D076 OA ASSESSMENT PASSED 100%

0 / 1 Why is it appropriate to calculate the value of a bond in the same way that the present value of an annuity is calculated? Bonds pay a coupon every six months, pay a constant coupon amount, and have a maturity date. The cash flows that come from owning a bond grow at a constant rate every year, and the payments continue forever. Even though bonds have a fixed length, the cash flows differ each year. A bond is a fixed amount paid each period forever to compensate investors. - Bonds pay a coupon every six months, pay a constant coupon amount, and have a maturity date. 1 / 1 You signed an apartment contract today. You are going to pay $1,500 at the beginning of each month for the next 12 months, starting today. What type of cash flows is this contract? A perpetuity Uneven cash flows An ordinary annuity An annuity due - An annuity due A company's officers and board of directors are selling their stocks in the firm at higher prices due to false accounting reports that made the stock seem more valuable than it truly was. Which ethical issue is occurring in this situation? Conflict between work and personal affairs Maximizing shareholder value Pursuing individual interest over client interests Agency problem due to conflicting interests - Agency problem due to conflicting interests A financial analyst for the company Bobby's Books has been asked to evaluate a potential investment using a method that considers the time value of money. Is there more than one way to do this? Yes, the analyst could use both the NPV and the IRR. Yes, the analyst could use the current ratio and could compare cost of capital rates. No, there are no valuation methods that take into account the time value of money. No, the analyst could only use cash budgeting to evaluate the project. - Yes, the analyst could use both the NPV and the IRR. A firm had sales of $100,000 this month. However, the firm received only $90,000 in cash from sales. Why would the firm receive $10,000 less cash than its monthly sales? Because the firm purchased inventory on credit this month Because the firm paid cash for inventory purchased Because the firm paid down $10,000 on a loan Because the firm did not make all sales on cash - Because the firm did not make all sales on cash Beckingham Sports is an American sporting goods company. Based on a $400,000 market study and a $600,000 fee for consulting spent prior to the project, the firm can increase its annual operating cash flow by $3,000,000 by selling overseas. Because the firm was considering the expansion, it spent $2,000,000 to purchase a land for new factory and equipment. However, someone is making an offer to pay the company $3,000,000 for the land it purchased for the new factory. What is relevant to include in the company's capital budgeting decision? $400,000 spent on the market study $2,000,000 spent to purchase the land $600,000 for the consulting $3,000,000 for the offer price of the land - $3,000,000 for the offer price of the land How do you factor sunk costs into capital investment analysis? They are inputted as negative cash inflows along with the initial outlay. Sunk costs are subtracted from the opportunity cost and attributed to net cash flow. They can be added into our analysis, depending on management's decision. For the purposes of analysis, sunk costs are irrelevant. - For the purposes of analysis, sunk costs are irrelevant. How does management choose between two projects that are seemingly the same? Management can analyze the effect each project will have on the firm's overall capital structure. As stated in the reinvestment assumption, there cannot be two projects that are the same. Management can analyze the different inherent risks that change the cost of capital to the firm. If two projects are seemingly the same, it does not matter what choice management makes. - Management can analyze the different inherent risks that change the cost of capital to the firm. If two projects are mutually exclusive, which decision-making criterion will help you make the best decision about which project to accept? Initial outlay (IO) Internal rate of return (IRR) Profitability index (PI)