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FM - Ch. 7, 8 & 9

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Professional Development

1st Grade

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FM - Ch. 7,  8 & 9
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17 questions

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1.

MULTIPLE CHOICE QUESTION

30 sec • 2 pts

Dough Co has decided to increase its daily purchases of doughnuts by 100 boxes. A box of doughnuts costs $2 and sells for $3 in normal shops. Any boxes not sold in normal shops are sold through Dough’s economy shop for $1. Dough estimates the following probabilities to selling the additional boxes:

Normal Economy Probability

shop sales shop sales

60 40 0.6

100 0 0.4

What is the expected value of Dough’s decision to buy 100 additional boxes of doughnuts?

  1. $28

  1. $40

  1. $52

  1. $68

2.

MULTIPLE CHOICE QUESTION

30 sec • 2 pts

Blane Co purchases a new machine for $340,000. The machine is expected to increase annual cash flows by $110,000 per year for the next four years. The appropriate discount rate is 4%.

Using the discounted payback period method, approximately how many years will it take for Blane to recover its investment?

  1. 3.09 years

  1. 3.16 years

  1. 3.37 years

  1. 3.58 years

3.

MULTIPLE CHOICE QUESTION

30 sec • 2 pts

Which of the following limitations is common to the calculations of payback period, discounted payback, internal rate of return and net present value?

  1. They do not consider the time value of money

  1. They require multiple trial and error calculations

  1. They require knowledge of a company’s cost of capital

  1. They rely on the forecasting of future data

4.

MULTIPLE CHOICE QUESTION

30 sec • 2 pts

The NPV of a project is $56,000. The PV of revenue is $380,000, the PV of variable costs is $240,000 and the PV of fixed costs is $80,000.

What is the sensitivity of the project to changes in sales volume?

  1. 14.7%

  1. 23.3%

  1. 40.0%

  1. 93.3%

5.

MULTIPLE CHOICE QUESTION

30 sec • 2 pts

A company’s current share price is $4. The company then makes a 2 for 3 rights issue at an issue price of $2.

What is the theoretical ex-rights price?

  1. $2.50

  1. $2.80

  1. $3.00

  1. $3.20

6.

MULTIPLE CHOICE QUESTION

30 sec • 2 pts

Which of the following is the most likely effect of a scrip issue of shares?

  1. Decreases the debt/equity ratio of the company

  1. Decreases earnings per share

  1. Increases the share premium account

  1. Increases the share price

7.

MULTIPLE CHOICE QUESTION

30 sec • 2 pts

Which of the following is correct according to dividend irrelevance theory?

  1. A company should maintain a stable dividend policy or risk losing investors

  1. Shareholders prefer higher dividends and lower potential capital gains because a dividend today is without risk whereas future share price growth is uncertain

  1. The pattern of dividends does not affect shareholder wealth

  1. A dividend can only be paid if there are sufficient distributable reserves

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