It can be argued that there are no economic benefits to shareholders from a
conglomerate merger.
If a project’s NPV is greater than zero, its IRR must be equal to the cost of capital.
An amortized loan is generally structured to provide constant payments each of which
contains the same proportions of interest and principal repayment.
The initial sale of a security is a primary market transaction. Subsequent sales between
investors are in the secondary market.
The interest rates that are observed in the economy differ from the nominal risk-free
rate due to risk premiums.
EBIT (earnings before interest and taxes) is the earnings measure designed to provide
information on operational performance.
Rights that allow stockholders to maintain their proportionate ownership of a
corporation are called:
A.proportionate rights.
B.cumulative rights.
C.preemptive rights.
D.Both a and b above
E.All of the above
If there are no taxes, would depreciation and opportunity costs be relevant in assessing
a project€s cash flows?
A.Both would not be relevant.
B.Only depreciation would not be relevant.
C.Only opportunity costs would not be relevant.
D.Both would still be relevant.
Debt capital:
A.costs the least because it’s the most risky to the firm (interest creates financial risk).
B.costs the most because it’s safer and therefore more desirable.
C.is cheapest because it’s safest from the investor’s perspective and interest is tax
deductible to the issuing company.
D.costs more than preferred because preferred is the most stable security.
The process in which a lead bank recruits other banks to share the risk of an IPO is
called:
A.copywriting.
B.underwriting.
C.registration.
D.syndication.
Project A will generate $10,000.00 of revenue next year. Project B will generate
$5,000.00 (50% probability) or $15,000.00 (50% probability) of revenue next year.
Assuming both projects cost $8,000.00 and have a 10% APR discount rate, which
project is preferred by a risk averse manager?
A.Project A
B.Project B
C.Neither project
D.Cannot be determined
You want to purchase a boat that costs $40,000. You want to finance as much of the
purchase as possible with a 5-year bank loan at 12% compounded monthly, but can only
afford loan payments of $750 per month. How much will you need as a down payment
to buy the boat? (Round to the nearest dollar)
A.$3,523
B.$4,637
C.$5,147
D.$6,284
If a company sells 20,000 units at $20 each, has fixed costs of $50,000 and a variable
cost of $10 per unit, what is their degree of operating leverage (DOL)?
A.1.6
B.2.5
C.1.33
D.1.7
The value of a foreign currency, such as the British pound, stated in American dollars is
the:
A.indirect rate.
B.forward rate.
C.direct quote.
D.forward spot rate.
Which of the following best describes Eurodollars?
A.European investments in U.S. companies
B.U.S. investment in European companies
C.U.S. dollars deposited in foreign banks
D.Euros deposited in U.S. banks
Uncollected receivables are normally:
A.depreciated.
B.expensed.
C.not reported.
D.written off.
The effect that differential taxation of dividends and capital gains has on investors is
that it:
A.creates a bias against dividend payment.
B.creates a bias against transactions costs.
C.creates a tax shelter effect for firms that pay dividends.
D.creates a bias against retention of earnings.
Which of the following working capital financing policies subjects the firm to the
greatest risk?
A.Financing temporary working capital with long-term debt
B.Financing permanent working capital with long-term debt
C.Financing permanent working capital with short-term debt
D.Financing temporary working capital with short-term debt
Which of the following is true of a repurchase (buyback) of shares?
A.Companies tend to buy back their stock when they’re doing poorly and price is low.
B.The true purpose of a buyback is to escape from the regular payment of interest.
C.Repurchases earn continuing shareholders the most when the stock’s market price is
below its true or intrinsic value.
D.If the market price of a stock increases after a buy back, value is passed to those who
sold.