An LBO is a takeover but not a merger.
In a friendly merger, the target’s management and board of directors approve of the deal
and cooperate with the acquiring company.
The administrative reason for holding cash is to pay for emergency needs.
Operating leverage increases with the amount of variable cost present within a firm’s
cost structure.
In the breakeven diagram, breakeven is at the intersection of revenue and total cost.
Financial leverage involves substituting debt for equity in the firm’s capital structure.
Similarly, operating leverage involves substituting fixed for variable costs in its cost
structure.
The difference between total cash flows and incremental cash flows is due solely to the
effect of income taxes.
Sunk costs are irrelevant to capital investment evaluation because such evaluation is
oriented toward the future.
A 1-for-4 reverse stock split refers to receiving one additional share for every four
shares owned.
Find the average collection period for a firm that has credit sales of $120,000,000 and
accounts receivable of $30,000,000.
A.30 days
B.120 days
C.90 days
D.45 days
E.60 days
The payment or receipt of equal amounts, at the end of a series of equal periods, for a
specified amount of time is called a(n):
A.annuity due.
B.perpetuity.
C.ordinary annuity.
D.simple interest.
By which means does the production sector supply money to the consumption sector?
A.Product purchases
B.Wages
C.Labor services
D.Supplying goods and services
____ indicate the ability of the firm to meet its short-term financial obligations.
A.Activity ratios
B.Liquidity ratios
C.Leverage ratios
D.Profitability ratios
Estimate the required return on Baniff Corp under the following conditions:
The average stock is returning 11%
Short term treasury bills yield 5%
Baniff’s beta is 1.25
A.11.00%
B.17.25%
C.12.50%
D.6.00%
A person buying a ____ is called an investor.
A.bond
B.stock
C.mutual fund
D.All of the above
The chance of incurring losses in international business due to terrorist activity is:
A.political risk.
B.terrorist risk.
C.international business risk.
D.business risk.
If a series of equal payments is received regularly at the end of the year, and each is
deposited immediately at the same interest rate, the ____ is the sum of all the payments
and all the interest earned at the end of the series.
A.future value of an annuity due
B.present value of an annuity due
C.future value of an ordinary annuity
D.present value of an ordinary annuity
E.none of the above
The executive in charge of the finance department is the company’s:
A.CEO.
B.COO.
C.CFO.
D.CIO.
With respect to the probability distribution of returns:
A.a risky stock has a higher probability of producing a return that is substantially closer
to the mean of the distribution and a less risky stock has a higher probability of
producing a return that is substantially away from the mean of the distribution.
B.high risk implies variability in return such that returns in successive years are likely
to be insignificantly different from one another.
C.a less risky stock is likely to produce a return that is close to the mean of the
distribution while a more risky stock has a higher probability of producing a return that
is substantially away from the mean of the distribution.
D.low risk implies variability in return such that returns in successive years are likely to
be considerably different from one another.
Your brother, who is 6 years old, just received a trust fund that will be worth $25,000
when he is 21 years old. If the fund earns 10 percent interest compounded annually,
what is the value of the fund today?
A.$104,602
B.$6,575
C.$5,975
D.$6,875
The forward exchange rate between two currencies:
A.depends on the date of delivery of one of the currencies.
B.can fluctuate over time.
C.is always stated in terms of US dollars.
D.a and b
E.All of the above
Wayside Corporation has an EBIT of $2 million, 40% debt in their capital structure, and
has total capital of $10 million. If they are in the 35% tax bracket, what is their return
on capital employed (ROCE)?
A.20.0%
B.13.0%
C.40.0%
D.21.67%
Holding all other variables constant, an increase in COGS will lead to:
A.a decreased cost ratio.
B.a higher gross margin.
C.lower net income.
D.paying more in taxes.
The degree of operating leverage is measured by relating the percentage change in
EBIT to the percentage change in:
A.sales.
B.earnings per share.
C.debt ratio.
D.share price.
As a community service, the local YWCA runs Saturday afternoon movies for children,
charging 50 cents admission per child. The fixed costs are $100 per weekend for film
rental and cleanup. The YWCA also sells candy, drinks, and popcorn with a variable
cost ratio (variable costs divided by selling price) of 0.50. The average child buys $2.00
of junk food. What is the breakeven number of children?
A.47 children
B.52.3 children
C.66.7 children
D.73.5 children
If an acquiring company is willing to pay $20 per share for a target’s stock, and its own
stock is selling for $10, which of the following is not a reasonable payment for 100
shares of the target?
A.$2000, all cash
B.$1000 cash and 100 shares of acquiring company’s stock
C.200 shares of acquiring company’s stock
D.$1000 in bonds and 200 shares of the acquiring company’s stock