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Contribution margin and WACC

Questions for Finance

1. What is a cash budget?
a. Detailed plan of future cash flows
b. Budget that shows only the cash that comes in
c. Historical look at cash flows
d. Report that analyzes the cash account
e. Report that analyzes the accounts receivables

2. If your revenue is $10 million, your variable cost is $6 million, and your fixed cost is $3 million, what is your contribution margin?
a. $4 million
b. $1 million
c. $3 million
d. $9 million
e. $7 million

3. What is the Weighted Average Cost of Capital (WACC) for a firm where debt is 40% of the firm, preferred stock is 10% of the firm, common stock is 50% of the firm, after tax cost of debt is 8%, cost of preferred stock is 12%, and the cost of common stock is 18%?
a. 12.00%
b. 12.38%
c. 12.67%
d. 13.40%
e. 16.33%

4. What was the downside of debt financing cited by the current Federal Reserve Bank Chairman, Ben Bernanke, over 15 years ago?
a. There is a theoretical incentive to choose riskier projects over safer ones
b. Highly leveraged firms which suffer losses can find themselves in financial distress and possible bankruptcy
c. The need to meet interest payments may force management to take a very short run perspective
d. Firms in financial distress may cut production and employment, and lose customers and suppliers
e. All of the above

5. Which of the following is true of an efficient market?
a. There is one seller
b. There is one buyer
c. Stock exchanges are always open
d. There is always a low brokerage fee
e. Information is reflected in security prices immediately

6. Which of the following ratios measures an organization's liquidity?
a. Acid Test
b. Debt Ratio
c. Return on Equity
d. Times Interest Earned
e. Return on Assets

7. Trade Credit is a:
a. Permanent source of financing
b. Spontaneous source of financing
c. Temporary source of financing
d. Not a source of financing
e. None of the above

8. A project has an initial cash flow of $10,000. The project will generate free cash flows of $8,000 per year for two years. The discount rate is 8%. What is this projects Net Present Value (NPV)?
a. $4,250
b. $6,000
c. $4,264
d. $16,000
e. $8,000

9. Which of the following is a risk in direct foreign investments?
a. Business risk
b. Financial risk
c. Political risk
d. Exchange rate risk
e. All of the above

10. What is the primary purpose of simple arbitrage?
a. To raise capital for corporate expansions overseas
b. To reduce prices of inventory from international suppliers
c. To satisfy banking regulations
d. Elimination of exchange rate differentials
e. To reduce the risk of foreign exchange rate movements

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Questions for Finance

1. What is a cash budget?
a. Detailed plan of future cash flows
b. Budget that shows only the cash that comes in
c. Historical look at cash flows
d. Report that analyzes the cash account
e. Report that analyzes the accounts receivables

a. Detailed plan of future cash flows

2. If your revenue is $10 million, your variable cost is $6 million, and your fixed cost is $3 million, what is your contribution margin?
a. $4 million
b. $1 million
c. $3 million
d. $9 million
e. $7 million

f. $4 million

(Revenue- Variable cost)

3. What is the Weighted Average Cost of Capital (WACC) for a firm where debt is 40% of the firm, preferred stock is 10% of the firm, common stock is 50% of the firm, after tax cost of debt is 8%, cost of preferred stock is 12%, and the cost of common stock is ...

Solution Summary

This provides the steps to calculate the Contribution margin and WACC

$2.19