Solve the capital budgeting multiple choice questions

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Reference no: EM1313647

Solve the Capital budgeting multiple choice questions

1. A firm has forecasted sales of $4,000 in January, $6,000 in February and $5,500 in March. All sales are on credit. 40% is collected the month of sale and the remainder the following month. How much is collected from accounts receivable in February?

a. $5,400

b. $4,800

c. $6,000

d. $3,000

2. There are several disadvantages to the payback method, among them:

a. payback ignores the time value of money.

b. payback emphasizes receiving money back as fast as possible for reinvestment.

c. payback is easy to use and to understand.

d. payback can be used in conjunction with time adjusted methods of evaluation.

3. Eurodollar certificates of deposits

a. are not marketable investments.

b. are U.S. dollars held on deposit by foreign banks and loaned out by those banks to anyone seeking dollars.

c. pay interest rates usually lower than the rates on U.S. treasury bills.

d. are European currencies deposited into international U.S. branch banks.

4. The general rule for using the weighted average cost of capital (WACC) in capital budgeting decisions is accept all projects with

a. rates of return greater than or equal to the WACC.

b. rates of return less than the WACC.

c. rates of return equal to or less than the WACC.

d. positive rates of return.

5. Required production during a planning period will depend on the

a. beginning inventory of products.

b. sales during the period.

c. desired level of ending inventory.

d. all of the above.

6. An issue of common stock has just paid a dividend of $3.75. Its growth rate is 8%. What is its price if the market's rate of return is 16%?

a. $25.01

b. $46.88

c. $50.63

d. none of the above

7. Massa Machine Tool expects total sales of $10,000. The price per unit is $5. The firm estimates an ordering cost of $7.50 per order, with an inventory cost of $0.70 per unit. What is the optimum order size?

a. 327 units

b. 463 units

c. 147 units

d. 207 units

8. If sales volume exceeds the break-even point, the firm will experience

a. an operating loss.

b. an operating profit.

c. an increase in plant and equipment

d. an increase in stock price.

9. A firm has forecasted sales of $3,000 in April, $4,500 in May and $6,500 in June. All sales are on credit. 30% is collected the month of sale and the remainder the following month. What will be the balance in accounts receivable at the beginning of July?

a. $1,950

b. $6,500

c. $4,550

d. $5,100

10. A firm has beginning inventory of 300 units at a cost of $11 each. Production during the period was 650 units at $12 each. If sales were 700 units, what is the cost of goods sold (assume FIFO)?

a. $9,000

b. $8,000

c. $7,700

d. $8,100

Reference no: EM1313647

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