A stock’s intrinsic value is based on assumptions about future cash flows made from
technical analysis of the firm and the industry.
Technical insolvency is a firm’s inability to meet its current obligations. Legal
insolvency means the firm’s liabilities exceed its assets.
A widely held company is usually owned by many stockholders, some of which have
significant levels of ownership.
Exchange rate risk is the possibility of a gain or loss in a business transaction from
exchange rate movement aside from the business deal itself.
If the mean of the probability distribution of a stock’s return is 20 and the standard
deviation is 10, then the coefficient of variation is equal to 2.
There is a specified limit of amount for the forward contracts that can be written
between any two countries.
Maturity risk exists because the prices of longer term bonds fluctuates more in response
to interest rate changes than the prices of shorter term bonds.
Money markets deal in securities having maturities of ____; capital market securities
have maturities ____.
A.less than 18 months, greater than 18 months
B.one year or less, greater than one year
C.less than 9 months, greater than 9 months
D.less than 6 months, greater than 6 months
A firm had year-end retained earnings of $64,100,000. It forecasts net income for the
coming year to be $9,400,000. If it plans to pay out 40% of its net income as dividends,
what is the estimated balance in retained earnings at the end of the coming year?
A.$53,500,000
B.$61,140,000
C.$67,860,000
D.$73,500,000
E.$69,740,000
If the exchange rate from U.S. dollars to Canadian dollars is $.80/Canadian dollar, then
the exchange rate from Canadian dollars to U.S. dollars is:
A..80 Canadian $/US dollar.
B.$1.25 Canadian $/US dollar.
C.$1.20 Canadian $/US dollar.
D.$8.00 Canadian $/US dollar.
A ____ is a course of action that can be made available, usually at a cost, which
improves financial results under certain conditions.
A.probability distribution
B.decision tree
C.risk-adjusted option
D.real option
The most likely impetus for a merger between two companies in the same business but
in different regions is ____.
A.external growth
B.internal growth
C.synergy
D.to form a conglomerate
You are considering the following two mutually exclusive projects. Using the
replacement chain approach and a cost of capital of 10%, calculate the NPV of Project
A. (Round to nearest $)
A.$15,432
B.$16,113
C.$18,566
D.$25,000
What is the cost of sales for a firm with a gross margin of 30 percent, ROS of 4 percent,
and earnings after taxes of $20,000?
A.$200,000
B.$350,000
C.$150,000
D.None of the above
Which of the following is an example of an equity investment?
A.Government bond
B.Mortgage on real estate
C.Preferred stock
D.Corporate bond
_____ analysis shows the mix of fixed and variable costs at various output levels and
the volume required for zero profit/loss.
A.Income-cost
B.Breakeven
C.Operations
D.Input
Anderson Clayton will purchase a new pellet mill that replaces an older, less efficient,
mill. The new mill costs $360,000 and shipping costs are $10,000. Improving the steam
lines to the new mill will cost an additional $22,000. The old mill has a book value of
$25,000 and can be sold for $12,000. The installation of the new mill will cause
inventories to increase by $8,000, accounts receivable will go up $20,000, and accounts
payable will increase $10,000. If Anderson Clayton has a marginal tax rate of 40%,
what is the Net Investment for the new mill?
A.$392,800
B.$412,800
C.$374,800
D.$398,000
Last year’s dividend was $2.50, the anticipated constant growth rate is 4%, the selling
price today is $28 per share, and flotation costs are 18%. What is the cost of new
equity?
A.15.3%
B.14.9%
C.12.9%
D.13.3%
Firms with the ____ growth tend to have the ____ dividend payout ratio.
A.highest, highest
B.highest, lowest
C.lowest, lowest
D.None of the above is correct.
Financial intermediaries:
A.make indirect transfers from investors to firms.
B.pass securities through to investors.
C.include stockbrokers.
D.facilitate direct transfers from investors to firms.
Your bank pays a quoted annual (nominal) rate of 12%. However, it compounds interest
every week (52 times a year). What is the effective annual rate (EAR)?
A.Less than 12%
B.Exactly 12%
C.12.01% – 12.35%
D.12.36% – 12.70%
E.More than 12.70%
If a firm caters to a set of investors with its dividend policy of paying consistently high
dividends, what theory is consistent with this dividend policy?
A.Dividend Aversion Theory
B.Dividend Irrelevance Theory
C.Residual Dividend Theory
D.The Clientele Effect
Stockholders own corporations. Which of the following is inconsistent with that role:
A.attend annual shareholder meetings as a forum for voicing discontent.
B.receive annual reports that detail the past, present, and future direction of the firm.
C.share in the firm’s profits.
D.receive interest on the amount loaned to the company.
What changes have taken place in the elite club run by the Standard and Poor’s after the
financial crisis of 2008?
A.Only twenty members remain in the elite club.
B.The bar for becoming a member has been lowered from 25 to 20 years.
C.Companies paying a constant dividend are included in the club.
D.Dividend payments by the members have increased since the crisis.