d076 Lesson checks

A company called Bobby's Books is considering purchasing a new bookbinding machine. The company calculates the hurdle rate of the project to be 9% and the IRR to be 11%. Should the company purchase the bookbinding machine? a) No, because the old bookbinding machine still works. b) Yes, because the IRR exceeds the cost of capital. c) No, because the hurdle rate is lower than the IRR. d) Yes, because newer models of equipment are always profitable investments. - b) Yes, because the IRR exceeds the cost of capital. When the IRR of a project is greater than the hurdle rate (the required rate of return, or cost of capital), it indicates that the company should accept the project. A firm has paid off its short-term loans more quickly in the past couple of years. What might this trend indicate about the firm's financial ratios? a) Its liquidity ratio is increasing. b) Its profitability ratio is decreasing. c) Its leverage ratio is decreasing. d) Its activity ratio is increasing. - a) Its liquidity ratio is increasing. Liquidity is a measure of the ability of a firm to convert short-term assets into cash. Paying off short- term loans quickly is an indication that a firm is quite liquid, so the firm's liquidity ratio would be increasing. A large corporation is looking to merge with another large corporation. Which financial institution can help them do this?