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BUSM 201 Final Exam – Questions & Verified Answers
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BUSM 201 Final Exam – Questions & Verified Answers
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BUSM 201 Final Exam – Questions & Verified AnswersWhich one of the following will decrease net working capital of a firm?
-a decrease in accounts receivable
-none of the above.
-an increase in inventory
-an increase in the firm's checking account balance
-a decrease in accounts payable Right Ans - a decrease in accounts
receivable
The salvage value of an asset creates an after-tax cash inflow to the firm in an
amount equal to which of the following? Right Ans - sales price minus the
tax due, based on the sales price minus the book value, plus the recapture of
working capital
The changes in a firm's future cash flows that are a direct consequence of
accepting a project are called __________ cash flows. Right Ans - incremental
The depreciation method currently allowed under US tax law, which governs
the accelerated write-off of property under various lifetime classifications, is
called __________ depreciation. Right Ans - MACRS
What is the most valuable investment given up if an alternative investment is
chosen? Right Ans - an opportunity cost
A cost that has already been paid, or the liability to pay has already been
incurred, is a(n): Right Ans - sunk cost.
The intercept point of the security market line is the rate of return which
corresponds to which of the following? Right Ans - the risk-free rate of
return.
You are considering purchasing stock S. This stock has an expected return of 8
percent if the economy booms and 3 percent if the economy goes into a
recessionary period. How will the overall expected rate of return on this stock
behave? Right Ans - It will increase as the probability of a boom economy
increases.
, Which of the following is an example of diversifiable risk? Right Ans - The
employees of Textile, Inc. just voted to go on strike.Textile, Inc. is an individual
firm. The risk of an individual firm can be diversified by forming a portfolio of
stocks along with textile.
Standard deviation measures what type of risk? Right Ans - total
The risk premium for an individual security is computed by: Right Ans -
multiplying the security's beta by the market risk premium
Systematic risk is measured by which of the following? Right Ans - beta
Which of the following is not a definition of required rate of return?
It is the risk free rate plus (+) the risk premium.
It is the return on an investment required by investors given the investment's
risk.
It is the Sharpe ratio.
It is the compensation investors require for accepting risk. Right Ans - It is
the Sharpe ratio.
What is the relationship between risk and correlation? Right Ans - Lower
correlation leads to lower risk
Which is not a part of the build-up method for finding the required rate of
return? Right Ans - large-cap risk premium
According to the reading, what is risk? Right Ans - Risk is uncertainty.
The market value proportions of the firm's assets, financed via debt, common
stock, and preferred stock, are called the firm's ____________. Right Ans -
capital structure weights
Which of the following is the cost incurred by the firm when new issues of
stocks or bonds are sold? Right Ans - flotation costs
The overall cost of capital for a retail store: Right Ans - reflects the return
that investors require on the total assets of the firm.
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