Part 1 of 1 – Week 8 Required Quiz 100/ 100.0 Points

Question 1 of 25

The firm’s internal growth rate is defined as:

A. retained earnings/net income

B. retained earnings/net assets

C. retained earnings/total assets

D. none of the above

Question 2 of 25

4.0/ 4.0 Points

Briefly describe the traditional position on capital structure.

Question 3 of 25

4.0/ 4.0 Points

Minimizing the weighted average cost of capital (WACC) is the same as:

A. Maximizing the market value of the firm

B. Maximizing the book value of the firm

C. Maximizing the profits of the firm

D. Maximizing the liquidating value of the firm

Question 4 of 25

4.0/ 4.0 Points

The pecking order theory of capital structure predicts that:

A. If two firms are equally profitable, the more rapidly growing firm will borrow more, other things equal

B. Firms prefer equity to debt financing

C. Risky firms will end up borrowing less

D. Risky firms will end up borrowing more

Question 5 of 25

4.0/ 4.0 Points

The cash budget is the primary short-term financial planning tool. The key reasons a cash budget is created are:

I) To estimate your investment in assets

II) To estimate the size and timing of your new cash flows

III) To prepare for potential financing needs

A.I only

B.II and III only

C.II only

D.III only

Question 6 of 25

4.0/ 4.0 Points

Indirect costs of bankruptcy are borne principally by:

A. Bondholders

B. Stockholders

C. Managers

D. The federal government

Question 7 of 25

4.0/ 4.0 Points

Which of the following lists events in the chronological order from earliest to latest?

A. Record date, declaration date, ex-dividend date

B. Declaration date, record date, ex-dividend date

C. Declaration date, ex-dividend date, record date

D. None of the above

Question 8 of 25

4.0/ 4.0 Points

Cash inflow in cash budgeting comes mainly from:

A. Collection on accounts receivable

B. Short-term debt

C. Issue of securities

D. None of the above

Question 9 of 25

4.0/ 4.0 Points

APV method is most useful in analyzing:

A. large international projects

B. domestic projects

C. small projects

D. none of the above

Question 10 of 25

4.0/ 4.0 Points

Briefly explain the information content of share repurchase.

Question 11 of 25

4.0/ 4.0 Points

The after-tax weighted average cost of capital is determined by:

A. Multiplying the weighted average after tax cost of debt by the weighted average cost of equity

B. Adding the weighted average before tax cost of debt to the weighted average cost of equity

C. Adding the weighted average after tax cost of debt to the weighted average cost of equity

D. Dividing the weighted average before tax cost of debt to the weighted average cost of equity

Question 12 of 25

Dividends are decided by:

I) The managers of a firm

II) The government

III) The board of directors

A.I only

B.II only

C.III only

D.I and II only

Question 13 of 25

4.0/ 4.0 Points

Why is liquidity relevant?

Question 14 of 25

4.0/ 4.0 Points

In calculating the weighted average cost of capital, the values used for D, E and V are:

A. book values

B. liquidating values

C. market values

D. none of the above

Question 15 of 25

4.0/ 4.0 Points

In order to find the present value of the tax shields provided by debt, the discount rate used is the:

A. cost of capital

B. cost of equity

C. cost of debt

D. none of the above

Question 16 of 25

4.0/ 4.0 Points

How are “uses and sources” of funds are calculated?

Question 17 of 25

4.0/ 4.0 Points

Given the following data:

Current assets = 500

Current liabilities = 250

Inventory = 200

Account receivables = 200

Calculate the current ratio:

A.2.0

B.1.0

C.1.5

D. None of the above

Question 18 of 25

4.0/ 4.0 Points

What are the primary reasons for a company to use debt in its capital structure?

Question 19 of 25

4.0/ 4.0 Points

The difference between Current Assets of a firm and its Current Liabilities is called.

A.Net worth

B.Net working capital

C. Gross working capital

D. None of the above

Question 20 of 25

4.0/ 4.0 Points

Given the following data:

Total current assets = $852

Total current liabilities = $406

Long-term debt = $442

Calculate the net working capital.

A.$446

B.$852

C.$410

D. None of the above

Question 21 of 25

4.0/ 4.0 Points

Which of the following investors have the strongest tax reason to prefer dividends over capital gains?

A. Pension funds

B. Financial institutions

C. Individuals

D. Corporations

Question 22 of 25

On January 2, Michigan Mining declared a $25-per-share quarterly dividend payable on March 9th to stockholders of record on February 9. What is the latest date by which you could purchase the stock and still get the recently declared dividend?

A. February 5

B. February 6

C. February 7

D. February 8

Question 23 of 25

4.0/ 4.0 Points

When weighted average cost of capital (WACC) is used to value a levered firm, the interest tax shield is:

A. ignored.

B. considered by deducting the interest payment from the cash flows.

C. automatically considered because the after-tax cost of debt is used in the WACC formula.

D. none of the above

Question 24 of 25

4.0/ 4.0 Points

The main advantage of debt financing for a firm is:

I) no SEC registration is required for bond issue

II) interest expense of a firm is tax deductible

III) unlevered firms have higher value than levered firms

A.I only

B.II only

C.III only

D.I and III only

Question 25 of 25

4.0/ 4.0 Points

What are the common ratios used to measure liquidity of a firm?