5. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

A projects NPV is found by discounting the cash flows at the IRR.

The higher the CCC used to calculate it, the lower the calculated NPV will be.

If a projects NPV is less than zero, then its CCC must be less than the IRR.

If a projects NPV is greater than zero, then its IRR must be less than zero.

The NPV of a relatively low risk project should be found using a relatively high WACC.

6. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

The longer a projects payback period, the more desirable the project is normally considered to be by this criterion.

One drawback of the payback criterion for evaluating projects is that this method does not properly account for the time value of money.

If a projects payback is positive, then the project should be rejected because it must have a negative NPV.

The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.

7. Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?

The projects IRR is unaffected by changes in the CCC.

The projects NPV decreases as the CCC declines.

The projects MIRR is unaffected by changes in the CCC.

The projects regular payback increases as the CCC declines.

8. Which of the following statements is CORRECT?

The NPV method assumes that cash flows will be reinvested at the CCC, while the IRR method assumes reinvestment at the IRR.

The NPV method assumes that cash flows will be reinvested at the risk-free rate, while the IRR method assumes reinvestment at the IRR.

The NPV method assumes that cash flows will be reinvested at the CCC, while the IRR method assumes reinvestment at the risk-free rate.

The NPV method does not consider all relevant cash flows, particularly cash flows beyond the payback period.

The IRR method does not consider all relevant cash flows, particularly cash flows beyond the payback period.

9. Amber Hospice Centers current ratio is 1. Considered alone, which of the following actions would increase the companys current ratio?

Borrow using short-term notes payable and use the proceeds to reduce accruals.

Borrow using short-term notes payable and use the proceeds to reduce long-term debt.

Use cash to reduce accruals.

Use cash to reduce short-term notes payable.

Borrow using long-term notes payable and then use some of the proceeds to purchase additional inventory and hold the remainder as cash.

10. You observe that a firms ROE is above the industry average, but its debt ratio is below the industry average. Which of the following statements is CORRECT?

Its total assets turnover must equal the industry average.

Its profit margin must equal the industry average.

Its return on assets must equal the industry average.

Its return on assets must be above the industry average.

Its return on assets must be below the industry average.

12. Which of the following statements is CORRECT?

Suppose a firms total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt decreases from 60% of total assets to 40%. Under these conditions, the ROE will increase.

Suppose a firms total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%. Without additional information, we cannot tell what will happen to the ROE.

The Du Pont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE.

Other things held constant, an increase in the debt ratio will result in an increase in the profit margin on sales.

Suppose a firms total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt decreases from 60% of total assets to 40%. Under these conditions, the ROE will decrease.

13. Walter Medical Industries current ratio is 0.8. Considered alone, which of the following actions would decrease the companys current ratio?

Borrow using long-term notes payable and use the cash to increase inventories.

Use cash to reduce accounts payable.

Use cash to purchase inventory.

Collection of accounts receivable.