FVFk,nis always greater than 1, whereas PVFk,nis always less than €1.
Under just-in-time (JIT) inventory systems, manufacturers shifts the task of maintaining
inventory to their suppliers, who in turn shift it to their own suppliers.
An annuity due will have a smaller present value than a normal annuity.
Conflicts of interest arise when managers act for their own personal benefit rather than
for the benefit of shareholders.
The sustainable growth rate is a theoretical statement of a firm’s ability to grow without
changing its financial ratios.
Restructuring capital toward debt can contribute to shareholder value, but it can also act
to decrease shareholder value.
Warehousing places the pledged inventory under the lender’s legal and physical control.
Because it historically provides a positive return, common stock is typically classified
as a real asset.
The “base” interest rate is made up of the pure rate, an inflation adjustment, and a
liquidity risk premium.
A company is a portfolio of projects.
Congeneric mergers do not generally have major anticompetitive effects as the merging
firms don’t directly compete.
The direct quote states the price of a unit of foreign currency in US dollars.
When interest rates decrease, what happens to the bond prices of seasoned issues
(assume the coupon rate is fixed)?
A.The bond prices decrease
B.The bond prices increase
C.The bond prices are unaffected.
D.The bonds will be retired and re-issued at higher coupon rates
Inventory in a manufacturing firm differs from that in a retailing company because it
includes:
A.an additional category referred to as materials.
B.finished goods inventory.
C.”work in process” inventory.
D.All of the above
Multinational corporations (MNCs) are:
A.companies that have operations in only one country.
B.companies that trade in the securities of businesses from other countries.
C.corporations with major operations in several countries.
D.companies that have sales offices in other countries.
An investment project requires an outlay of $100,000, and is expected to generate
annual cash inflows of $28,000 for the next 5 years. The cost of capital is 12 percent.
Determine a net present value for the project.
A.$940
B.$100,940
C.$77,884
D.$40,000
Which of the following is true of the certainty equivalent approach?
A.It asks the decision makers to consider each forecast cash flow individually and come
up with a lower, risk free cash flow that is equally acceptable.
B.It is accomplished by regressing the division’s accounting return on equity in previous
years against the return on a major stock market index.
C.It selects worst, middle, and best outcomes for each cash flow and computes NPV for
a variety of combinations.
D.It models cash flows as random variables and repeatedly calculates NPV.
Sunk costs are monies that:
A.will be needed in the future.
B.have already been spent.
C.will be recaptured in the future.
D.deal with the future value of an annuity.
Rienstra Electronics has just declared a 2 for 1 stock split. The current price of the stock
is above the par value. Which of the following account balances will be affected by the
stock split?
A.Common stock
B.Paid in Excess
C.Retained Earnings
D.All of these account balances will be affected.
E.None of these account balances will be affected.
The business planning spectrum shows:
A.the range or spectrum of activities that businesses engage in for which they must
plan.
B.how differently large and small companies plan.
C.how the different kinds of plans vary from long- to short- range and from conceptual
to detailed and numerical.
D.b and c
Common stock holders:
A.have one vote in the election of how the company operates.
B.are last in line to receive income.
C.receive income before preferred stockholders.
D.are guaranteed to get paid when the company fails.
Risk aversion implies that an investor:
A.will accept no risk.
B.places the same value on all risky investments.
C.demands a premium for accepting risk.
D.assigns a negative value to all risky investments.
A stand-alone project:
A.stands on its own merits.
B.competes against superior projects.
C.has the best cash flow.
D.has no competing alternatives.
Given the following selected information on McMillen’s Chocolate, Inc., calculate Cash
Flow from Operating Activities for 2001.
Find the debt ratio of a firm with total debt equal to $800,000 and net worth equal to
$2,400,000.
A..33
B..50
C..75
D..25
E..67
Under dividend irrelevance the value of eliminated dividends is offset by growth
created value in:
A.the present.
B.the past.
C.the future.
D.stockholder perceptions.
Match the following:
1>MCC A. Developed by averaging the costs of capital components weighted by the
amount of each component in use
2> WACC B. The cost of the next dollar of capital to be raised
3>Capital components C. Capital raised by issuing different securities
4>Capital structure D. The mix of capital from the various components
Which of the following is not part of working capital?
A.Accumulated depreciation
B.Accounts Payable
C.Accounts Receivable
D.Inventory
Overland’s preferred stock was issued 3 years ago to yield 10% of its par value of $30.
The stock is selling in the market today for $50. Assuming that Overland pays 15% in
flotation costs on new security issues, calculate the cost of preferred stock financing.
A.6.3%
B.7.1%
C.8.5%
D.9.2%
What amount received at the end of 20-years is equivalent to $100 today, given an
interest rate of 14%?
A.$87,346
B.$1,152
C.$1,638
D.$1.374
E.$91,029
The slope of the characteristic line for a specific security is an estimate of ____ for that
security.
A.beta
B.systematic risk
C.total risk
D.a and b
Cookie Baking expects to pay $2.40 dividend next year (D1= 2.40) and the dividend is
expected to grow at 4 percent annually. Cookie has an estimated standard deviation of .
24, the market portfolio has a standard deviation of .12, the market expected return is .
13 and the risk-free rate is .05. The correlation between Cookie and market returns is
0.8. What are Cookie’s beta and required rate of return?
A.1.16, 0.116
B.0.178, 1.6
C.1.6, 0.178
D.0.16, 2.60