exam3 fin370 b key.doc
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Exam3 FIN370 Winter 2009 KeyVersion B
1. One year ago, you purchased 200 shares of stock for $29 a share. The stock pays $.60 a share in dividends
each year. Today, you sold your shares for $31.60 a share. What is your total dollar return on this investment?
a. $480
b. $670
c. $610
D. $640
e. $520
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #44
SECTION: 10.1
TOPIC: DOLLAR RETURN
TYPE: PROBLEMS
2. The amount of systematic risk present in a particular risky asset relative to that in an average risky asset is
called the:
a. mean.
B. beta coefficient.
c. risk premium.
d. standard deviation.
e. variance.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #8
SECTION: 11.6
TOPIC: BETA COEFFICIENT
TYPE: DEFINITIONS
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3. Huckster's is reviewing its current accounts to determine how a proposed project might affect the account
balances. The firm estimates the project will initially require $86,000 in current assets and $69,000 in additional
current liabilities. The firm also estimates the project will require an additional $9,000 a year in current assets
for each one of the five years of the project. How much net working capital will the firm recoup at the end of
the project assuming that all net working capital can be recaptured?
a. $62,000
b. $17,000
C. $62,000
d. $28,000
e. $17,000
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #55
SECTION: 9.2
TOPIC: NET WORKING CAPITALTYPE: PROBLEMS
4. The return on a risky asset that is anticipated in the future is called the:
a. real return.
b. risk premium.
c. systematic return.
D. expected return.
e. beta.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #1
SECTION: 11.1
TOPIC: EXPECTED RETURN
TYPE: DEFINITIONS
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5. Which of the following will increase the sustainable growth rate of a firm?
I. eliminating all dividends
II. increasing the target debt-equity ratio
III. increasing the profit margin
IV. increasing the total asset turnover rate
a. I, III, and IV only
B. I, II, III, and IV
c. I, II, and III only
d. I and II only
e. II, III, and IV only
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 003 #32
SECTION: 3.4
TOPIC: SUSTAINABLE GROWTH RATETYPE: CONCEPTS
6. Truman Florists pays a constant annual dividend of $2.20 per share on its stock. Last year at this time, the
market rate of return on this stock was 12.6 percent. Today, the market rate has fallen to 9.7 percent. What
would your capital gains yield have been if you had purchased this stock one year ago and then sold the stock
today?
A. 29.90 percent
b. 14.57 percent
c. 9.70 percentd. 23.02 percent
e. 2.90 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #50
SECTION: 10.1
TOPIC: CAPITAL GAINS YIELD
TYPE: PROBLEMS
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7. A premium bond has a:
I. market price equal to the face value.
II. market price that exceeds the face value.
III. yield to maturity that exceeds the coupon rate.
IV. yield to maturity that is less than the coupon rate.
A. II and IV only
b. I only
c. I and III only
d. II and III only
e. I and IV only
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 006 #34
SECTION: 6.1
TOPIC: PREMIUM BONDTYPE: CONCEPTS
8. Which of the following are advantages of the corporate form of organization?
I. ability to raise large sums of capital
II. ease of ownership transfer
III. corporate taxation
IV. unlimited firm life
A. I, II, and IV only
b. II, III, and IV onlyc. I, II, III, and IV
d. III and IV only
e. I and II only
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 001 #32
SECTION: 1.3TOPIC: CORPORATION
TYPE: CONCEPTS
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9. Which one of the following is the preferred method of analyzing a proposed investment?
a. payback
B. net present value
c. internal rate of return
d. profitability index
e. accounting rate of return
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #13
SECTION: 8.1
TOPIC: NET PRESENT VALUE
TYPE: CONCEPTS
10. When comparing loans of equal amounts and equal time periods, you should select the loan that has the
lowest:
a. quoted rate.
b. annual percentage rate.
c. nominal rate.
d. stated rate.
