21)The return on equity for Dana Dairy Products for 2005 was (See Table 2.2)21)______A)0.6 percent.B)50 percent.C)5.6 percent.D)0.9 percent.22)On a purely theoretical basis, the NPV is the better approach to capital budgeting due to all the following reasons EXCEPT22)______A)that it measures the benefits relative to the amount invested.B)that it maximizes shareholder wealth.C)for the reasonableness of the reinvestment rate assumption.D)that there may be multiple solutions for an IRR computation.Table 8.4Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five-year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate.23)The tax effect on the sale of the existing asset results in (See Table 8.4)23)______A)$800 tax benefit.B)$1,000 tax liability.C)$6,000 tax liability.D)$1,100 tax liability.24)Nico owns 100 shares of stock X which has a price of $12 per share and 200 shares of stock Y which has a price of $3 per share. What is the proportion of Nico’s portfolio invested in stock X?24)______A)77%B)67%C)50%D)33%25)A firm has just ended its calendar year making a sale in the amount of $200,000 of merchandise purchased during the year at a total cost of $150,500. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The possible problem this firm may face is25)______A)lack of cash flow.B)inability to receive credit.C)low profitability.D)high leverage.26)The tax liability of a corporation with ordinary income of $105,000 is ________.26)______A)$24,200B)$23,950C)$42,000D)$35,70027)In planning and managing the requirements of the firm, the financial manager is concerned with27)______A)the acquisition of fixed assets, allowing someone else to plan the level of current assets required.B)the mix and type of assets, the type of financing utilized, and analysis in order to monitor the financial condition.C)the mix and type of assets, but not the type of financing utilized.D)the type of financing utilized, but not the mix and type of assets.28)Foreign exchange risk refers to the risk created by ________.28)______A)the varying exchange rate between two currenciesB)the fixed exchange rate between two currenciesC)the potential nationalization of the MNC’s operations by a host governmentD)the potential seizure of an MNC’s operations in a host country29)The ________ the coefficient of variation, the ________ the risk.29)______A)higher; lowerB)lower; higherC)lower; lowerD)more stable; higher30)The 2002 Sarbanes-Oxley Act was designed to30)______A)eliminate the many disclosure and conflict of interest problems of corporationsB)limit the compensation that could be paid to corporate CEOsC)provide uniform international accounting standardsD)two of the above31)Prime-grade commercial paper will most likely have a higher annual return than31)______A)a Treasury bill.B)a preferred stock.C)an investment-grade bond.D)a common stock.32)Financial managers evaluating decision alternatives or potential actions must consider32)______A)risk, return, and the impact on share price.B)only return.C)only risk.D)both risk and return.33)After satisfying obligations to creditors, the government, and preferred stockholders, any remaining earnings will most likely be allocated to any of the following EXCEPT33)______A)retained by the firm for future investment.B)common shareholders as cash dividends.C)common shareholders as stock dividends.D)a combination of retained earnings and cash dividends.34)The ________ from the sale of a security are the funds actually received from the sale after ________, or the total costs of issuing and selling the security, which have been subtracted from the total proceeds.34)______A)gross proceeds; the after-tax costsB)net proceeds; the flotation costsC)gross proceeds; the flotation costsD)net proceeds; the after-tax costs
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