1) The capital budgeting decisions of a firm will have no effect on the share price of the
common stock.
2) Money markets refer to markets where excess corporate cash is exchanged for
foreign currencies that can earn a higher return than domestic money.
3) The NYSE purchased Archipelago (an ECN) in order to expand its floor-trading
capabilities.
4) Weights used to calculate the weighted average cost of capital Ka are derived from
the optimum capital structure.
5) Small businesses frequently find commercial paper a useful means of obtaining
funds when it is not possible to raise funds by other means.
6) Compared to a firm operating at 100% of capacity, firms that are operating at less
than full capacity will require greater new external funds when sales increase.
7) The dividend yield is the cash dividend divided by the current market price of the
stock.
8) There is a negative correlation between risk and the return investors demand.
9) Internal funds generated by corporations include retained earnings and non-cash
expenses such as depreciation.
10) Discounting refers to the growth process that turns $1 today into a greater value
several periods in the future.
11) The biggest category of asset-backed securities is the home equity loan, followed by
automobile receivables and credit card receivables.
12) Dutch Auction preferred stocks, unlike standard preferred stocks, are typically
short-term instruments.
13) Return on equity will be higher than return on assets if there is debt in the capital
structure.
14) The price of a bond is equal to the present value of all future interest payments
added to the present value of the principal.
15) Choosing projects with returns equal to the company norm but having a higher level
of risk will most likely lower the company’s stock price.
16) Retained earnings account for the majority of internally generated corporate funds.
17) While manipulation of security prices is normally illegal, the SEC allows
underwriters to temporarily support the price of stocks that they have brought to
market.
18) Generally, the larger the dollar value of an issue, the smaller is the spread as a
percentage of the offering price.
19)
Refer to the figure above. This firm’s break-even point is
A.445 units
B.634 units
C.714 units
D.180 units
20) An advantage to the corporation of issuing zero coupon bonds is
A.lower interest rates than conventional bonds
B.cash inflow with lower cash outflow than conventional bonds
C.tax benefits due to amortization
D.None of these options are advantages
21) The effective rate on a $20,000 installment loan with quarterly payments and
$2,000 in interest for two years is approximately ______.
A.16%
B.7.4%
C.29.5%
D.8.9%
22) When the yield curve is downward sloping, generally a financial manager should
A.expect an economic boom
B.utilize long-term financing
C.increase investment and the level of financing overall
D.utilize short-term financing
23) Buchanan Corp. forecasts the following payoffs from a project:
What is the expected value of the outcomes?
A.$5,000
B.$4,000
C.$5,300
D.The forecast is incorrect and must be modified before finding the expected value
24) A firm that wishes to minimize risk when investing idle cash would be least likely
to buy
A.commercial paper
B.long-term corporate bonds
C.certificates of deposit
D.Treasury bills of the U.S. government
25) Which of the following statements about forward exchange rates is false?
A.They reduce uncertainty about the future value of currencies
B.They reflect expectations about the future value of currencies
C.They are usually slightly lower than the spot rate
D.All of these options are true
26)
Refer to the figure above. The firm’s average collection period is
A.57.6 days
B.222 days
C.55.6 days
D.6.3 days
27)
Refer to the figure above. The firm’s return on equity is
A.52.8%
B.55.6%
C.58.0%
D.100.0%
28) Which of the following is true?
A.As the price of common stock increases, the market price of a convertible bond and
the conversion premium increase
B.As the price of common stock increases, the market price of a convertible bond and
the conversion value increase
C.As the price of common stock increases, the conversion value and the floor price
increase
D.Two of the options
29) A form of MNC that exposes the firm to the least amount of political risk, and is
therefore the preferred arrangement by both business and foreign governments, is called
A.an exporter
B.a licensing agreement
C.a joint venture
D.a fully owned foreign subsidiary
30) The lower the coefficient of correlation, the greater the
A.risk when projects are combined
B.risk reduction when projects are combined
C.return when projects are combined
D.standard deviation when projects are combined
31) Which of the following combinations of asset structures and financing patterns is
likely to create the least volatile earnings?
