Capital Budgeting and Inventory Management Quiz

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which type of interest is NOT explicitly mentioned in the provided content?

Compound interest
Discount interest
Future value
Primary interest (correct)

What term describes projects where accepting one eliminates others from consideration?

Capital projects
Replacement projects
Mutually exclusive projects (correct)
Independent projects

Which of the following is NOT a reason why Net Present Value (NPV) is considered a better capital budgeting approach on a purely theoretical basis?

It measures the benefits relative to the amount invested.
Interest rates are expressed as annual rates of return.
It measures the actual value created by an investment.
Financial decision makers are inclined to higher rates of return. (correct)

Baitul Authentic Enterprise uses how many boxes of dates annually?

8,500 (C) Signup and view all the answers

What is the carrying cost for the dates, as a percentage of the selling price at Baitul Authentic Enterprise?

6% (C) Signup and view all the answers

What is the ordering cost per order at Baitul Authentic Enterprise?

RM 120 (C) Signup and view all the answers

How many boxes of dates does Baitul Authentic Enterprise maintain as safety stock?

1,500 (C) Signup and view all the answers

How long does it take for the dates to be delivered to Baitul Authentic Enterprise, in days?

12 days (C) Signup and view all the answers

What does the term 'collateral' specifically refer to within the context of the 5 C's of credit?

The assets pledged by the borrower to secure the loan. (A) Signup and view all the answers

Which of these statements accurately defines 'accounts receivable'?

The money owed to a company by its customers for goods or services sold on credit. (A) Signup and view all the answers

Which statement correctly describes 'work-in-progress' inventory?

Items that are in the process of being manufactured, needing more work to become finished goods. (C) Signup and view all the answers

What type of goods are classified as 'finished goods'?

Goods that have completed the manufacturing process and are ready to be sold to customers. (D) Signup and view all the answers

Which of the following is the best indicator of a customer's 'character' in the 5 C's of credit?

Historical record of the customer repaying their debt. (C) Signup and view all the answers

Which of the statements below is NOT a component of the inventory types?

Accounts Receivable (C) Signup and view all the answers

A company sells a product on credit to a customer. What does this transaction immediately result in?

An increase in the company’s accounts receivable. (C) Signup and view all the answers

What distinguishes raw materials from work-in-progress inventory?

Raw materials are purchased from firms to be used in production, while work-in-progress requires more work to become finished goods. (A) Signup and view all the answers

Which of the following best describes the impact of a compensating balance requirement on a loan's effective interest rate?

It increases the effective interest rate because the borrower receives less usable funds than the face value of the loan. (C) Signup and view all the answers

A company issues commercial paper with a face value of RM10,000 per paper and a placement fee of RM100 per paper. If the interest rate is 10%, what is the primary factor affecting the effective cost of borrowing?

The combination of the interest rate and the placement fee per paper, since both directly affect the total borrowing cost. (D) Signup and view all the answers

Edifier Berhad is considering issuing bonds at RM960, with a RM1,000 par value, 11% coupon and flotation costs of RM30 per bond. What is the most direct impact of the flotation cost on the cost of debt calculation?

It decreases the amount the company receives when they sell the bond, making it more expensive to raise money. (A) Signup and view all the answers

Which of these formulas best reflects how to calculate the cost of preferred stock?

Cost of Preferred Stock = Annual Dividend / (Market Price - Flotation Costs) (C) Signup and view all the answers

Edifier Berhad's common stock is selling at RM80 per share, expected dividend is RM8 per share, and dividends grow at 5%. If flotation costs are RM6 per share, how is this cost of equity best described?

It is the required rate of return on investment for the company's equity based on their dividends and growth expectations. (D) Signup and view all the answers

Amir Inc. is evaluating 'Status Quo' (SQ) and 'High Tech' (HT) projects with a cost of capital of 12%. If these projects are equally risky, what is the primary determinant to establish which project should be chosen?

The net present value of each project based on the 12% cost of capital. (A) Signup and view all the answers

When computing the after-tax cost of debt, why is the interest expense multiplied by (1 - tax rate)?

Because interest expense reduces earnings, which leads to a decrease in tax payments. (D) Signup and view all the answers

What is the essential difference between using the cost of debt and the cost of equity in capital budgeting decisions?

The cost of debt is adjusted for tax savings, which are not associated with the cost of equity. (A) Signup and view all the answers

Flashcards

Discount interest

Interest calculated on the principal amount at a discount rate.

Compound interest

Interest that is calculated on both the initial principal and the accumulated interest.