The net present value (NPV) method is a better method of evaluation than the internal rate of return (IRR) method because NPV
Select one:
A. assumes cash flows are reinvested at the project’s internal rate of return.
B. concentrates on the liquidity associated with the investment.
C. assumes cash flows are reinvested at the firm’s cost of capital.
D. is a more liberal method of analyzing investment proposals.
Phillips Corporation has entered into a monthly leasing contract for 3 years on an asset with a useful life of 5 years. The asset’s estimated fair value is $28,000. The contract requires monthly lease payments of $850. There is no bargain purchase option or transfer of title in the lease contract. The discount rate is 9%. Should Phillips record this as a capital lease?
Select one:
A. Yes, because the lease term makes this a capital lease.
B. No, because the lease contract contains no transfer of ownership.
C. Yes, because the lease payments make this a capital lease.
D. No, because this is an operating lease without a bargain purchase option.
Which of the following is not a measure of yield on a bond?
Select one:
A. The nominal yield (coupon rate)
B. The current yield
C. The dividend yield
D. The yield to maturity
Ajax Corporation has a bond with a coupon rate of 11.5%, maturing in 15 years at a value of $1,000. The bond makes annual interest payments and has a current market price of $920. What is the current yield for the Ajax Corporation bond?
Select one:
A. 13.52%
B. 12.50%
C. 11.54%
D. 10.34%
Which of the following conditions must be met for a lease to qualify as a capital lease?
Select one:
A. The lease is usually short-term and cancelable at the option of the lessee.
B. The lease contains a bargain purchase price at the end of the lease term.
C. The lease must have a minimum value of $1 million and a term of at least 10 years.
D. The lease expenses are booked as operating expenses in the period incurred.
When a corporation issues a new corporate bond, the higher the bond’s rating:
Select one:
A. The higher the coupon interest rate that must be paid on the bond
B. The lower the coupon interest rate that must be paid on the bond
C. The coupon rate is totally unrelated to the bond rating
D. The bond will sell at a premium to its par value on the day of issue.
A bond’s rating can depend upon
Select one:
A. the corporation’s working capital and debt position.
B. the consistency of the corporation’s performance.
C. the corporation’s ability to make interest payments.
D. all of the above.
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