Question 1

Which one of the following factors might cause a firm to increase the debt in TTS financial structure?

Options :

A : An increase in the corporate income tax rate.

B : Increased economic uncertainty

C : An increase in the federal funds rate.

D : An increase in the price-earnings ratio.

Answer: A

Question 2

Whatney Co. is considering the acquisition of a new, more efficient press. The cost of the press is

$360,000, and the press has an estimated 6-year life with zero salvage value. Whatney uses straightline depreciation for both financial reporting and income tax reporting purposes and has a 40%

corporate income tax rate. In evaluating equipment acquisitions of this type, Whatney uses a goal of

a 4-year payback period. To meet Whatney’s desired payback period, the press must produce a

minimum annual before4ax operating cash savings of

Options :

A : $90,000

B : $110,000

C : $114,000

D : $150,000

Answer: B

Question 3

Geary Manufacturing has assembled the data appearing in the next column pertaining to two

products. Past experience has shown that the unavoidable fixed manufacturing factory overhead

included in the cost per machine hour averages $10. Geary has a policy of filling all sales orders, even

if it means purchasing units from outside suppliers. Total machine capacity is 50,000 hours.

If Geary Manufacturing desires to follow an optimal strategy, it should produce a

Options :

A : 25,000 electric mixers and purchase all other units as needed.

B : 20000 blenders and 15,000 electric mixers, and purchase all other units as needed.

C : 20,000 blenders and purchase all other units as needed.

D : 28,000 electric mixers and purchase all other units as needed.

Answer: B

Question 4

BCD Corp. outsourced an order for shovel handles to RST Corp. because BCD could not fill the order.

By having RST produce the order, BCD was able to realize $10000 in sales profits that otherwise

would have been lost. The outsourcing cost added a cost of $1 .000, but BCD was ahead by $9000

when the order was completed. Which of the following statements is correct regarding BCD’s action?

Options :

A : The use of resource markets outside of BCD involves opportunity cost.

B : Accounting profit is total revenue minus explicit costs and implicit costs.

C : Implicit costs are not opportunity costs because they are internal costs.

D : Explicit costs are opportunity costs from purchasing shovel handles from a resource market.

Answer: A

Question 5

If the interest rate is to be determined in a given transaction in which the present value and future

value are known, which formula would be used?

Options :

A :

B : PV=FVx(1+i)f

C : PV x FV(1+i)1

D :

Answer: A

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