You passed this Milestone
17 questions were answered correctly.
8 questions were answered incorrectly.
1
Company A Company B
Market Value of Equity $700,000 $900,000
Market Value of Debt $300,000 $200,000
Cost of
...
You passed this Milestone
17 questions were answered correctly.
8 questions were answered incorrectly.
1
Company A Company B
Market Value of Equity $700,000 $900,000
Market Value of Debt $300,000 $200,000
Cost of Equity 8% 10%
Cost of Debt 1.5% 3%
Tax Rate 30% 25%
Based solely on their current weighted average cost of capital,
which company should pursue an investment opportunity with an
expected return of 7%?
Only Company B
Both Company A and Company B
Only Company A
Neither Company A nor Company B
CONCEPT
The WACC
2
Preparing a cash flow forecast helps a company to avoid __________.
opportunity costs
higher financing costs
liquidity
net losses
CONCEPT
Building a Cash Budget
3
What must be forecasted first in order to prepare the pro forma
income statement?
Cost of goods sold
Sales
Expenses
Net income
CONCEPT
Forecasting the Income Statement
4
Select the statement that correctly explains the relationship
between interest rates and present or future value.
Assuming other variables stay the same, if the interest rate decreases, the
future value of an investment increases.
Assuming other variables stay the same, if the interest rate decreases, the
present value of an investment decreases.
The interest rate and the future value of an investment are inversely related.
Assuming other variables stay the same, if the interest rate increases, the
future value of an investment increases.
CONCEPT
Additional Detail on Present and Future Values
5
Calculate a company's total leverage given the following
information:
Net income = $80,000
Revenue = $120,000
Variable costs = $25,000
1.19
Cannot calculate without knowing degree of financial leverage
1.14
Cannot calculate without EPS data
CONCEPT
Thinking About Financial Leverage
6
You would like to have $10,000 in an account after eight years’ time.
If the account earns 2.5% compounded interest yearly, how much
would you have to deposit today?
$9,464
$8,207
$8,333
$9,765
CONCEPT
Present Value, Single Cash Flows
7
What is the recent trend of algorithmic trading criticized for?
Being too transparent
Over-extending credit
Increasing market volatility
Improving market liquidity
CONCEPT
Trends and Issues in Finance
8
If a portfolio regularly falls twice as much as a benchmark index
rises, the portfolio's beta coefficient is __________.
0.5%
-2.0%
-0.5%
2.0%
CONCEPT
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