Capital budgeting involves how companies spend:
A.day to day resources.
B.money raised in capital markets.
C.expenses only.
D.large sums on infrequent projects.
A combination of companies that compete directly is a:
A.conglomerate merger.
B.vertical merger.
C.horizontal merger.
D.takeover.
The net present value method assumes that the cash flows over the life of the project are
reinvested at:
A.the project’s internal rate of return.
B.the risk-free rate.
C.the market capitalization rate.
D.the firm’s cost of capital.
Childers, Inc. operates primarily in the Southeast but has a number of customers in
Phoenix who remit about 8,000 checks a year. The average check is $2,400. It currently
takes the Phoenix checks an average of seven days after mailing to clear into Childers’
account. A Phoenix bank has offered Childers a lock box system for $2,400 a year plus
$.22 per check. This will reduce the clearing time for the checks to four days. How
much will the lock box system save Childers if it borrows at 11%?
A.$157,808
B.$13,199
C.$17,359
D.$4,160
If recent direct quotes in U.S. dollars are $1.5547 for the British pound and $.1150 for
the Mexican peso, the exchange rate available to a British importer buying pesos with
pounds is:
A.13.5191 pounds per peso.
B.13.5191 pesos per pound.
C.0.0740 pounds per peso.
D.0.0740 pesos per pound.
Suppose General Motors built an assembly plant in Canada at a cost of fifty million
Canadian dollars. At the time the plant was built, the direct quote for the Canadian
dollar was $.7376. If one year later the Canadian dollar strengthened to $0.7388, what
gain or loss would GM show on its financial books?
A.A translation loss of $81,213
B.A translation gain of $60,000
C.A translation gain of $81,213
D.A transaction gain of $60,000
Which of the following European countries does not use the euro as its currency?
A.Italy
B.Belgium
C.Great Britain
D.Austria
Common stockholders have a ____ on both income and assets of the firm.
A.preemptive right
B.residual claim
C.cumulative claim
D.proxy right
E.None of the above
Which of the following is not a characteristic of the merger wave that started in about
1981 and ended in 1989?
A.Mergers financed by the junk bonds
B.Congeneric mergers
C.Corporate raiders
D.Hostile takeovers
What is the present value of the following investment opportunity. You invest $10,000
now and another $10,000 in one year. In return you receive $23,000 in two years. Other
opportunities available with similar risk yield about 12%.
A.$9406.60
B.$593.40
C.($593.40)
D.$8,929
The most common vehicle for debt investments is:
A.bonds.
B.preferred stocks.
C.currency futures.
D.real estate.
The document which details the issuer’s finances and must be provided to each potential
buyer of the security is called the:
A.indenture.
B.tombstone.
C.registration statement.
D.prospectus.
E.All of the above
Able Company’s shareholders are receiving a 22.5%return and its bondholders get a
14% return. Based on a 50 percent debt/equity ratio, with no preferred stock and a 46
percent tax rate, find Able’s weighted average cost of capital.
A.12.54 percent
B.14.47 percent
C.15.03 percent
D.17.52 percent