Quizz Financial Policy Cengage Chapter 5 Chapter 9&10

Topics: Net present value, Generally Accepted Accounting Principles, Internal rate of return Pages: 1 (393 words) Published: March 20, 2011
Chapter 9&10, financial policy

1)Duval Inc uses only equity capital, … answer: with a 11% return cuz wacc = 10% 2)10.038: which one is correct? One defect of the IRR method that is assumes that the cash flows to be received from a project can be reinvested the IRR itself, and that assumption is often not valid. 3)Stern Associates is considering a project that has the following cash flows data. What’s the project’s payback? Year: from 0 to 5, cash flows: -1100$, 300$, 310$, 320$, 330$ and 340$. Answer: 3.52 years (3 years + 170 divided by 330) 4)If a firm’s marginal tax rate is increased, this would, lower the cost of debt used to calculate the WACC. TRUE 5)the regular payback method is deficient in that it does not take account of cash flows beyond the payback period. The discounted payback method corrects this fault. FALSE 6)which one is not a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting. ACCOUNTS PAYABLE 7)Bosio Inc’s perpetual preferred stock sells for 97.50$ per share. And it pays an 8$50 annual dividend, if the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What the company cost of preferred stock for use in calculating the WACC? 9.08% soit 8.50 divided (97.5 * 0.97) 8)Assume that you are a consultant, and u have been provided with: D1=0.67$, P0=27.50$, and G=8%, what s the cost of the common from retained earnings based on the DCF approach: 10.44% (.67 divided 27.50) +8% 9)conflicts between two mutually exclusive projects occasionally occurs, when the NPV method ranks one project higher but the IRR method ranks the other one first. In theory, such conflicts should be resolved in favor of the project with the higher positive NPV. TRUE 10)Anderson system is considering a project that has the following cash flow and wacc data. What the project’s NPV? Note that a projest ‘s expected NPV is negative, it...
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