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10 Cards in this Set

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The depreciation tax shield quantifies:
the savings in taxes due to the tax-deductibility of depreciation expense
When a manager accepts a positive NPV project, shareholders can earn an expected benefit in the amount of the:
project's net present value
The primary reason the economic break even quantity is greater than the accounting break even is due to
the need to earn the cost of capital on the investment
All else constant, a bond will sell at _____ when the yield to maturity is _____ the coupon rate.
a discount; higher than
What is the formula for NPV?
NPV=PV(Benefits-Costs)

NPV=PV(all project cash flows)
What is a factor that limits the growth of a sole proprietorship?
The amount of money that can be raised by the firm is limited because a single owner must make good on all the debts.
What is an explanation of why market prices are useful to a financial manager when performing a cost benefit analysis?
They can be used to convert different services and commodities into equivalent cash value which can be compared
Why have high inflation rates tended to be associated with high nominal interest rates historically?
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.
What is the EAR?
The interest rate that would earn the same interest that would result in the same future value.
Secondary markets are important because
they evaluate a firm's capital budgeting decisions.