Foundations Of Financial Management With Time Value Of Money Card 15th Edition

1) The use of the weighted average cost of capital assumes that the firm is in its optimum capital structure range and the cost of each component stays constant over the range of financing. Answer:[cpmembership level="2,3,4,5"] TRUE[/cpmembership] 2) Firms with bright expectations for the future tend to trade at high P/E ratios. Answer:[cpmembership level="2,3,4,5"] TRUE[/cpmembership] 3)

1) Among several other roles, as a middleman, the investment banker is responsible for designing and packaging a security offering and selling it to the public. Answer: TRUE Answer: TRUE Answer: TRUE 2) The premium for a warrant would increase if its underlying common stock has a negative market outlook. Answer: FALSE Answer: FALSE Answer: FALSE 3) When

1) The payment of a call premium may generally be taken as an immediate tax write-off. Answer: TRUE Answer: TRUE Answer: TRUE 2) The key to current asset planning is the ability of management to forecast sales accurately and then match production schedules with the sales forecast. Answer: TRUE Answer: TRUE Answer: TRUE 3) One of the advantages

1) Markets are efficient when prices adjust rapidly to new information, continuous markets exist. and large dollar trades can be absorbed without large price movements. Answer: TRUE Answer: TRUE Answer: TRUE 2) The Internet has accounted for an acceleration of productivity for "old economy" firms. Answer: TRUE Answer: TRUE Answer: TRUE 3) The payback method is not really

1) Life cycle growth analysis can be helpful in determining a firm's ability to pay dividends. Answer: TRUE Answer: TRUE Answer: TRUE 2) The term "underwriter" is synonymous with risk-taker or risk-bearer. Answer: TRUE Answer: TRUE Answer: TRUE 3) Higher interest rates (discount rates) reduce the present value of amounts to be received in the future. Answer: TRUE Answer: TRUE Answer:

1) Walmart requires manufacturers to ship goods with RFID tags so it can better track inventory and reduce the need for supply chain management. Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] 2) The more short-term financing there is relative to long-term financing, the riskier the financial structure. Answer: TRUE Answer: TRUE Answer: TRUE 3) Expected value techniques allow consideration

1) Stock dividends and stock splits have the same impact on retained earnings. Answer: FALSE Answer: FALSE Answer: FALSE 2) Factoring accounts receivable, unlike pledging accounts receivable, typically passes the risk of loss on the receivable to the buyer. Answer: TRUE Answer: TRUE Answer: TRUE 3) The advantage of a zero-coupon bond to an investor is that the

1) To the individual recipient, preferred stock dividends offer no advantage over common stock dividends. Answer: TRUE Answer: TRUE Answer: TRUE 2) A warrant may carry a speculative premium above intrinsic value if it will not expire until far into the future. Answer: TRUE Answer: TRUE Answer: TRUE 3) During the global financial crisis that began in late

1) The European Central Bank that was created with the European Monetary Union has no control over monetary policy but is responsible for clearing transactions between the countries. Answer: FALSE Answer: FALSE Answer: FALSE 2) Stable dividends may cause a higher discount rate for the firm, thereby raising the value of the firm. Answer: FALSE Answer: FALSE Answer:

1) The use of depreciation is an attempt to allocate the past and future costs of an asset over its useful life. Answer: FALSE Answer: FALSE Answer: FALSE 2) The degree of combined leverage is the sum of the degree of operating leverage and the degree of financial leverage. Answer: FALSE Answer: FALSE Answer: FALSE 3) Seasonal production

1) Investment banks are hesitant to issue bonds when they perceive the interest rate to be low. Answer: FALSE Answer: FALSE Answer: FALSE 2) To find the exact internal rate of return for projects with uneven cash flows, we can interpolate between two present value annuity factors from Appendix D. Answer: FALSE Appendix D can

1) The future rates of currency tend to increase for dates further in the future because of the increasing uncertainty over time. Answer: FALSE Answer: FALSE Answer: FALSE 2) A rapid payback may be important to firms having rapid technological development. Answer: TRUE Answer: TRUE Answer: TRUE 3) Cash break-even analysis eliminates the depreciation expense and other non-cash charges

1) In Stage I of a firm's life cycle, the firm will pay high dividends to shareholders in order to attract additional investors. Answer: FALSE Answer: FALSE Answer: FALSE 2) The market-determined required rate of return is the appropriate discount rate used in valuation calculations. Answer: TRUE Answer: TRUE Answer: TRUE 3) The investor's portfolio should always be on

