25) Which of the following is NOT considered a permanent source of financing? A.
ID: 2666585 • Letter: 2
Question
25) Which of the following is NOT considered a permanent source of financing?A. Commercial paper
B. Preferred stock
C. Corporate bonds
D. Common stock
26) Which of the following is considered to be a spontaneous source of financing?
A. Accounts payable
B. Inventory
C. Operating leases
D. Accounts receivable
27) A toy manufacturer following the hedging principle will generally finance seasonal inventory build-up prior to the Christmas season with:
A. preferred stock.
B. trade credit.
C. common stock.
D. selling equipment.
28) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________.
A. greater than zero, less than one
B. greater than zero, greater than one
C. less than zero, greater than the required return
D. greater than one, greater than zero
29) Artie’s Soccer Ball Company is considering a project with the following cash flows: Initial outlay = $750,000 Incremental after-tax cash flows from operations Years 1–4 = $250,000 per year Compute the NPV of this project if the company’s discount rate is 12%.
A. $2,534
B. $7,758
C. $9,337
D. $4,337
30) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%.
Initial outlay = $450
Cash flows:
Year 1 = $325
Year 1 = $ 65
Year 3 = $100
A. 2.6 years
B. 3.17 years
C. 3.43 years
D. 2.88 years
Explanation / Answer
25) Which of the following is NOT considered a permanent source of financing? A. Commercial paper 26) Which of the following is considered to be a spontaneous source of financing? A. Accounts payable 27) A toy manufacturer following the hedging principle will generally finance seasonal inventory build-up prior to the Christmas season with: B. trade credit. 28) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________. B. greater than zero, greater than one 29) Artie’s Soccer Ball Company is considering a project with the following cash flows: Initial outlay = $750,000 Incremental after-tax cash flows from operations Years 1–4 = $250,000 per year Compute the NPV of this project if the company’s discount rate is 12%. NPV = -750,000+NPV(12%,250000,250000,250000,250000) = $9,337.34 C. $9,337 30) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%. Initial outlay = $450 Cash flows: Year 1 = $325 Year 1 = $ 65 Year 3 = $100 PBP = 2+(450-325-65)/100 = 2.6Yrs A. 2.6 years
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