The executive stock option system sets up a conflict of interest that may lead to
dishonest financial reporting.
The purpose of hedging in forward exchange markets is to limit losses resulting from
unexpected future changes in spot exchange rates.
The call premium is also known as call protection.
Market risk is caused by events that tend to affect the returns on all stocks.
Contribution is defined as the amount by which price exceeds variable cost per unit.
Contribution stated as a percent of price is known as contribution margin.
Under dividend aversion investors prefer future capital gains to current dividends
because of lower tax rates.
A firm pays its bondholders a 12% return. Its cost of retained earnings may be
estimated by:
A.adding one to three percentage points to the 12% pretax cost of debt.
B.adding three to five percentage points to the 12% pretax cost of debt.
C.multiplying the firm’s beta by three to five percentage points and adding it to the 12%
pretax cost of debt.
D.None of the above
Which of the following is not a component of the interest rate model?
A.Default risk premium
B.The activities of the Federal Reserve Bank
C.Pure interest rate
D.Maturity risk premium
Governments, when they observe that their currency is either too strong or too weak,
will:
A.intervene by buying their own currency if it is strengthening against other currencies.
B.intervene by buying their own currency if it is weakening against other currencies.
C.intervene by selling their own currency if it is weakening against other currencies.
D.sell their gold or foreign currency.
The ____ a bond has to maturity, the ____ sensitive the bond’s price is to changes in
market interest rates.
A.longer; less
B.shorter; less
C.longer; more
D.Both b & c
In estimating cash flows, the firm should include:
A.changes in working capital.
B.taxes.
C.effects on other parts of the company
D.a and b
E.a, b, and c
The annual _____ plan projects the business in detail over a year; and is the most
important planning exercise.
A.budget
B.operating
C.capitalization
D.strategic
Stock splits have no tax implications because:
A.shareholders have not increased their proportionate ownership of the firm.
B.the shareholder’s wealth has not increased as a result of the stock split.
C.the shares originally owned by stockholders have been reduced in value in proportion
to the number of additional shares received through the stock split.
D.All of the above
The policy variables a firm can use to control the level of receivables include:
A.credit policy.
B.terms of sale.
C.collection efforts.
D.All of the above
Business costs are either _____ or can be separated into those components.
A.variable or utility
B.fixed or material
C.fixed or variable
D.people related or equipment related
Porter Productions sells video tapes for $15.00 each. Their variable cost per unit is
$9.00. In addition, they incur $180,000 in fixed costs each year. How many units will
Porter have to produce and sell in order to generate an operating income (revenues
minus expenses) of $54,000?
A.9,000 units
B.18,000 units
C.30,000 units
D.39,000 units
E.54,000 units
The difference between current assets and liabilities is defined as:
A.net assets.
B.current funds.
C.net working capital.
D.None of the above
The ____ makes risky projects less acceptable by simply lowering the cash flow
estimates themselves.
A.overlay approach
B.pure play method
C.certainty equivalent approach
D.accounting beta method