1) Under the "modified accelerated-cost-recovery system" (MACRS) of depreciation, cash flow tends to decline with the passage of time. Answer: TRUE Answer: TRUE Answer: TRUE 2) A call provision is a commonly used device by a corporation to force conversion into common stock. Answer: TRUE Answer: TRUE Answer: TRUE 3) Financial capital is composed of long-term plant and equipment,

1) When a company first goes public, a registration statement must be filed with the New York Stock Exchange. Answer: FALSE The registration must be filed with the SEC Answer: FALSE The registration must be filed with the SEC Answer: FALSE The registration must be filed with the SEC 2) Selection of portfolio combinations

1) To add financial strength and stability, the countries of Greece and Portugal are now considering joining the "Eurozone." Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] 2) Absolute values taken from financial statements are more useful than relative values. Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] Answer: FALSE[/cpmembership] 3) Per the capital asset pricing model, the slope of the security market line

1) When a company is obligated contractually to pay interest on debt, it must pay the interest even if it shows no profit for the year, or else it may go bankrupt. Answer: TRUE Answer: TRUE Answer: TRUE 2) The higher the cost of bank financing, the more beneficial it is to take the

1) A firm paying a stock dividend will experience a drop in its earnings per share but its shareholders' total claim on earnings will increase. Answer: FALSE Answer: FALSE Answer: FALSE 2) The term balance of payments refers to the flow of economic transactions between the residents of one country and the residents of another. Answer:

1) When choosing portfolios of assets, management should try to achieve the highest possible return at a given level of risk. Answer: TRUE Answer: TRUE Answer: TRUE 2) Short-term interest rates are generally lower than long-term interest rates. Answer: TRUE Answer: TRUE Answer: TRUE 3) Financial markets exist as a vast global network of individuals and financial institutions

1) Selling stockholders may receive a price well above current market or book value. Answer: TRUE Answer: TRUE Answer: TRUE 2) When a company defaults on a secured debt, it is rare for the secured asset to be sold and the proceeds distributed to the debtor. Answer: TRUE Answer: TRUE Answer: TRUE 3) The issues of corporate governance

1) An increase in accrued expenses results in a cash outflow on the statement of cash flows. Answer: FALSE Answer: FALSE Answer: FALSE 2) Accounting income is based on verifiably completed transactions. Answer: TRUE Answer: TRUE Answer: TRUE 3) The rate on Eurodollar certificates of deposit is usually lower than domestic certificates of deposit. Answer: FALSE Answer: FALSE Answer: FALSE 4) Use

1) Insider trading involves the use of information not available to the general public to make profits from trading in a company's stock. Answer: TRUE Answer: TRUE Answer: TRUE 2) Most dividends, like interest on corporate bonds, are paid semi-annually. Answer: FALSE Answer: FALSE Answer: FALSE 3) A tax loss carryforward of $1,000,000 for company ZZZ is not

1) Inventories are usually the most liquid, but lowest-yielding, current asset of a firm. Answer: FALSE Answer: FALSE Answer: FALSE 2) An increase in an asset represents a source of funds. Answer: FALSE Answer: FALSE Answer: FALSE 3) The value of a share of stock is the present value of the expected stream of future dividends. Answer: TRUE Answer: TRUE Answer:

1) The most common partnership arrangement carries limited liability to the partners. Answer: FALSE Answer: FALSE Answer: FALSE 2) In evaluating capital investment projects, current outlays must be judged against the current value of future benefits. Answer: TRUE Answer: TRUE Answer: TRUE 3) Generally, once a convertible bond trades at a certain premium to its intrinsic value, or

1) Firms with cyclical sales should employ a high degree of leverage. Answer: FALSE Answer: FALSE Answer: FALSE 2) Translation exposure occurs because of changes in foreign exchange rates. Answer: TRUE Answer: TRUE Answer: TRUE 3) In determining the optimum capital structure, it is assumed that the firm will raise capital in the optimum proportions every year. Answer: FALSE

1) Smaller investment banking houses may handle distributions for relatively unknown corporations on a "best-efforts" basis. Answer: TRUE Answer: TRUE Answer: TRUE 2) Generally, dividends should be changed when a corporation reaches a new level of permanent income. Answer: TRUE Answer: TRUE Answer: TRUE 3) In the capital asset pricing model (CAPM), beta measures the volatility of the

1) Ideally, permanent current assets should be financed exclusively with short-term borrowings. Answer: FALSE Answer: FALSE Answer: FALSE 2) According to the expectations hypothesis, the expected value is the sum of the probabilities of all expected events. Answer: FALSE Answer: FALSE Answer: FALSE 3) The income statement is the major device for measuring the profitability of a firm

