Multiple Choice Questions

Real estate economics - with depreciation

1.   A problem with the specific identification method is that

a.   inventories can be reported at actual costs.

b.   management can manipulate income.

c.   matching is not achieved.

d.   the lower of cost or market basis cannot be applied.

2.     In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

a.   FIFO

b.   LIFO

c.   Average Cost Method

d.    Income tax expense for the period will be the same under all assumptions.

3.     When applying the lower of cost or market rule to inventory valuation, market generally means

a.   current replacement cost.

b.   original cost.

c.   resale value.

d.   original cost, less physical deterioration.

Objective Type Questions

a) A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $120,000. The number of units the company must sell to break even is

  1. 60,000 units.
  2. 24,000 units.
  3. 240,000 units.
  4. 40,000 units.

b) A company has total fixed costs of $120,000 and a contribution margin ratio of 20%. The total sales necessary to break even are

  1. $480,000.
  2. $600,000.
  3. $150,000.
  4. $144,000.

c) At the break-even point of 2,500 units, variable costs are $55,000, and fixed costs are $32,000. How much is the selling price per unit?

  1. $34.80
  2. $9.20
  3. $12.80
  4. $22.00

Mini Case: Will Leasing Fly at Continental?

Continental Airlines

CFM 3 Ch 21 Minicase Will Leasing Fly at Continental? in $28 only

  1. Calculate the net advantage to leasing, using the expected residual value and assuming Continental can use all the tax benefits of ownership with a tax rate of 40% and straight line depreciation to the expected residual value. Assume that Continental issues 80% secured debt and 20% unsecured debt to finance a purchase.

a) Calculate rt–the project cost of capital.

b) Calculate the expected lease residual value per aircraft.

c) Calculate the quarterly CFAT per aircraft under the leasing option.

      • Hint: It should be the same each quarter hroughout the term of the lease.
      • The lease payment is tax deductible.
      • Under the leasing option Continental forgoes the depreciation tax deduction.

      d) Calculate the NAL.

          • Assume quarterly compounding to match the lease payments.
          • Continental’s required return on the asset—r, is given.
          • Assume no incremental difference in operating expenses between the purchasing and leasing options.
          • Assume that the lessor claims the ITC.

          2.  Calculate the net advantage to leasing, assuming Continental cannot use any of the tax benefits of ownership and the residual value is (i) the expected residual value, (ii) $50 million, and (iii) $10 million

          Objective Type Business Questions

          Loan payment schedule of a 1-year, fixed-size ...

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          Objective Type Business Questions

          1. The amount of money borrowed or invested is called the maturity value.
          True
          False

          2. When solving a simple interest problem, the rate should be written as a decimal number.
          True
          False

          3. The interest paid on a $10,000.00 loan for 2 years at 13.5% interest is $1,250.00.
          True
          False

          4. The formula to find the rate is interest divided by (principal times time).
          True
          False

          5. 8% for 45 days is equal to 0.01.
          True
          False

          Financial Management Questions

          You have been giving the financial statements asked to analyze the financial performance of your division. Other managers have suggested you use financial ratios in your analysis.

          1. what are financial ratios?

          2. which ratios might you use in your analysis?

          3. List them and explain what information they provide.

          4. How would you use them to make managerial decisions?

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          Annuities and Sinking Funds Related Questions

           Annuities and Sinking Funds Related Questions for $4 OnlyAnnuities and Sinking Funds Related Questions

          1. $111,834 is the amount of an ordinary ammunity of $6,000 for 4 years at 8% compounded quarterly.
          True
          False

          2. The monthly payment of rent is an example of a renter’s annuity.
          True
          False

          3. A contingent annuity has a specific number of payment periods. (Points: 2)
          True
          False

          4. An annuity with payments made at the end of each period is called an ordinary annuity.
          True
          False

          5. With an annuity due no interest is paid in the first period.
          True
          False

          6. The amount of an $8,000.00, 10%, 5 year ordinary annuity compounded semiannually is $100,624.
          True
          False

          7. The amount of interest on an ordinary annuity of $11,600.00 for 5 years at 8% compounded semiannually is $32,269.00.
          True
          False

          8. The maturity value of a transaction is equal to the principal plus the rate.
          True
          False

          9. The deposits or payments are made at the end of the period in ordinary annuities.
          True
          False

          10. John owns five health food stores in the Columbia area, and they are realizing a good profit.  John decides to invest a portion of the profits in an annuity offered by Penn Life Insurance.  Penn Life will guarantee John 8% interest compounded quarterly for the first 5 years, as long as he deposits $10,000.00 every quarter of the term of the guaranteed rate.  Assuming John fulfills the obligations of the investment, what will be the value of the investment at the end of the 5 year term?
          $261,832.74
          $245,446.58
          $242,970.00
          $255,446.40
          none of the above

