Which of the following is true of the accelerated depreciation?
A.It makes companies pay more taxes in the early years of an asset€s life.
B.It allows companies to charge more depreciation in the early years of an asset€s life.
C.It lets companies show higher book profits in the short run even when the cash flows
are lower.
D.It defers most of the depreciation charge towards the later years of an asset€s life.
_____ show how effectively the firm uses other people’s money.
A.Liquidity ratios
B.Debt management ratios
C.Asset management ratios
D.Profitability ratios
Calculate the amount today that is equivalent to $150 at the end of year 1, $450 at the
end of year 2, and $300 at the end of year 3, given a discount rate of 10%.
A.$695
B.$710
C.$755
D.$734
E.$1,100
You purchased a piece of property for $30,000 nine years ago and sold it today for
$83,190. What was the annual rate of return on your investment?
A.12%
B.11%
C.10%
D.9%
The risk premium for an individual security is equal to the:
A.beta times the market return.
B.difference between the market return and the risk free rate times the security’s beta.
C.weighted average of the individual security betas in a portfolio.
D.the security’s variance divided by the variance of the market.
Defensive measures to prevent an unfriendly merger do not include:
A.convincing the shareholders of the target company not to approve the deal.
B.seeking a preemptive merger with another acquirer the target’s management feels is
more desirable.
C.suing the would-be acquirer for unjust interference with business operations.
D.trying to get the justice department to view the proposed merger as an antitrust
violation.
Assume that you own a portfolio with a known average return and standard deviation.
Which of the following stocks, if added to your portfolio, will not reduce its risk
through diversification?
A.A stock whose return is negatively correlated with that of your portfolio and has a
lower standard deviation.
B.A stock whose return is positively correlated with that of your portfolio and has a
lower standard deviation.
C.A stock whose return is positively correlated with that of your portfolio and has a
higher standard deviation than your stock.
D.All of the above will reduce the risk of your investment through diversification.
E.None of the above will reduce the risk of your investment through diversification.
Economists forecast the following inflation rates for the next four years:
Under these conditions the ____ theory says the yield curve should slope ____ to the
right.
A.liquidity preference, downward
B.market segmentation, upward
C.market segmentation, downward
D.expectations, upward
In the context of working capital an accrual is not:
A.an estimate of an obligation of the firm.
B.effectively a short term loan from the unpaid supplier of services.
C.an adjustment to the accrued depreciation account.
D.a source of spontaneous financing.
The common stock of Kyocera currently sells for $88.50 and its last (D0) dividend was
$1.10. Determine the implied constant growth rate for Kyocera assuming it returns
14%.
A.13.9%
B.12.3%
C.13.8%
D.12.6%
Haberick Corp’s stock pays a dividend of $1.50 and is currently selling for $20, but the
firm has not grown in several years. Management feels that a 7% long-term growth rate
is possible if the firm discontinues its dividend entirely. Joe Fredrick owns 5,000 shares
and would like to keep the stock, but lives on dividend income. How many shares will
he have to sell to maintain his income if Haberick stops paying dividends? Ignore
transaction costs and tax issues.
A.Sell 375 shares of stock one year from now
B.Sell 350 shares of stock one year from now
C.Sell 350 shares of stock today
D.Sell 375 shares of stock today
Frazier Enterprises has a cost of new equity of 12.5%. They paid a dividend last year of
$3 and expect dividends to grow at a constant rate of 5%. Their stock is selling for $50
per share. Calculate the flotation cost associated with issuing new equity.
A.11.7%
B.12.5%
C.13.3%
D.16.0%