model exit exam

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addis ababa university college of business and economics accounting and finance model exit exam attempt the following 25 multiple choice questions and press submit when you complete all items. 51. using the maturity-matching principle, which of the following types of assets should be financed with long-term financing? a. fixed assets only. b. fixed assets and temporary current assets. c. fixed assets and permanent current assets. d. temporary and permanent current assets answer=c the maturity-matching principle is a financial management strategy that suggests matching the maturity of assets with the maturity of liabilities. in other words, it recommends financing long-term assets with long-term financing and short-term assets with short-term financing. let's analyze each option: a. fixed assets only: this option suggests financing only fixed assets with long-term financing. however, it doesn't address the financing needs for current assets, which could lead to a mismatch between short-term assets and long-term liabilities. b. …

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hort period. it could lead to unnecessary interest costs and a mismatch in maturities. therefore, option c (fixed assets and permanent current assets) is the correct choice because it aligns with the maturity-matching principle by recommending the use of long-term financing for both fixed assets and permanent current assets. 52. abc company is considering replacing a machine. the following data are available as presented in the table below. which of the data provided in the table is a sunk cost and what is the difference between keeping the old machine and replacing the old machine? old machine replacement machine original cost 90000 70000 useful life in years 20 10 current age in years 10 - book value 50000 - disposal value now 16000 - disposal value in 5 years - - annual cash operating cost 14000 8000 a. birr 50,000 sunk cost and 74,000 in favour of keeping the old …

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: birr 16,000 replacing the old machine: · initial cost: birr 70,000 · annual operating cost for 10 years: 10 years * birr 8,000/year = birr 80,000 · disposal value of the new machine after 10 years: assume negligible for this workout. step 3: compare the options. · calculate the total benefit of keeping the old machine: disposal value + savings in initial cost = birr 16,000 + (birr 70,000 - birr 140,000) = birr 26,000 · remember to deduct the sunk cost for a fair comparison: total benefit - sunk cost = birr 26,000 - birr 50,000 = birr -24,000 conclusion: · keeping the old machine would result in a negative difference of birr 24,000. · this indicates that replacing the machine would be more financially beneficial in the long run, despite the initial investment cost. note: this workout assumes the disposal value of the new machine after 10 …

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e new machine after 10 years (not provided in the table, assume negligible for calculation purposes) difference in favour of keeping the old machine: (disposal value of old machine + savings in initial cost) - (additional operating cost) (birr 16,000 + birr 70,000) - (birr 140,000 - birr 80,000) = birr 86,000 - birr 60,000 = birr 26,000 however, remember that we should deduct the sunk cost for a fair comparison: total benefit of keeping the old machine - sunk cost birr 26,000 - birr 50,000 = birr -24,000 therefore, keeping the old machine would result in a negative difference of birr 24,000, indicating that replacing the machine would be more financially beneficial in the long run. important note: · remember that the disposal value of the new machine after 10 years was not provided and assumed negligible for calculation purposes. in a real-life scenario, this value should be included …

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apital components. - this statement is correct. wacc is calculated using the after-tax costs of debt and the cost of equity. the after-tax cost of debt is considered because interest payments are tax-deductible. c. if a company's tax rate increases, then, all else equal, its weighted average cost of capital will increase. - this statement is incorrect. an increase in the tax rate would actually lead to a decrease in the after-tax cost of debt, which, in turn, would lower the overall wacc. therefore, an increase in the tax rate would not increase the wacc, assuming all else remains equal. d. flotation costs can increase the weighted average cost of capital. - this statement is correct. flotation costs, which are incurred when issuing new securities, can increase the overall cost of capital. these costs should be considered in the wacc calculation because they impact the net proceeds received from issuing …

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addis ababa university college of business and economics accounting and finance model exit exam attempt the following 25 multiple choice questions and press submit when you complete all items. 51. using the maturity-matching principle, which of the following types of assets should be financed with long-term financing? a. fixed assets only. b. fixed assets and temporary current assets. c. fixed assets and permanent current assets. d. temporary and permanent current assets answer=c the maturity-matching principle is a financial management strategy that suggests matching the maturity of assets with the maturity of liabilities. in other words, it recommends financing long-term assets with long-term financing and short-term assets with short-term financing. let's analyze each option: a. fixed a...

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