Float, or money tied up in the process of check clearing, consists of transit float arising
from the administrative functions of the payee that delay the actual deposit of the check
and processing float created in the Federal Reserve’s check clearing system.
The beta coefficient, representing the relationship between the performance of the
market and the performance of the stock, is theoretically not sensitive to
business-specific risk factors.
The slope of a EBIT-EPS line declines as its financial leverage increases.
A minimum TIE is an example of a restrictive covenant.
A firm’s cost structure is the mix of fixed and variable costs in its operating processes.
In a secondary equity offering, the market value of the old shares determines the price
of the new shares.
Governments sometimes buy and sell their own currencies to express the purpose of
keeping exchange rates in a desirable range.
When a factor does not assume the bad debt risk on accounts it purchases, the factoring
relationship is said to be “without recourse.”
A firm that strives to achieve a particular mix of invested funds is said to have
established a target capital structure.
In a horizontal merger or combination, the firms involved are in supplier-customer
relationships.
While book values relate to the costs of capital that a company currently employs,
market values relate to the current state of capital markets. Therefore, market values
represent the average cost of newly acquired capital if it were raised today.
If a project’s modified internal rate of return is above the cost of capital, it should be
rejected.
Holding all other variables constant, which of the following would decrease
incremental cash flows for a capital budgeting project?
A.Paying suppliers in 45 days versus 30 days
B.An decrease in depreciation expense
C.An increase in the cost ratio
D.Both a & b
E.All of the above
The preliminary prospectus is commonly known as a(n):
A.indenture.
B.tombstone.
C.registration statement.
D.red herring.
E.debenture.
The relevant tax rate for investment decisions is the:
A.average rate.
B.lowest rate.
C.marginal rate.
D.effective rate.
A strategic plan consists of:
A.short-term issues of an organization.
B.detailed and accurate financial projections.
C.concepts and ideas expressed mostly with words.
D.translating business ideas into concrete projections.
What is the future value of a three-year, $3,000 deposit at 6 percent interest, when
interest is compounded continuously?
A.$3,045.00
B.$3,540.00
C.$3,573.05
D.$3,591.65
Assume a portfolio is made up of four stocks:
The beta for the portfolio is:
A.1.135.
B.1.045.
C.1.105.
D.None of the above
Match the following:
1>Proprietorship A. The owner has unlimited personal liability
2>C Corporations B. A proprietorship with several owners
3>S Corporations C. Its income is taxed directly by the federal
government
4>Partnership D. Its income is taxed at the individual level
Match the following:
1>Cumulative voting flows A. Investment decisions based on forecasts
of cash flows
2>Cumulative feature B. No common dividends can be paid until
all passed (unpaid) preferred dividends have been paid up
3>Technical analysis C.Investment decisions based on predicable
market phenomena
4>Fundamental analysis D. A procedure to make minority
representation on the board of directors possible
A classic example of a negative beta investment is the stock of a:
A.steel mill because the industry is subject to intense international competition.
B.gold mining company because it’s profitability runs opposite to the state of the
economy.
C.financial services company because it’s in the stock business itself.
D.company in the defense industry because war is always a possibility.
According to the MM model of capital structure, the present value of the tax shield is
offset by potential ____, resulting in an optimal capital structure.
A.bankruptcy costs
B.interest expense
C.operating costs
D.a and b
A firm performs capital restructuring in order to ____.
A.decrease its risk by adding more leverage
B.increase its risk by increasing equity
C.get to an optimal capital structure
D.increase the return on equity by eliminating all debt
Which statement is true?
A.LLCs cannot have earnings pass through as personal income.
B.LLCs are ideal for joint ventures.
C.S-type corporations can be partially owned by other corporations.
D.LLCs can only be owned by people and not other corporations.
The market segmentation theory proposes that:
A.the yield curve is upward sloping since lenders prefer shorter-term loans.
B.the debt market is represented by a single supply/demand diagram.
C.the debt market is represented by a series of supply/demand diagrams each
representing a different term, and that these operate independently of one another.
D.the yield curve is inverted because lenders prefer longer-term loans at lower rates.
A decrease in the level of a firm’s interest expense (holding all other factors constant)
would:
A.increase operating leverage.
B.decrease operating leverage.
C.decrease financial leverage.
D.have no impact on operating leverage.
E.c and d
Which is incorrect in regard to the firm’s cost of capital?
A.It is the risk adjusted discount rate that is appropriate for all projects under
consideration by the firm.
B.It is the average rate for using the firm’s funds.
C.It is the opportunity cost of using the firm’s funds.
D.It is the minimum rate of return a project must generate to warrant consideration by
management.
The Security Market Line (SML) relates risk to return, for a given set of market
conditions. If the risk-free rate increases, which of the following would most likely
occur?
A.The market risk premium would increase.
B.Beta would increase.
C.The slope of the SML would increase.
D.The SML line would shift up.
A product can be manufactured comparably in Germany, Japan or Canada. The cost is
¬49,400 in Germany, ¥5,610,000 in Japan, and $68,000 (Canadian) in Canada. Direct
quotes for the euro (¬), the Japanese yen (¥), and the Canadian dollar are $.9200,
$.0080, and $.6500 respectively. If shipping and other costs are equal, it would be wiser
to acquire the product from:
A.Germany.
B.Japan.
C.Canada.
D.Any of the above
Determine the (after-tax) component cost of a $50 million debt issue that the Mattingly
Corporation is planning to place with a large insurance company. Assume the company
is subject to a 40% tax rate. This long-term debt issue will yield 12% to the insurance
company.
A.4.8%
B.7.2%
C.12.0%
D.None of the above