This are MCQ question : Give Answers

A company has book value debt and equity proportions of 50:50, and market value debt and equity proportions of 40:60. Its tax rate is 25%. Its cost of debt is 10% and its cost of equity is 16%. What is its WACC?

13.00%

13.60%

11.75%

12.60%

Question at position 2

The advantage of financing current assets with short-term loans is

The advantage of financing current assets with short-term loans is

Both low cost and low risk

Tax saving

Low cost

Low risk

Question at position 3

To value a project, if the cash flow is unlevered cash flow and the firm uses debt, the discount rate to use should be

After tax cost of debt

WACC plus 2%

Cost of equity

WACC

Question at position 4

1. Which of the following is not an element of working capital?

Short-term notes

Cash

Preferred stock

Trade credit

Question at position 5

lowing factors favor leasing over buying an asset?

IRS approves the lease as capital lease

Interest rate is low

Asset will be used for a long period of time

The asset is of high risk

Question at position 6

1. Assume the daily cash receipt of a firm is $60,000. On average, it takes two days for the firm to receive checks from mail, another day to deposit and a yet another day for the bank to make the funds available. What is the collection float?

$180,000

$300,000

$120,000

$240,000

Question at position 7

1. Merritt Corp. is in need of a packing machine. The machine costs $120,000 and has estimated life of 4 years. If purchased, it would depreciate to zero by straight-line method. Alternatively, Merritt can lease the machine from Milford, Inc. for a yearly lease of $34,000 payable at the beginning of each year. Merritts cost of debt is 8%, Milfords cost of debt is 10%. Both have tax rate of 30%. Net advantage to leasing (NAL) is approximately ($):

-1,621

3,256

635

5,056

Question at position 8

1. Under Modigliani-Miller (MM) assumption of no taxes and no bankruptcy, the optimal capital structure should be

Zero level of debt

No optimal capital structure, it does not matter

50% debt to value ratio

100% debt

Question at position 9

Which of the following statements is true about the use of debt in financing?

the use of debt always increases firm value

the use of debt always dilutes shareholders vote

the use of debt always increases risk

the use of debt always increases EPS

Question at position 10

1. The sources of synergy in mergers and acquisitions come from

Economies of scale

Diversification of investment risk

The goodwill when target assets are revalued

Government support

Question at position 11

1. Which of the following is a source of business risk?

the proportion of fixed costs

the corporate tax rate variability

the level of debt used

investor personal tax rate

Question at position 12

A company has 50 million shares outstanding and trading at $12 per share. If the company implements a 3 for 1 reverse stock split,

EPS will be one third its previous amount

shareholders get 3 shares for every share they had

new share price will be $4

new share price will be $36

Question at position 13

1. The appropriate discount rate in lease analysis is

Lessee's after-tax cost of debt

Lessee's cost of equity

Lessee's WACC

Lessor's after-tax cost of debt

Question at position 14

1. A company has a debt level of $100 million, tax rate of 30%, cost of debt of 8% and cost of equity of 12%. The present value of the interest tax saving is (in millions)

$20.00

$2.40

$66.67

$30.00

Question at position 15

The opposite of merger is

Divestiture

Poison pill

Acquisition

LBO

Question at position 16

Which of the following statements best describes the objective of Boeing Corporation?

To maximize Boeing shareholders' wealth

To beat the European Airbus in the competition

To be the leader in the aviation industry

To provide reliable air transportation means to the public

Question at position 17

1. A and B have prices of $50 and $80 per share, and the number of shares outstanding of 10 million and 6 million respectively. Company As shares will survive and become shares of the merged company. Company A will issue 10 million new shares and distribute to B shareholders to acquire all of Bs shares. As share price after the merger remains $50. What is the value of synergy created?

$20 million

There is no synergy value

$10 million

$30 million

Question at position 18

Which of the following capital structure theories suggests debt level lower than the one which minimizes WACC?

MM theory

Trade-off theory

Pecking order theory

Signaling theory

Question at position 19

1. Relaxed current assets investment policy may result in the following, EXCEPT

Large cash balance

Loss of goodwill and loss of customers

High carrying cost

Low level of lost sales

Question at position 20

1. A company expects net income of $5 million. Its debt and equity proportions are 50:50. It needs capital investments of $6 million for its positive NPV projects. Under the residual dividend policy, how much dividend can it pay (in millions)?

$1.00

$2.00

$3.00

It cannot pay dividend since it needs more capital than the expected net income

Question at position 21

1. Under financial distress, underinvestment problem is

Tendency to pay the creditors all the available funds and having none left for new projects

Tendency to reject projects even if they have positive NPV

Tendency to pay dividends but not debt

Tendency to invest in high NPV projects only

Question at position 22

1. Which of the following features are desired in a security that can be used as short-term investment in cash management?

Short maturity, low risk and high liquidity

Long maturity, tax exempt and low liquidity

Long maturity, high return and low risk

Short maturity, high return and low liquidity

Question at position 23

1. Governments oppose some merger transaction if

The merger takes the company private

The merger does not create synergy value

The merger creates monopoly

The merger reduces taxes

Question at position 24

1. If a company does not pay dividends, but a shareholder desires dividend income, what can he/she do according to the home-made dividend theory?

borrow desired funds from bank and pay back when company pays dividend

shareholder can sell some shares to generate desired cash

shareholder has no option, but wait until company pays dividend

complain to SEC and put pressure on the company to pay dividend

Question at position 25

1. A company has annual sales of $12 million, cost of good sold of $8 million. It has accounts receivable balance of $720,000, inventories of $640,000, and accounts payable of $360,000. What would be its cash conversion cycle? Round up.

22 days

29 days

51 days

35 days

Question at position 26

1. A project with expected cash flow at the end of year 1 of $100,000 that grows at a constant rate of 2% for indefinite period, and a discount rate of 10%, has a value of

$1,000,000

$1,020,000

$1,250,000

$1,275,000