Greater risk is associated with larger beta coefficients.
Accounts receivable are adjusted for doubtful accounts (i.e., accounts that may not be
paid).
If the probability of an investment’s cash inflows is decreased, the firm’s cost of capital
should be increased.
The cost of preferred stock is less than the cost of debt.
A firm has the following preferred stocks outstanding:
If comparable yields are 9 percent, what should be the price of each preferred stock?
Break-even analysis is used to determine the best level of output.
A firm cannot sell its accounts receivable at a premium to raise funds.
Dividends reinvested are not subject to federal income tax.
Convertible bonds tend to pay less interest than comparable non-convertible bonds.
A firm has the following items on its balance sheet:
The inventory turnover for the industry is 4x and the average collection period is 33
days. If this firm’s sales are $9,000,000 and the interest rate is 10 percent, how much
could it save in carrying costs if its inventory turnover and average collection period
were comparable to the industry average? (To answer, assume that last year’s inventory
equaled this year’s inventory.)
Bonds secured by collateral tend to be safer than other bonds issued by the firm.
You bought an asset for $10,000 and sold it for $20,000 after 10 years. What was the
annual rate of return on this investment?
You borrow $100,000 to buy a house; if the annual interest rate is 6% and the term of
the loan is 20 years, what is the annual payment required to retire the mortgage loan?
If two investments are mutually exclusive, the firm cannot make both investments.
The shares of closed-end investment companies are bought and sold in secondary
markets like the NYSE.
If a lease is capitalized, the present value of the lease payments is put on the firm’s
balance sheet as a liability.
The ease of transferring ownership is one advantage of the sole proprietorship.
Stock dividends increase the wealth of stockholders who receive additional shares.