test 1 N1

Which of the following statements about NPV and IRR is NOT correct

• The IRR can be positive even if the NPV is negative

• When the IRR is equal to the cost of capital, the NPV equals zero

• The NPV will be positive if the IRR is less than the cost of capital

Which of the following sources of short-term liquidity is considered reliable enough that it can be listed in the footnotes to a firm’s financial statements as a source of liquidity

• Factoring agreement

• Revolving line of credit.

• Uncommitted line of credit

Shareholders selling shares between the exdividend date and date of record:

• forfeit the dividend, with the proceeds staying with the company.

• receive the dividend

• forfeit the dividend, with the proceeds going to the buyer

Financing costs for a capital project are:

• captured in the project’s required rate of return

• subtracted from the net present value of a project.

• subtracted from estimates of a project’s future cash flows

The NPV profile is a graphical representation of the change in net present value relative to a change in the

• prime rate.

• internal rate of return.

• discount rate

Which of the following sources of credit would an analyst most likely associate with a borrower of the lowest credit quality?

• Committed line of credit

• Uncommitted line of credit

• Revolving line of credit

A periodic payment to shareholders in the form of additional shares of stock instead of cash is a:

• dividend reinvestment plan

• stock dividend

• stock repurchase

Which of the following shows the key dividend dates in their proper sequence?

• Declaration date, exdividend date, holder-of-record date, payment date

• Declaration date, holder-of-record date, ex-dividend date, payment date

• Ex-dividend date, holderof-record date, declaration date, payment date

All else equal, which of the following statements about operating leverage is least accurate?

• Operating leverage reflects the tradeoff between variable costs and fixed costs

• Lower operating leverage generally results in a higher expected rate of return

• Firms with high operating leverage experience greater variance in operating income

Jayco, Inc. has a division that makes red ink for the accounting industry. The unit has fixed costs of $10,000 per month, and is expected to sell 40,000 bottles of ink per month. If the variable cost per bottle is $2.00 what price must the division charge in order to breakeven?

• $2.50.

• $2.75.

• $2.25