Question

______ 17. Each of the following is a typical source of long-term capital for a firm EXCEPT

1. Accounts Payable.

2. Preferred Stock.

3. Long-Term Debt.

4. Common Stock.

______ 18. When calculating a firm’s “Weighted Average Cost of Capital” (WACC), the cost of each type

of capital is weighted by

A. the firm’s beta value.

B. the current inflation rate in the economy.

C. the bank’s prime lending rate.

D. its proportion in the firm’s capital structure.

______ 19. The “weights” in the “Weighted Average Cost of Capital” (WACC) formula

1. must sum to 1.0 or 100%.

2. must be non-negative.

3. must include at least three different types of financing.

4. A and B and C.

5. A and B.

______ 20. __________________ results from the use of fixed-cost assets or fixed-cost funds to magnify the

returns to the firm’s owners.

A. Correlation

B. Leverage

C. Beta

D. The Co-efficient of Variation (CV)

______ 21. At the “Operating Breakeven Point” (OBP),

1. “Operating Profit” (EBIT) is equal to zero.

2. “Gross Profit” equals “Net Profit.”

3. “Total Assets” equals “Total Sales Revenue.”

4. “Debt” financing equals “Equity” financing.

______ 22. _______________ costs vary directly with the level of “Sales” and are a function of volume,

rather than time.

1. Fixed

2. Non-operating

3. Variable

4. Discriminant

______ 23. Each of the following is an example of a “fixed” cost for a manufacturing firm EXCEPT

1. “Rent Expense” for the distribution warehouse.

2. “Property Tax Expense” for the corporate office.

3. “Insurance Expense” for the firm’s fleet of semi trucks.

4. “Shipping Cost” for products sold to the customers.

______ 24. Each of the following is a possible source of equity financing for a corporation EXCEPT

1. Long-Term Bonds

2. Preferred Stock

3. Common Stock

4. Retained Earnings

Answer 1

17.The answer is Accounts payable

It is a source of short term borrowing

18.D. its proportion

WACC = Sum of Cost*Weight

19.must sum to 1.0 or 100%, must be non-negative

The answer is A and B

20. B.Leverage

21.EBIT IS ZERO

22.Variable

23.Shipping cost, it is variable

24.Long term bonds, it represents debt financing