11 May SHOULD SUNK COSTS BE INCLUDED AS INCREMENTAL CASH FLOWS?
Which of the
following is true regarding income bonds?
(Points : 4)
Are relatively uncommon
Can be exchanged for a fixed number of shares at maturity only
Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back
2.(TCO 6 and 7) Financial leverage deals with: (Points : 4)
the relationship of fixed and variable costs.
the percentage of debt in the capital structure.
the entire income statement.
the entire balance sheet.
3.(TCO 6) Company A has a bond outstanding with $90 annual
interest payment, a market price of $820, and a maturity date in five
years. Assume the par value to be $1,000. What is the bond’s current yield? (Points : 4)
9%
14%
11%
Cannot be determined
None of the above
4.(TCO 2) Which of the following does not reduce collection
float? (Points : 4)
consolidate all lockboxes into one lockbox, located near the
home office.
consolidate all lockboxes into one lockbox, located far from the
home office.
make sure all checks it receives are properly dated and signed.
utilize the benefits of the Check Clearing Act for the 21st
Century.
5.(TCO 2) Storage and tracking costs, insurance and taxes, and
losses due to theft are examples of:
(Points : 4)
Inventory depletion costs
Sunk costs
Carrying costs
Shortage costs
6.(TCO 1) Recent
announcements of massive layoffs have increased stock prices for certain
companies. Critics argue that this reaction encourages companies to fire
employees. Do you agree or disagree? (Points : 10)
7.(TCO 4) What are sunk
costs? Provide at least two real-life examples of sunk costs for a project.
Should sunk costs be included as incremental cash flows? Why or why not?
Explain your rationale. (Points : 10)
8.(TCO 8) What is the
difference between business risk and financial risk? If Company A has a
higher business risk than Company B, should its cost of capital be higher?
Why or why not? Explain your rationale.(Points
: 10)
9.(TCO 2) What are the costs
associated with extending (or not extending) a credit policy to customers? (Points : 10)
10.(TCO 6 and 7) How can you
calculate the cost of debt? What methods can you use? Provide at least two
examples. (Points : 10)
1.(TCO 1) Which of the following are capital structure concerns?
I. how to obtain short-term financing
II. the company’s financing mix
III. the cost of funds
IV. how and where to raise money (Points : 4)
I and II
I, II and III
II, III and IV
I, III and IV
All of the above
2.(TCO 1) Market values reflect which of the following: (Points : 4)
The amount someone is willing to pay today for an asset.
The value of the asset based on generally-accepted accounting
principles.
The assets historical cost.
A and B only
None of the above
3.(TCO 1) Use the following tax table to answer this question:
Taxable Income
Tax Rate
$0-
$50,000
15%
$50,001-
75,000
25
$75,001-
100,000
34
$100,001-
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