1) A decrease in bonds payable results in a cash outflow on the statement of cash flows. Answer: TRUE Answer: TRUE Answer: TRUE 2) Maximizing the earnings of the firm is the goal of financial management. Answer: FALSE Answer: FALSE Answer: FALSE 3) Agency theory assumes that corporate managers act to increase the wealth of corporate shareholders. Answer: FALSE Answer:

1) Lease obligations currently appear only in the footnotes of U.S. corporate financial statements. Answer: FALSE If a lease is a capital lease, obligations under that lease will appear on the balance sheet as well. Answer: FALSE If a lease is a capital lease, obligations under that lease will appear on the

1) If we assume that inventory is used up at a constant rate and safety stock is zero, the average inventory will be half the re-order size. Answer: TRUE Since safety stock = 0, and (EOQ/2) + Safety stock = Average inventory, then we carry one half that amount. Answer: TRUE Since

1) Because of political risk, it is generally disadvantageous for U.S. firms to list their stocks on the world stock exchanges. Answer: FALSE Answer: FALSE Answer: FALSE 2) The movement of the exchange rate between two currencies can increase the total cost of a loan by making the principal repayment require more money than

1) If an individual's cost of capital were 6%, the person would prefer to receive $110 at the end of one year rather than $100 right now. Answer: TRUE PV = FV PVIF (App. B: 6%, 1 period) = $110 0.943 = $104 Answer: TRUE PV = FV PVIF (App. B: 6%,

1) One of several reasons that companies might choose to issue bonds is to shift their capital structure from more equity ownership to more borrowing. Answer: TRUE Answer: TRUE Answer: TRUE 2) The contribution margin is equal to sales price per unit minus total costs per unit. Answer: FALSE Answer: FALSE Answer: FALSE 3) The degree of financial

1) Eurodollars are U.S. dollars held on deposit by foreign banks. Answer: TRUE Answer: TRUE Answer: TRUE 2) Even though one project may have superior cash flows, top management may sometimes choose a project that inflates earnings instead of cash flow. Answer: TRUE Answer: TRUE Answer: TRUE 3) At historically low interest rate levels, compensating balances increase. Answer: TRUE Answer:

1) The interest factor for the future value of an annuity is simply the sum of the interest factors for the future value using the same number of periods. Answer: FALSE Answer: FALSE Answer: FALSE 2) The purchasing power parity theory states that currency exchange rates tend to vary inversely with their respective purchasing

1) Shelf registration is most frequently used with new issues of common stock. Answer: FALSE Answer: FALSE Answer: FALSE 2) Antitrust policy can preclude the acquisition of a competitor. Answer: TRUE Answer: TRUE Answer: TRUE 3) Commercial paper represents secured short-term borrowing by large companies. Answer: FALSE Answer: FALSE Answer: FALSE 4) It is helpful to break down the income statement into

1) Times interest earned is an example of a profitability ratio. Answer: FALSE Answer: FALSE Answer: FALSE 2) The dollar value of common stock issuances exceeds the level of preferred stock issuances and corporate bond issuances. Answer: TRUE Answer: TRUE Answer: TRUE 3) Finding out who is ultimately responsible for a bad debt can be helped by Dun

1) The capital budgeting decisions of a firm will have no effect on the share price of the common stock. Answer: FALSE Answer: FALSE Answer: FALSE 2) Money markets refer to markets where excess corporate cash is exchanged for foreign currencies that can earn a higher return than domestic money. Answer: FALSE Answer: FALSE Answer: FALSE 3) The NYSE

1) The modified internal rate of return method assumes that inflows are reinvested at 80% of the internal rate of return. Answer: FALSE Answer: FALSE Answer: FALSE 2) Depreciation is important in calculating projected cash flows because it generates a tax deduction. Answer: TRUE Answer: TRUE Answer: TRUE 3) Firms with an expectation for great potential tend to

1) Firms with highly volatile and perishable inventory should assume relatively low levels of risk. Answer: TRUE Answer: TRUE Answer: TRUE 2) As inflation in France increases and stays the same in the U.S., the exchange rate of the euro to the dollar will increase. Answer: FALSE Answer: FALSE Answer: FALSE 3) A financial lease has many of

