Reference no: EM132555026

Question 1: The party to a leasing arrangement that is entitled to a business expense based upon its use of an asset is called the:

Select one:

a. Lessor.

b. Transferor.

c. Financee.

d. Lessee.

e. Manufacturer.

Question 2: ABC Products needs to replace its rawhide tanning and molding equipment. It can be used for five years and will have no salvage value. The equipment costs $930,000. The firm can lease it for $245,000 a year, or it can borrow the money to purchase the equipment at 8%. The firm's tax rate is 34%. The CCA rate is 20%. What is the present value of the depreciation tax shield?

Select one:

a. $277,177

b. $186,000

c. $236,959

d. $26,876

e. $243,885

Question 3: Which of the following is correct regarding agency costs?

Select one:

a. Company paid club memberships for executives are an example of indirect agency costs.

b. Marginal costs occur when managers, acting to minimize the risk of the firm, forego investments shareholders would prefer they take

c. Indirect costs occur when shareholders must incur costs to monitor the manager's actions.

d. Direct costs occur when managers, acting to minimize the risk of the firm, forego investments shareholders would prefer they take.

e. Direct costs occur when managers buy assets considered unnecessary by the firm's owners.

Question 4: Bob's Toys has a fixed asset turnover rate of 1.2 and a total asset turnover rate of .84. Gerold's Toys has a fixed asset turnover rate of 1.1 and a total asset turnover rate of .96. Both companies have similar operations. Bob's Toys:

Select one:

a. is generating $1.20 in net income for every $1 in net fixed assets.

b. has $.84 in total assets for every $.96 Gerold's has in total assets.

c. is generating $1 in sales for every $1.20 in net fixed assets.

d. is using its total assets less efficiently than Gerold's Toys.

e. is using its fixed assets less efficiently than Gerold's Toys.

Question 5: Bond ratings issued by Moody's specifically account for default risk.

Select one:

True

false

Question 6: Suppose a project costs $375 and produces cash flows of $100 over each of the following seven years. What is the IRR of the project?

Select one:

a. There is not enough information; a discount rate is required

b. 18.6%

c. 10.0%

d. 13.0%

e. 15.3%

Question 7: An investment earned the following returns for the years 2013 through 2016:20%, -50%, 30%, and 10%. What is the variance of returns for this investment?

Select one:

a. 0.0892

b. 0.1747

c. 0.0292

d. 0.1292

e. 0.2987