Submitted by: Submitted by Name1029
Views: 10
Words: 1475
Pages: 6
Category: Other Topics
Date Submitted: 02/28/2016 11:48 AM
1. Which of the following is true regarding Investment Banks?
As of 2010, stand alone Investment banks are numerous.
Explanation: The Glass-Stegal Act was designed to maintain commercial banks and investment banks as separate entities, due to the potential for fraud. The act was repealed in 1999. As of today, there are many stand alone investment banks. on Wall Street and beyond.
2. We compute the profitability index of a capital-budgeting proposal by Initial outlay = $1,748.80
Dividing the present value of the annual after-tax cash flows by the cost of the project.
Explanation: The profitability index is calculated by dividing the Net Present Value over the Initial Outlay.
3. Project Sigma requires an investment of $1 million and has a NPV of $10. Project Delta requires an investment of $500,000 and has a NPV of $150,000. The projects involve unrelated new product lines.
What is your evaluation of these two projects
Both projects should be accepted because they have positive NPV’s
Explanation: A positive NPV indicates the project is generating returns at the firms required rate of return and should be accepted.
4. Which of the following is most likely to occur if a firm over-invests in net working capital?
The return on investment will be lower than it should be.
Explanation: More funds will be held in current asset accounts, such as cash, which will make the firm’s relative return on investment (ROI) appear lower.
5. The Securities Investor Protection Corporation protects individuals from
Brokerage firm failures
Explanation: The SIPC was created by congress as private entity that is focused on protecting consumers in the event of a brokerage firm failure.
6. If managers are making decisions to maximize shareholder wealth, then they are primarily concerned with making decisions that should:
Increase the market value of the firm’s common stock.
Explanation: Stock value increases are typically the most effective way to increase shareholder...