1) High-risk corporate bonds are as risky as junk bonds. Answer: TRUE Answer: TRUE Answer: TRUE 2) An exporter is able to satisfy foreign demand for a product while avoiding long-term investment, although this method is considered riskier than all other alternatives. Answer: FALSE Answer: FALSE Answer: FALSE 3) The London Interbank Offered Rate (LIBOR) is used to

1) Only a small amount of security issues are sold on a "best-efforts" basis. Answer: TRUE Answer: TRUE Answer: TRUE 2) A $125,000 credit sale could be a part of a firm's cash flow from operations if paid off within the firm's fiscal year. Answer: TRUE Answer: TRUE Answer: TRUE 3) "Extended disbursement float" has to do with

1) The expected value is a weighted average of the outcomes multiplied by their probabilities of occurrence. Answer: TRUE Answer: TRUE Answer: TRUE 2) The issuing company desires to have as little underpricing of new securities as possible. Answer: TRUE Underpriced securities will sell rapidly, but are likely to "leave money on the table" that

1) Using semi-annual compounding rather than annual compounding will increase the future value of an annuity. Answer: TRUE Answer: TRUE Answer: TRUE 2) A firm's cost of preferred stock is equal to the preferred dividend divided by market price plus the dividend growth rate (Kp = D/P0 + g). Answer: FALSE The correct formula is

1) Investors in high marginal tax brackets usually prefer companies that reinvest most of their earnings, thus creating more growth in earnings and stock prices and deferring taxes into the future. Answer: TRUE Answer: TRUE Answer: TRUE 2) Book value per share and market value per share are usually the same dollar amount. Answer: FALSE Answer:

1) A motive for selling stockholders may be the bias against smaller companies. Answer: TRUE Answer: TRUE Answer: TRUE 2) The percent-of-sales provides the most accurate and detailed method of forecasting necessary funds. Answer: FALSE Answer: FALSE Answer: FALSE 3) Many attribute the banking crisis of 2008-2009 to problems in the futures markets. Answer: FALSE Answer: FALSE Answer: FALSE 4) Under the

1) Regardless of the particular source of funds utilized for a project, the required rate of return, or discount rate, will be the weighted average cost of capital. Answer: TRUE Answer: TRUE Answer: TRUE 2) According to traditional financial theory, the cost of capital curve is U-shaped over the range of debt-equity mixes. Answer: TRUE Answer:

1) The payback method considers all cash inflows. Answer: FALSE The payback method does not consider any cash flows that occur after the point of payback has been reached. Answer: FALSE The payback method does not consider any cash flows that occur after the point of payback has been reached. Answer: FALSE The

1) Corporations are partially exempt from taxes on dividends received from other corporations. Answer: TRUE Answer: TRUE Answer: TRUE 2) The formula PV = FV(1 + n)i will determine the present value of $1. Answer: FALSE Answer: FALSE Answer: FALSE 3) Historically, the real rate of return has been about 2% to 3%. Answer: TRUE Answer: TRUE Answer: TRUE 4) The prices

1) Debt utilization ratios are used to evaluate the firm's debt position with regard to its asset base and earning power. Answer: TRUE Answer: TRUE Answer: TRUE 2) The statement of cash flows helps measure how the changes in a balance sheet were financed between two time periods. Answer: TRUE Answer: TRUE Answer: TRUE 3) Foreign exchange risk

1) The interest factor for the future value of a single sum is equal to (1 + n)i. Answer: FALSE Answer: FALSE Answer: FALSE 2) The most widely used currency in the Eurobond market is the euro. Answer: FALSE Answer: FALSE Answer: FALSE 3) With a dividend reinvestment plan, an investor might receive fractional shares. Answer: TRUE Answer: TRUE Answer: TRUE 4)

1) "Business risk" relates to the inability of the firm to meet its debt obligations as they come due. Answer: FALSE Financial risk relates to the inability to meet debt obligations. Answer: FALSE Financial risk relates to the inability to meet debt obligations. Answer: FALSE Financial risk relates to the inability to meet

1) The percent-of-sales forecast is likely to be most accurate when used with cyclical companies. Answer: FALSE Answer: FALSE Answer: FALSE 2) Private placement eliminates the expensive and lengthy registration process with the Securities and Exchange Commission. Answer: TRUE Answer: TRUE Answer: TRUE 3) An increase in inflation will cause a bond's required return to rise. Answer: TRUE Answer: TRUE Answer:

1) Because ratios are historic, they have minimal value to an investor. Answer: FALSE Answer: FALSE Answer: FALSE 2) During the 1930s, financial practice revolved around such topics as the preservation of capital, maintenance of liquidity, the reorganization of financially troubled corporations, and bankruptcy. Answer: TRUE Answer: TRUE Answer: TRUE 3) The primary issuers of convertible bonds are

