1.1 Widget Manufacturing Inc. is deciding on the best use of its factory space. It can rent the space for 10,000 per annum or use the factory space to manufacture a new line of widgets. The net cash inflows from the new product line are estimated to be 21,000 per annum. Identify the incremental cash flow to the firm if it decides to manufacture the new line of widgets.

A. 31,000

B. 21,000

C. 10,000

D. 11,000

1.2 Which of the following transactions does NOT affect the quick ratio?

A. An office block held for investment is sold for cash.

B. Equipment is purchased and is financed by a long-term debt issue.

C. Inventories are sold for cash.

D. Inventories are sold on a credit basis.

1.3 The following statements relate to the scenario analysis of a possible investment project. Identify the correct statement concerning scenario analysis.

A. The pessimistic case scenario determines the maximum loss, in current pounds sterling, that a firm could possibly incur from a given project.

B. Scenario analysis defines the entire range of results that could be realized from a proposed investment project.

C. Scenario analysis determines which variable has the greatest impact on a project's final outcome.

D. Scenario analysis helps managers analyze various outcomes that are possible given reasonable ranges for each of the assumptions.

4 Which of the following is a source of cash flows?

A. increase in marketable securities

B. increase in accounts payable

C. decrease in notes payable

D. repurchase of stock

1.5 Consider an efficient market. In such a market, the is constant for all securities in the market.

A. Standard deviation

B. Reward-to-risk ratio

C. Beta

D. Risk premium

1.6 Individual investors who continually monitor the financial markets seeking mispriced securities:

A. earn excess profits on all of their investments.

B. make the markets increasingly more efficient.

C. are never able to find a security that is temporarily mispriced.

D. are overwhelmingly successful in earning abnormal profits.

1.7 The DuPont identity can be used to help managers answer which of the following questions related to a company's operations?

I. How many sales dollars are being generated per each dollar of assets?

II. How many dollars of assets have been acquired per each dollar in shareholders' equity?

III. How much net profit is being generating per dollar of sales?

IV. Does the company have the ability to meet its debt obligations in a timely manner?

A. I and III only B. II and IV only C. I, II, and III only D. II, III and IV only

1.8Some time ago, Dean purchased three acres of land costing 72,500. Today, that land is valued at 56,400. How long has he owned this land if the price of the land has been decreasing by 2.5 percent per year?

A. 10.17 years

B. 5.76 years

C. 9.92 years

D. 7.93 years

1.9Acme Inc has three divisions. As the firm plans for the next financial year, the head of each division has been asked to submit their capital budgeting proposals for the next year. These proposals represent positive net present value projects that align with the long-term plans of the firm. The requests from the divisions are 5.2 million, 2.6 million, and 7.1 million. For the firm as a whole, management has limited spending to 12 million for new projects next year even though the firm could afford additional investments. This is an example of:

A. scenario analysis.

B. sensitivity analysis.

C. soft rationing.

D. hard rationing.

1.10 A beta coefficient of 0 represents an asset that .

A) is more responsive than the market portfolio

B) has the same response as the market portfolio

C) is less responsive than the market portfolio

D) is unrelated to the market portfolio