67. B is correct
Interstate Motors has decided to make an additional investment in its operating assets
which are financed by debt. Assuming all other factors remain constant, this increase in
investment will have which one of the following effects?
Operating income margin operating asset turnover return on operating assets
a. Increase No change Increase.
b. No change Decrease Decrease.
c. No change Increase Decrease.
d. Decrease Decrease Decrease.
can someone give me explanation?
128. C is correct
Which of the following, when considered individually, would generally have the effect of
increasing a firm’s cost of capital?
I. The firm reduces its operating leverage.
II. The corporate tax rate is increased.
III. The firm pays off its only outstanding debt.
IV. The Treasury Bond yield increases.
a. I and III. b. II and IV. c. III and IV. d. I, III and IV.
can someone give explanation about I and IV?
223. D is correct
Jack Blaze wants to rent store space in a new shopping mall for the three month holiday
shopping season. Blaze believes he has a new product available which has the potential
for good sales. The product can be obtained on consignment at the cost of $20 per unit
and he expects to sell the item for $100 per unit. Due to other business ventures, Blaze’s
risk tolerance is low. He recognizes that, as the product is entirely new, there is an
element of risk. The mall management has offered Blaze three rental options: (1) a fixed
fee of $8,000 per month, (2) a fixed fee of $3,990 per month plus 10% of Blaze’s
revenue, or (3) 30% of Blaze’s revenues. Which one of the following actions would you
recommend to Jack Blaze?
a. Choose the first option no matter what Blaze expects the revenues to be.
b. Choose the second option no matter what Blaze expects the revenues to be.
c. Choose the second option only if Blaze expects revenues to exceed $5,700.
d. Choose the third option no matter what Blaze expects the revenues to be.
need calculation process
343. C is correct
Foggy Products is evaluating two mutually exclusive projects, one requiring a $4 million
initial outlay and the other a $6 million outlay. The Finance Department has performed
an extensive analysis of each project. The chief financial officer has indicated that there
is no capital rationing in effect. Which of the following statements are correct?
I. Both projects should be rejected if their payback periods are longer than the
company standard.
II. The project with the highest Internal Rate of Return (IRR) should be selected
(assuming both IRRs exceed the hurdle rate).
III. The project with the highest positive net present value should be selected.
IV. Select the project with the smaller initial investment, regardless of which
evaluation method is used.
a. I, II, and IV only. b. I, II and III only. c. I and III only. d. II and III only.
what about II? how to use IRR to select projects?