The treasurer is in charge of accounting while the controller supervises most other
financial functions.
EBIT-EPS analysis shows the advantage/disadvantage of different levels of leverage as
a function of profitability measured in terms of EBIT.
To evaluate a firm’s debt capacity effectively, the analyst should construct both the debt
ratio and the debt to equity ratio, because they are mutually exclusive indicators of the
firm’s capacity to assume additional debt.
SOX prohibits public accounting firms from providing tax services to their clients.
The slope of the security market line is a reflection of the risk tolerance or level of risk
aversion of the investment community. As the line becomes steeper, investors become
more risk averse and demand higher risk premiums.
The concept of signaling suggests that a firm’s dividend policy is irrelevant to the value
of its common stock.
The breakeven point on a breakeven diagram is:
A.the point where the fixed cost line and the revenue line intersect.
B.the point where the total cost line and the revenue line intersect.
C.the point where the total cost line intersects the horizontal axis.
D.the point where the total cost line intersects the vertical axis.
A five-year corporate bond would initially be issued in which market?
A.Secondary market
B.Primary market
C.Money market
D.None of the above
The principal differences between capital markets and money markets are that:
A.money and capital markets deal in the same securities, the only difference is term.
B.both markets deal in short-term debt securities; however, capital markets deal also in
equity securities which have an indefinite term.
C.money markets deal only in short-term government debt.
D.capital markets deal in long-term debt and equity securities, while money markets
deal only in short-term debt.
The IPO Pop is a phenomenon in which:
A.the offer is accurately priced eliminating possibilities of volatility when trading
begins.
B.the IPO faces negative publicity as it is underpriced and starts trading below the
market expectations.
C.the IPO is underwritten by certain investment bankers for an underwriting spread.
D.there is a rapid increase in the stock price after trading begins.
A larger interest rate will reduce all of the following, except the:
A.initial cash flow.
B.net present value.
C.present value of future cash outlays.
D.profitability index.
If a firm does not pay dividends, what is true about the components of the sustainable
growth rate?
A.The dividend payout ratio is 100%.
B.The retention ratio is 100%.
C.ROE does not equal the sustainable growth rate.
D.ROS is higher than if the firm did pay some dividends.
Which of the following countries does not fall under the Eurozone?
A.Austria
B.Ireland
C.Great Britain
D.Greece
E.Spain
The most difficult part of the capital budgeting process is:
A.application of evaluation techniques such as NPV or IRR.
B.interpreting the results of the application of NPV or IRR.
C.estimation of the incremental project cash flows.
D.None of the above
The Ragin Cajun had an operating income (EBIT) of $260,000 last year. The firm had
$18,000 in depreciation expenses, $15,000 in interest expenses, and $60,000 in selling,
general, and administrative expenses. If the Cajun has a marginal tax rate of 40 percent,
what was its cash flow from operating activities last year?
A.$165,000
B.$230,000
C.$132,000
D.$162,000
The cash conversion cycle is best described as:
A.the process of selling the product.
B.the process of converting product into cash and then cash into more product.
C.the process of collecting cash for sales.
D.the process of investing cash into new product inputs.
Heintz Corp. has just declared a 10% stock dividend. The company’s pre-stock dividend
common stockholders’ equity was as follows
If the common stock of Heintz was selling at $32 a share prior to the stock dividend,
what will the retained earnings be after the stock dividend is distributed?
A.$65,500,000
B.$118,500,000
C.$66,000,000
D.$97,500,000
Match the following:
1>Profitability index A. A procedure that ranks capital projects
according to the ratio of the present values of cash inflows to outflows
2>IRR B. The difference between the present values
of cash inflows and outflows
3>Payback period C. The interest rate at which the present values
of a project’s inflows and outflows are equal.
4>NPV D. The time it takes for a project’s cash flows
to break even.
ABC Corporation’s common stock sells for $52.45 per share. The most actively traded
option on ABC’s common stock is a call option with a striking price of $50, that is
currently priced at $3.12. What is the intrinsic value of the call option?
A.$0.67
B.$2.45
C.$3.12
D.$52.45