If a firm has sales revenue (spread evenly through a 360-day year) of $1,170,000 and
accounts receivable of $130,000, its average collection period, or days sales
outstanding, is 40 days.
When a foreign currency is expected to become more valuable in the future, the forward
currency is said to be selling at a premium over the spot rate.
Discrete variables can take only specific values.
A target payout ratio policy involves choosing a ratio with which the firm is
comfortable and thereafter paying exactly that percentage of earnings every year.
Decreases in working capital have to be funded with cash outflows just like the
acquisition of any other asset.
Risk associated with specific industries or companies is referred to as business-specific
risk. It is also known as unsystematic risk and cannot eliminated through
diversification.
The business plan is a vehicle for communicating with potential investors.
The sale of an asset below its book value at the time of sale generates cash inflows that
exceed the asset’s selling price.
Analysts compare repurchase prices with market prices sometime after the transactions
factoring in the dividends saved to see if the repurchase was successful.
A firm’s target capital structure is 30% debt and 70% equity and retained earnings are
planned at $1.4 million. The first breakpoint in the MCC is at $2 million.
The SEC was established to prevent only those investor losses arising from fraud or
misrepresentation.
Changes in depreciation are relevant in cash flow estimation only because of their tax
impact.
Liquidity Ratios measure the firm’s ability to meet its short-term financial obligations.
Assume a dividend today of $2.50 with anticipated growth over the next three years of
10%. The estimated dividend at the third year is:
A.$3.25.
B.$3.28.
C.$3.33.
D.None of the above
Project A generates $5,000.00 in revenue two years from today and costs $4,000.00.
Project B generates $4,000.00 (50% probability) or $6,000.00 (50% probability) one
year from today and costs $4,500.00. Assuming a discount rate of 12% for both
projects, which project does a risk averse manager prefer?
A.Project A
B.Project B
C.Neither project
D.Cannot be determined
You are considering the purchase of an AT&P bond with a 13% coupon rate. Interest is
paid and compounded semiannually. The bond will mature in 8 years, and has a $1,000
face value. The bond currently sells for $867. Calculate the ANNUAL yield to maturity
for this bond. (Round to nearest percentage)
A.9%
B.11%
C.16%
D.18%
Hatter Enterprise paid a dividend of $2 last year, its stock is selling at $45 per share,
and a constant growth of 6% is expected. If Hatter’s cost of new equity is 11.2%.
Calculate the flotation costs associated with a new issue of common stock.
A.8.8%
B.9.4%
C.10.2%
D.11.6%
The record date in the normal dividend payment procedure is:
A.the same day as the declaration date.
B.the same day as the ex-dividend date.
C.the date when the firm makes a list from its stock transfer books of shareholders
eligible to receive the dividend.
D.one day prior to the payment date.
If you invest 30% of your funds in AT&T stock with an expected rate of return of 10%
and the remainder in GM stock with an expected rate of return of 15%, the expected
return on your portfolio is
A.12.5%.
B.13.0%.
C.13.5%.
D.14.5%.
E.None of the above
If a firm increases its leverage, which extended Du Pont equation ratio is directly
affected?
A.ROS
B.Equity Multiplier
C.Total Asset Turnover
D.ROA
Various management actions provide investors with clues as to the future prospects for
the firm. Which of the following actions by management contains the most important
economic information for common stock investors?
A.A 20 percent increase in cash dividends per share
B.A 100 percent stock dividend
C.A 2-for-1 stock split
D.a, b, and c are equally important.
If a firm has a total asset turnover of 8 times and a return on total assets of 15%, its
return on sales must be:
A.1.875%.
B.1.95%.
C.2.05%.
D.None of the above
Investors demand higher returns on stock investments when:
A.inflationary pressures are low.
B.interest rates increase offering stockholders attractive alternative investment
opportunities.
C.the pure rate of interest changes to compensate for an economic slowdown.
D.None of the above