1) Possibly the most overlooked part of the capital budgeting process is the search for new opportunities through innovation and creative thinking. Answer: TRUE Answer: TRUE Answer: TRUE 2) The Gramm-Leach-Bliley Act repealed the Bretton Woods Agreement. Answer: FALSE The Gramm-Leach-Bliley Act repealed the Glass-Steagall Act, which dated back to the Depression Era of the

1) The difference between the rights-on and ex-rights price is equal to the subscription price divided by N, where N is the number of rights needed to purchase a new share of stock. Answer: FALSE Answer: FALSE Answer: FALSE 2) The cash savings from reduced dividend payments resulting from a stock repurchase strategy can

1) Profitability ratios allow one to measure the ability of the firm to earn an adequate return on sales, total assets, and invested capital. Answer: TRUE Answer: TRUE Answer: TRUE 2) The use of "float" has dramatically increased since the Check Clearing for the 21st Century Act was passed. Answer: FALSE Answer: FALSE Answer: FALSE 3) A higher

1) The cost of debt, preferred stock, and common equity must all be adjusted for tax implications. Answer: FALSE The cost of debt financing has direct tax implications; equity financing does not. Answer: FALSE The cost of debt financing has direct tax implications; equity financing does not. Answer: FALSE The cost of debt

1) One way businesses try to overcome the risk associated with new customers is to access a credit scoring report that will predict the probability of a customer causing credit problems in the future. Answer: TRUE Answer: TRUE Answer: TRUE 2) Sales projections and the ability to accurately predict the future have a large

1) The calculation of the cost of capital depends upon the historical cost of funds. Answer: FALSE Each project must be evaluated by the current cost of funds. Answer: FALSE Each project must be evaluated by the current cost of funds. Answer: FALSE Each project must be evaluated by the current cost of

1) Leontief's Wigs can borrow from its bank at 16% to take a cash discount. The terms of the cash discount are 2/10, net 60 . Leontief's should borrow from the bank to take the discount. Answer: FALSE Answer: FALSE Answer: FALSE 2) The major suppliers of funds to the U.S.

1) The Federal National Mortgage Association buys mortgage loans from local lenders, bundles them together, and resells them as securities. Answer: TRUE Answer: TRUE Answer: TRUE 2) Forced conversion refers to the corporation calling a convertible bond when the market price of the stock is above the conversion price by more than a small

1) For most modern corporations, the more cash they have, the better off they are. Answer: FALSE Answer: FALSE Answer: FALSE 2) "Poison pills" are strategies that reduce the value of a firm if it is taken over by a corporate raider. Answer: TRUE Answer: TRUE Answer: TRUE 3) Operating leverage emphasizes the impact of using fixed assets

1) A stock out occurs when a firm runs out of inventory and is unable to sell or deliver the product requested. Answer: TRUE Answer: TRUE Answer: TRUE 2) The movement of non-brokerage firms into the brokerage area has forced traditional securities firms to expand their staffs. Answer: TRUE Answer: TRUE Answer: TRUE 3) Warrants are considered in

1) A poison pill will raise the potential for maximizing shareholder value because it deters takeover bids. Answer: FALSE Answer: FALSE Answer: FALSE 2) The Sarbanes-Oxley Act of 2002 holds a firm's internal auditors legally accountable for the accuracy of their firm's financial statements. Answer: FALSE Internal auditors have no such accountability (although, of course,

1) A "risky" financial plan will use long-term financing for fixed assets, permanent current assets, and a portion of temporary current assets. Answer: FALSE Answer: FALSE Answer: FALSE 2) The NASDAQ market is the primary market for international securities. Answer: FALSE Answer: FALSE Answer: FALSE 3) Risk is not only measured in terms of losses, but also in

1) Maintaining a safety stock will always guard against an "EOQ point" from occurring. Answer: FALSE Answer: FALSE Answer: FALSE 2) The potential of a tax loss carryforward has no effect when considering the acquisition of a company. Answer: FALSE Answer: FALSE Answer: FALSE 3) Sensitivity analysis helps the financial planner determine how sensitive shareholders will be to

1) Under a sinking fund provision, money is set aside every year until the bond matures, and then the money is used to repay the principal. Answer: FALSE Answer: FALSE Answer: FALSE 2) Because of changing economic conditions, it is difficult for companies such as Dun & Bradstreet to devise models predicting payment problems and