Donoho Corp. issued 20-year, $1,000 par bonds eight years ago with a 10% coupon
paying semiannually that are now selling for $1,152.47. Estimate the cost of retained
earnings assuming investors generally demand a 5% risk premium on equity over the
cost of debt.
A.8%
B.9%
C.11%
D.13%
E.15%
Why will banks extend short-term working capital financing to companies to which
they would not extend long-term credit?
A.Conditions are unlikely to deteriorate too badly in the short term.
B.Working capital loans are ‘self-liquidating.”
C.The working capital itself can be used to collateralize the loan.
D.All of the above
If the yield curve is normal, what is the interest rate on a 20-year Treasury bond,
compared to the interest rate on a 5-year Treasury bond?
A.The interest rate on the 20-year bond will be more than the interest rate on the 5-year
bond.
B.The interest rate on the 5-year bond will be more than the interest rate on the 20-year
bond.
C.The interest rates of the two bonds will be equal.
D.It is impossible to tell without knowing the relative risks of the bonds.
Business planning that focuses on the next year and includes detailed revenue targets,
profit objectives and compensation systems is called:
A.strategic planning.
B.operational planning.
C.budgeting.
D.forecasting.
E.this level of detail is included in all of the business planning levels.
If a firm does not have debt, then ____.
A.the firm has no financial risk
B.the firm has no business risk
C.the firm’s ROA is less than its ROE
D.the firm’s ROE is higher than it had debt
Which of the following statements related to trade credit is true?
A.Trade credit has an explicit interest cost.
B.Large firms tend to use trade credit more than small firms.
C.The total trade credit owed at any point in time is called accounts receivable.
D.Trade credit arises from the time lag between the receipt of and payment for supplies.
If the required return on a stock is 15% and the future price of the stock one year from
today is projected to be $32.00, what should be the current price for the stock assuming
no dividends are paid?
A.$27.83
B.$36.80
C.$22.50
D.$29.50
Under the DuPont system, the return on assets is equal to:
A.the product of the gross profit margin and inventory turnover.
B.the sum of the debt-equity ratio and the return on sales.
C.the product of the return on sales and total asset turnover.
D.the product of the return on sales, total asset turnover, and equity multiplier.
E.None of the above
Control of a target can be achieved through:
A.the sale of stock.
B.a tender offer.
C.a proxy solicitation.
D.b and c
E.All of the above
Which of the following is a stakeholder of a corporation?
A.The stock exchange where the corporation is listed
B.The currency exchange for foreign corporations
C.Competitors of the corporation
D.Suppliers of the corporation
Which of the following statements about convertible bonds is true?
A.A convertible bond is exchangeable for a fixed number of shares.
B.Conversion is at the company€s discretion.
C.Convertibles are always secured bonds.
D.The conversion price equals the bond€s par value.
Return on Assets (ROA) measures a firm’s ability to utilize its assets without regard to
the sources of capital that fund those assets. The return on equity can bias the results by
the degree to which the company leverages itself (uses debt).
The increased volatility of longer term bonds in response to interest rate movements is
reflected in the:
A.pure interest rate.
B.default risk premium.
C.liquidity risk premium.
D.maturity risk premium.
In the ____ market, the firm receives the proceeds from the sale of its securities.
A.over-the-counter
B.secondary
C.fully integrated
D.none of the above
Which of the following in not a legal form of business organization?
A.Sole proprietorship
B.Partnership
C.Corporation
D.Small business owner
Financial risk is not directly associated with ____.
A.ROE
B.EBIT
C.EPS
D.net income
Financial markets include:
A.capital markets.
B.money markets.
C.primary markets.
D.secondary markets.
E.All of the above