Financial planning is the process of projecting a company’s financial statements into the
future, and is separate and distinct from the broader activity of business planning.
If the expected return on a stock exceeds the return required by investors, the market
will generate enough demand for the security to elevate the price to the point at which
required and expected returns become equal.
Expropriation is the privilege of a political entity that has sovereignty.
Present value factors for amounts are reciprocals of future value factors for amounts.
Constructing a projected balance sheet requires a projected income statement.
Why does a new issue of common stock have a higher cost of capital than retained
earnings?
A.New common stock has floatation costs.
B.Existing common shareholders have seniority over new common shareholders.
C.New common stock must pay a higher dividend.
D.Retained earnings pertains to cash which has a zero cost of capital.
Which of the following is NOT true regarding the marginal cost of capital (MCC)?
A.Is a graph of the WACC
B.Breaks when common stock is exhausted
C.Increases due to flotation costs
D.Represents the cost of the next dollar raised
Which of the following appears on the income statement?
A.Accounts receivable
B.Accumulated depreciation
C.Depreciation expense
D.Long-term debt
Which of the following is not a cost related to the extension of credit to customers?
A.Bad-debt losses
B.Prompt payment discounts
C.Quantity discounts
D.Collection costs
If a firm issues $5 million of commercial paper with a maturity of six months at an
annual interest rate of 8%, the proceeds of the issue are:
A.$5,000,000.
B.$4,629,629.
C.$4,800,000.
D.$4,807,692.
The NPV and IRR of any capital budgeting project are random variables with means
that represent their most likely values and variances that reflect:
A.variations in profit.
B.value inconsistencies.
C.risk.
D.unstable expectancies.
Which of the following are (is) generally considered problems associated with cash
flow estimation?
A.Uncertainty about the future cash flows
B.The introduction of bias into the estimation of cash flows
C.Uncertainty about the magnitude of fixed cost financing charges
D.a and b
Which of the following is true of financial assets?
A.Companies issue financial assets to earn revenue.
B.Investors purchase financial assets to earn a return.
C.The ownership of financial assets cannot be transferred.
D.Investors purchase financial assets because they are virtually risk free.
The net present value (NPV) method assumes that cash flows are reinvested at the:
A.IRR.
B.cost of capital.
C.average rate it pays investors.
D.Both b & c
Tom Parsley has 15,000 shares of Alistair Inc. stock that sells for $12 a share and pays
an annual dividend of $0.75 per share. The corporation plans to discontinue its cash
dividend and begin reinvesting the money in a new idea that is expected to bring about
growth of 7% a year. Assuming no costs are involved in selling securities, how many
shares must Tom sell next year to maintain his income and his position in the firm?
A.876
B.912
C.4,432
D.238
Which exchange does not have a physical location?
A.New York Stock Exchange (NYSE)
B.American Stock Exchange (AMEX)
C.National Association of Securities Dealers Automated Quotation System (NASDAQ)
D.Securities and Exchange Commission (SEC)
_____ make entrepreneurs liable for loans made to their businesses.
A.Selling stocks
B.Losing a lawsuit
C.Unlimited liability
D.Personal guarantees
According to the incremental cash flow principle, a firm should:
A.include variable costs and fixed costs.
B.exclude variable costs and fixed costs in the project’s cash flows.
C.include variable costs and exclude fixed costs in the project’s cash flows.
D.include sunk costs in the project’s cash flows.
E.exclude opportunity costs in the project’s cash flows.
The ____ of a resource is the benefit that would have been available from its next best
use.
A.opportunity cost
B.present value
C.future value
D.all of the above
E.none of the above
The easiest way to compare projects with unequal lives is by using:
A.IRR.
B.the replacement chain method.
C.the equivalent annual annuity method.
D.Either b or c
Match the following:
1>Present Value of an Annuity Due A. PMT[PVFAk,n]
2>Present Value of an Ordinary Annuity B. PMT[FVFAk,n] (1+k)
3>Future Value of an Annuity Due C. PMT[FVFAk,n]
4>Future Value of an Ordinary Annuity D. PMT[PVFAk,n] (1+k)