Accounts Objective Questions

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21.The following cash flows should be treated as incremental flows when deciding whether to go ahead with an electric car project except ______. (Points: 5) the consequent reduction in sales of the company's existing gasoline models ( i.e.: incidental effects) interest payment on debt

the value of tools that can be transferred from the company's existing plants the expenditure on new plants and equipment

22. Money that a firm has already spent or committed to spend regardless of whether a project is taken is called ______. (Points: 5) fixed cost
opportunity cost
sunk cost
none of the above

23. A firm has a general-purpose machine, which has a book value of $400,000 and is sold for $600,000 in the market. If the tax rate is 30%, what is the opportunity cost of using the machine in a project? (Points: 5) $600,000

$540,000
$400,000
none of the above

24. Capital equipment costing $250,000 today has 50,000 salvage value at the end of 5 years. If the straight line depreciation method is used, what is the book value of the equipment at the end of two years? (Points: 5) $200,000

$170,000
$140,000
$50,000

25. Which of the following portfolios have the least risk? (Points: 5) a portfolio of Treasury bills
a portfolio of long-term United States Government bonds
portfolio of U.S. common stocks of small firms
none of the above

26. Which portfolio had the highest average annual (real) return between 1900 and 2003? (Points: 5) a portfolio of U.S. Common stocks
a portfolio of U.S. government bonds
a portfolio of Treasury bills
none of the given answers

27. Spill Oil Company's stocks had -10%, 13% and 27% rates of return during the last three years respectively; calculate the average rate of return for the stock. (Points: 5) 10% per year
8% per year
12% per year
none of the above

28. The portion of the risk that can be eliminated by diversification is called _____. (Points: 5) market risk
unique risk
interest rate risk
default risk

29. The "beta" is a measure of ______. (Points: 5)
unique risk
total risk
market risk
none of the above

30. The efficient portfolios:

(I) have only unique risk
(II) provide highest returns for a given level of risk
(III) provide the least risk for a given level of returns
(IV) have no risk at all (Points: 5)
I only
II and III only
IV only
II only

31. Beta measure indicates ______. (Points: 5)
the ability to diversify risk
the change in the rate of return on an investment for a given change in the market return the actual return on an asset
A and C

32. If the beta of Microsoft is 1.7, risk-free rate is 3% and the market risk premium is 8%, calculate the expected return for Microsoft. (Points: 5) 16.6%
15.6%
13.9%
11.3%

33. The cost of capital for a project depends on ______. (Points: 5) the company's cost of capital
the use to which the capital is put, i.e. the project
the industry cost of capital
all of the above

34. Cost of capital is the same as cost of equity for firms ______. (Points: 5) financed entirely by debt
financed by both debt and equity
financed entirely by equity
none of the above

35. The market value of Charter Cruise Company's equity is $15 million, and the market value of its risk-free debt is $5 million. If the required rate of return on the equity is 20% and that on the debt is 8%, calculate the company's cost of capital. (Assume no taxes.) (Points: 5) 20%

17%
8.1%
none of the above

36. The market value of XYZ Corporation's common stock is 40 million and the market value of the risk-free debt is 60 million. The beta of the company's common stock is 0.8, and the expected market risk premium is 10%. If the treasury bill rate is 6%, what is the firm's cost of capital? (Assume no taxes.) (Points: 5) 9.2%

14%
10%
none of the above

37. You are given the following data for year-1. Revenue = $43; Total costs = $30; Depreciation = $3; Tax rate = 30%. Calculate the...
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