1) Sales of consumer durable goods, such as appliances, are more sensitive to swings in
the business cycle, and therefore companies in these industries face a higher level of
operating risk.
2) A company that sells preferred stock and uses the money to pay off a loan is
decreasing its amount of financial leverage.
3) The stock valuation model D1/(rcs – g) requires the stock to grow at a rate greater
than the required return; otherwise, the stock is worthless.
4) The income statement describes the financial position of a firm on a given date.
5) A bank is legally obligated to provide credit under a revolving credit agreement, but
not under a line of credit.
6) With international investing, unlike domestic investing, exchange rate risk could
cause a marginally-positive-NPV project to be rejected due to the additional risk.
7) Registration of securities by the SEC indicates to investors that the risk of those
securities is reasonable.
8) The need for extensive regulation of investment banking firms is limited due to the
highly competitive nature of that industry.
9) Fixed costs are called indirect costs while variable costs are called direct costs.
10) If a common stockholder cannot personally attend the meeting of shareholders then
their votes are lost.