4. If a company expects to sel

4. If a company expects to sell 4,500 units, has a DOL of 2 anda % change in Operating Cash Flow of 22% (positive), how many unitsdid they actually sell?

a.  400

b.  440

c.  4,440

d.  4,995

e.  None of the above

5.  Which of the following is FALSE about theefficient markets hypothesis?

a.  EMH implies that the market has alreadyincorporated characteristics such as dividend policy into itsprice.

b.  EMH is the idea that actual capital markets, suchas the NYSE, are efficient.

c.  EMH means that it does not matter how you investyour money, the market will keep you from a mistake.

d.  Much of the criticism of EMH stems from amisunderstanding of the concept.

e.  EMH implies that the price a firm will obtain whenit sells a share of its stock is a “fair” price.

6.  Year two in each of the MACRS depreciationschedules

a.Is the year in which MACRS depreciation is greater thanstraight line depreciation.

b.Is the year in which taxes are saved by the company.

c.Is the point at which tax savings can be invested to earnincome.

d.Is important because of the time value of money.

e.All of the above.

7. When computing after tax salvage value, if book value is lessthan market value,

a.There will be a gain.

b.There will be a loss.

c.The tax adjustment will add to market value.

d.The tax adjustment will subtract from book value.

e.None of the above.

8. The Equivalent Annual Cost computation is important when

a.The useful lives are different on the two choices.

b.The initial costs of the two choices are the same.

c.There is no annual maintenance cost to be considered.

d.This is one time purchase and the machine will not be replacedwhen it wears out.

e.Both machines could be purchased if it is cost effective to doso.

9. One of the most important reasons why companies try to growover time is

a.  So that they can have more influence politicallyin their local elections.

b.  So that their officers can have higher salariesand bonuses.

c.  To increase the prestige and status of employeesand officers.

d.  To increase the profits of the firm.

e.  To reduce the degree of operating leverage andthereby forecasting risk.

10.  Which of the following is TRUE about what ifanalysis?

a.  Scenario analysis is used to analyze the impact ofone variable on the bottom line.

b.  Sensitivity analysis is a combination of scenarioand simulation and uses a computer modeling program.

c.  Simulation analysis tests the limits by computingplus or minus ten percent, for example.

d.  The base case scenario is our best guess of whatthe numbers will be.

e.  None of the above is true.

11.  If you found an investment with a 23% totalreturn (in today’s economy), what would be your best course ofaction?

a.  Buy it quickly before others discover thislucrative investment and the price goes down.

b.  Do not buy it because there has to be somethingwrong with that return number.

c.  Investigate further to see why the return on thisstock is so much greater than elsewhere in the marketplace.

d.  Buy it because they could not advertise 23% if itwas not really getting that.

e.  Report the stock to the Securities and ExchangeCommission.

12.  In computing current and capital gains yields,which of the following isTRUE?

a.  You always divide by the initial price.

b.  You always divide by the ending price.

c.  Dividend yield can be positive or negative.

d.  Capital gains yield is the total of dividend(current) yield and total yield.

e.  Capital gains yield will always be negative.

13. In capital budgeting analysis,

a.  we are looking for projects that add value to thefirm’s owner’s equity.

b.  we are looking for projects that have a largepayoff several years down the line.

c.  we are looking for projects that won’t cost thefirm too much up front.

d.  we are looking for projects with large incomes inthe early years.

e.  we are looking for projects that do not have anyadditional investments after the initial one.

14. A disadvantage of the Internal Rate of Return method ofevaluating projects is

a.It does not take into account the time value of money.

b.It is difficult to compute, even with level cash flows.

c.It sometimes results in more than one answer.

d.Managers do not understand the concept of Internal Rate ofReturn.

e.It is biased toward short term projects

16.  Which of the following are characteristicsassociated with positive NPV projects?

I.   Access to distribution channels

II.  Economies of scale

III. Favorable government policies

a.I and II only

b.I and III only

c.II and III only

d.I, II, and III.

e.II only