Your car has a market value of $4,000, while the balance of the loan against it is now $2,500. Your ownership interest in the car is:
A. $2,500.
B. $4,000.
C. $6,500.
D. $1,500.
E. $5,500.
Answer: D
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The nominal interest rate minus the expected inflation rate equals the
A. potential interest rate. B. natural interest rate. C. true interest rate. D. real interest rate.
Use the cost information below for Sundar Company to determine the total manufacturing costs added during the current year: Direct materials used$19,000 Direct labor used 24,500 Factory overhead 55,100 Beginning work in process inventory 10,700 Ending work in process inventory 11,300
A. $79,000. B. $42,900. C. $98,600. D. $43,500. E. $98,000.
You are on the staff of Camden Inc. The CFO believes project acceptance should be based on the NPV, but Steve Camden, the president, insists that no project should be accepted unless its IRR exceeds the project's risk-adjusted WACC. Now you must make a recommendation on a project that has a cost of $15,000 and two cash flows: $110,000 at the end of Year 1 and -$100,000 at the end of Year 2. The president and the CFO both agree that the appropriate WACC for this project is 10%. At 10%, the NPV is $2,355.37, but you find two IRRs, one at 6.33% and one at 527.01%, and a MIRR of 11.32%. Which of the following statements best describes your optimal recommendation, i.e., the analysis and recommendation that is best for the company and least likely to get you in trouble with either the CFO or
the president? A. You should recommend that the project be rejected because its NPV is negative and its IRR is less than the WACC. B. You should recommend that the project be rejected because, although its NPV is positive, it has an IRR that is less than the WACC. C. You should recommend that the project be accepted because (1) its NPV is positive and (2) although it has two IRRs, in this case it would be better to focus on the MIRR, which exceeds the WACC. You should explain this to the president and tell him that that the firm's value will increase if the project is accepted. D. You should recommend that the project be rejected because (1) its NPV is positive and (2) it has two IRRs, one of which is less than the WACC, which indicates that the firm's value will decline if the project is accepted. E. You should recommend that the project be rejected because, although its NPV is positive, its MIRR is less than the WACC, and that indicates that the firm's value will decline if it is accepted.
The term, obsolescence, as it relates to the useful life of an asset, refers to:
A. The inability of a company's plant assets to meet the company's demands. B. A plant asset that no longer has a competitive advantage because of innovations. C. An asset's salvage value becoming less than its replacement cost. D. The end of an asset's useful life. E. Intangible assets that have been fully amortized.