The dollar amount of interest charges is:
A.always considered in the net cash flow calculation.
B.normally not considered in the net cash flow calculation.
C.always considered as a part of the net investment.
D.None of the above
A $300,000.00 thirty year mortgage has a monthly payment of $1,798.65. Assuming a
mortgage rate of 6% APR, how much interest is due on the first mortgage payment?
A.$1,800.00
B.$1,500.00
C.$1,700.00
D.$1,562.50
A four-year-old asset is to be replaced as part of a capital project. It originally cost
$20,000 and has a depreciation (straight line) life of ten years. Its market value is
currently $16,000. The firm’s marginal tax rate is 34%. What is its contribution to the
initial outlay?
A.$ 2,880
B.$14,640
C.$14,880
D.$ 2,640
A spot exchange rate for two currencies:
A.is based on immediate (two day) delivery of currency.
B.is always constant over time.
C.cannot exceed the forward exchange rate for the currencies.
D.a and b
E.All of the above
Holding cash for precautionary demand refers to:
A.keeping cash on hand to pay for emergency needs.
B.holding cash to compensate banks for the services they perform.
C.keeping money in the bank to pay bills for the goods and services they use.
D.keeping cash to take advantage of unexpected opportunities.
Why should a risk averse manager select one project over another when both projects
generate the same NPV?
A.Because the manager prefers the project which has more variance in its cash flows.
B.Because the manager prefers the project with the higher IRR.
C.Because the manager prefers the project with less risky cash flows.
D.Because the manager prefers the project which has higher standard deviation in its
cash flows.
A cash flow projected tomorrow for a specific period of time is a:
A.present value of a single sum.
B.future value of a single sum.
C.present value of an annuity.
D.future value of an annuity.
Which of the following is generally true of IPO Pops?
A.Most IPO Pops don’t last and the stocks usually underperform.
B.A rapid drop in price of the stock occurs when trading begins.
C.The IPOs are overpriced and are rewarding to investors from the secondary market.
D.The strategy useful only to high net worth investors.
A steady stream of earnings is:
A.capitalized at its future value as a perpetuity.
B.amortized at its present value as a perpetuity.
C.capitalized at its present value as a perpetuity.
D.amortized at its present value as a perpetuity.
In order to “go public,” a company must take all of the following actions except:
A.engage an investment bank to determine if a market exists for the company’s stock.
B.prepare a prospectus.
C.prepare a “red herring” and file it with the Commerce Department.
D.receive approval of the prospectus from the SEC.
E.offer stock to the public in an IPO.
Which of the following is TRUE?
A.A bond’s price moves to par value as it approaches maturity.
B.Debentures are riskier investments than mortgage bonds.
C.Most bonds are purchased by individual investors rather than by institutions.
D.Both a & b
E.All of the above
The return on equity investments:
A.is the risk free rate plus the return on debt investments.
B.consists of the risk free rate and the market premium.
C.consists of dividend and capital gains yields.
D.can never be negative.
Which of the following would not be a reason for the management of a target company
to resist a takeover by an acquiring company?
A.Management of the target company may feel that the tender offer is too high.
B.Management of the target company may not think that the acquiring company’s
management style will be effective in the target company.
C.Management of the target company may be concerned about losing personal power
and influence.
D.Neither a. nor b. would be a reason to resist a takeover.
In a ____, the acquiring company offers to buy the target company’s shares at a price
above market.
A.premium buyout
B.tender offer
C.equity carve-out
D.divestiture
Which of the following cash flows is equivalent to receiving $125.00 today assuming a
9% annual discount rate?
A.Receiving $192.33 five years from today
B.Receiving $229.87 seven years from today
C.Receiving $163.12 three years from today
D.Receiving $312.67 ten years from today