BUS 401 Week 3 Quiz - All Questions Answered Correctly

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Question 1.The irrelevance of capital structure in perfect capital markets helps us because: 

  •   if something is irrelevant, we can ignore it.   
  •   it applies to real-world capital markets.   
  •   it simplifies a complex subject.   
  •   it shows us which assumptions, when relaxed, may make capital structure relevant. 

 

Question 2.The internal rate of return is: 

  •   the discount rate at which the NPV is maximized.   
  •   the discount rate used by people within the company to evaluate projects.   
  •   the rate of return that a project must exceed to be acceptable.   
  •   the discount rate that equates the present value of benefits to the present value of costs.   

Question 3.The appropriate cash flows for evaluating a corporate investment decision are: 

  •   incremental additional cash flows.   
  •   marginal after-tax cash flows.   
  •   incremental after-tax cash flows.   
  •   investment after-tax cash flows.

 

Question 4.You receive an annual raise of $4,000. If you tax rate is 22%, how much will this increase your after-tax earnings? 

  •   $880.00   
  •   $3,120.00   
  •   $4,000.00   
  •   $4,880.00

 

Question 5.The typical corporate investment requires a large cash outlay followed by several years of cash inflows. To make these cash flows comparable, we do which of the following? 

  •   Adjust both cash outflows and inflows for taxes.   
  •   Subtract interest charges to reflect the time value of money.   
  •   Adjust both outflows and inflows for the effects of depreciation.   
  •   Apply time value of money concepts and compare present values.   

 

Question 6.The key to successful capital budgeting is to: 

  •   choose investments that maximize a company’s net income.   
  •   not exceed the budget.   
  •   choose investments that have the shortest payback period.   
  •   choose investments whose present value of expected benefits exceed the present value of their expected costs, and so are value creating.   

 

Question 7.Costs associated with bankruptcy include: 

  •   legal fees, managerial time shifted away from value creation, and loss of brand value.   
  •   legal fees, additional inventory costs from sales growth, and loss of brand value.   
  •   legal fees, managerial time shifted away from value creation, and increased market share.   
  •   legal fees, employees leaving the company, and cost savings from lower labor costs.   

 

Question 8.When making investment decisions, we focus on after-tax cash flows because: 

  •   taxes must be paid.   
  •   those are the cash flows available to shareholders.   
  •   taxes can have a significant effect on profits.   
  •   tax rates differ across companies.   

     

Question 9.Chapter 7 introduced three methods for evaluating a corporate investment decision. Which of the following is not one of those methods? 

  •   payback period   
  •   net present value (NPV)   
  •   return on assets (ROA)   
  •   internal rate of return (IRR)

 

Question 10.To determine incremental cash flows, we apply the with-and-without principle, which compares:

  •   the cash flows of the investment with tax adjustments to the cash flows without tax adjustments.   
  •   the cash flows of the investment with depreciation to the cash flows without depreciation.   
  •   the cash flows of the company with the investment to the cash flows without the investment.   
  •   all financing costs except for sunk costs.   

Need Other Tutorials For BUS 401?

You may click on the links below to go to respective tutorial.

·         BUS 401 Week 1 Assignment ( Financial Management Challenges and Ethics )

·         BUS 401 Week 1 Discussion 1 ( The Role of Financial Management in a Firm )

·         BUS 401 Week 1 Discussion 2 ( Financial Statements )

·         BUS 401 Week 1 Quiz

·         BUS 401 Week 2 Assignment ( Teaching Net Present Value (NPV) and Future Value (FV) )

·         BUS 401 Week 2 Discussion 1 ( Dreams Do Come True )

·         BUS 401 Week 2 Discussion 2 ( Investing in Bonds )

·         BUS 401 Week 2 Journal ( Present and Future Values, and Expected Returns )

·         BUS 401 Week 2 Quiz

·         BUS 401 Week 3 Assignment ( Return on Investment Education Funding )

·         BUS 401 Week 3 Discussion 1 ( Cash Flows From Working )

·         BUS 401 Week 3 Discussion 2 ( Capital Budgeting )

·         BUS 401 Week 3 Quiz

·         BUS 401 Week 4 Assignment ( Identifying and Managing Risk )

·         BUS 401 Week 4 Discussion 1 ( Interviewing Peter Lynch )

·         BUS 401 Week 4 Discussion 2 ( Cost of Capital )

·         BUS 401 Week 4 Journal ( Risk and Return )

·         BUS 401 Week 4 Quiz

·         BUS 401 Week 5 Assignment ( Evaluation of Corporate Performance )

·         BUS 401 Week 5 Discussion 1 ( Ratio Analysis )

·         BUS 401 Week 5 Discussion 2 ( Applying Ratios to a Business )

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