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1) The conversion feature of a bond is a feature that is included in all corporate bond
issues that gives the issuer the opportunity to repurchase bonds at a stated price prior to
maturity.
2) A prospectus is a portion of the security registration statement that describes the key
aspects of the issue, the issuer, and its management and financial position.
3) A flat yield curve means that the rates do not vary much at different maturities.
4) The basic difficulty in applying the capital budgeting approach to an acquisition of a
going concern is the estimation of initial cash flows and certain risk consideration.
5) Options are a special type of security that provides the holder with the right to
purchase or sell specified assets at a stated price on or before a set expiration date.
6) Earnings before interest and taxes are positive above the operating breakeven point,
and a loss occurs below it.
7) Everything else being equal, the higher the discount rate, the higher the present
value.
8) Revolving credit agreements are non-guaranteed loans that specify the minimum
amount that a firm can owe the bank at any point in time.
9) With the existence of fixed operating costs, an increase in sales will result in
________ increase in EBIT.
A) a proportional
B) an equal
C) a less than proportional
D) a more than proportional
10) A projected excess cash balance for the month may be ________.
A) financed with short-term securities
B) financed with long-term securities
C) invested in marketable securities
D) invested in long-term securities
11) The future value of a $10,000 annuity due deposited at 12 percent compounded
annually for each of the next 5 years is ________.
A) $36,050
B) $63,530
C) $40,376
D) $71,152
12) A common approach of estimating the variability of returns involving the forecast
of pessimistic, most likely, and optimistic returns associated with an asset is called
________.
A) marginal analysis
B) scenario analysis
C) break-even analysis
D) DuPont analysis
13) When the price of a firm's common stock ________ the conversion price, the
market price of the convertible security will ________ to a level close to its conversion
value.
A) falls below; rise
B) rises above; fall
C) rises above; rise
D) equals; fall
14) ________ are the major source of unsecured short-term financing for business
firms.
A) Accounts receivable
B) Term loans
C) Notes payable
D) Accounts payable
15) A firm with a low return on total assets can improve its return on equity, all else
remaining the same, by ________.
A) increasing its debt ratio
B) increasing its total asset turnover
C) decreasing its debt ratio
D) decreasing its total asset turnover
16) Operating profit is known as ________.
A) earnings after interest and taxes
B) earnings before interest and taxes
C) earnings before depreciation and taxes
D) earnings after tax
17) Revenue stability affects ________.
A) dividend risk
B) maturity risk
C) business risk
D) interest rate risk
18) The capital structures of MNCs are influenced by ________.
A) domestic futures markets
B) international diversification
C) the overall relationship between the public and private sectors in home country
D) dividends paid by corporations
19) Commercial paper is ________.
A) sold at its par value
B) sold at a discount from its par value
C) sold at the prime rate
D) sold at a premium from its par value
