The liquidity preference theory says that the yield curve should be upward sloping
because lenders generally prefer long-term loans.
An increase in the frequency of compounding will increase the future value of an
investment if all other factors are held constant.
Holding all other variables constant, as the return on a preferred stock increases, the
value of the stock decreases.
The term coupon originated long ago when coupons were attached to bonds. When
interest was due a bondholder would clip off a coupon and send it to the bond issuing
company which would return an interest payment.
Financial leverage affects a firm’s EPS.
A firm’s operating leverage is a direct function of the ratio of fixed to variable operating
expenses.
The ultimate test of a firm’s efficient use of its stockholders money is its return on
equity.
The term “global,” in the context of international commerce, refers only to the
industrially developed nations within the trading community.
Which of the following is an underlying principle of the portfolio theory?
A.Both systematic and unsystematic risk can be eliminated through diversification.
B.Portfolio owners are concerned with the performance of the entire portfolio rather
than that of the individual stocks in it.
C.The lower the returns on a stock are, the higher is its risk.
D.A stock’s risk is independent of its return.
Your lifetime financial goal is to have $1,250,000 invested in a mutual fund when you
retire in 40 years. You plan to invest $1,000 in a mutual fund now, and then invest an
additional $200 per quarter for 40 years. What average return must the fund provide to
meet your investment goal?
A.8.34%
B.10.44%
C.12.13%
D.13.16%
A stand-alone project should be undertaken only if:
A.the cost of capital is greater than the project’s IRR.
B.the cost of capital is equal to the project’s IRR.
C.the cost of capital is less than the project’s IRR.
D.the NPV of the project is zero.
Find the return on a share of preferred stock that pays $3.90 per year given a market
price of $30.00 per share.
A.15.0%
B.39.0%
C.30.0%
D.13.0%
E.7.6%
If inflation is viewed as a ‘sustained increase in the general level of prices,” an increase
in the price of a specific market basket of goods from $34.50 six months ago $35.71
today would suggest that the annual rate of inflation is:
A.3.4%.
B.$1.21.
C.3.5%.
D.7.0%.
Long-run average returns on equity investments:
A.are much higher than those on debt.
B.are the same as the average returns on debt.
C.are the same as the average returns on debt plus any dividends.
D.are lower than those on debt.
If a 30-year bond with a quoted price of $810, pays $40 interest semiannually, its
current yield would be about:
A.8.0%.
B.4.0%.
C.5.5%.
D.9.9%.
Metromat has the following equity accounts on its balance sheet:
The current market price of Metromat’s shares is $16. If the firm declares a 15% stock
dividend and a $.15 per share cash dividend, what will be the impact on the paid in
excess account? Assume a marginal tax rate of 40%.
A.Decreases $2.56 million
B.Increases $5.04 million
C.Increases $5.76 million
D.Does not change
Which of the following is true of small business plans?
A.They normally don€t make long-term projections.
B.They are consistently done every year.
C.They generally don€t include very short-term forecasts.
D.They normally don€t undergo intense review by potential investors.
In a Leveraged Buy Out (LBO) the leverage is usually collateralized by:
A.there is no collateral, that’s why it’s “leveraged.”
B.the firm’s assets.
C.the new owner’s personal assets.
D.stockholder’s equity.
Assume you are an American BMW dealer and the most recent direct quote for euros is
$.9099. If you were to import a BMW with a cost of ¬35,169 (euros), how many U.S.
dollars would you pay:
A.$38,652
B.$32,000
C.$35,169
D.none of the above
A capital budgeting project that calls for a replacement decision:
A.normally does not increase the volume of a firm’s operations.
B.results in total cash flows that are equal to incremental cash flows.
C.has no initial period cash flows.
D.None of the above
Diversifiable risk is:
A.measured by beta.
B.company-specific.
C.the unsystematic risk.
D.Both b & c
Which of the following activities will not impact the operating section of the Statement
of Cash Flows?
A.Receipt of cash from a customer paying a bill
B.Payment of cash to a vendor
C.Payment of interest expense on outstanding bonds
D.Payment of dividends to stockholders
E.Neither c. or d. will impact the operating section.
Which of the following is not a true statement about top-down or bottom-up planning?
A.Bottom-up plans tend to understate achievable performance.
B.Top-down plans may fail to achieve “buy in” at lower levels of the organization.
C.Bottom-up planning has a built-in bias of “ask for more than you need” because
managers anticipate having their requests cut during the planning process.
D.Top-down plans are usually conservative because top management doesn’t want to
disappoint stockholders by not achieving stated goals.
E.Top-down ‘stretch” plans lose their motivational effect if they set goals that are too
difficult to achieve.
Which of the following can be a benefit of an abandonment option?
A.Improve project NPV
B.Allow the company to delay the project
C.Lower project risk
D.Both a and c