1) The spot exchange rate is the rate of exchange between two currencies at some
specified future date.
2) A single key ratio of a firm provides all the information required to judge the overall
performance of the firm.
3) By measuring how quickly a firm recovers its initial investment, the payback period
gives implicit consideration to the time value of money and ignores the timing of cash
flows.
4) A hybrid security is a form of debt or equity financing that possesses characteristics
of both debt and equity.
5) Time-series analysis is the evaluation of a firm’s financial performance in
comparison to other firm(s) at the same point in time.
6) The capital asset pricing model describes the relationship between the required
return, or the cost of common stock equity capital, and the nonsystematic risk of a firm
as measured by the beta coefficient.
7) The Jobs and Growth Tax Relief Reconciliation Act of 2003 significantly changed
the tax treatment of corporate dividends for most taxpayers by dropping the tax rate to
the rate applicable on capital gains, which is a maximum rate of 15%.
8) When the market price of the common stock exceeds the conversion price, the
conversion (or stock) value exceeds the par value of the convertible security.
9) The Mercosur is a major European trading bloc that includes former Soviet bloc
countries in Eastern Europe.
10) The base level of EBIT must be held constant to compare the financial leverage
associated with different levels of fixed financial costs.
11) The goal of business ethics is to motivate business and market participants to adhere
to both the letter and the spirit of laws and regulations in all aspects of business and
professional practice.
12) Performance plans are plans that tie management compensation to measures such as
EPS or growth in EPS.
13) A firm produces goods which has high sales when the economy is expanding and
low sales during a recession. This firm’s overall risk will be higher if it invests in
another product which is counter cyclical.
14) An option buyer who expects a stock price to decline will purchase a put option.
15) If we assume that EBIT is constant, the value of a firm is maximized by minimizing
the weighted average cost of capital.