Question 76

Hans Klein, CFA, is responsible for capital projects at Vertex Corporation. Klein and his assistant, Karl Schwartz, were discussing various issues about capital budgeting and Schwartz made a comment that Klein believed to be incorrect. Which of the following is most likely the incorrect statement made by Schwartz?

A)    “Project sequencing refers to accepting a project today, that if profitable, will create the opportunity for another profitable project at a future date.”

B)   “The weighted average cost of capital (WACC) should be based on market values for the firm’s outstanding securities.”

C)   “It is not always appropriate to use the firm’s marginal cost of capital when determining the net present value of a capital project.”

D)   “Net present value (NPV) and internal rate of return (IRR) result in the same rankings of potential capital projects.”

Question 77

Cintax Industries is concerned because, relative to industry averages, its cash conversion cycle is high and its inventory turnover is low. These conditions are most likely the case because:

A)    Cintax’s average days of payables are relatively high.

B)   Cintax’s average days of inventory are relatively high.

C)   Cintax’s average days of receivables are relatively low.

D)   Cintax has higher than average credit purchases of raw materials.

Question 78

In the U.S., which of the following short-term investment alternatives receives beneficial corporate tax treatment on the income it generates?

A)    U.S. Treasury bills.

B)   Short-term federal agency securities.

C)   Repurchase agreements.

D)   Adjustable-rate preferred stock.

Question 79

Given a set of risky assets, a Markowitz efficient frontier:

A)    can be calculated from the assets’ expected returns and the correlations of returns for each pair of assets.

B)   includes all portfolios that reduce the risk level compared to holding a single asset.

C)   consists of the portfolios that provide the lowest risk for every level of expected return.

D)   cannot be generated unless one of the assets has a beta of zero.

Question 80

An investment policy statement should most appropriately specify the:

A)    manager’s analysis of financial market conditions.

B)   securities selected for the portfolio.

C)   rebalancing needs of the portfolio.

D)   investor’s objectives and constraints.

[此贴子已经被作者于2008-11-8 17:56:24编辑过]

Question 76

Hans Klein, CFA, is responsible for capital projects at Vertex Corporation. Klein and his assistant, Karl Schwartz, were discussing various issues about capital budgeting and Schwartz made a comment that Klein believed to be incorrect. Which of the following is most likely the incorrect statement made by Schwartz?

A)    “Project sequencing refers to accepting a project today, that if profitable, will create the opportunity for another profitable project at a future date.”

B)   “The weighted average cost of capital (WACC) should be based on market values for the firm’s outstanding securities.”

C)   “It is not always appropriate to use the firm’s marginal cost of capital when determining the net present value of a capital project.”

D)   “Net present value (NPV) and internal rate of return (IRR) result in the same rankings of potential capital projects.”

The correct answer was D)

It is possible that the NPV and IRR methods will give different rankings. This often occurs when there is a significant difference in the timing of the cash flows between two projects. A firm’s marginal cost of capital, or WACC, is only appropriate for computing a project’s NPV if the project has the same risk as the firm.

This question tested from Session 11, Reading 45, LOS c

Question 77

Cintax Industries is concerned because, relative to industry averages, its cash conversion cycle is high and its inventory turnover is low. These conditions are most likely the case because:

A)    Cintax’s average days of payables are relatively high.

B)   Cintax’s average days of inventory are relatively high.

C)   Cintax’s average days of receivables are relatively low.

D)   Cintax has higher than average credit purchases of raw materials.

The correct answer was B) Cintax’s average days of inventory are relatively high.

Relatively high average days of inventory (# of days of inventory) cause a firm’s inventory turnover to be low and its cash conversion cycle to be high. High days of payables or low days of receivables imply a shorter cash conversion cycle. Higher-than-average credit purchases of raw materials (i.e., trade payables) imply a lower-than-average payables turnover ratio and higher-than-average days of payables.

This question tested from Session 11, Reading 46, LOS b

Question 78

In the U.S., which of the following short-term investment alternatives receives beneficial corporate tax treatment on the income it generates?

A)    U.S. Treasury bills.

B)   Short-term federal agency securities.

C)   Repurchase agreements.

D)   Adjustable-rate preferred stock.

The correct answer was D) Adjustable-rate preferred stock.

For a corporation, a percentage of dividends on the preferred and common stock of other corporations is exempt from U.S. federal income tax.

This question tested from Session 11, Reading 46, LOS d

Question 79

Given a set of risky assets, a Markowitz efficient frontier:

A)    can be calculated from the assets’ expected returns and the correlations of returns for each pair of assets.

B)   includes all portfolios that reduce the risk level compared to holding a single asset.

C)   consists of the portfolios that provide the lowest risk for every level of expected return.

D)   cannot be generated unless one of the assets has a beta of zero.

The correct answer was C) consists of the portfolios that provide the lowest risk for every level of expected return.

The Markowitz efficient frontier is the set of possible portfolios that provide the highest return for each level of risk, or the lowest risk for each level of return. To generate an efficient frontier we need to know the expected returns and standard deviations for each asset, as well as the returns correlations for each pair of assets.

This question tested from Session 12, Reading 50, LOS f

Question 80

An investment policy statement should most appropriately specify the:

A)    manager’s analysis of financial market conditions.

B)   securities selected for the portfolio.

C)   rebalancing needs of the portfolio.

D)   investor’s objectives and constraints.

The correct answer was D) investor’s objectives and constraints.

The investment policy statement should specify the investor’s objectives (in terms of return requirements and risk tolerance) and constraints (liquidity needs, time horizon, tax and legal considerations, and unique needs and preferences).

The other choices refer to the other three steps in the portfolio management process. Analyzing current financial and economic conditions is part of developing an investment strategy consistent with the IPS. Allocating assets and selecting securities are steps in implementing the investment plan. The need to rebalance the portfolio is determined by monitoring market conditions and updating the investor’s needs.

This question tested from Session 12, Reading 49, LOS a, (Part 1)

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