          11. The sum of the payments of an annuity plus the interest is called the:
          economic sum
          amount of the annuity
          financial total
          payoff amount
          none of the above

          12. An annuity without a specific number of payment periods is termed a(n):
          non-standard annuity
          annual annuity
          annuity certain
          contingent annuity
          none of the above

          13. Nancy plays drums in a dance band on weekends in addition to her full-time job at the local junior college.  Nancy decided on her 35th birthday to establish her own retirement savings account by investing $2,400.00 of her weekend earnings every six months into an ordinary annuity paying 12% interest compounded semiannually.  If Nancy makes these regular deposits until her 65th birthday, how much will this retirement account be worth?
          $1,297,503.10
          $1,281,903.10
          $1,297,503.01
          $1,279,507.20
          none of the above

          14. Derek established his own retirement account ten years ago.  He has discovered that he can obtain a better rate for the next 10 years at 12% interest compounded semiannually.  Consequently, Derek established a new ordinary annuity account (beginning amount $0.00) and he will contribute $7,000.00 semiannually into the account for the next 10 years.  What will be the value of this account at the end of the 10 year period?
          $244,707.61
          $83,652.59
          $264,501.86
          $257,502.00
          none of the above

          15. The amount of interest on an ordinary annuity of $11,600.00 for 5 years at 8% compounded semiannually is:
          $139,269.60
          $23,296.60
          $116,000.00
          $23,269.60
          None of the above

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          Crab State Bank: Loan Amortization Schedule

          home loan center

          Crab State Bank: Loan Amortization Schedule

          Crab State Bank has offered you a $1,000,000 5-year loan at an interest rate of 11.25 percent, requiring equal annual end-of-year payments that include both principal and interest on the unpaid balance. Develop an amortization schedule for this loan.

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          Ratio Analysis of L.S. Starrett Company (NYSE: SCX)

          Research the company L.S. Starrett Company and search its corporate website and find its financial  statements then calculate the past three year’s worth of financial ratios. You will need to calculate all of the  Liquidity and Asset Management ratios, Total debt to total assets ratio, all of the Profitability ratios, the P/E and M/B ratio.

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          Questions on Cost of Capital, WACC and IPO

          Questions on Cost of Capital

          Questions on Cost of Capital, WACC and IPO for $3 Only
          1. What are the main elements in calculating cost of capital? How would an increase in debt affect the cost of capital? How would you identify the optimal cost of capital for an organization?
          2. What is meant by Weighted Average Cost of Capital (WACC)? Why is WACC a more appropriate discount rate when doing capital budgeting? What is the impact on WACC when an organization needs to raise long term capital?
          3. What is an Initial Public Offering (IPO)? How does an IPO allow an organization to grow financially? When is a merger or an acquisition, rather than an IPO, a more appropriate way to grow?

          Each answer should be 150-300 words.

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          Finance Questions

           Finance Questions in $10 only

          1. How long does it take for the following to happen? $450 grows into $725.50 at 12% compounded monthly.

          2. How long does it take for the following to happen? $5,000 grows into $6724.44 at 10% compounded quarterly.

          3. How long does it take for the following to happen? $856 grows into $1,122 at 7%.

          4. The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is 18% compounded monthly?

          5. The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is 7% compounded continuously?

          6. The Lexington Property Development Company has a $10,000 note receivable from a customer due in three years. How much is the note worth today if the interest rate is 9%?

          7. What interest rates are implied by the following lending arrangements? You borrow $500 and repay $555 in one year

          8. What interest rates are implied by the following lending arrangements? You lend $750 and are repaid $1,114.46 in five years with quarterly compounding.

          9. What will a deposit of $4,500 left in the bank be worth under the following conditions: Left for five years at 8% compounded quarterly?

          10. What will a deposit of $4,500 left in the bank be worth under the following conditions: Left for six years at 10% compounded semi-annually?

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          Price of Answer: Just US$10 only (With Excel Sheet)

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          Finance Questions III

          Finance Questions III

          Finance Questions III in $3 Only

          a) Explain why selecting a target senior debt rating is a reasonable approach to choosing a capital structure. Explain why a target senior debt rating of single-A is a prudent objective when there is only a very limited new issue market for non-investment-grade debt, and when investor willingness to purchase triple-B-rated debt is likely to be highly sensitive to the state of the economy.

          b) The development of the new issue junk bond market had important implications for capital structure choice. The existence of a viable junk bond market means that firms can comfortably maintain higher degrees of leverage than they could prior to the development of this market. Do you agree or disagree? Justify your answer.

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