Scenario analysis asks questions such as:
A. How will changing the number of units sold affect the outcome of this project?
B. What is the best outcome that should reasonably be expected?
C. How much will a $1 increase in the variable cost per unit change the net present
value?
D. Will the net present value increase or decrease if the quantity sold increases by 100
units?
E. How will the operating cash flow change if the depreciation method is changed?
The primary purpose of protective covenants is to help:
A. reduce interest rate risk.
B. the issuer in case of default.
C. protect bondholders from issuer actions.
D. bondholders whose bonds are called.
E. convert bearer bonds into registered form.
Standard deviation measures _____ risk while beta measures _____ risk.
A. systematic; unsystematic
B. unsystematic; systematic
C. total; unsystematic
D. total; systematic
E. asset-specific; market
The total direct costs of a debt issue, when expressed as a percentage of gross proceeds,
tends to:
A. increase as the quality of the debt increases.
B. decrease as the size of the issue decreases.
C. decrease when the bonds are convertible rather than straight.
D. decrease as the proceeds of the bond issue increase.
E. be relatively the same regardless of the type or quality of the debt issue.
The preferred stock of Dolphin Pools pays an annual dividend of $6.25 a share and sells
for $42 a share. The tax rate is 35 percent. What is the firms cost of preferred stock?
A. 9.67 percent
B. 14.88 percent
C. 15.07 percent
D. 15.59 percent
E. 16.47 percent
Which one of the following statements concerning the issuance of long-term debt is
correct?
A. Rarely is debt issued privately in the U.S.
B. All U.S. debt issues, private and public, must be registered with the SEC.
C. Private placements generally have shorter maturities than term loans.
D. It is easier to renegotiate a public issue than it is a private issue of debt.
E. A direct placement of debt generally has more restrictive covenants than a public
issue.
Jasper Industrial has no debt outstanding and a total market value of $110,000. Earnings
before interest and taxes, EBIT, are projected to be $12,000 if economic conditions are
normal. If there is strong expansion in the economy, then EBIT will be 15 percent
higher. If there is a recession, then EBIT will be 20 percent lower. Jasper Industrial is
considering a $35,000 debt issue with a 7 percent interest rate. The proceeds will be
used to repurchase shares of stock. There are currently 7,500 shares outstanding. Ignore
taxes for this problem. What is the percentage change in EPS when a normal economy
slips into recession?
A. -33 percent
B. -25 percent
C. -20 percent
D. -16 percent
E. -10 percent
Which one of the following methods of analysis has the greatest bias toward short-term
projects?
A. Net present value
B. Internal rate of return
C. Average accounting return
D. Profitability index
E. Payback
Based on the period 1926-2011, what rate of return should you expect to earn over the
long-term if you are unwilling to bear risk?
A. Between 0 and 1 percent
B. Between 1 and 2 percent
C. Between 2 and 3 percent
D. Between 3 and 4 percent
E. Between 4 and 5 percent
The ratios that are based on financial statement values and used for comparison
purposes are called:
A. financial ratios.
B. industrial statistics.
C. equity standards.
D. accounting returns.
E. analytical standards.
Which one of the following is a correct value to use if you are conducting a best-case
scenario analysis?
A. Sales price that is most likely to occur
B. Lowest expected level of sales quantity
C. Lowest expected salvage value
D. Highest expected need for net working capital
E. Lowest expected value for fixed costs
Which one of the following best represents the transaction motive for holding cash?
A. Buying extra inventory in response to an unexpected sale offered by a supplier
B. Distributing the weekly paychecks
C. Increasing the minimum cash balance for the firms main bank account
D. Unexpectedly purchasing a competitors firm
E. Holding cash in anticipation that the firm may need to close for a few days if
floodwaters keep rising
The Green Shoe option is most apt to be exercised when an IPO is ______ and _____.
A. underpriced; oversubscribed
B. underpriced; undersubscribed
C. correctly priced; neither over- nor undersubscribed
D. overpriced; oversubscribed
E. overpriced; undersubscribed
Which one of the following is an expected result of the Check Clearing Act for the 21st
Century?
A. Firms will have to wait three days before having access to their deposited funds.
B. Zero-balance accounts will be eliminated.
C. Lockboxes will be prohibited.
D. Collection float, but not disbursement float, will be reduced.
E. Both collection and disbursement float will be reduced.
Which one of the following is a direct bankruptcy cost?
A. Loss of customer goodwill resulting from a bankruptcy filing
B. Legal and accounting fees related to a bankruptcy proceeding
C. Management time spent on a bankruptcy proceeding
D. Any financial distress cost
E. Costs a firm spends trying to avoid bankruptcy
Freedom Health Centers has total equity of $861,300, sales of $1.48 million, and a
profit margin of 5.2 percent. What is the return on equity?
A. 5.82 percent
B. 6.49 percent
C. 7.18 percent
D. 8.68 percent
E. 8.94 percent