E. effective annual rate.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 005 #25
SECTION: 5.3
TOPIC: EFFECTIVE ANNUAL RATE
TYPE: CONCEPTS
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11. Which one of the following is a correct statement, all else held constant?
a. The present value is inversely related to the future value.
b. The period of time is directly related to the interest rate.
c. The interest rate is inversely related to the future value.
d. The future value is inversely related to the period of time.
E. The present value is inversely related to the interest rate.
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 004 #26
SECTION: 4.2
TOPIC: PRESENT VALUE
TYPE: CONCEPTS
12. Over the period of 1926-2006:
a. the risk premium on long-term government bonds was zero percent.
b. the risk premium on large-company stocks was 10.2 percent.
C. the risk premium on small-company stocks exceeded the risk-premium on large-company stocks.
d. the risk premium on long-term government bonds exceeded the risk premium on the long-term corporate
bonds.
e. U.S. Treasury bills had a risk premium of 2 percent.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #16
SECTION: 10.3
TOPIC: HISTORICAL RISK PREMIUM
TYPE: CONCEPTS
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13. A project has the following cash flows. What is the payback period?
a. 1.77 years
b. 1.48 years
c. 1.53 years
d. 1.31 years
E. 1.82 years
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #62
SECTION: 8.2
TOPIC: PAYBACK
TYPE: PROBLEMS
14. Limited liability companies are primarily designed to:
I. be taxed like a partnership.
II. be taxed like a corporation.
III. operate like a corporation.
IV. provide limited liability for the owners.
a. II and III only
b. I and III only
c. IV onlyD. I and IV only
e. II and IV only
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 001 #35
SECTION: 1.3
TOPIC: LIMITED LIABILITY COMPANY
TYPE: CONCEPTS
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15. The excess return required on a risky investment over that of a risk-free investment is called the:
a. real return.
b. inflation premium.
c. average actual return.
d. required return.
E. risk premium.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #1
SECTION: 10.3
TOPIC: RISK PREMIUM
TYPE: DEFINITIONS
16. If a project with conventional cash flows has a profitability index equal to one, the project:
I. will not pay back during its life.
II. will have an internal rate of return that equals the project's required rate of return.
III. will have a zero net present value.
IV. will produce more cash inflows than outflows in today's dollars.
a. III and IV only
b. I, III, and IV only
c. I and II only
D. II and III only
e. I, II, and IV only
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 6
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 008 #40
SECTION: 8.5
TOPIC: PROFITABILITY INDEX
TYPE: CONCEPTS
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17. A net present value of zero implies that an investment:
A. is earning a return that exactly matches the requirement.
b. has no initial cost.
c. never pays back its initial cost.
d. should be rejected even if the discount rate is lowered.
e. has an expected return that is less than the required return.
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 008 #15
SECTION: 8.1
TOPIC: NET PRESENT VALUE
TYPE: CONCEPTS
18. Anderson Enterprises currently has $400 in cash. The company owes $1,200 to suppliers for merchandise
and $4,500 to the bank for a long-term loan. Customers owe Anderson's $1,900. The inventory has a book value
of $3,700 and an estimated market value of $4,400. If Anderson's compiled a financial statement today, how
much would it show as the value of the current assets?
A. $6,000
b. $6,700
c. $6,300
d. $5,600
e. $5,200
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 002 #55
SECTION: 2.1
TOPIC: CURRENT ASSETS
TYPE: PROBLEMS
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19. What is the net present value of a project with the following cash flows if the discount rate is 10 percent?
a. $4,513.15
b. $1,085.25
c. $3,498.28
D. $1,193.77
e. $4,102.86
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #47
SECTION: 8.1
TOPIC: NET PRESENT VALUE
TYPE: PROBLEMS
20. You have just won the lottery! You can receive $10,000 a year for 8 years or $57,000 as a lump sum
payment today. What is the interest rate on the annuity?
a. 8.46 percent
b. 7.93 percent
c. 8.39 percent
d. 8.35 percent
E. 8.22 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 005 #54
SECTION: 5.2
TOPIC: INTEREST RATE
TYPE: PROBLEMS
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21. Scott invests $5,000 today into a retirement account. He expects to earn 9 percent, compounded quarterly,
on his money for the next 30 years. After that, he wants to be more conservative, so only expects to earn 6
percent, compounded semi-annually. How much money will Scott have in his account when he retires 45 years
from now, assuming this is the only deposit he makes into the account?
