| Companies report lower depreciation and higher net income using accelerated depreciation for fixed assets 3. Given the following, calculate WACC for company XYZ: Debt: $600 M Equity: $700 M Cost on Debt: 5.0% Cost on Equity: 11.0% Tax Rate: 40.0% 4. Which of the following is true regarding capital budgeting? | An investment to build inventory is an example of a capital budgeting decision | | A company should invest in new machinery if it will result in lower profit margins | | A company should always invest in projects with positive ROI | | The key metrics in evaluating capital budgeting decisions are ROI and cost of capital | | Capital budgeting is related to the composition of the companys liabilities and equity | | 5.Based on the following, which is true? Company 1 - Return on Assets: 13%, Net Profit Margin: 4.6%, Debt / Equity: 1.2x Company 2 - Return on Assets: 10%, Net Profit Margin: 6.2%, Debt / Equity: 2.0x Company 3 - Return on Assets: 12%, Net Profit Margin: 5.1%, Debt / Equity: 1.3x a | Company 2 is the least leveraged firm | b | Company 3 is the most leveraged firm | c | Company 1 is the best at generating profits from its assets | d | Company 1 is better at generating profits from its sales than Company 3 | e | Company 3 is the least efficient at generating sales on its assets | 6. Based on the following information about Company X, which is true? A/P Turnover: 20 Total Asset Turnover: 3.10 Days Payable Outstanding: 19 Times Interest Earned: 12 Debt/Equity: 1.4 a | Company X pays bills in 19 days | b | Company X has more equity than debt | c | Company X pays bills in 20 days | d | Company X pays interest in 12 days | e | Company X generates $3.10 in profit per dollar invested in assets | | 7.Given the following information calculate Operating Cycle and Cash Conversion Cycle for MBA Inc. Days Sales Outstanding: 20 Days Payable Outstanding: 30 Day Sales in Inventory: 80 a | Operating Cycle= 130, Cash Conversion Cycle = 90 | b | Operating Cycle= 60, Cash Conversion Cycle = 105 | c | Operating Cycle= 100, Cash Conversion Cycle = 70 | d | Operating Cycle= 60, Cash Conversion Cycle = 110 | e | Operating Cycle= 70, Cash Conversion Cycle = 60 | 8.Which of the following would result in a company having a HIGHER weighted average cost of capital (WACC)? a | Lower financial risk of a default on debt | e | Lower interest rate on debt | | 9. Given the following information, calculate Woolridge Co.s P/E ratio. Revenue: $8,000,000 EBIT: $6,000,000 Net Income: $2,000,000 Earnings Per Share: 5.6 Stock Price: $45 | |