While the present value of an amount is decreased by an increase in the frequency of
compounding, the present value of an annuity is increased.
Bond prices respond to changes in the market rate of interest by moving in a direction
opposite to the change.
A share of preferred stock pays a $2.00 quarterly dividend. Comparable investments
should earn 8% compounded quarterly. The preferred should sell for $100.
Honda could sell bonds denominated in Japanese yen to Americans in the United States.
Among the disadvantages of going public is ownership dilution and the expense of
offering stock.
Compound interest occurs when interest is earned on interest.
A stock repurchase is a way to distribute excess cash from a one-time windfall that
avoids negative signaling effects.
In theory, the certainty equivalents imply zero risk.
The incremental cash flow principle claims that sunk costs must be taken into account
in the firm’s decision whether to accept or reject a project.
Breakeven volume rises as variable costs are converted into fixed costs.
Brokers have agreed to cut off sales for dividend purposes two days prior to the date of
record to accommodate a paperwork lag. Investors who purchase a stock after the
ex-dividend date are entitled receive the dividend, while investors who purchase the
stock before the ex-dividend date are not entitled to receive the dividend.
Bond ratings measure the maturity risk associated with a given bond.
The interest rate is the price of money.
The coefficient of variation is an absolute measure of variation.
The efficient market hypothesis asserts that because of quick and efficient
dissemination of information, the prices of stocks reflect all publicly available
information.
All other things equal, a policy of financing with a relatively ____ proportion of
short-term debt will tend to result in ____ earnings.
A.large, lower
B.constant, higher
C.constant, lower
D.large, higher
Which of the following provides financing that can vary in size over the life of a loan?
A.Revolving credit agreement
B.Commercial paper
C.Single payment note
D.a and b
E.None of the above
One of the steps involved in calculating the MIRR is to:
A.calculate the future value of all cash outflows.
B.determine the present values of all cash outflows at the cost of capital.
C.determine the present value of cash inflows at the cost of capital.
D.subtract cash outflows from cash inflows before calculating the future value.
A project’s NPV profile will cross the horizontal axis at:
A.the cost of debt.
B.the cost of capital.
C.the internal rate of return.
D.zero.
Calculate the cost of preferred stock for Ohio Valley Power Company, which is
planning to sell $100 million of $3.25 cumulative preferred stock to the public at a price
of $25 per share. Flotation costs are $1.00 per share. Ohio Valley has a marginal income
tax rate of 40%.
A.13.0%
B.7.8%
C.8.12%
D.13.54%
The process of totaling all of the transactions for a recent period and bringing a
company’s records up to date is referred to as:
A.closing the books.
B.double entry.
C.ending the period.
D.starting over.
Selected accounts are listed below. How much is the firm’s operating income?
A.$8,000
B.$10,000
C.$9,000
D.$11,000
Which of the following causes accounting profit and cash flow to differ?
A.Payroll expense
B.Cash sales
C.Depreciation
D.Inventory purchased and sold
A bank issuing a Certificate of Deposit (CD) to a depositor and then lending the money
deposited to a business borrower is an example of a(n):
A.direct transfer from a business to an investor.
B.direct transfer through an investment bank.
C.direct transfer through a financial intermediary.
D.indirect transfer through an investment bank.
E.indirect transfer through a financial intermediary.
The direct quote for British pounds is $1.50. If you tried to convert $3,000 into pounds,
how many pounds would you obtain?
A.3,500 pounds
B.1,500 pounds
C.2,000 pounds
D.2,500 pounds
Capital rationing may involve:
A.accepting projects with negative NPVs.
B.rejecting projects with positive NPVs.
C.limitations on the number of project proposals that are submitted for evaluation.
D.allocating available capital among all project proposals with positive NPVs.
A firm’s credit terms stipulate:
A.the maturity of trade credit (time when the net amount is due).
B.the minimum acceptable credit rating of a credit applicant.
C.the extent of efforts to collect on overdue accounts.
D.a and b
E.All of the above