* Question Completion Status: Cash flow A ($185,000) $60,000 $75,000 $70,000 $70,000 Cash flow B ($125,000) ($60,000) $95,000 $90,000 $95,000 Sentry's a cost of capital is 14%. It can spend no more than $350,000 on capital projects this year, which of the following statements is applicable when evaluating the projects by the NPV method? a. both projects add shareholder wealth and should be undertaken Ob. project B appears to add more shareholder wealth than project A and should be done Oc. project A appears to add more shareholder wealth than project B and should be done Od. project B should be undertaken because it requires a smaller investment QUESTION 16 Illinois Tool Company's (ITC) fixed operating costs are $1,260,000 and its variable cost ratio (i.e., variable costs as a fraction of sales) is 0.70. The firm's debt consists of a $6,000,000 bond issue (par value) which pays a coupon rate of 9%. Sales are $9 million per year. What is ITC's degree of financial leverage? (Answer in integer rounded to the nearest 10th.) QUESTION 17 Which of the following is correct? a, the variation in ROE and EPS for an unleveraged firm is identical to variation in EBIT in a leveraged firm, the variation in ROE and EPS is always greater than the variation in b. EBIT
* Question Completion Status: Cash flow A ($185,000) $60,000 $75,000 $70,000 $70,000 Cash flow B ($125,000) ($60,000) $95,000 $90,000 $95,000 Sentry's a cost of capital is 14%. It can spend no more than $350,000 on capital projects this year, which of the following statements is applicable when evaluating the projects by the NPV method? a. both projects add shareholder wealth and should be undertaken Ob. project B appears to add more shareholder wealth than project A and should be done Oc. project A appears to add more shareholder wealth than project B and should be done Od. project B should be undertaken because it requires a smaller investment QUESTION 16 Illinois Tool Company's (ITC) fixed operating costs are $1,260,000 and its variable cost ratio (i.e., variable costs as a fraction of sales) is 0.70. The firm's debt consists of a $6,000,000 bond issue (par value) which pays a coupon rate of 9%. Sales are $9 million per year. What is ITC's degree of financial leverage? (Answer in integer rounded to the nearest 10th.) QUESTION 17 Which of the following is correct? a, the variation in ROE and EPS for an unleveraged firm is identical to variation in EBIT in a leveraged firm, the variation in ROE and EPS is always greater than the variation in b. EBIT
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:* Question Completion Status:
Cash flow A
($185,000)
$60,000
$75,000
$70,000
$70,000
Cash flow B
($125,000)
($60,000)
$95,000
$90,000
$95,000
Sentry's a cost of capital is 14%. It can spend no more than $350,000 on capital projects this year, which of the following
statements is applicable when evaluating the projects by the NPV method?
a. both projects add shareholder wealth and should be undertaken
b. project B appears to add more shareholder wealth than project A and should be done
C. project A appears to add more shareholder wealth than project B and should be done
d. project B should be undertaken because it requires a smaller investment
QUESTION 16
Illinois Tool Company's (ITC) fixed operating costs are $1,260,000 and its variable cost ratio (i.e., variable costs
as a fraction of sales) is 0.70. The firm's debt consists of a $6,000,000 bond issue (par value) which pays a coupon
rate of 9%. Sales are $9 million per year. What is ITC's degree of financial leverage? (Answer in integer rounded
to the nearest 10th.)
QUESTION 17
Which of the following is correct?
the variation in ROE and EPS for an unleveraged firm is identical to variation in EBIT
a.
in a leveraged firm, the variation in ROE and EPS is always greater than the variation in
b.
EBIT
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