1) The \"threat hypothesis\": a. reduces management\'s tendency to spend freely

Question

1) The "threat hypothesis":
a. reduces management's tendency to spend freely
b. encourages management to use debt to further their own interests
c. increases the agency problem
d. none of the above

2) Tom's Trashbin Inc. has fixed costs of $150,000. Tom's trashbins sell for $50 and have a unit variable cost of $35. What is Tom's break-even point in units?
a. 8,500
b. 9,000
c. 10,000
d. 11,500

3) A firm that maintains a "stable dollar dividend per share" will generally not increase the dividend unless:
a. a stock split occurs
b. the firm merges with another profitable firm
c. the firm is sure that a higher dividend level can be maintained
d. the P/E ratio has increased steadily over the past 5 years

4) The simulation approach provides us with:
a. a single value for the risk-adjusted net present value
b. an approximation of the systematic risk level
c. a probability distribution of the project's net present value or internal rate of return
d. a graphic exposition of the year-by-year sequence of possible outcomes

Explanation / Answer

1.a. reduces management's tendency to spend freely

2. BEP = Fixed cost/selling price - variable cost

BEP =$150,000/$50 - $35 = 10,000
c. 10,000

3.c. the firm is sure that a higher dividend level can be maintained

4. c. a probability distribution of the project's net present value or internal rate of return

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