1.\tQuestion :\tThe appropriate cash flows for evaluating a corporate investment decision are:\tStudent Answer:\tincremental additional cash flows.\tmarginal after-tax cash flows.\tincremental after-tax cash flows.\tinvestment after-tax cash flows.\tInstructor Explanation:\tThe answer can be found in Section 6.1: How to Compute Cash Flows.\tPoints Received:\t1 of 1 \tComments:\t2.\tQuestion :\tThe 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?\tStudent Answer:\tAdjust both cash outflows and inflows for taxes.\tSubtract interest charges to reflect the time value of money.\tAdjust both outflows and inflows for the effects of depreciation.\tApply time value of money concepts and compare present values.\tInstructor Explanation:\tThe answer can be found in Section 6.1: How to Compute Cash Flows.\tPoints Received:\t1 of 1 \tComments:\t3.\tQuestion :\tIf depreciation expense is a noncash charge, why do we consider it when determining cash flows?\tStudent Answer:\tbecause depreciation expense reduces taxable income, so reduces the amount of taxes paid\tbecause depreciation expense offsets part of the initial cash outlay for depreciable assets\tbecause depreciation expense reduces net income\tbecause depreciation expense is a method for allocating costs\tInstructor Explanation:\tThe answer can be found in Section 6.1: How to Compute Cash Flows.\tPoints Received:\t1 of 1 \tComments:\t4.\tQuestion :\tThe internal rate of return is:\tStudent Answer:\tthe discount rate at which the NPV is maximized.\tthe discount rate used by people within the company to evaluate projects.\tthe rate of return that a project must exceed to be acceptable.\tthe discount rate that equates the present value of benefits to the present value of costs.\tInstructor Explanation:\tThe answer can be found in Section 7.1: Capital Budgeting Methods.\tPoints Received:\t1 of 1 \tComments:\t5.\tQuestion :\tChapter 7 introduced three methods for evaluating a corporate investment decision. Which of the following is not one of those methods?\tStudent Answer:\tpayback period\tnet present value (NPV)\treturn on assets (ROA)\tinternal rate of return (IRR)\tInstructor Explanation:\tThe answer can be found in Section 7.1: Capital Budgeting Methods.\tPoints Received:\t1 of 1 \tComments:\t6.\tQuestion :\tIn perfect capital markets, the capital structure decision is:\tStudent Answer:\timportant because it affects the cash flows to shareholders.\timportant because debt and equity are taxed differently.\tirrelevant because the decision has no effect on cash flows.\timportant sometimes.\tInstructor Explanation:\tThe answer can be found in Section 8.1: Perfect Capital Markets.\tPoints Received:\t1 of 1 \tComments:\t7.\tQuestion :\tThe interplay of the tax advantages of debt and the threat of bankruptcy results in:\tStudent Answer:\tcompanies that have some optimal level of debt that maximizes firm value.\tall companies having a debt-to-equity ratio close to 50%.\tall companies having a debt-to-equity ratio close to 30%.\tcapital structure being irrelevant.\tInstructor Explanation:\tThe answer can be found in Section 8.1: Perfect Capital Markets.\tPoints Received:\t1 of 1 \tComments:\t8.\tQuestion :\tCosts associated with bankruptcy include:\tStudent Answer:\tlegal fees, managerial time shifted away from value creation, and loss of brand value.\tlegal fees, additional inventory costs from sales growth, and loss of brand value.\tlegal fees, managerial time shifted away from value creation, and increased market share.\tlegal fees, employees leaving the company, and cost savings from lower labor costs.\tInstructor Explanation:\tThe answer can be found in Section 8.1: Perfect Capital Markets.\tPoints Received:\t1 of 1 \tComments:\t9.\tQuestion :\tAll else being equal, as debt replaces equity in a profitable company’s capital structure, which of the following occurs?\tStudent Answer:\tInterest expense increases, reducing taxable income and reducing taxes.\tInterest expense increases, reducing net income and earnings per share.\tInterest expense increases, reducing cash flows available to shareholders.\tInterest expense increases, reducing profitability and the wealth of shareholders.\tInstructor Explanation:\tThe answer can be found in Section 8.1: Perfect Capital Markets.\tPoints Received:\t1 of 1 \tComments:\t10.\tQuestion :\tTwo important aspects of debt financing are its tax advantages and the threat of bankruptcy. As a company shifts to more and more debt financing:\tStudent Answer:\tthese factors reinforce one another, implying that more debt is always better.\tthe tax advantage always outweighs bankruptcy risk.\tthe threat of bankruptcy makes only very low levels of debt acceptable.\tthe threat of bankruptcy eventually completely offsets the tax advantage of debt.\tInstructor Explanation:\tThe answer can be found in Section 8.1: Perfect Capital Markets<\/p>\n","protected":false},"excerpt":{"rendered":"
1. Question : The appropriate cash flows for evaluating a corporate investment decision are: Student Answer: incremental additional cash flows. marginal after-tax cash flows. incremental after-tax cash flows. investment after-tax cash flows. Instructor Explanation: The answer can be found in Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-204820","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/204820","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=204820"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/204820\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=204820"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=204820"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=204820"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}