Which of the following is true of the EOQ model

Which of the following is true of the EOQ model

Subject: Business    / Finance   
Question
1-Which of the following is true of the EOQ model? Note that the optimal order quantity, Q, will be called EOQ.
• If the fixed per order cost increases by 20%, then EOQ will increase by 20%
• If the annual sales, in units, increases by 20%, then EOQ will increase by 20%.
• If the average inventory increases by 20%, then the total carrying costs will increase by 20%.
• If the average inventory increases by 20% the total order costs will increase by 20%.
• The EOC is the same for all companies

2- Which of the following statements concerning the MM extension with growth is NOT CORRECT?
• The tax shields should be discounted at the unlevered cost of equity.
• The value of a growing tax shield is greater than the value of a constant tax shield.
• For a given D/S, the levered cost of equity is greater than the levered cost of equity under MM’s original (with tax) assumptions.
• For a given D/S, the WACC is less than the WACC under MM’s original (with tax) assumptions.
• The total value of the firm increases with the amount of debt.

3- Which of the following statements about pension plan portfolio performance is incorrect?
• Pension fund sponsors must evaluate the performance of their portfolio managers periodically as a basis for future asset allocations.
• Alpha analysis, which relies on the Capital Asset Pricing Model, considers the risk of the portfolio when measuring performance.
• Peer comparison examines the relative performance of portfolio managers with similar investment objectives.
• A portfolio annual return of 12 percent from one investment advisor is not necessarily better than a return of 10 percent from another advisor.
• In managing the retiree portfolio, fund managers often use immunization techniques such as alpha analysis to eliminate, or at least significantly reduce, the risk associated with changing interest rates.
4- Which of the following is not correct?
• Collection policy is how a firm goes about collecting past-due accounts.
• A more aggressive collection policy will reduce bad debt expenses, but may also decrease sales.
• Collection policy usually has little impact on sales since collecting past-due accounts occurs only after the customer has already purchased.
• Typically a firm will turn over an account to a collection agency only after it has tried several times on its own to collect the account.
• A lax collection policy will frequently lead to an increase in accounts receivable
5- Which of the following statements about project risk analysis in not-for-profit firms is incorrect?
• The market risk of a project is not relevant to not-for-profit firms
• A project’s corporate beta measures the contribution of the project to the overall corporate risk of the firm
• A project’s corporate beta is found (at least conceptually) by regressing returns on the project against returns on the market portfolio.
• A project’s corporate beta is defined as (?P/?F)rPF, where ?P is the standard deviation of the project’s returns, ?F is the standard deviation of the firm’s returns, and rPF is the correlation among the two sets of returns.
• In practice, it is usually difficult, if not impossible, to directly measure a project’s corporate risk, so project risk analysis typically focuses on stand-alone risk.
6- Which of the following statements is CORRECT?
• The Capital Market Line (CML) is a curved line that connects the risk-free rate and the market portfolio
• The slope of the CML is ( M – rRF)/bM.
• All portfolios that lie on the CML to the right of sM are inefficient.
• All portfolios that lie on the CML to the left of sM are inefficient
• The slope of the CML is ( M – rRF)/?M..

7- Which of the following statements about pension plans if any, is incorrect?
• A defined contribution plan is, in effect, a savings plan that is funded by employers, although many plans also permit additional contributions by employees.
• Under a defined benefit plan, the employer agrees to give retirees a specifically defined benefit, such as $500 per month or 50 percent of the employee’s final salary.
• A portable pension plan is one that an employee can carry from one employer to another
• An employer’s obligation is satisfied under a defined contribution plan when it makes the required contributions to the plan. The risk of inadequate investment returns is borne by the employee.
• If assets exceed the present value of benefits, the pension plan is fully funded.