1-Which of the following is true of the EOQ model? Note that the optimal order quantity, Q, will be called EOQ.,• If the fixed per order cost increases by 20%, then EOQ will increase by 20%,• If the annual sales, in units, increases by 20%, then EOQ will increase by 20%.,• If the average inventory increases by 20%, then the total carrying costs will increase by 20%.,• If the average inventory increases by 20% the total order costs will increase by 20%.,• The EOC is the same for all companies,,2- Which of the following statements concerning the MM extension with growth is NOT CORRECT?,• The tax shields should be discounted at the unlevered cost of equity.,• The value of a growing tax shield is greater than the value of a constant tax shield.,• For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM’s original (with tax) assumptions.,• For a given D/S, the WACC is less than the WACC under MM’s original (with tax) assumptions.,• The total value of the firm increases with the amount of debt.,,3- Which of the following statements about pension plan portfolio performance is incorrect?,• Pension fund sponsors must evaluate the performance of their portfolio managers periodically as a basis for future asset allocations.,• Alpha analysis, which relies on the Capital Asset Pricing Model, considers the risk of the portfolio when measuring performance.,• Peer comparison examines the relative performance of portfolio managers with similar investment objectives.,• A portfolio annual return of 12 percent from one investment advisor is not necessarily better than a return of 10 percent from another advisor.,• In managing the retiree portfolio, fund managers often use immunization techniques such as alpha analysis to eliminate, or at least significantly reduce, the risk associated with changing interest rates.,4- Which of the following is not correct?,• Collection policy is how a firm goes about collecting past-due accounts.,• A more aggressive collection policy will reduce bad debt expenses, but may also decrease sales.,• Collection policy usually has little impact on sales since collecting past-due accounts occurs only after the customer has already purchased.,• Typically a firm will turn over an account to a collection agency only after it has tried several times on its own to collect the account.,• A lax collection policy will frequently lead to an increase in accounts receivable,5- Which of the following statements about project risk analysis in not-for-profit firms is incorrect?,• The market risk of a project is not relevant to not-for-profit firms,• A project’s corporate beta measures the contribution of the project to the overall corporate risk of the firm,• A project’s corporate beta is found (at least conceptually) by regressing returns on the project against returns on the market portfolio.,• A project’s corporate beta is defined as (?P/?F)rPF, where ?P is the standard deviation of the project’s returns, ?F is the standard deviation of the firm’s returns, and rPF is the correlation among the two sets of returns.,• In practice, it is usually difficult, if not impossible, to directly measure a project’s corporate risk, so project risk analysis typically focuses on stand-alone risk.,6- Which of the following statements is CORRECT?,• The Capital Market Line (CML) is a curved line that connects the risk-free rate and the market portfolio,• The slope of the CML is ( M – rRF)/bM.,• All portfolios that lie on the CML to the right of sM are inefficient.,• All portfolios that lie on the CML to the left of sM are inefficient,• The slope of the CML is ( M – rRF)/?M..,,7- Which of the following statements about pension plans if any, is incorrect?,• A defined contribution plan is, in effect, a savings plan that is funded by employers, although many plans also permit additional contributions by employees.,• Under a defined benefit plan, the employer agrees to give retirees a specifically defined benefit, such as $500 per month or 50 percent of the employee’s final salary.,• A portable pension plan is one that an employee can carry from one employer to another,• An employer’s obligation is satisfied under a defined contribution plan when it makes the required contributions to the plan. The risk of inadequate investment returns is borne by the employee.,• If assets exceed the present value of benefits, the pension plan is fully funded.,,
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