FINC Ch4 Smart Book Study Guide Quiz.

FINC Ch4 Smart Book Study Guide Quiz. Which of the following represent questions the financial manger would ask to evaluate investment decisions? (Do not confuse the investment decision with the financing decision) - CORRECT ANSWER How should profitability be measured? How profitable are investments relative to the cost of capital? XYZ Corporation's shares are selling for $50 a share and the number of shares currently outstanding is 1,000. XYZ's market capitalization is: - CORRECT ANSWER $50,000 Reason: Market capitalization = share price x number of outstanding shares = $50 x 1,000 = $50,000 Economic value added is equal to - CORRECT ANSWER net income minus the cost of capital. Return on capital and return on assets are used instead of _____ to compare managers whose assets differ in size. - CORRECT ANSWER economic value added XYZ Corporation has a return on capital of 16% and a cost of capital of 6%. How much did XYZ earn in excess of investors' requirements? - CORRECT ANSWER 10% 16-6=10 Which of the following represent questions the financial manger would ask to evaluate financing decisions? (Do not confuse the financing decision with the investment decision) - CORRECT ANSWER Is the financing strategy prudent? Does the firm have sufficient liquidity? Market capitalization is defined as the - CORRECT ANSWER total market value of the firm's equity. Which of the following are considered advantages of using EVA and Accounting rates of return over market-value based measures? - CORRECT ANSWER Can be calculated for a particular division Show current performance Not affected by economic factors that move stock market prices Economic value added is also referred to as - CORRECT ANSWER residual income. Which of the following are helpful for measuring the firm's profits per dollar of assets? - CORRECT ANSWER Return on equity Return on assets Return on capital Return on capital is equal to - CORRECT ANSWER after-tax operating income divided by total capitalization