A. $175,260.78
b. $173,043.77
c. $115,361.12
d. $90,237.16
e. $112,493.22
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: CHALLENGE
Ross - Chapter 004 #36
SECTION: 4.1
TOPIC: FUTURE VALUE
TYPE: PROBLEMS
22. Which one of the following statements is correct?
a. The returns on stocks are considered to be normally distributed but the returns on bonds are not.
B. The returns on stocks are treated as a normal distribution that can be defined by the mean and standard
deviation.
c. The distribution of U.S. Treasury bills over the period of 1926-2006 appears as a single vertical line.
d. The annual rates of inflation for the period 1926-2006 have a narrower bell curve than do the returns on U.S.
Treasury bills.
e. Long-term bonds must have a higher standard deviation than stocks as the returns on bonds produce a widerbell curve than do the returns on stocks.
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 010 #33
SECTION: 10.4
TOPIC: NORMAL DISTRIBUTION
TYPE: CONCEPTS
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23. You have a portfolio comprised of the following. What is your portfolio beta?
a. 1.26b. 1.18
c. 1.12
D. 1.07
e. 1.23
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #75SECTION: 11.6
TOPIC: PORTFOLIO BETA
TYPE: PROBLEMS
24. The average compound return earned per year over a multiyear period is called the _____ return.
a. arithmetic average
b. annual percentage
c. real
D. geometric average
e. standardized mean
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #5
SECTION: 10.5
TOPIC: GEOMETRIC AVERAGE RETURN
TYPE: DEFINITIONS
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25. The analysis of the effect that a single variable has on the net present value of a project is called _____
analysis.
a. erosion
b. scenario
c. variable
d. cost-benefit
E. sensitivity
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #11
SECTION: 9.6
TOPIC: SENSITIVITY ANALYSIS
TYPE: DEFINITIONS
26. Systematic risk is:
a. also called diversifiable risk.
b. unique to an individual firm.
c. also called asset-specific risk.
d. the total risk inherent in an individual security.
E. a risk that affects a large number of assets.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #4
SECTION: 11.4
TOPIC: SYSTEMATIC RISK
TYPE: DEFINITIONS
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27. Thayer, Inc. has earnings before interest and taxes of $10,350 and net income of $2,528.50. The tax rate is
35 percent. What is the times interest earned ratio?
A. 1.60
b. .96
c. .62
d. .22
e. 1.04
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 003 #55
SECTION: 3.2
TOPIC: TIMES INTEREST EARNED RATIO
TYPE: PROBLEMS
28. Hunter's Paradise purchased $387,000 of equipment 3 years ago. The equipment is 7-year MACRS
property. The firm is selling this equipment today for $247,500. What is the aftertax cash flow from this sale if
the tax rate is 34 percent? The MACRS allowance percentages are as follows:
a. $176,497.28
B. $220,889.93
c. $198,409.98
d. $224,007.11e. $163,350.00
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #78
SECTION: 9.4
TOPIC: AFTERTAX SALVAGE VALUE
TYPE: PROBLEMS
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29. You are considering the following two mutually exclusive projects. The crossover point is _____ and
Project _____ should be accepted if the discount rate for the project exceeds the crossover rate.
a. 11.02 percent; B
b. 9.93 percent; B
c. 9.54 percent; B
d. 9.93 percent; A
E. 11.02 percent; A
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 008 #91
SECTION: 8.4
TOPIC: NPV PROFILE
TYPE: PROBLEMS
30. A U.S. Treasury bill has a beta of _____ while the overall market has a beta of _____.
a. 1; 0
B. 0; 1
c. 1; 1
d. 0; 0e. infinity; 1
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #33
SECTION: 11.6
TOPIC: BETA
TYPE: CONCEPTS
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31. Coats & More just announced that it will commence paying annual dividends next year. It plans to pay $.75
a year for four years, $.90 a year for the following three years, and then cease paying dividends altogether. How
much is one share of this stock worth to you today if you require a 12 percent rate of return?
