Bellevue University MBA 620 Quiz 3 1)If your firm’s cost of capital is 10%,what is the NPV of a project that costs $10,000 and is expected to generate net cash flows of $3500 for the next 3 years? a

Bellevue University

MBA 620

Quiz 3

1)If your firm’s cost of capital is 10%,what is the NPV of a project that costs $10,000 and is expected to generate net cash flows of $3500 for the next 3 years?

a. -1,296

b. +1,296

c. +500

d. +10,500

e. +8,704

2.            Operating leverage measures the relative use of fixed costs versus variable costs, with a higher operating leverage indicating higher fixed costs. Which of the following statements is/are true for a firm with a high operating leverage (relative to a lower operating leverage)?

a.            firm will experience relatively larger profits during good times

b.            firm will experience relatively smaller profits during good times

c.             firm will experience relatively larger losses during bad times

d.            firm will experience relatively smaller losses during bad times

e.            none of the above

f.             both b and d g. both a and c

3.            The accounting process of capitalizing an asset’s cost and then depreciating that cost over time is an application of which of the following fundamental accounting principle?

a.            materiality principle

b.            historical cost principle

c.             full disclosure principle

d.            revenue recognition principle

e.            matching principle

4.            A standard unqualified audit opinion of a financial statement generally implies

a.            all of the financial data is true and accurate

b.            compliance with GAAP (accounting principles) or current standards

c.             the firm is sound financially

d.            the book values reflect current market values e. all of the above

5.            Recording assets and liabilities at historical cost (i.e., book value) is one of the basic principles of GAAP. Which of the following assets’ book values would, in general, most accurately represent the assets’ true market value?

a.            specialized inventory that can only be used for specific projects

b.            real estate assets of the firm

c.             inventory that is widely used in many common manufacturing activities

d.            equipment assets of the firm used in production activities

6.            To create a common size income statement, one would express every line item entry as a percentage of what (i.e. divide every entry by what?)

a.            net income

b.            cost of goods sold

c.             total assets

d.            revenue (aka sales)

e.            none of the above are used to create a common size income statement

7.            As the firm’s cost of capital increases (i.e. the firm’s required rate of return, i.e. the firm’s discount rate), the value (i.e. present value) of expected future cash flows…

a.            does not change

b.            increases c. decreases

8.            Which of the following bodies generally has authority and responsibility of enforcing U.S. accounting principles?

a.            GAAP

b.            FAS

c.             FASB

d.            IMA e. SEC

9.            If a company is considering a project that would utilize a previously purchased piece of equipment, then the original cost of the equipment is

a.            an opportunity cost the firm should charge against the project

b.            an opportunity cost that is irrelevant in the analysis of the project

c.             a sunk cost the firm should charge against the project

d.            a sunk cost that is irrelevant in the analysis of the project

e.            none of the above

10.          When developing financial budgets and other planning budgets, such as operating budgets, which of the following variables is the most important input variable to begin the process?

a.            projected advertising costs

b.            projected production costs

c.             projected fixed asset requirements d.  projected sales

e. projected salary expenses