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10 Cards in this Set
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- Back
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The depreciation tax shield quantifies:
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the savings in taxes due to the tax-deductibility of depreciation expense
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When a manager accepts a positive NPV project, shareholders can earn an expected benefit in the amount of the:
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project's net present value
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The primary reason the economic break even quantity is greater than the accounting break even is due to
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the need to earn the cost of capital on the investment
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All else constant, a bond will sell at _____ when the yield to maturity is _____ the coupon rate.
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a discount; higher than
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What is the formula for NPV?
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NPV=PV(Benefits-Costs)
NPV=PV(all project cash flows) |
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What is a factor that limits the growth of a sole proprietorship?
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The amount of money that can be raised by the firm is limited because a single owner must make good on all the debts.
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What is an explanation of why market prices are useful to a financial manager when performing a cost benefit analysis?
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They can be used to convert different services and commodities into equivalent cash value which can be compared
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Why have high inflation rates tended to be associated with high nominal interest rates historically?
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The real interest rate needs to be high enough so that individuals can expect their savings to have greater purchasing power in the future than in the present.
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What is the EAR?
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The interest rate that would earn the same interest that would result in the same future value.
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Secondary markets are important because
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they evaluate a firm's capital budgeting decisions.
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