Which of the following is considered to be a spontaneous source of financing?
B. Operating leases
C. Accounts receivable
D. Accounts payable
26) Which of the following is NOT considered a permanent source of financing?
A. Preferred stock
B. Corporate bonds
C. Common stock
D. Commercial paper
27) A toy manufacturer following the hedging principle will generally finance seasonal inventory build-up prior to the Christmas season with:
A. trade credit.
B. common stock.
C. selling equipment.
D. preferred stock.
28) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________.
A. greater than one, greater than zero
B. less than zero, greater than the required return
C. greater than zero, greater than one
D. greater than zero, less than one
29) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%. Initial outlay = $450 Cash flows: Year 1 = $325
Year 2 = $ 65
Year 3 = $100
A. 2.88 years
B. 3.43 years
C. 3.17 years
D. 2.6 years
30) We compute the profitability index of a capital-budgeting proposal by:
A. dividing the present value of the annual after-tax cash flows by the cost of the project.
B. multiplying the IRR by the cost of capital.
C. dividing the present value of the annual after-tax cash flows by the cost of capital.
D. multiplying the cash inflow by the IRR.
31) Which of the following statements about the MIRR is false?
A. The MIRR has the same reinvestment assumption as the NPV.
B. The MIRR has the same reinvestment assumption as the IRR.
C. If a project’s MIRR exceeds the firm’s discount rate, the project is acceptable.
D. A project’s MIRR could be lower than a project’s IRR.
32) Many firms today continue to use the payback method but employ the NPV or IRR methods as secondary decision methods of control for risk.
33) You have been asked to analyze a capital investment proposal. The project’s cost is $2,775,000. Cash inflows are projected to be $925,000 in Year 1; $1,000,000 in Year 2; $1,000,000 in Year 3; $1,000,000 in Year 4; and $1,225,000 in Year 5. Assume that your firm discounts capital projects at 15.5%. What is the project’s MIRR?
34) ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return
is 12%. (Round your answer to the nearest $1.)
35) The NPV assumes cash flows are reinvested at the:
A. cost of capital.
C. real rate of return.
36) The firm should accept independent projects if:
A. the NPV is greater than the discounted payback.
B. the profitability index is greater than 1.0.
C. the IRR is positive.
D. the payback is less than the IRR.