Hi,

Here is attached some questions.

1.

For a firm with an optimal capital structure, the weighted average cost of capital (WACC) is:

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higher than the cost of equity

lower than the cost of debt

lower than the cost of unlevered equity

independent of the capital structure

?

Thanks

1. For a firm with an optimal capital structure, the weighted average cost of capital (WACC) is: higher than the cost of equity lower than the cost of debt lower than the cost of unlevered equity independent of the capital structure 2. How is the cash conversion cycle calculated? Days in Inventory + Collection Period Days in Inventory Payables Period Days in Inventory + Collection Period Payables Period None of the above 3. It is possible for a company to grow faster than its sustainable growth rate. True False 5. The sustainable growth rate is the maximum growth rate achievable over an extended period of time. True False 6. Which of the following is commonly used in preparing pro forma statements? Historical financial statements Projected sales Efficiency ratios All of the above 7. As EBIT drops, the return on equity (ROE) of a levered firm drops ______ the ROE of an otherwise identical unlevered firm. the same as relatively more than relatively less than more or less than (it cannot be determined) 9. A company can shorten its cash cycle by: Reducing inventory turnover Reducing account payables Reducing days receivable None of the above 10. Compute the net present value of an investment with 5 years of annual cash inflows of $100 and two cash outflows, one today of $100 and one at the beginning of the second year of $50. Use a discount rate of 10 percent. $229.08 $287.60 $233.62 $271.53 11. M&M's Proposition I states that a company's value is independent of its capital structure. True False 12. A higher level of leverage generally reduces managerial discretion. True Fals 13. Which of the following is a example of indirect costs of bankruptcy? Court costs Attorney and advisor fees Lost sales due to customers and suppliers lost trust All of the above 14. Leverage and liquidity generally rise or fall together. True False 15. Biases can and should always be eliminated in financial forecasts. True False 16. Which of the following liabilities form part of a company's "real" activities? I. Short-term debt II. Accounts payable III. Accrued operating expenses IV. Long-term debt III only II and III I and IV I only 17. If you invest $2,000 today for three years at 5% interest paid annually, you will earn a total of $______ in interest. Assume you reinvest all interest. 205.00 300.00 315.25 500.00 18. The Pecking Order Theory of capital structure implies a unique optimum capital structure. True False 19. Which of the following are equivalent under M&M proposition I? Maximizing firm value and maximizing firm profit Maximizing firm value and minimizing the cost of capital Minimizing firm's cost of capital and minimizing firm's debt burden Maximizing profit and minimizing taxes 20. Scenario analysis is a way of testing forecasts by changing one assumption at a time. True False 21. The amount by which a project increases the value of the firm is given by the project's ______. accounting rate of return net present value (NPV) internal rate of return (IRR) present value 22. What are pro forma statements? Summaries of historical financial statements Governmentmandated analyses of financial statements Projected statements used in financial planning Estimated tax liabilities 23. Increasing a company's leverage has no effect on its cost of equity. True False 24. Which of the following ratios uses sales in the denominator? Days in inventory Receivables turnover Cash ratio Average collection period 25. The cost of debt is generally lower than the cost of equity. True False 26. The owner of Grandma's Applesauce is planning to retire after the coming year. She has to repay a loan $50,000 plus 8 percent interest and must rely on cash flow from operations to do so. Cash flow from operations is uncertain; there is a 70% probability it will equal $65,000, and a 30% probability it will equal $45,000. Assuming a tax rate of 0%, what is the owner's expected cash flow after debt service? $9,000 $5,000 $11,000 $7,700 27. Suppose a riskless project requires an initial investment of $10 and will generate a onetime cash inflow of $30 two years later. Assuming a riskfree interest rate of 5%, which of the following statements about the project is NOT true? The net present value of the project is positive. The IRR is greater than 50 percent. The accounting rate of return on the project is positive. The payback period is less than 2 years. 28. A company has a retention rate of 50%, sales of $25,000, beginning equity of $50,000 and profit margins of 10%, an asset turnover ratio of .75 and debt of $10,000. What is its sustainable growth rate? 2.5% 1.7% 3.75% Not enough information given 29. The _________ states that the value of the firm is determined solely by the value of its assets. Static Tradeoff Model M&M proposition I The Pecking Order Model Agency Theory 30. In general, the reduction of an asset is a source of funds. True False 31. Which of the following is not an assumption underlying M&M proposition I? No arbitrage No taxes Corporate investments are riskfree Symmetric information 32. Operating cash flow is generated by a company's daily operations related to production and sales of goods and/or services. True False 33. In the CAPM, what does the parameter beta measure? Nonsystematic (diversifiable) risk Systematic (nondiversifiable) risk Total risk Riskadjusted stock returns 34. The NPV rule, which says companies should invest in projects for which NPV is greater than 0, depends on the assumption of value maximization. True False 35. If you borrow capital to start a business and the money is provided interestfree, then your cost of capital is zero. True False . 36. A dollar today is worth more than a dollar tomorrow. True False 37. Which of the following assumptions regarding investor behavior are required by the CAPM? I. Investors try to maximize their wealth II. Investors consider only risk when making investments III. Investors are risk averse IV. Investors adopt a longterm perspective I and III I, II and III I and IV All of the above 38. Commonsize financial statements are constructed in order to: Adjust for inflation and risk Facilitate comparisons of differentsized companies To comply with SEC requirements All of the above 39. A firm has $100 of average inventory, operating profit of $500 and sales of $1,500. What will be its days in inventory? 36.5 days 24.3 days 73.0 days Not enough information 40. An increase in financial leverage generally results in a higher return on equity (ROE). True False 41. Which items are necessary in calculating the net present value of a project? I. Investment outlays II. Discount rate III. Incremental cash flow IV. Time period for the project I, II and IV I, II and III II, III and IV All of the above 42. What is the present value of a perpetuity of $100 given a discount rate of 5%? $2,000 $3,000 $1,500 $500 43. For which of the following generic businesses would you expect a combination of high asset turnover and low profit margins? Supermarkets Banks Software developers Airlines 44. Shareholders prefer high risk projects when facing a high probability of bankruptcy because high risk projects usually bring high rewards. shareholders have the residual claim on a company. creditors have the residual claim on a company, and therefore bear the risk. there is a good chance the government will rescue them in bankruptcy. 45. Which information is NOT required when calculating the weighted average cost of capital for a company with debt? Its capital structure ratios Its cost of debt Its current ratio Its tax rate 46. Which trait is commonly found in debt contracts? Seniority Covenants Callability All of the above 47. All else equal, when a company's debt ratio rises, its beta falls. True False 48. Selecting investment projects according to rules based either on project NPV or IRR results in maximizing firm value. True False 49. Which of the following expresses the value of a levered firm (V ) in the Static Tradeoff model of optimal capital structure? [Note: V denotes the value of the unlevered firm; CFD denotes expected costs of financial distress; and PV denotes present value.] V = PV(Tax Shield) PV(CFD) V = V + PV(Tax Shield) / PV(CFD) V = V + PV(Tax Shield) PV(CFD) V = V + PV(Tax Shield) L U L L U L U L U 50. For a levered firm, EBIT is equivalent to: Net income Pro forma earnings Operating profit Net income before taxes