The investment opportunity schedule (IOS) and the MCC viewed together identify
which capital projects should or should not be undertaken.
When an acquiring firm pays too much for an acquisition the real losers are the
acquirer’s stockholders.
Preferred stock pays a constant dividend and is valued as a perpetuity.
Stocks that don’t pay dividends have value based on the expectation that dividends will
eventually will be paid.
In financial theory, the return on a stock investment is considered a random variable.
The income statement measures the flow of funds in and out of the firm over a period of
time.
The larger the variance of the probability distribution of returns, the more actual returns
will cluster around the mean or expected value.
Double taxation of earnings is the primary financial disadvantage of the corporate form
of business organization.
The “normal” yield curve has a positive slope.
Economists believe that people’s time preference for consumption is what dictates their
level of savings and the supply of loanable funds.
Trade credit information is frequently exchanged among firms selling to the same
customer through credit bureaus.
Today’s stock price is the present value of future:
A.interest per share.
B.dividends per share.
C.earnings per share.
D.sales per share.
Which of the following is true of projecting financial statements?
A.It involves translating planned physical activities into budgeted dollars.
B.It generally involves only making a sales forecast for the future period.
C.It can be constructed only for ongoing businesses.
D.It is easier to do for a new business than an ongoing one.
Principals can use the all of the following techniques to control their agents (in a
business setting) except:
A.compensation tied to performance.
B.stock options.
C.bond redemption.
D.the threat of firing.
E.perquisites.
The Security Market Line (SML) relates risk to return, for a given set of market
conditions. If risk aversion increases, which of the following would most likely occur?
A.The market risk premium would increase.
B.The risk-free rate would increase.
C.The slope of the SML would increase.
D.Both a & c
E.All of the above
How much will you have to save each month to have $6,000 in two years if the interest
rate is 18% compounded monthly?
A.$299.54
B.$398.01
C.$209.54
D.$476.59
Which of the following types of float can be virtually eliminated through the use of a
lock box?
A.Mail float
B.Processing float
C.Transit float
D.Both a. and b. can be eliminated.
E.All of the above can be eliminated.
The accounting matching principle dictates that we:
A.match expenses up with the employees that incur them.
B.prorate the cost of an asset over its expected economic life.
C.invoice the customer as soon as the merchandise is produced.
D.All of the above
Political risk can affect the cash flows realized by a U.S. firm on an international
investment through:
A.expropriation of assets.
B.operating or ownership restrictions.
C.limitations on the repatriation of capital.
D.a and b
E.All of the above
CVD, Inc. has a debt ratio of 50%, and an equity multiplier of 2. What is CVD’s
stockholders’ equity if total debt is $100,000?
A.$100,000
B.$150,000
C.$200,000
D.$50,000
Which of the following is false?
A.The IOS plots the IRRs of available projects in descending order.
B.Breaks in the MCC are caused by increases in project IRRs.
C.A break in the MCC will occur where retained earnings are exhausted.
D.The intersection of the MCC and the IOS determines the WACC for the planning
period.
You have just borrowed $30,000 to buy a new car. The loan agreement calls for 48
monthly payments of $704.55 each to begin one month from today. If the interest is
compounded monthly, then what is the effective annual rate (EAR) on this loan?
A.6.17%
B.7.06%
C.6.00%
D.6.67%
E.7.54%
The primary objective of offering a cash discount is to:
A.reduce the investment in receivables.
B.reduce the number of bad checks received from customers.
C.encourage customers to place their orders prior to the peak selling period.
D.None of the above
A project’s possible outcomes are summarized as follows.
The expected NPV for the project is approximately:
A.$190
B.($190)
C.($100)
D.None of the above
If a bond is selling at par value, which of the following would be the same as its coupon
rate?
A.Current Yield
B.Yield to Maturity
C.Market Interest Rate
D.Both b & c
E.All of the above
Scenario analysis for a proposed new project has resulted in the following:
An abandonment option would change the NPV in the worst case to ($300). The value
of the option is at least:
A.$190.
B.$330.
C.$140.
D.$470.
Assume the following facts about a firm that borrows by pledging its receivables
What is the effective cost of financing stated as an annual rate?
A.23.5%
B.20.0%
C.13.0%
D.16.8%