The replacement chain and the equivalent annual annuity methods are designed to
evaluate stand-alone projects that have substantially different initial outlays.
Money markets deal in short-term government and corporate debt, while capital
markets deal in long-term corporate and government debt and corporate equity.
JIT systems work well, even when suppliers are located far away and sell to many
similar manufacturers.
A financial plan can help in anticipating financing needs.
When the managements and boards of target companies oppose mergers they usually
publicly state that the merger is not in their personal best interest, but the real reason for
their opposition is that the acquirer generally isn’t offering the target’s stockholders
enough for their shares.
A spinoff is a last resort effort to divest a badly failing business.
The taxation of proprietorships is about the same as that of corporations.
Scholars almost universally support technical analysis because it uses detailed statistical
analysis to make predictions.
The clientele effect implies that firms must be sensitive to their investor clientele by
avoiding changes to the dividend policy that attracted those investors.
Ethical investors buy the securities of firms that behave according to accepted ethical
and moral standards.
Preemptive rights are the rights of existing shareholders to maintain their proportionate
ownership when new shares are issued.
The profitability index technique is most meaningful when a project has only one cash
outflow which occurs at its beginning, and that is followed by a series of inflows that
are constant in amount and regular in time.
Very risky stocks will not have a market because investors are risk averse.
Eurobonds are denominated in a currency other than that of the country in which they
are sold.
The fixed exchange rate system put in place after World War II was abandoned in favor
of the current floating rate system because:
A.the dollar’s tie to gold at $35 per ounce became unrealistic.
B.it became impossible to keep certain exchange rates constant as the economic status
of nations changed subsequent to World War II.
C.Neither of the above
D.Both of the above
Your grandparents put $1,000 into a savings account for you when you were born 20
years ago. This account has been earning interest at a compound rate of 7 percent. What
is its value today?
A.$3,870
B.$1,967
C.$3,026
D.$3,583
Which of the following, holding all other variables constant, will cause an INCREASE
in a constant growth stock’s current value?
A.An increase in the growth rate
B.An increase in the market return (k)
C.An increase in the number years the stock is held
D.Both a & b
E.All of the above
Which of the following nations do not currently use the Euro as its currency?
A.Great Britain
B.The Netherlands
C.Luxembourg
D.Greece
Gamma Inc. is considering two mutually exclusive projects with the following cash
flows. Based on their approximate MIRRs, which project should the company accept?
Gamma’s cost of capital is 8%.
A.Project A, as it has an MIRR of 8%
B.Project B, as it has an MIRR of 5%
C.Project A, as it has an MIRR of 6%
D.Project B, as it has an MIRR of 6%
The term “financial leverage” originated from the notion that there is a multiplicative
effect on financial performance measured at ____ when borrowed money is used to
support the firm.
A.return on assets
B.return on equity
C.earnings per share
D.Both b and c
You expect to receive $1,000 at the end of each of the next three years that you plan to
deposit in a bank account paying 6%. Which of the following expressions will calculate
your bank balance just after the last payment is deposited?
A.FV = $1,000 [FVF6,1] + $1,000 [FVF6,2] + $1,000 [FVF6,3]
B.FV = $1,000 [1.06]1+ $1,000 [1.06]2+ $1,000 [1.06]3
C.FVA3= $1,000 [FVFA6,3]
D.All of the above
Which of the following best describes the concept of maturity matching?
A.Companies use funds from selling stocks to fund long-term projects and funds from
selling bonds to fund short-term projects.
B.Companies try to match the term of a project with the maturity of the financing that
pays for it.
C.Companies use funds from selling bonds to fund long-term projects and funds from
selling stocks to fund short-term projects.
D.Companies always use bonds to finance both short- and long-term projects because
stocks have no maturity and therefore cannot be matched to the length of projects.
E.None of the above describes the concept of maturity matching.
The ____ is the largest stock exchange in the world.
A.American Stock Exchange
B.Chicago Stock Exchange
C.New York Stock Exchange
D.Tokyo Stock Exchange
Which of the following statements is not correct?
A.Bond prices and interest rates are inversely related.
B.When a bond’s yield to maturity equals the coupon rate, the bond sells for par.
C.When a bond’s yield to maturity is greater than the coupon rate, the bond sells above
par.
D.When a bond’s yield to maturity is less than the coupon rate, the bond sells above par.
Witin Inc’s stock price is $34.25 and its recent quarterly dividend is $0.25. Investors
generally believe Witin will grow at 10% into the foreseeable future. Witin plans to sell
one million shares of new stock to raise capital for an expansion project. What will be
the cost of new equity if the if flotation costs are 8%?
A.13.49%
B.10.87%
C.13.21%
D.13.17%
What is the effective rate on an 8% loan subject to a 20% minimum compensating
balance?
A.9.6%
B.10%
C.8.13%
D.None of the above
In estimating cash flows, the firm should include:
A.effects on other parts of the company.
B.fixed costs.
C.opportunity costs.
D.a and c
E.a, b, and c
Which of the following is a debt management ratio?
A.Fixed charge coverage
B.P/E ratio
C.Return on sales
D.Current ratio
Because of a lucky breakthrough, Philadelphia Pharmaceutical’s current dividend per
share of $2.00 is expected to grow at a very high 32 percent per year for the next three
years and then to grow at a more normal 6 percent per year. What is the value of a
Philadelphia share if the investors’ expected return is 20 percent?
The following information is associated with a proposed new venture. The initial cost is
estimated to be $75,000 and cash inflows over a six-year life are estimated to be
$26,000 annually. The firm’s cost of capital is 12%. However, another firm, whose sole
business is in the same field as the new venture, is publicly traded and has a beta of 1.6.
The average stock is currently yielding 11% and the yield on short-term treasury bills is
4%. Calculate the risk adjusted NPV for the project.
The corporate tax system appears not to be progressive, but in fact it’s more progressive
that the personal system. Explain.
Emperor Corporation’s financial statements for the last year are shown below. The firm
paid a $1,000 dividend to its stockholders during the year. There were no sales of new
stock.
Develop Emperor’s Statement of Cash Flows.
Cash from Operating activities
Explain the certainty equivalent approach.
Mary Rodriguez is borrowing $50,000 to buy a home. If she pays equal annual
installments for 30 years and 8 percent interest on the outstanding balance, what is the
amount of her annual payment?