A.Illiquid assets and heavy short-term borrowing
B.Illiquid assets and heavy long-term borrowing
C.Liquid assets and heavy long-term borrowing
D.Liquid assets and heavy short-term borrowing
32) An issue of preferred stock is paying an annual dividend of $1.50. The growth rate
for the firm’s common stock is 5%. What is the preferred stock price if the required rate
of return is 7%?
A.$21.43
B.$30.00
C.$22.50
D.None of these options
33) Which of the following statements about foreign affiliates is (are) true?
A.In general, foreign affiliates are more profitable than domestic businesses
B.Foreign affiliates usually lower the portfolio risk of the parent company
C.Foreign affiliates may have a significant positive impact on the host company’s
economic growth, employment, trade, and balance of payments
D.All of these options are true
34) There may be a change in the marginal cost of capital curve because
A.the tax rate charged to investors changes
B.the firm has exhausted its supply of retained earnings
C.the firm is limited in the amount of depreciation it can take
D.the tax rate charged to investors changes and the firm has exhausted its supply of
retained earnings
35) Preferred stock is often sold by companies
A.wanting to balance their capital structures
B.that have a large amount of debt relative to equity
C.looking for the taxable advantages of preferred dividends over common stock
dividends
D.that have a large amount of debt relative to equity and that want to balance their
capital structures
36) Which of the following is NOT true about the life-cycle growth and dividend
policy?
A.In the maturity stage, a firm usually pays moderate to high dividends
B.In the development stage, a firm usually pays stock dividends and some low cash
dividends
C.In the expansion stage, a firm pays low to moderate cash dividends and occasionally
may have stock splits
D.In the growth stage, a firm pays stock dividends
37) A warrant that does not expire until several years into the future provides its owner
the opportunity to buy a stock. If the stock price rises, the warrant will probably sell for
A.less than its intrinsic value
B.exactly its intrinsic value
C.more than its intrinsic value
D.less than or equal to its intrinsic value
38) Debreu Beverages has an optimal capital structure that is 70% common equity, 20%
debt, and 10% preferred stock. Debreu’s pretax cost of equity is 9%. Its pretax cost of
preferred equity is 7%, and its pretax cost of debt is also 5%. If the corporate tax rate is
35%, what is the weighed average cost of capital?
A.Between 7% and 8%
B.Between 8% and 9%
C.Between 9% and 10%
D.Between 10% and 12%
39) During the next several years, the major threat to the dominance of the U.S. money
and capital markets is expected to come from
A.Russia’s difficulty in transforming its economy into a capitalistic one
B.Japan’s prolonged recession and banking crisis
C.the Eurozone countries comprising the European Monetary Union and a single
currency
D.the huge Chinese economy and its billion-plus people
40) The investment banker’s function involves all of the following except which one?
A.Taking a portion of the risk in the distribution of an issue
B.Always ensuring a company that a given amount of equity can be sold so that
long-range financial planning can be made accurately
C.Making a market by buying and selling a security to ensure a liquid market
D.Contracting to buy securities from the corporation and resell them to other security
dealers and the public
41) In general, the larger the portion of a firm’s sales that are on credit, the
A.lower will be the firm’s need to borrow
B.higher will be the firm’s need to borrow
C.more rapidly credit sales will be paid off
D.more the firm can buy raw materials on credit
42) Financial leverage deals with
A.the relationship of fixed and variable costs
B.the relationship of debt and equity in the capital structure
C.the entire income statement
D.the entire balance sheet
43) The residual income of the firm belongs to
A.creditors
B.preferred stockholders
C.commonstockholders
D.bondholders
44) When a company has a convertible bond in its capital structure,
A.it can reduce its debt-to-equity ratio by calling the bond
B.there is no effect on the firm’s earnings per share
C.there is no advantage to the firm in forcing conversion of the bonds
D.All of these options