Question 8

1. The return demanded by shareholders for the risk that they bear in supplying capital to the firm is

		less for riskier firms.
		only considered when a corporation has no debt.
		measured by the internal rate of return.
		called the cost of equity.

Question 9

1. Since present value analysis is concerned with cash flows, which of the following is not true?

		Depreciation is always an incremental cash inflow.
		Revenues are inflows in the period when the cash is received.
		Expenses are outflows in the period when they are paid.
		The salvage value of equipment is considered in the analysis.

Question 11

1. Discount Dollar Store is considering the purchase of a new machine costing $220,000. This machine is estimated to generate an additional $88,000 per year in revenues. The machine will be depreciated using the straight-line method over its 4-year life. There is no expected salvage value at the end of its life. Expected annual net cash flows are $67,240 and expected annual net income from the new machine total $12,240. The required rate of return is 8% and the income tax rate is 28%. How much is the net present value of this project?

		$2,706
		($179,460)
		$71,465
		$153,390

Question 14

1. Objective Products required rate of return on capital budgeting projects is 9%. The company is considering an investment that would yield net annual operating cash flows of $30,000 for 3 years. What is the maximum amount that the company will be willing to invest in this project?

		$75,939
		$69,498
		$90,000
		$98,100

Question 17

1. Wisdom Toys has budgeted sales and production over the next quarter as follows: Unit Sales Production September 43,000 44,400 October 50,000 52,800 November 64,000 61,200 The company requires that 20% of the next months sales in units are on hand at the end of each month. December sales are expected to be 50,000 units. How many video games are in inventory at October 31?

		12,800 units
		34,400 units
		4,000 units
		10,000 units