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1) The Jobs and Growth Tax Relief Reconciliation Act of 2009 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 25%.
2) One of the key attributes that makes a firm a good candidate for an LBO is that it has
a solid position in the industry with reasonable expectations for future growth.
3) Eurocurrency deposits arise when a corporation or individual makes a deposit in a
bank in a currency other than the local currency of the country where the bank is
located.
4) In giving up a cash discount, the amount of the discount that is given up is the
interest being paid by a firm to keep its money by delaying payment for a number of
days.
5) The risk of an asset can be measured by its variance, which is found by subtracting
the worst outcome from the best outcome.
6) A U.S. parent company's foreign retained earnings are not adjusted for currency
movements to reflect each year's operating profits or losses.
7) Table 10.2
Given the information in Table 10.2 and 15 percent cost of capital,
(a)compute the net present value.
(b)should the project be accepted?
8) Nico Corp issued bonds bearing a coupon rate of 12 percent, pay coupons
semiannually, have 3 years remaining to maturity, and are currently priced at $940 per
bond. What is the yield to maturity?
A) 12.00%
B) 13.99%
C) 14.54%
D) 15.25%
9) Table 11.2
Computer Disk Duplicators, Inc. has been considering several capital investment
proposals for the year beginning in 2014. For each investment proposal, the relevant
cash flows and other relevant financial data are summarized in the table below. In the
case of a replacement decision, the total installed cost of the equipment will be partially
offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on
ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent.
________________________________________________________
*Not applicable
For Proposal 1, the depreciation expense for year 1 is ________. (See Table 11.2)
A) $110,400
B) $115,200
C) $150,000
D) $300,000
10) The ________ is the rate of return that a firm must earn on its investments in order
to maintain the market value of its stock.
A) yield to maturity
B) cost of capital
C) internal rate of return
D) modified internal rate of return
11) What is the rate of return on an investment of $124,090 if the company expects to
receive $10,000 per year for the next 30 years?
A) 7 percent
B) 4 percent
C) 6 percent
D) 5.5 percent
12) Table 10.1
The cash flow pattern depicted is associated with a capital investment and may be
characterized as ________. (See Table 10.1)
A) an annuity and a conventional cash flow
B) a mixed stream and a nonconventional cash flow
C) an annuity and a nonconventional cash flow
D) a mixed stream and a conventional cash flow
13) Which of the following is true of outstanding shares?
A) A firm cannot sell more shares than the outstanding shares mentioned in the charter
B) Authorized shares become outstanding shares when they are issued or sold to
investors
C) Outstanding shares are indicated in a firm's corporate charter
D) Outstanding shares are the shares repurchased by the firm
14) Which of the following is the best measure of profit maximization goal?
A) retained earnings
B) risk of the investment
C) earnings per share
D) timing of the returns
15) Calculate net operating profit after taxes (NOPAT) if a firm has sales of $1,000,000,
operating profit (EBIT) of $100,000, interest expense of $50,000, and a tax rate of 30%.
A) $35,000
B) $700,000
C) $70,000
D) $45,000
16) Which of the following is an area of career opportunities in managerial finance?
A) investment
B) real estate and insurance
C) capital expenditures management
D) personal financial planning
17) A beta coefficient of +1 represents an asset that ________.
A) is more responsive than the market portfolio
B) has the same response as the market portfolio
C) is less responsive than the market portfolio
D) is unaffected by market movement
18) Convertible securities can be issued ________.
A) with an intention to raise cheap funds permanently
B) with higher rates of interest than nonconvertibles
C) to raise funds without affecting the capital structure
D) with far fewer restrictive covenants than nonconvertibles
19) The key dimension of credit selection which analyzes the amount of assets an
applicant has available for use in securing the credit is ________.
A) capital
B) collateral
C) capacity
D) conditions
20) The primary goal of a financial manager is ________.
A) minimizing risk
B) maximizing profit
C) maximizing wealth
D) minimizing return
