As a rule, independent projects are accepted if the internal rate of return is greater than
or equal to:
a. 1.0
b. zero
c. marginal cost of capital
d. expected rate of return
The capital budgeting process consists of all of the following stages except:
a. follow-up.
b. selection.
c. refurbishing.
d. development.
e. all of the above are included
The price for which the owner is willing to sell the security is called the:
a. bid price
b. spread
c. ask price
d. limit price
Two years ago, a company spent $450,000 on a consulting study that focused on the
technology of the firm’s operations. Now it appears that technology is noncompliant
with existing regulations. New technology must replace the old project. The $450,000
would represent:
a. an opportunity cost
b. an operating expenditure
c. a sunk cost
d. none of the above
As interest rates fall, the prices of existing bonds will:
a. rise
b. stay the same
c. fall
d. either a or , depending on the state of the economy
e. none of the above
The cost of trade credit involving cash discounts as a form of short-term financing is:
a. usually greater than the cost of commercial bank credit
b. the lowest of any form of short-term financing
c. Neither of these is correct
_______________ are non-commercial bank depository institutions that include
savings banks and credit unions, which accumulate individual savings and lend
primarily to other individuals.
a. Banks
b. Securities firms
c. Pension funds
d. Finance companies
e. none of the above
Mary wants to purchase a 20-year bond that has a par value of $1,000 and makes
semiannual interest payments of $40. If her required yield to maturity is 10%, which of
the following is closest to how much should Mary be willing to pay for the bond?
a. $902
b. $925
c. $1000
d. $828
The loanable funds theory used to explain the level of interest rates holds that interest
rates are a function of the supply of:
a. loanable funds and the demand for money
b. loanable funds and the demand for loanable funds
c. money and the demand for loanable funds
d. money and the demand for money
Today the responsibilities of the Fed may be described as:
a. those relating to monetary and fiscal policy, to supervision and regulation, and to
services provided for depository institutions and the government.
b. those relating to fiscal policy, to supervision and regulation, and to services provided
for depository institutions and the government.
c. those relating to monetary policy, to deregulation, and to services provided for
depository institutions and the government.
d. those relating to monetary policy, to supervision and regulation, and to services
provided for homeowners and the government.
e. none of the above
Moe borrows $10,500 from the bank at 11 percent annually compounded interest to be
repaid in six equal annual installments. The interest paid in the first year is
a. $1,155
b. $2,481
c. $144
d. $1,327
If the expected returns for Stock A are 3% and this year’s returns are 3%, next year’s
returns would be
a. 3%
b. 6%
c. cannot say for certain
The most desirable form of business organization in terms of ease of start-up is a
corporation.
Interest rates generally fall during periods of economic expansion and rise during
economic contraction.
Undistributed profit is the proportion of after-tax profit paid as dividends to
shareholders by a corporation.
Bank solvency is the likelihood that a bank will be unable to meet depositor withdrawal
demands and other liabilities when due.
Full-bodied money is a monetary standard based on two metals, usually silver and gold.
Representative full-bodied money is paper money that is backed by an amount of
precious metal equal in value to the face amount of the paper money.
Simple interest is interest earned on the investment’s principal and subsequently-earned
interest.
Discount policy is still a major instrument of monetary policy.
The firm’s optimum debt/equity mix maximizes the firm’s cost of capital, which in turn
will help the firm to maximize shareholder wealth.
All limited liability company shareholders must take active roles in managing the
company.