QUESTION 41

Which of the following statements is true?

		The degree of pretax cash flow operating leverage remains same for any level of revenue.
		The higher the proportion of fixed costs to variable costs in a project, the greater the sensitivity of pre-tax operating cash flows to changes in revenue.
		Depreciation and amortization are deducted to get pretax operating cash flows.
		The lower the proportion of fixed costs to variable costs in a project, the more pre-tax operating cash flows will vary as revenue varies.

4 points

QUESTION 42

Which of the following differentiates accounting operating profit break-even point from pre-tax operating cash flow break-even point?

		Accounting operating profit break-even point includes interest expense in the numerator, whereas pre-tax operating cash flow does not.
		Pre-tax operating cash flow break-even point includes income taxes in the denominator, whereas accounting operating profit break-even point does not.
		Accounting operating profit break-even point includes depreciation & amortization in the numerator, whereas pre-tax operating cash flow does not.
		Pre-tax operating cash flow break-even point includes interest expense in the numerator, whereas accounting operating profit break-even point does not.

4 points

QUESTION 43

Sancore Inc. decided to invest in a project costing $35,000. It is assumed that all of $8,000 working capital will be recovered at the end of the project, which is four years. The opportunity cost of capital is 10%. Compute the present value of net non-recurring investment of the project. (Do not round intermediate calculation. Round the final answer to the nearest dollar.)

		$36,713
		$45,657
		$46,713
		$35,657

4 points

QUESTION 44

If a firm wanted to find the effect of a change in the variable cost per unit of production on the net present value of a project, then the firm might perform:

		a sensitivity analysis.
		a scenario analysis.
		a Monte Carlo simulation.
		a cash flow simulation.

4 points

QUESTION 45

The value of the cash flows that the assets of a firm are expected to generate must equal

		the value of the cash flows claimed by the equity investors.
		the value of the cash flows claimed by the debt investors.
		the value of the cash flows claimed by both the equity and debt investors.
		the revenue produced by the firm.

4 points

QUESTION 46

The beta for a firm can be estimated by

		adding up the betas of the individual projects of the firm.
		taking the weighted average of the beta for the individual projects of the firm.
		taking the simple average of the beta for the individual projects of the firm.
		None of the above

4 points

QUESTION 47

When estimating the cost of debt capital for a firm, we are primarily interested in

		the weighted average cost of capital.
		the cost of long-term debt.
		the coupon rate of the debt.
		None of the above

4 points

QUESTION 48

Which of the following need to be excluded from the calculation of a firm's amount of permanent debt?

		Long-term debt
		Revolving lines of credit
		Mortgage debt
		None of the above

4 points

QUESTION 49

The appropriate risk-free rate to use when calculating the cost of equity for a firm is

		a long-term Treasury rate.
		a short-term Treasury rate.
		an equal mix of short-term and long-term Treasury rates.
		None of the above

4 points

QUESTION 50

The Diverse Co. has invested 40 percent of the firm's assets in a project with a beta of 0.4 and the remaining assets in a project with a beta of 1.8. What is the beta of the firm?

		0.96
		1.24
		1.28
		None of the above