Financial risk, which makes a firm’s ROE and EPS more volatile, exists only if the firm
has some debt financing (leverage).
The concept of risk aversion from portfolio theory, applies to capital budgeting because
firms prefer to undertake less risky as opposed to more risky projects.
Assets pledged to guarantee a loan are collateral.
Shareholders focus solely on the firm’s expected profit to assign a price to its stock.
The less a foreign currency costs in U.S. dollars, the less expensive that nation’s
products are when imported and offered to U.S. buyers regardless of their cost in the
country of origin.
Scenario analysis involves developing an NPV for each of several potential project
outcomes along with an estimate of the probability of the outcomes.
Common size statements can be most effective when comparing:
A.companies in different industries.
B.the same company for different time periods.
C.companies of different sizes in the same industry.
D.a company’s results versus its budget.
When comparing a five year straight-line depreciation schedule and a five year
MACRS depreciation schedule, at what point in time does the straight-line depreciation
cost exceed the MACRS depreciation cost?
A.After the second year, but not after the fifth year
B.Only during the third year
C.After the fourth year and through the sixth year
D.Only during the fifth year
A project’s duration should match the term of the financing that supports it. This is
called the ____ principle.
A.maturity matching
B.term matching
C.default matching
D.repayment matching
The relation between the required rate of return and beta is called the:
A.security market line.
B.capital market line.
C.characteristic line.
D.systematic risk.
E.unsystematic risk.
Which of the following is not a cause of movement in the exchange rate between two
currencies?
A.Shifting consumer preferences for the other country’s goods
B.Government policies concerning imports, exports and foreign investment
C.The willingness or reluctance of local banks to deal in foreign currencies
D.Economic conditions in the two countries
Exxo Corporation wishes to maintain a 12 percent growth rate in equity. If year 1 equity
was $600 and year 2 net income is projected at $150, what retention ratio must Exxo
have to maintain the 12 percent growth in equity?
A.25 percent
B.48 percent
C.52 percent
D.67 percent
The component cost of a firm’s preferred stock consists of:
A.the current dividend yield.
B.the expected growth rate of dividends.
C.dividends expressed as a percent of par value.
D.a and b
Companies finance the purchase of assets through:
A.debt financing, the sale of bonds.
B.equity financing, the sale of stock.
C.lease financing.
D.Only a. and b. above
E.All of the above
Political risk is the chance that:
A.a government will take property owned by a foreign company.
B.terrorists will destroy property owned by a foreign company.
C.a government will change its country€s laws in ways that disadvantage foreign
companies.
D.All of these are examples of political risk.
If a share of preferred stock pays a quarterly dividend of $1.50, has a $40 par value, and
is currently selling for $50.00, it is earning an annual return of:
A.3.75%.
B.3.00%.
C.15.00%.
D.12.00%.
Tellabs distributes a 15% stock dividend. Before distributing the stock dividend, Tellabs
had 15 million shares. How many outstanding shares does the firm have after it makes
the stock dividend distribution?
A.15 million shares
B.17 million shares
C.17.25 million shares
D.17.50 million shares
E.none of the above