BUS 401 Week 3 Quiz

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BUS 401 Week 3 Quiz Check this A tutorial
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01-NEW/BUS-401-Week-3-Quiz 1.) The appropriate
cash flows for evaluating a corporate investment
decision are  incremental additional cash
flows.   marginal after-tax cash
flows.   incremental after-tax cash
flows.   investment after-tax cash
flows.    2.) The typical corporate investment
requires a large cash outlay followed by several
years of cash inflows. To make these cash flows
comparable, we do which of the following?  Adjust
both cash outflows and inflows for
taxes.   Subtract interest charges to reflect the
time value of money.  Adjust both outflows and
inflows for the effects of depreciation.  Apply
time value of money concepts and compare present
values.      7.) The interplay of the tax
advantages of debt and the threat of bankruptcy
results in  companies that have some optimal
level of debt that maximizes firm value.  all
companies having a debt-to-equity ratio close to
50.   all companies having a debt-to-equity
ratio close to 30.   capital structure being
irrelevant.    8.) Costs associated with
bankruptcy include  legal fees, managerial time
shifted away from value creation, and loss of
brand value.  legal fees, additional inventory
costs from sales growth, and loss of brand
value.  legal fees, managerial time shifted away
from value creation, and increased market
share.  legal fees, employees leaving the
company, and cost savings from lower labor
costs.     9.) All else being equal, as debt
replaces equity in a profitable companys capital
structure, which of the following
occurs?  Interest expense increases, reducing
taxable income and reducing taxes.  Interest
expense increases, reducing net income and
earnings per share.  Interest expense increases,
reducing cash flows available to
shareholders.  Interest expense increases,
reducing profitability and the wealth of
shareholders.    10.) Two important aspects of
debt financing are its tax advantages and the
threat of bankruptcy. As a company shifts to more
and more debt financing  these factors reinforce
one another, implying that more debt is always
better.   the tax advantage always outweighs
bankruptcy risk.   the threat of bankruptcy makes
only very low levels of debt acceptable.   the
threat of bankruptcy eventually completely
offsets the tax advantage of debt.  For more
classes visit http//www.assignmentcloud.com
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3.) If depreciation expense is a noncash charge,
why do we consider it when determining cash
flows?   because depreciation expense reduces
taxable income, so reduces the amount of taxes
paid  because depreciation expense offsets part
of the initial cash outlay for depreciable
assets  because depreciation expense reduces net
income   because depreciation expense is a method
for allocating costs    4.) The internal rate of
return is  the discount rate at which the NPV is
maximized.   the discount rate used by people
within the company to evaluate projects.  the
rate of return that a project must exceed to be
acceptable.  the discount rate that equates the
present value of benefits to the present value of
costs.    5.) Chapter 7 introduced three methods
for evaluating a corporate investment decision.
Which of the following is not one of those
methods?  payback period   net present value
(NPV)   return on assets (ROA)   internal rate of
return (IRR)   
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6.) In perfect capital markets, the capital
structure decision is  important because it
affects the cash flows to shareholders.   importan
t because debt and equity are taxed
differently.   irrelevant because the decision
has no effect on cash flows.   important
sometimes.  7.) The interplay of the tax
advantages of debt and the threat of bankruptcy
results in  companies that have some optimal
level of debt that maximizes firm value.  all
companies having a debt-to-equity ratio close to
50.   all companies having a debt-to-equity
ratio close to 30.   capital structure being
irrelevant.    8.) Costs associated with
bankruptcy include  legal fees, managerial time
shifted away from value creation, and loss of
brand value.  legal fees, additional inventory
costs from sales growth, and loss of brand
value.  legal fees, managerial time shifted away
from value creation, and increased market
share.  legal fees, employees leaving the
company, and cost savings from lower labor
costs.     9.) All else being equal, as debt
replaces equity in a profitable companys capital
structure, which of the following
occurs?  Interest expense increases, reducing
taxable income and reducing taxes.  Interest
expense increases, reducing net income and
earnings per share.  Interest expense increases,
reducing cash flows available to
shareholders.  Interest expense increases,
reducing profitability and the wealth of
shareholders.    10.) Two important aspects of
debt financing are its tax advantages and the
threat of bankruptcy. As a company shifts to more
and more debt financing  these factors reinforce
one another, implying that more debt is always
better.   the tax advantage always outweighs
bankruptcy risk.   the threat of bankruptcy makes
only very low levels of debt acceptable.   the
threat of bankruptcy eventually completely
offsets the tax advantage of debt.  For more
classes visit http//www.assignmentcloud.com