Question 1

A balance sheet that uses market value of expected cash flows is referred to as a:

Accepted Answer

A)   cash flow statement.
B)   finance balance sheet.
C)   market value balance sheet.
D)   such balance sheet does not exist.E) None of the above
F) C) and D)

Question 2

The Rhapsody Day Spa Co has invested 40 percent of the company's assets in a project with a beta of 0.4 and the remaining assets in a project with a beta of 1.8. What is the beta of the company?

Accepted Answer

A)   0.96.
B)   1.24.
C)   1.28.
D)   None of the above.E) A) and C)
F) None of the above

Question 3

Chapman Ltd has a preference share issue outstanding with a current price of $26.57. The company is expected to pay a dividend of $1.86 per share a year from today. What is the company's cost of preference shares?

Accepted Answer

A)   6.50%.
B)   7.00%.
C)   7.50%.
D)   8.00%.E) All of the above
F) B) and C)

Question 4

Which of the following is not used as a capital base in the WACC calculation?

Accepted Answer

A)   Debentures.
B)   Bank overdraft.
C)   Preference shares.
D)   Accounts receivables.E) None of the above
F) A) and B)

Question 5

Which of the following is most likely to account for business failure in Australia?

Accepted Answer

A)   Civil disturbance.
B)   Uninsured cyclone damage.
C)   Insufficient working capital.
D)   Loss of funds due to failure of local bank.E) B) and D)
F) B) and C)

Question 6

Factoring businesses normally require client firms to satisfy which of the following?

Accepted Answer

A)   Have a spread of debtors.
B)   Have efficient debtors' ledgers.
C)   Sell goods on normal, credit terms.
D)   All of the above.E) B) and C)
F) C) and D)

Question 7

To maintain liquidity, firms may:

Accepted Answer

A)   use cash budgeting.
B)   use a bank overdraft.
C)   keep an overestimate of cash required on hand at all times.
D)   all of the above.E) A) and B)
F) A) and C) D

Question 8

Which of the following statement is false?

Accepted Answer

A)   The market value of debt is used in the calculation of WACC.
B)   Historical costs do not belong in WACC calculations.
C)   The current cost of long-term debt is what matters when calculating WACC.
D)   None of the above.E) All of the above
F) C) and D) D

Question 9

Which of the following statements relates to the matching principle?

Accepted Answer

A)   Permanent assets should be financed with short-term sources of funding.
B)   Permanent assets should be sourced with permanent sources of funding.
C)   Temporary assets should be sourced with permanent sources of funding.
D)   None of the above.E) A) and B)
F) A) and C)

Question 10

Which of the following statements is correct?

Accepted Answer

A)   The WACC is the appropriate discount rate to use for cash flows similar in risk to the firm.
B)   The WACC for a firm reflects the risk and the target capital structure to finance the firm's existing assets as a whole.
C)   The WACC is the weighted average of the costs of the different types of capital (debt and equity)  that have been used to finance a company; the cost of each type of capital is weighted by the proportion of the total capital that it represents.
D)   All of the above.E) C) and D)
F) All of the above

Question 11

In managing the level of working capital, which of the following is generally not a concern:

Accepted Answer

A)   the need to maintain liquidity.
B)   the need to earn the required rate of return on the assets.
C)   the cost and risk of long-term funding.
D)   none of the above.E) A) and C)
F) A) and B) C

Exam 7: Cost of Capital and Working Capital Management

A balance sheet that uses market value of expected cash flows is referred to as a:

Correct Answer
verified

The Rhapsody Day Spa Co has invested 40 percent of the company's assets in a project with a beta of 0.4 and the remaining assets in a project with a beta of 1.8. What is the beta of the company?

Correct Answer
verified

Chapman Ltd has a preference share issue outstanding with a current price of $26.57. The company is expected to pay a dividend of $1.86 per share a year from today. What is the company's cost of preference shares?

Correct Answer
verified

Which of the following is not used as a capital base in the WACC calculation?

Correct Answer
verified

Which of the following is most likely to account for business failure in Australia?

Correct Answer
verified

Factoring businesses normally require client firms to satisfy which of the following?

Correct Answer
verified

To maintain liquidity, firms may:

Correct Answer
verified
D

Which of the following statement is false?

Correct Answer
verified
D

Which of the following statements relates to the matching principle?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

In managing the level of working capital, which of the following is generally not a concern:

Correct Answer
verified
C

Exam 7: Cost of Capital and Working Capital Management

A balance sheet that uses market value of expected cash flows is referred to as a:

Correct AnswerverifiedShow Answer

The Rhapsody Day Spa Co has invested 40 percent of the company's assets in a project with a beta of 0.4 and the remaining assets in a project with a beta of 1.8. What is the beta of the company?

Correct AnswerverifiedShow Answer

Chapman Ltd has a preference share issue outstanding with a current price of $26.57. The company is expected to pay a dividend of $1.86 per share a year from today. What is the company's cost of preference shares?

Correct AnswerverifiedShow Answer

Which of the following is not used as a capital base in the WACC calculation?

Correct AnswerverifiedShow Answer

Which of the following is most likely to account for business failure in Australia?

Correct AnswerverifiedShow Answer

Factoring businesses normally require client firms to satisfy which of the following?

Correct AnswerverifiedShow Answer

To maintain liquidity, firms may:

Correct AnswerverifiedD

Which of the following statement is false?

Correct AnswerverifiedD

Which of the following statements relates to the matching principle?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

In managing the level of working capital, which of the following is generally not a concern:

Correct AnswerverifiedC

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C