a. $4.09
b. $5.89
C. $3.65
d. $4.40
e. $3.34
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 007 #67
SECTION: 7.1
TOPIC: UNEQUAL DIVIDENDS
TYPE: PROBLEMS
32. All of the following are characteristics of common stock except the:
a. right to share proportionally in dividends paid to common shareholders.
b. right to share proportionally in any residual value in a bankruptcy proceeding.
c. ability to vote for corporate directors.
d. ability to vote on key issues such as a merger.
E. priority over other equity in a bankruptcy proceeding.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 007 #37
SECTION: 7.2
TOPIC: COMMON STOCK CHARACTERISTICS
TYPE: CONCEPTS
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33. A bond yielded a real rate of return of 4.79 percent for a time period when the inflation rate was 1.96
percent. What was the actual nominal rate of return?
A. 6.84 percent
b. 7.08 percent
c. 6.55 percent
d. 6.75 percent
e. 7.57 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 006 #108
SECTION: 6.6
TOPIC: FISHER EFFECT
TYPE: PROBLEMS
34. A project has the following cash flows. What is the internal rate of return?
a. 13.96 percent
b. 11.64 percent
c. 15.51 percent
d. 19.08 percent
E. 17.23 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #80
SECTION: 8.4
TOPIC: INTERNAL RATE OF RETURN
TYPE: PROBLEMS
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35. The discount rate that causes the net present value of a project to equal zero is called the:
a. average accounting return.
b. market rate.
C. internal rate of return.
d. yield to maturity.
e. required return.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 3
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #5
SECTION: 8.4
TOPIC: INTERNAL RATE OF RETURN
TYPE: DEFINITIONS
36. If the managers of COA only invest in projects that have a profitability index greater than 1.0, then:
A. COA should increase in value.
b. the required rate of return should increase.
c. the required rate of return should decrease.
d. the value of COA's stock should remain constant.
e. COA will most likely decrease in value.
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 6
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #39
SECTION: 8.5
TOPIC: PROFITABILITY INDEX
TYPE: CONCEPTS
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37. Boone Brothers purchased a parcel of land 8 years ago for $392,500. At that time, the firm invested
$127,000 modifying the site so that it could be leased to an adjacent car dealer for displaying used car
inventory. The lease payment was $39,000 a year. Boone Brothers is now considering building a hotel on the
site as the auto dealer is relocating to make room for a nearby shopping mall to expand. The current value of the
land is $1.14 million. Boone Brothers has no loans or mortgages secured by the property. What value should be
included in the initial cost of the hotel project for the use of this land?
a. $1,267,000
B. $1,140,000
c. $519,500
d. $828,000
e. $0
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #49
SECTION: 9.2
TOPIC: OPPORTUNITY COST
TYPE: PROBLEMS
38. The concept of investing in a variety of diverse assets to reduce risk is referred to as:
A. the principle of diversification.
b. beta measuring.
c. the systematic risk principle.
d. the principle of elimination.
e. split investing.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #6
SECTION: 11.5
TOPIC: PRINCIPLE OF DIVERSIFICATION
TYPE: DEFINITIONS
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39. Company insiders cannot earn excess profits based on the knowledge they have related to their employer if
the financial markets are:
a. aware that the trader is an insider.
b. semistrong form efficient.
C. strong form efficient.
d. efficient at any level.
e. weak form efficient.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 4
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #42
SECTION: 10.6
TOPIC: EFFICIENT MARKETS
TYPE: CONCEPTS
40. The stock of Uptown Men's Wear is expected to produce the following returns given the various states of
the economy. What is the expected return on this stock?
a. 10.4 percent
b. 13.6 percentc. 12.8 percent
D. 9.6 percent
e. 15.3 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #47
SECTION: 11.1
TOPIC: EXPECTED RETURN
TYPE: PROBLEMS
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41. The amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the
depreciation:
A. tax shield.
b. erosion.
c. opportunity cost.
d. credit.
e. adjustment.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #7
SECTION: 9.3
TOPIC: DEPRECIATION TAX SHIELD
TYPE: DEFINITIONS
42. The most valuable alternative that is forfeited if a particular investment is undertaken is called:
a. a sunk cost.
