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Test Bank For Corporate Finance, 12th Edition By Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan. (All Chapters Covered) Updated Version Actual Questions with Correct Verified Answers/$18.49
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Test Bank For Corporate Finance, 12th Edition By Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan. (All Chapters Covered) Updated Version Actual Questions with Correct Verified Answers/
Test Bank For Corporate Finance, 12th Edition By
Stephen Ross, Randolph Westerfield, Jeffrey
Jaffe, Bradford Jordan. (All Chapters Covered)
Updated Version Actual Questions
with Correct Verified Answers/
Test Bank For Corporate Finance, 12th Edition By
Stephen Ross, Randolph Westerfield, Jeffrey
Jaffe, Bradford Jordan. (All Chapters Covered)
Updated Version 2024 -2024 Actual Questions
with Correct Verified Answers/
Which of the following portfolios have the least risk?
A) Treasury Bill
B) Portfolio of long-term US Government Bonds
C) Portfolio of US common stocks
D) Portfolio of AAA-rated corporate bonds - Correct Answer - A) - Portfolio of Treasury
Bills
Which of the following statements best describes shelf regulation? - Correct Answer -
Registration of the sale of securities in the primary market
A new public entity issue from a company with public equity previously outstanding is
called: - Correct Answer - Seasoned Equity Offering (SEO)
When a company sells an entire issue of securities to a small group of institutional
investors like life insurance companies, pension funds, etc., it is called: - Correct Answer
- Private Placement
An investor can create the effect of leverage on his/her account by: - Correct Answer -
1) Buying equity of an unlevered firm
2) Borrowing on his/her account
pg. 1
,If an investor buys a portion (X) of the equity of a levered firm, then his/her payoff is: -
Correct Answer - (X) * (profits-interest)
Capital structure is irrelevant if: - Correct Answer - 1) Capital markets are efficient
2) Each investor can borrow/lend on the same terms as the firm
3) There are no tax benefits to debt
MM Proposition II (assuming no bankruptcy) states: - Correct Answer - 1) The expected
return on equity is positively related to leverage
2) The required return on equity is a linear function of the firm's debt to equity ratio
3) The risk to equity increases with leverage
Minimizing the weighted average cost of capital (WACC) is the same as maximizing: -
Correct Answer - Market value of the firm
This is the process of estimating expected future cash flows of a project using only the
relevant parts of the balance sheet and income statements. - Correct Answer - pro
forma analysis
If a firm has already paid an expense or is obligated to pay one in the future, regardless
of whether a particular project is undertaken, that expense is a - Correct Answer - sunk
cost
Effects that arise from a new product or service that increase sales of the firm's existing
products or services are referred to as - Correct Answer - complementary effects.
Effects that arise from a new product or service that decrease sales of the firm's existing
products or services are referred to as - Correct Answer - substitutionary effects.
Which of the following is NOT included when calculating the depreciable basis for real
property? - Correct Answer - financing fees
pg. 2
,A decrease in net working capital (NWC) is treated as a - Correct Answer - cash inflow
Suppose you sell a fixed asset for $90,000 when its book value is $95,000. If your
company's marginal tax rate is 40%, what will be the effect on cash flows of this sale
(i.e., what will be the after-tax cash flow of this sale)? - Correct Answer - $92,000
You are trying to pick the least-expensive machine for your company. You have two
choices: machine A, which will cost $50,000 to purchase and which will have OCF of -
$3,500 annually throughout the machine's expected life of three years; and machine B,
which will cost $75,000 to purchase and which will have OCF of -$4,900 annually
throughout that machine's four-year life. Both machines will be worthless at the end of
their life. If you intend to replace whichever type of machine you choose with the same
thing when its life runs out, again and again out into the foreseeable future, and if your
business has a cost of capital of 14 percent, which one should you choose? - Correct
Answer - Machine A
The main advantage of debt financing for a firm is: - Correct Answer - Interest expenses
are tax deductible
In order to find the present value of the tax shields provided by debt, the discount rate
used is the: - Correct Answer - Cost of Debt
Which one of the following represents the level of output where a project produces a
rate of return just equal to its requirement? - Correct Answer - financial break-even
Which one of the following statements is correct concerning bid prices? - Correct
Answer - a firm can submit a bid that is higher than the computed bid price and still
break even.
Which one of the following statements is correct in relation to independent projects? -
Correct Answer - A project with investing type cash flows is acceptable if its internal rate
of return exceeds the required return.
pg. 3
, Which one of the following statements is correct? - Correct Answer - A project can
create a positive operating cash flow without affecting sales.
Which one of the following statements related to payback and discounted payback is
correct? - Correct Answer - Payback is used more frequently even though discounted
payback is a better method.
Which one of the following statements related to the internal rate of return (IRR) is
correct? - Correct Answer - The IRR is equal to the required return when the net present
value is equal to zero.
Which one of the following statements would generally be considered as accurate given
independent projects with conventional cash flows? - Correct Answer - The payback
decision rule could override the net present value decision rule should cash availability
be limited.
Which one of the following will be used in the computation of the best-case analysis of a
proposed project? - Correct Answer - the lowest variable cost per unit that can
reasonably be expected
Which one of the following will best reduce the risk of a project by lowering the degree
of operating leverage? - Correct Answer - subcontracting portions of the project rather
than purchasing new equipment to do all the work in-house
Which one of the following will decrease the net present value of a project? - Correct
Answer - increasing the project's initial cost at time zero
MM Proposition I with corporate taxes states: - Correct Answer - A) Capital structure can
affect firm value by an amount that is equal to the present value of the interest tax shield
B) By raising the debt-to-equity ratio, the firm can lower its taxes and thereby increase
its total value
Assuming that bonds are sold at a fair price, the benefits from the interest tax shield go
to the: - Correct Answer - Stockholders of the firm
pg. 4
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