The over-the-counter market differs from the New York Stock Exchange in that:
A.the stocks, although publicly traded, are not listed on an exchange.
B.only relatively small companies are traded because larger companies are required to
be traded on exchanges.
C.NASDAQ quotations apply only to smaller, less capitalized firms.
D.All of the above
Rank order the following capital project types according to level of risk, from highest
risk to lowest risk.
A.Expansion, New Venture, Replacement
B.Replacement, Expansion, New Venture
C.New Venture, Replacement, Expansion
D.Expansion, Replacement, New Venture
E.New Venture, Expansion, Replacement
Companies must use MACRS:
A.in all financial records and reports.
B.for their tax books only.
C.for their financial books.
D.whenever accelerated depreciation is called for.
Multidivisional companies unable to obtain a surrogate beta for estimating a division’s
risk-adjusted rate of return sometimes can estimate beta from internal accounting data.
This approach is called the pure play method.
A firm has current assets of $10,000 and current liabilities of $6,000. Cash and
marketable securities total $4,000, the balance in accounts receivable is $2,000, and the
book value of inventory is $4,000. The firm’s net working capital is:
A.$2,000.
B.$4,000.
C.$6,000.
D.$9,000.
E.None of the above
Financial leverage has the following effect on financial performance:
A.during periods of reasonably good performance, leverage enhances results in terms of
ROE and EPS.
B.leverage adds variability to financial performance making the firm’s stock a riskier
investment.
C.leverage always makes performance better and thereby increases stock price.
D.Both a and b
Which of the following measures is used to assess the success of a venture in making
money?
A.Debt to equity ratio
B.Market to book value ratio
C.Return on sales
D.Current ratio
Which of the following statements is correct?
A.Bond prices and interest rates are not related.
B.When a bond’s yield equals the coupon rate, the bond sells at a premium.
C.When a bond’s yield is greater than the coupon rate, the bond sells above par.
D.When a bond’s yield is less than the coupon rate, the bond sells above par.
A firm can be insolvent because:
A.its liabilities exceed its assets.
B.it can’t pay its bills when they’re due.
C.the court issues an insolvency order.
D.either a or b.
Which of the following ratios would probably not be used to assess the profitability of a
firm?
A.Return on stockholders’ equity
B.Return on total assets
C.Times interest earned
D.a and c only
The date on which a bond’s principal is paid off is its:
A.call date.
B.maturity date.
C.redemption date.
D.All of the above
The initial cost of a project is $10,000. There is a 30% chance that it will be highly
successful, in which case cash inflows of $4,500 are expected for the next four years.
There is a 70% chance that the project will be unsuccessful, in which case annual cash
inflows of $3,200 are expected for four years. The cost of capital is 12%. What is the
project€s expected NPV?
A.$3,688
B.($281)
C.$7,700
D.$904
A Eurobond is one denominated in a currency other than that of the country in which it
is sold. Which of the following is not a distinguishing feature of Eurobonds?
A.They are issued in bearer form so the owner doesn’t have to be identified.
B.Very strict adherence to the regulatory and disclosure requirements of the country in
which the bond is issued is generally required.
C.Income taxes are not generally withheld on interest payments.
D.a and b are not characteristic of Eurobonds
The “yield curve”:
A.always has a positive slope.
B.shows the relationship between default risk and the return on securities.
C.has constant slope and height over time.
D.a and b
E.None of the above
Cost of capital calculations assume that capital is usually raised:
A.in the proportions of either the target or the existing capital structure.
B.by selling as much as possible of one security at a time.
C.in the proportions of the existing capital structure.
D.in the proportions of the target capital structure.
Which of the following are true about accounting?
A.Accounting is a system of record keeping
B.Accounting focuses on cash flow
C.Accounting emphasizes financial theory
D.Both a & b
With an annuity due, payments:
A.occur at the end of each period.
B.occur at the beginning of each period.
C.are due at the end of each period.
D.occur at the end of each loan.
A piece of machinery can be further depreciated $2,000.00 annually for the next four
years. Assuming a 10% discount rate and a 40% tax rate, what is the current value of
the benefit of depreciation?
A.$546.40
B.$6,339.80
C.$2,535.92
D.$3,803.88