The MIRR assumes that cash inflows are reinvested at the internal rate of return.
Business plans and the information they contain are generally very private, and are not
shared with investors or securities analysts.
By factoring its receivables, a firm converts them into cash immediately rather than
having to wait for customer payment.
Of the two processes involved in capital budgeting, cash flow estimation and the
application of analytical techniques like NPV and IRR, the more difficult is the
application of the analytical techniques.
Sinking fund provisions often require the issuing company to call in and retire a
percentage of the bond issue each year toward the end of a bond issue’s life.
Which of the merger waves in the United States resulted in the concentration of several
major industries into oligopolies?
A.Wave I: 1897 – 1904
B.Wave II: 1916 – 1929
C.Wave III: 1965 – 1981
D.Wave IV: 1981 – 1989
Working capital to support the demands of a new project must be funded with cash. The
assets primarily associated with such working capital requirements include:
A.machinery and equipment.
B.inventory and accounts receivable.
C.land and buildings.
D.All of the above
Use the dividend growth or Gordon model to develop the cost of retained earnings if
last year’s dividend was $2.25, the anticipated constant growth rate is 5% the stock’s
selling price today is $36 per share, and flotation costs are estimated to be 11%?
A.15.3%
B.11.6%
C.10.9%
D.14.9%
Immediately after an IPO which of the following indicates that the lead investment
bank is concerned about the stock’s price?
A.The lead investment bank is purchasing shares on the open market.
B.The lead investment bank has initially overpriced the IPO.
C.The lead investment bank has used the book building process to price the IPO.
D.The lead investment bank favors retail investors instead of €insiders€ of the financial
system.
According to the incremental cash flow principle, the firm should include:
A.taxes.
B.interest.
C.dividends.
D.a and b
E.a, b, and c
Consider a portfolio with a known average return and standard deviation. Which of the
following stocks, if added to the portfolio, will reduce its risk through diversification?
A.A stock whose return is perfectly negatively correlated with the portfolio’s return
B.A stock whose return is perfectly positively correlated with the portfolio’s return
C.A stock whose return has zero correlation with the portfolio’s return
D.Any stock added to a portfolio will reduce its risk regardless of its correlation with
the portfolio
If a bond is selling at par value, the market return on similar bonds must be:
A.higher than the coupon rate.
B.equal to the coupon rate.
C.below the coupon rate.
D.None of the above
Which of the following is not considered working capital?
A.Old but salable inventory
B.A 90-day old receivable that should be paid within the next 60 days
C.A bank loan granted to support working capital that isn’t due for three years
D.A payable owed to a customer that’s bankrupt
In a liquidation, the trustee:
A.supervises the sale of the business’s assets.
B.distributes the available funds to the various claimants.
C.finds and recovers any illegal payments made before the bankruptcy filing.
D.All of the above
Which of the following is affected when a stock splits?
A.Par value
B.Common stock
C.Paid in excess
D.Retained earnings
Which of the following is not a kind of business plan?
A.A strategic plan
B.An operational plan
C.A financial plan
D.A budget
E.A forecast
Frazier Fudge is projecting a growth in sales next year of 10% along with an external
financing requirement of $200. They had the following results this year: Sales of
$18,000; Assets of $6,460; Current liabilities of $500; Return on Sales of 10%.
Calculate their projected dividend payout ratio. (Assume that assets, current liabilities,
and income grow with the level of sales.)
A.80%
B.60%
C.40%
D.20%
Match the following:
1>Risk aversion A. Risk associated with a specific industry or firm
2>Market risk B. The observation that investors always choose
less risky stocks when expected returns are equal.
3>Risk premium C. Risk associated with inflation, interest rates,
recession, etc., things that tend to affect all stocks.
4>Unsystematic risk D. The reward for bearing market risk