis of this expansion?a.Roger can lease the property to another company for $12,000per year.b.Costs of hiring additional staffc.The expansion will result in a slight increase ofinventory carried.d.All of the above.Question 253.33 points Saved

When the profitability index of a project is greater than 1, the NPV of the project is:a.negative.b.positive.c. cannot be determined without knowing the discount rate.d.equal to zero.Question 263.33 points Saved

An increase in net working capital represents:a.a decrease in fixed assets.b.a cash inflow.c. an increase in fixed assets.d.a cash outflow.Question 273.33 points Saved

5/5/2015 Take Test: Exam 3 – FIN360­40_2154_22156https://toro.csudh.edu/webapps/assessment/take/launch.jsp?course_assessment_id=_154836_1&course_id=_181923_1&content_id=_3645971_1&step=null 8/8Click Save and Submit to save and submit. Click Save All Answers to save all answers.Save All Answers Save and SubmitXYZ Inc. is evaluating a project. The project requires aninital investment of $ 78 million, and has an estimatedNPV of $17 million. What is the profitability index ofthis proposed project?a.1.22b.0.19c. 0.22d.1.19

Question 28
3.33 points Saved

Which statement is true regarding WACC and its components?a.The WACC should be used as the discount rate for all projectsthat the firm considers.b.The cost of debt of a firm is usually less than the cost ofequity of the firm.c. For an all­equity firm, the cost of equity of the firm isgreater than the WACC of the firm.d.The WACC may decrease if the firm uses less debt capital andmore equity capital.

Question 29
3.33 points Saved

Should a firm with plenty of resources invest in projects with NPV > $0?a.The firm must look at the PI and IRR of the projectsb.The firm is indifferent between accepting or rejectingprojects with positive NPVc. Yesd.No

Question 30
3.33 points Saved

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