FIR4440 Exam Questions with 100% Correct Answers | Verified | Updated

FIR4440 Exam Questions with 100% Correct Answers | Verified | Updated The NPV calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to: a) Firm's cost of equity b) Firm's cost of capital c) internal rate of return for the project d) 10-year Treasury security yield - answerB The Wise Co. purchased a new truck two years ago for $56,000. The company uses MACRS depreciation for accounting purposes. The truck is classified as 5-year property, which has depreciation allowances of 20%, 32% and 19.2% for the first three years, respectively. The company is in the 30% marginal tax bracket. Today the company received an offer of $32,000 for the truck. What will be the net cash flow from the sale if the company decides to sell the truck today? a. 24,615 b. 26,108 c. 28,663 d. 30,464 e. 31,710 - answerD Justin is evaluating a project that is expected to produce cash flows of $5,000 each year for the next 4 years and $8,000 each year for the following 2 years. The IRR of this 6-year project is 9.75%. If the firm's cost of capital is 8%, what is the project's NPV? a) $1,375 b) 1,401 c) 1,440 d) 1,487 e) 1,509 - answere An efficient capital market is one in which: a. Taxes are irrelevant b. Brokerage commissions are zero. c. Security prices reflect available information. d. Securities always offer a positive rate of return to investors. - answerc Beta measures: - answersystematic risk Assume the annual returns on long-term corporate bonds are normally distributed with an average historical return of 6.2% and a standard deviation of 8.6%. What is the probability that annual return on long-term corporate bonds is greater than 10%? a. 28% b. 33% c. 42% d. 55% e. 67% - answerb. The direct issuing costs as a percentage of the gross amount raised are different for four capital raising approaches: straight bonds, convertible bonds, seasoned equity offering (SEOs) and initial public offerings (IPOs) Which of the following shows the correct sequence of descending order (i.e., from high to low): a. SEOs, convertible bonds, IPOs, straight bonds b. IPOs, SEOs, convertible bonds, straight bonds c. convertible bonds, straight bonds, IPOs, SEOs d. IPOs, straight bonds, SEOs, convertible bonds - answerb Which of the following would be considered an indirect bankruptcy cost: a. the cost the firm must pay to the court when filing its bankruptcy petition. b. the cost of the appraisals a firm must obtain on its assets by order of the bankruptcy petition. c. The fee the firm pays its lawyer to draw up the bankruptcy petition. d. The cost to the firm of projects in-progress terminated in order to preserve cash. - answerd. The proposition that a firm borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress cost is called the: a. Absolute priority rule b. M&M proposition I. c. M&M proposition II. d. Weighted average cost of capital e. Static theory of Capital Structure. - answere Gibson Corp is comparing two different capital structures: an all-equity plan (plan 1) and a levered plan (plan 2). Under plan 1, the company would have 100,000 shares outstanding. Under plan 2, there would be 75,000 shares outstanding and 2,000,000 in debt outstanding. The interest rate on debt is 6 percent and the corpor