The yield differential between high- and low-quality bonds tends to be larger in
recessionary periods.
Restrictive covenants increase risk to the bondholder.
Under dividend preference investors prefer immediate cash to uncertain future benefits.
An increase in the frequency of compounding will increase the future value of an
investment but decrease its present value.
Golden parachutes are exorbitant severance packages offered to the target’s top
management should they be fired after a takeover.
The net flow of money between two countries from trade is called the balance of trade.
Determining the market price of a financial asset depends principally on identifying the
future cash flows associated with its ownership.
The Du Pont equations can be used to isolate problems.
Although the NPV method is technically superior, the IRR method is used more
frequently.
The default risk on U.S. Government debt instruments increases with the maturity of
the instrument.
Synergies are very good reasons for mergers. They’re always easy to identify and
implement and just about always turn out to be worth more than expected.
Financial theory has grown out of economics.
An increase in a firm’s operating leverage will also increase its financial leverage.
Cash flows that are forecasted to continue forever are compressed into _____ using
perpetuity formulas.
A.finite terminal values
B.infinite perpetual values
C.infinite terminal values
D.perpetual values
Which of the following is(are) true?
A.Secured lenders have lower priority claims than unsecured creditors.
B.Trade credit, commercial paper, and unsecured loans are all methods of financing
which require no specific pledging of assets as collateral.
C.Short-term bank debt is used more frequently than trade credit.
D.a and b
In theory, the Economic Value Added (EVA) is the amount by which the firm increases
or decreases Market Value Added (MVA) in the current year.
In the constant growth model, the return on a stock can be shown to be equal to the sum
of the dividend yield plus the:
A.growth rate.
B.cost of capital.
C.present value yield.
D.yield-to-maturity.
Which of the following is not associated with short-term debt?
A.Easily available to most companies.
B.It is usually the lowest cost financing.
C.It is a flexible form of financing.
D.It is usually used to finance property, plant, equipment.
The nature of cash flow from common stock ownership comes from:
A.dividends.
B.sale of the stock.
C.a guarantee.
D.both dividends and sale of the stock.
Which of the following is not an element of working capital policy?
A.The amount of working capital used
B.The level of attention that top management pays to working capital issues
C.The nature and source of financing that supports working capital
D.How the components of working capital are managed
E.The extent to which working capital is supported by short versus long term financing
The following items are components of a traditional balance sheet. How much is the
total equity of the firm?
A.$62,500
B.$49,000
C.$93,000
D.$97,000
The present value factor for an annuity:
A.is less than the number of years in the annuity.
B.approaches a value of infinity for a perpetuity.
C.is greater than the number of years in an annuity.
D.a and b
E.None of the above
Zero-Sum Enterprise pays an annual dividend of $1.40 per share and neither earnings
nor dividends are expected to grow in the future. What is the value of Zero-Sum’s stock
to an investor who requires a 14 percent rate of return?
A.$14.00
B.$10.00
C.$20.00
D.0
At the beginning of the year, the Personnel Department hired new staff. Six months
later, one of the new staff members has been re-assigned to work on your project. How
should the salary of the staff member be considered within the cost structure of your
project?
A.It should be considered a part of the incremental overhead.
B.It is a sunk cost because the person already worked for the firm prior to being
assigned to the project.
C.It should remain part of the Personal Department€s budget.
D.It is a part of the operating budget within the project as part of the salary expense.