Complete Solutions
If an asset will generate payments of $30 forever, what is today's value of this
investment, assuming your required rate of return is 10%? - Answer-$300
ToF: The present value of an annuity due is less than the present value of an ordinary
annuity. - Answer-False
ToF The IRR method of analyzing a capital expenditure determines how much the
present value of the cash inflows exceeds the present value of costs. - Answer-False
Money market instruments, compared to capital market instruments: - Answer-have
lower default risk
What is the gross profit margin? - Answer-It's the percentage of sales after the cost of
good sold is deducted
After an economic retraction, interest rates are expected to: - Answer-decrease
ToF A decrease in accrued wages in considered a cash inflow from operating activities
on the statement of cash flows. - Answer-False
Magpies recently bought some equipment for $210,000. Where in Magpie's financial
statements would you find the amount of money paid for this equipment during the most
recent quarterly report? - Answer-Statement of Cash Flows, Cash from Investing
Activities
If a firm has a debt ratio of .6, what is its debt to equity ratio? (Hint, use proportions) -
Answer-1.5
Which of the following transactions would improve a firm's current ratio? - Answer-The
firm uses cash to pay off accounts payable
ToF An overhead cost should not be considered when calculating free cash flows. -
Answer-True
What type of risk cannot be eliminated by diversification? - Answer-Systematic risk
What is a measure of "stand alone" risk? - Answer-standard deviation
ToF Bonds sell at a premium when the yield to maturity on the bond is greater than the
coupon rate. - Answer-False