B. an opportunity cost.
c. a marginal cost.
d. a side effect.
e. erosion.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #4
SECTION: 9.2
TOPIC: OPPORTUNITY COST
TYPE: DEFINITIONS
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43. A 5-year project is expected to generate revenues of $92,000, variable costs of $67,000, and fixed costs of
$11,000. The annual depreciation is $4,000 and the tax rate is 35 percent. What is the annual operating cash
flow?
a. $11,100
B. $10,500
c. $8,700
d. $9,900
e. $9,100
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #58
SECTION: 9.3
TOPIC: OPERATING CASH FLOW
TYPE: PROBLEMS
44. You expect the inflation rate to be 3.6 percent and the U.S. Treasury bill yield to be 4.3 percent for the next
year. The risk premium on small-company stocks is 8.1 percent. What rate of return do you expect to earn on
small-company stocks next year?
A. 12.40 percent
b. 11.99 percent
c. 7.90 percent
d. 11.70 percent
e. 8.05 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 010 #60
SECTION: 10.3
TOPIC: RISK PREMIUM
TYPE: PROBLEMS
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45. The change in a firm's future cash flows that results from adding a new project are referred to as _____ cash
flows.
a. direct
b. deviated
C. incremental
d. eroded
e. residual
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #1
SECTION: 9.1
TOPIC: INCREMENTAL CASH FLOWS
TYPE: DEFINITIONS
46. Which of the following will increase the net income of a profitable firm?
I. decreasing the depreciation
II. increasing the variable cost per unit
III. decreasing fixed costs
IV. increasing revenue
a. III and IV only
b. I, II, and III only
C. I, III, and IV only
d. I and IV only
e. II, III, and IV only
BLOOMS TAXONOMY QUESTION TYPE: COMPREHENSION
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 002 #31
SECTION: 2.2
TOPIC: NET INCOME
TYPE: CONCEPTS
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47. Over the past six years, a stock had annual returns of 2 percent, 10 percent, 14 percent, 8 percent, -6
percent, and 8 percent, respectively. What is the standard deviation of these returns?
a. 7.19 percent
b. 12.27 percent
C. 7.04 percent
d. 11.97 percent
e. 8.38 percent
BLOOMS TAXONOMY QUESTION TYPE: APPLICATION
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: INTERMEDIATE
Ross - Chapter 010 #65
SECTION: 10.4
TOPIC: STANDARD DEVIATION
TYPE: PROBLEMS
48. The NPV rule states that you should accept an investment if the NPV:
a. is less than or equal to zero.
b. is less than the investment's initial cost.
C. is positive.
d. exceeds the investment's initial cost.
e. is negative.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 4LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 008 #11
SECTION: 8.1
TOPIC: NET PRESENT VALUE
TYPE: CONCEPTS
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49. A portfolio is a(n):
a. type of risk-free asset.
b. security that has a beta equal to the market beta.
c. asset that has a beta greater than 1.0.
d. new issue of securities that are being offered to the public.
E. group of assets held by an investor.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 2
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 011 #2
SECTION: 11.2
TOPIC: PORTFOLIO
TYPE: DEFINITIONS
50. A sunk cost is:
a. the value of an asset currently owned by a firm.
b. a form of erosion.
c. a cost for which there is no alternative option.
D. a cost that has already been incurred and cannot be recouped.
e. another name for a fixed cost.
BLOOMS TAXONOMY QUESTION TYPE: KNOWLEDGE
LEARNING OBJECTIVE NUMBER: 1
LEVEL OF DIFFICULTY: BASIC
Ross - Chapter 009 #3
SECTION: 9.2
TOPIC: SUNK COST
TYPE: DEFINITIONS