BUS 401 Week 3 Quiz | Assignment Help | Ashford University
- ashford university / BUS 401
- 02 Nov 2019
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BUS 401 Week 3 Quiz | Assignment Help | Ashford University
Question 1
The irrelevance of capital structure in perfect capital
markets helps us because:
o
if something is irrelevant, we can
ignore it.
o
it applies to real-world capital
markets.
o
it simplifies a complex subject.
o
it shows us which assumptions, when
relaxed, may make capital structure relevant.
Question 2
Chapter 7 introduced three methods for evaluating a
corporate investment decision. Which of the following is not one of those
methods?
o
payback period
o
net present value (NPV)
o
return on assets (ROA)
o
internal rate of return (IRR)
Question 3
The interplay of the tax advantages of debt and the
threat of bankruptcy results in:
o
companies that have some optimal level
of debt that maximizes firm value.
o
all companies having a debt-to-equity
ratio close to 50%.
o
all companies having a debt-to-equity
ratio close to 30%.
o
capital structure being irrelevant.
All else being equal, as debt replaces equity in a
profitable company’s capital structure, which of the following occurs?
o
Interest expense increases, reducing
taxable income and reducing taxes.
o
Interest expense increases, reducing net
income and earnings per share.
o
Interest expense increases, reducing
cash flows available to shareholders.
o
Interest expense increases, reducing
profitability and the wealth of shareholders.
Question 5
The appropriate cash flows for evaluating a
corporate investment decision are:
o
incremental additional cash flows.
o
marginal after-tax cash flows.
o
incremental after-tax cash flows.
o
investment after-tax cash flows.
Question 6
GMX Resources, an independent oil and gas
exploration and production company, has a tax rate of 38%. If it purchases
$2,000,000 of drilling pipe, what is the after-tax cost of this expenditure?
o
$760,000
o
$1,240,000
o
$2,000,000
o
$2,760,000
Question 7
You receive an annual raise of $4,000. If you tax
rate is 22%, how much will this increase your after-tax earnings?
o
$880.00
o
$3,120.00
o
$4,000.00
o
$4,880.00
Question 8
When making investment decisions, we focus on
incremental cash flows because:
o
we want to avoid double counting.
o
sometimes a new product erodes sales of
existing products.
o
we want to compare the additional cash
flows to the cost of the investment.
o
we want to make sure that the cash flows
are positive.
Question 9
Sunk costs are best described as:
o
money that has been lost.
o
an expenditure that did not produce a
profitable product.
o
an expenditure on a product that was later
discontinued. !
o
expenditures on a proposed project that
cannot be recovered whether the project is implemented or not.
Question 10
Two important aspects of debt financing are its tax
advantages and the threat of bankruptcy. As a company shifts to more and more
debt financing:
o
these factors reinforce one another,
implying that more debt is always better.
o
the tax advantage always outweighs
bankruptcy risk.
o
the threat of bankruptcy makes only very
low levels of debt acceptable.
o
the threat of bankruptcy eventually
completely offsets the tax advantage of debt.
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