Since a firm can be viewed as a collection of projects, taking on projects without
consideration of their risk can in the long term:
A.change the firm’s risk character.
B.systematically degrade the firm’s profitability.
C.make the firm’s financial results more volatile.
D.a and c
Which of the following groups is not a stakeholder in a corporation?
A.Customers
B.Government Officials
C.Creditors
D.Suppliers
Which of the following statement(s) is(are) true for the application of the IRR in a
capital budgeting decision?
A.The IRR must exceed the cost of capital to warrant undertaking the project.
B.The project’s IRR is dependent on the project’s cost of capital.
C.The IRR is similar to a bond’s yield in that both generate a zero NPV.
D.a and c
Loan indentures and _____may limit dividend payments to protect creditors’ interest.
A.covenants
B.preferred stock
C.common stock restrictions
D.equity interests
Assume the following facts about a firm:
The firm’s external funding requirement for next year is
Hint: You don’t have to remember the EFR formula. Just realize that the funding
requirement is the growth in assets less that in current liabilities less next year’s retained
earnings.)
A.$1,280
B.($960)
C.$1,760
D.$800
Which of the following actions by a foreign government is expropriation?
A.Limiting the amount of profit that can be taken out of the country
B.Seizing property without compensation
C.Requiring that raw materials be purchased from local suppliers
D.Both a. and b. are correct.
E.All of the above are correct.
Haverly offers its customers an effective interest rate of 24.33% on its terms of sale.
They offer a 1% discount if payment is made within 5 days. Assuming a 365-day year,
what terms of sale does Haverly use?
A.1/5, net 30
B.1/5, net 20
C.1/5, net 15
D.1/5, net 10
The size and nature of a firm’s investment in current assets is a function of a number of
different factors including all of the following except:
A.how efficiently the firm manages its fixed assets.
B.the length of the cash conversion.
C.the sales level.
D.credit policies.
All other things being equal, the Modigliani and Miller Model, modified for tax and
bankruptcy costs concludes that:
A.no matter what level of debt a company is operating at, increasing the percent of debt
in the capital structure will increase the stock price.
B.if a company has a very low percent debt, increasing the percent of debt in the capital
structure will increase the stock price.
C.at moderate levels of debt, it is difficult to tell what will happen to the stock price
(whether it will go up or down) if the percent debt in the capital structure is increased.
D.there is no relationship between the percent of debt in the capital structure and the
stock price.
E.b. and c. are correct.
When a similar company can’t be found to use in estimating a divisional beta, the
division’s own records can sometimes be used instead. This method is called:
A.pure play.
B.CAPM.
C.accounting beta.
D.financial accounting.
The payback period:
A.is the time it takes to recover early cash outflows.
B.requires a long and tedious calculation.
C.is the time it takes to recover early cash inflows.
D.is calculated using time value of money techniques.
J&J Manufacturing issued $1,000, 30-year bonds 4 years ago at a coupon rate of 12%
compounded semiannually. The bonds are currently selling for $1,150 each. J&J’s
marginal tax rate is 40%. Calculate cost of debt. (Round to nearest whole percentage)
A.5.2%
B.6.2%
C.7.2%
D.8.2%
What is the cost of retained earnings for East Roon, if the firm is expected to always
pay a constant dividend of $2.22? The firm’s common stock is presently selling for
$18.50.
A.8.3%
B.12.0%
C.10.2%
D.Cannot be determined from the information given
Dudek Manufacturing’s common stock is currently selling for $45/share. Their most
recent dividend (annual) was $2.50, and is expected to grow at 5% per year indefinitely.
What is Dudek’s cost of retained earnings?
A.10.56%
B.10.83%
C.12.14%
D.13.00%
E.17.14%
A stock just paid an annual dividend of $2.00, which is expected to remain constant
indefinitely. The market return is 14%. The estimated selling price of the stock is:
A.$1.76.
B.$14.29.
C.$10.43.
D.None of the above