1) If a firm has a net profit margin of 3%, a total asset turnover of 4x, and a DR (debt ratio) of 50%, then their ROA= ______ and their ROE=_______.
6%; 12%
12%; 15%
12% 24%
15%; 30%
2 ) A firm increases its equity multiplier by
increasing retained earnings
increasing its debt ratio
increasing its ROA (return on assets)
increasing its TIE (times interest earned) ratio
3) Financial leverage results from the firm's use of
debt financing
common stock financing
preferred stock financing
equity financing
4) Identify which of the following statements related to capital budgeting is not true.
If the multiple IRR problem does not exist, any independent project acceptable by the NPV method will also be acceptable by the IRR method.
The IRR can be positive even if the NPV is negative.
The NPV method is not affected by the multiple IRR problem.
When IRR = r (the required rate of return), the NPV = 0.
The NPV will be positive if the IRR is less than the required rate of return.
5) Which of the following methods for evaluating capital investment projects does not consider all expected future cash inflows?
1. NPV; 2. IRR; 3. PB (payback) 4. dPB (discounted payback)
3 and 4 only
1 and 2 only
1 only
3 only
2 and 3 only
6) A firm is considering a capital investment project that will require an immediate investment of $1,000. The project is expected to generate the following cash inflows: Year 1: $300; Year 2: 400; Year 3: $500. Assuming the firm's risk-adjusted required rate of return for this project is 5%. What is the IRR (internal rate of return) of this project? Choose the closest answer.
11%
5%%
7%
9%