Question 1

In managing the level of working capital, which of the following is generally not a concern:

Accepted Answer

A)  the need to maintain liquidity. 
B)  the need to earn the required rate of return on the assets. 
C)  the cost and risk of long-term funding. 
D)  none of the above. 
A)  the need to maintain liquidity. 
B)  the need to earn the required rate of return on the assets. 
C)  the cost and risk of long-term funding. 
D)  none of the above. C

Question 2

To maintain liquidity, firms may:

Accepted Answer

A)  use cash budgeting. 
B)  use a bank overdraft. 
C)  keep an overestimate of cash required on hand at all times. 
D)  all of the above. 
A)  use cash budgeting. 
B)  use a bank overdraft. 
C)  keep an overestimate of cash required on hand at all times. 
D)  all of the above. D

Question 3

Which of the following statement is false?

Accepted Answer

A)  The market value of debt is used in the calculation of WACC. 
B)  Historical costs do not belong in WACC calculations. 
C)  The current cost of long-term debt is what matters when calculating WACC. 
D)  None of the above. 
A)  The market value of debt is used in the calculation of WACC. 
B)  Historical costs do not belong in WACC calculations. 
C)  The current cost of long-term debt is what matters when calculating WACC. 
D)  None of the above. D

Question 4

The Rhapsody Day Spa Co has invested 40 percent of the company'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 company?

Accepted Answer

A)  0.96. 
B)  1.24. 
C)  1.28. 
D)  None of the above. 
A)  0.96. 
B)  1.24. 
C)  1.28. 
D)  None of the above.

Question 5

Which of the following is not used as a capital base in the WACC calculation?

Accepted Answer

A)  Debentures. 
B)  Bank overdraft. 
C)  Preference shares. 
D)  Accounts receivables. 
A)  Debentures. 
B)  Bank overdraft. 
C)  Preference shares. 
D)  Accounts receivables.

Question 6

Which of the following statements relates to the matching principle?

Accepted Answer

A)  Permanent assets should be financed with short-term sources of funding. 
B)  Permanent assets should be sourced with permanent sources of funding. 
C)  Temporary assets should be sourced with permanent sources of funding. 
D)  None of the above. 
A)  Permanent assets should be financed with short-term sources of funding. 
B)  Permanent assets should be sourced with permanent sources of funding. 
C)  Temporary assets should be sourced with permanent sources of funding. 
D)  None of the above.

Question 7

A balance sheet that uses market value of expected cash flows is referred to as a:

Accepted Answer

A)  cash flow statement. 
B)  finance balance sheet. 
C)  market value balance sheet. 
D)  such balance sheet does not exist. 
A)  cash flow statement. 
B)  finance balance sheet. 
C)  market value balance sheet. 
D)  such balance sheet does not exist.

Question 8

Which of the following is most likely to account for business failure in Australia?

Accepted Answer

A)  Civil disturbance. 
B)  Uninsured cyclone damage. 
C)  Insufficient working capital. 
D)  Loss of funds due to failure of local bank. 
A)  Civil disturbance. 
B)  Uninsured cyclone damage. 
C)  Insufficient working capital. 
D)  Loss of funds due to failure of local bank.

Question 9

Which of the following statements is correct?

Accepted Answer

A)  The WACC is the appropriate discount rate to use for cash flows similar in risk to the firm. 
B)  The WACC for a firm reflects the risk and the target capital structure to finance the firm's existing assets as a whole. 
C)  The WACC is the weighted average of the costs of the different types of capital (debt and equity) that have been used to finance a company; the cost of each type of capital is weighted by the proportion of the total capital that it represents. 
D)  All of the above. 
A)  The WACC is the appropriate discount rate to use for cash flows similar in risk to the firm. 
B)  The WACC for a firm reflects the risk and the target capital structure to finance the firm's existing assets as a whole. 
C)  The WACC is the weighted average of the costs of the different types of capital (debt and equity) that have been used to finance a company; the cost of each type of capital is weighted by the proportion of the total capital that it represents. 
D)  All of the above.

Question 10

Chapman Ltd has a preference share issue outstanding with a current price of $26.57. The company is expected to pay a dividend of $1.86 per share a year from today. What is the company's cost of preference shares?

Accepted Answer

A)  6.50%. 
B)  7.00%. 
C)  7.50%. 
D)  8.00%. 
A)  6.50%. 
B)  7.00%. 
C)  7.50%. 
D)  8.00%.

Question 11

Factoring businesses normally require client firms to satisfy which of the following?

Accepted Answer

A)  Have a spread of debtors. 
B)  Have efficient debtors' ledgers. 
C)  Sell goods on normal, credit terms. 
D)  All of the above. 
A)  Have a spread of debtors. 
B)  Have efficient debtors' ledgers. 
C)  Sell goods on normal, credit terms. 
D)  All of the above.

In managing the level of working capital, which of the following is generally not a concern:

To maintain liquidity, firms may:

Which of the following statement is false?

The Rhapsody Day Spa Co has invested 40 percent of the company'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 company?

Which of the following is not used as a capital base in the WACC calculation?

Which of the following statements relates to the matching principle?

A balance sheet that uses market value of expected cash flows is referred to as a:

Which of the following is most likely to account for business failure in Australia?

Which of the following statements is correct?

Chapman Ltd has a preference share issue outstanding with a current price of $26.57. The company is expected to pay a dividend of $1.86 per share a year from today. What is the company's cost of preference shares?

Factoring businesses normally require client firms to satisfy which of the following?

Finance in Business

Time Value of Money, Financial Markets, the Reserve Bank of Australia and Interest Rates

Discounted Cash Flows and Valuation

Risk and Return

Share Valuation and Bond Valuation

Capital Budgeting and Cash Flows

Capital Structure and Dividend Policy

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Exam 7: Cost of Capital and Working Capital Management

In managing the level of working capital, which of the following is generally not a concern:

To maintain liquidity, firms may:

Which of the following statement is false?

The Rhapsody Day Spa Co has invested 40 percent of the company'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 company?

Which of the following is not used as a capital base in the WACC calculation?

Which of the following statements relates to the matching principle?

A balance sheet that uses market value of expected cash flows is referred to as a:

Which of the following is most likely to account for business failure in Australia?

Which of the following statements is correct?

Chapman Ltd has a preference share issue outstanding with a current price of $26.57. The company is expected to pay a dividend of $1.86 per share a year from today. What is the company's cost of preference shares?

Factoring businesses normally require client firms to satisfy which of the following?

Finance in Business

Time Value of Money, Financial Markets, the Reserve Bank of Australia and Interest Rates

Discounted Cash Flows and Valuation

Risk and Return

Share Valuation and Bond Valuation

Capital Budgeting and Cash Flows

Capital Structure and Dividend Policy

Filters