1) The most common partnership arrangement carries limited liability to the partners.
2) In evaluating capital investment projects, current outlays must be judged against the
current value of future benefits.
3) Generally, once a convertible bond trades at a certain premium to its intrinsic value,
or at a certain multiple of its conversion price, the bond must be converted into
common stock.
4) If we are risk-averse, a risky investment with an 8% return will be preferred over a
10% risk-free investment.
5) The interest rate on convertible bonds is typically one-third higher than similar
non-convertible issues.
6) If a corporation offers greater protection to a given class of bondholders, it must raise
the interest rate on its bonds to make them more attractive.
7) The purchase of a new factory would reduce the cash flows from investing activities
on the statement of cash flows.
8) Existing securities are traded in the secondary market.
9) Using the payback method can be appropriate when the time value of money is very
low.
10) Stock dividends may be utilized to provide information to investors about growing
companies.
11) The price of preferred stock is determined by dividing the fixed dividend payment
by the required rate of return.
12) The “SWIFT” transfer system was developed to aid regional bank fund transfers
within the United States.
13) A cash purchase of one company by another is similar to a capital budgeting
decision.
14) In an inflationary economy, debt must be paid back with “more expensive dollars.”
15) A lower price for the firm’s product will reduce the firm’s break-even point.
16) The variable growth model is most useful for firms in emerging industries.
17) Forward contracts tend to be created on organized exchanges like the International
Money Market of the Chicago Mercantile Exchange.
18) On average, convertible bonds have conversion premiums of less than 10% at the
time of issue.
19) When using accelerated depreciation, the present value of future cash flows
increases.
20) The major drawback for viewing dividends as a passive variable is that stockholders
likely have some preference related to dividend payments.