Brokers and frequent investors are more likely to work with earnings per share and
price earnings ratios to predict short-term stock price movements than with growth
Models.
Capital leases are often called financing leases, because they are a method of financing
the permanent acquisition of equipment.
Real assets are always long-lived items such as buildings and heavy vehicles.
Cash budgeting involves creating a detailed schedule of cash receipts and
disbursements.
A high inflation rate in a country will make its currency gain value against others.
The various capital budgeting risk analysis techniques all estimate the standard
deviation of an investment’s cash flows.
Cash flows forecast to continue forever are compressed into finite terminal values using
future value formulas.
If machinery that cost $8,000 when new, has accumulated depreciation of $4,500, and is
sold for $4,000, the gain recognized on the sale would be $4,000.
A project’s expected return is its IRR. Hence the firm won’t invest in a project unless its
IRR is less than the firm’s cost of capital.
Ratio analysis is of significant value in comparing the performance of a firm against its
history, its budget, and its competitors.
The more efficient the management of cash, the larger the amount of cash the firm
needs to hold.
A firm acquires a supplier or a customer in a vertical merger.
A low level of cash may force the firm to interrupt operations.
Congress intended preferential tax treatment on capital gains, recognizing that offering
an incentive to capital investments is healthy for the economy.
Marshall Manufacturing is projecting a growth of 10% in sales next year, and a
dividend payout of 80%. Based on their growth they are projecting an external
financing requirement of $200. They had the following results this year: Sales of
$18,000; Current liabilities of $500; Return on Sales of 10%. Calculate what Marshall
has projected for assets next year. (Assume that assets, current liabilities, and income
grow with the level of sales.)
A.$3,967
B.$4,885
C.$7,106
D.$7,810
Inaccurate cash flow estimates originate from several sources. The most significant of
these is:
A.estimating errors made by unbiased financial analysts.
B.estimating errors made by unbiased managers in the departments proposing projects.
C.unintentionally biased estimates made by impartial financial analysts.
D.errors due to the biases of managers in the departments proposing projects.
A ____ gives the lender a claim against all inventories held by the borrower.
A.warehousing arrangement
B.chattel mortgage agreement
C.trust receipt
D.blanket lien
In an efficient market:
A.new information is quickly disseminated.
B.an investor cannot consistently beat the market.
C.all available information is reflected in stock price.
D.all of the above.
Status Investment Bank Inc. is considering acquiring a fifty percent stake in a company
that manages mutual funds. This will probably be a:
A.horizontal merger.
B.consolidation merger.
C.conglomerate merger.
D.congeneric merger.
Which of the following statements about leasing is correct?
A.Approximately 30% of all equipment is leased.
B.Financial leases must be capitalized on the balance sheet.
C.Leased assets are depreciated.
D.Lease obligations are amortized as loans.
E.All of the above
What does it mean for a bond to sell at a premium?
A.The yield to maturity is above the coupon rate.
B.The bond has an exceptionally good credit rating.
C.The bond rating is above investment grade.
D.The bond sells for more than par value.
The accuracy of projected financial statements depends upon:
A.the accuracy of the sales forecast.
B.the stability of the relationships between sales and cost, expense, assets, and
liabilities.
C.whether the economy performs as expected.
D.All of the above
The original sale of a bond by the issuing company is a primary market transaction, a
secondary market transaction is:
A.a subsequent bond issue from the same company.
B.subsequent trading among investors of the original bond.
C.Both of the above
D.None of the above
The statement of cash flow is divided into the following sections:
A.operating activities and investing activities.
B.operating activities, financing activities, and equity activities.
C.operating activities; investing activities, and equity activities.
D.operating activities, financing activities; and investing activities.
It is important to acknowledge that growth or dividend pricing Models are essentially
abstractions of reality and hence have serious practical limitations. The issues relating
to accuracy include:
A.estimates of growth rates.
B.estimates of the market rate of interest.
C.the fact that the denominator in the Gordon model is the difference between two
numbers that can be close together.
D.All of the above