Question 2 1 pts Which of the following statement is incorrect? Most of the answers are correct. o o On average the firm must earn half of its WACC (= ka) on projects of average risk in order to just maintain the value of the firm at a constant level. Income taxes have the effect of decreasing the cost of debt for a firm. The cost of debt (RD) is the interest rate on new debt. The weighted average cost of capital (ka or WACC) is the mean of all component costs of capital, weighted according to the percentage of each component in the firm's optimal capital structure. Question 6 1 pts Which of the following statement is incorrect? Independent projects are the projects that do not compete with each other. Most of the answers are correct. The change in firm value due to taking on a capital budgeting project may be positive, negative, or zero, depending on the NPV value. A project's net present value is the number of time periods it will take before the cash inflows of a proposed project equal the amount of the initial project investment (a cash outflow). Payback Period shows how many years take to recoup the initial investment. Question 10 1 pts Which of the following statement is incorrect? Long-term financing is riskier than short-term financing because, unlike short-term financing, the loans come due soon, because the lender is always willing to renew financing on favorable terms, and long-term interest rates may rise unexpectedly. When accounts receivable are used for collateral, the borrower pledges to turn over its accounts receivable to the lender if the borrower defaults. In a discount loan, the amount the borrower actually receives is the principal amount borrowed minus the interest owed. Most of the answers are correct. O Loans for which collateral is required are called secured loans. Question 14 1 pts Which of the following statement is incorrect? Foreign securities can be bought in the United States by purchasing American depository receipts (ADRs). If the U.S. dollar strengthens relative to the euro during the year, McDonald's U.S. dollar profits will be higher after converting the euros to dollars and repatriating the profits back to the United States. o Currency swaps are directly negotiated contracts, like forward contracts, in which each party agrees to swap payments at specified points in time according to a predetermined formula. When a country's currency weakens relative to the currencies of other countries, imported goods become more expensive for citizens of the country with the weakened currency. Most of the answers are correct. Question 23 1 pts Which of the following statement is incorrect? When evaluating proposed projects with the IRR method, those projects with IRRs that are less than the required rate of return are rejected. The net present value is a discounted cash flow method and a number expressed as a percentage. Capital rationing occurs when management sets a dollar limit on new project spending Mutually exclusive projects are the projects that do the same task and therefore compete with each other. Most of the answers are correct. Question 30 1 pts Which of the following statement is incorrect? A self-liquidating loan is a loan for an asset that will generate enough return to repay the loan balance. The stated interest rate on a loan is not always the same as the loan's effective annual interest rate. Most of the answers are correct. Loans for which collateral is required are called unsecured loans. A trust receipt is a legal document in which specifically identified assets are pledged as collateral for the loan
