Determine how much you would be willing to pay for a security that pays $60 annually
indefinitely (a perpetuity), assuming you require an 8 percent return on this investment.
A.$480
B.$743
C.$1,000
D.$750
An agreement between a commercial bank and a corporate customer to exchange an
exact amount of one currency for another on a specific future date is called a:
A.spot contract.
B.optional contract.
C.forward contract.
D.deferred contract.
A stock with a beta of 1.0 will:
A.always generate a return equal to the market average.
B.always generate a return that is close to the market average.
C.always generate a return that is at least as large as the market average..
D.All of the above are correct.
E.None of the above is correct.
A group of companies that acts like a monopoly is a:
A.oligopoly.
B.conglomerate.
C.trust.
D.None of the above
What is the net investment required for a pitting machine that will cost $35,000
including installation? The machine replaces a machine that cost $5,000 when
purchased five years ago. The old machine has been fully depreciated but has a market
value of $6,000. Assume the marginal tax rate is 40 percent.
A.$29,000
B.$31,400
C.$32,600
D.None of the above
You have just won a lottery that promises to pay you and your heirs $1000 dollars a
year forever. How much could you get for this stream of cash today if the interest rate is
6%?
A.$12,500
B.$16,667
C.$943
D.None of the above
Holding cash for which of the following reasons is an example of speculative demand?
A.Purchase of an input when there is an abrupt drop in the price
B.Quick acquisition of new raw materials for an emergency demand
C.A new shipment that has to be produced immediately because of product damage
D.Payments made to tax authorities
Which of the following issues should be considered with respect to the accuracy of
stock pricing Models?
A.Assumptions regarding growth rates are imprecise
B.Assumptions regarding market returns are difficult to make accurately.
C.The Gordon Model is only an approximation of the present value of an infinite stream
of future cash flows.
D.Both a. and b. above have to be considered.
E.All of the above have to be considered.
The first and last priorities for receiving funds in a bankruptcy are:
A.administrative expenses of the bankruptcy proceedings; common stockholders.
B.unpaid employees, unsecured creditors.
C.secured creditors; common stockholders
D.customers; preferred stockholders.
Williamson Manufacturing paid a $2 dividend last year and expects dividends to grow
at a constant rate of 7%. The firm’s stock is selling at $45 per share and flotation costs
on a new issue would be 15%. Calculate Williamson’s cost of retained earnings.
A.10.2%
B.11.8%
C.12.6%
D.13.6%
Managers who have an interest in project approval are likely to:
A.overstate cash inflows.
B.understate cash outflows.
C.overstate terminal values.
D.All of the above
A statistic known as a stock’s beta coefficient measures:
A.total risk.
B.systematic or market risk.
C.unsystematic or business-specific risk.
D.None of the above