Limited liability may not be an advantage of the corporate form for owner-operated
small businesses because:
A.a negligent worker can escape liability for his own acts.
B.lenders usually demand personal guarantees from the owners of small businesses.
C.stockholders participate in the business itself.
D.All of these are correct.
A(n) ____ solves the debt/ interest problem.
A.iterative numerical approach
B.stretch plan
C.cost ratio
D.annual operating plan
Orion Inc. had a bad year. Sales were down throughout its industry but Orion was
particularly hard hit. Its earnings fell by 30% compared to the previous year on a
revenue decrease of 20%. Nevertheless the firm paid a dividend that was 30% larger
than the previous year’s. Management is probably:
A.matching the 30% earnings drop with an offsetting 30% dividend increase.
B.admitting it’s done a bad job and paying stockholders to make up for it.
C.using the signaling effect to tell shareholders that management has confidence in the
firm’s future earning capability.
D.trying to get money in their own pockets before the firm fails, because management
usually holds substantial stock themselves.
Which is not an example of a capital market security?
A.Common stock
B.A 30 day treasury bill
C.Corporate bonds
D.Preferred stock
E.None of the above
Which of the following is an electronic exchange and does not have a physical
location?
A.American Stock Exchange
B.NASDAQ
C.New York Stock Exchange
D.Money market
If you invest $1,000 today at 8% interest compounded monthly, how much money will
you have in 1 year?
A.$1,080
B.$1,083
C.$1,086
D.$1,090
The nominal interest rate on a loan:
A.never equals its real interest rate.
B.exceeds the real interest rate by a default risk premium.
C.differs from the real interest rate by an inflation premium.
D.cannot by directly observed.
Increasing collection expenditures is likely to result in:
A.shorter average collection period.
B.reduced bad-debt losses.
C.higher accounts receivable balances.
D.a and b
Which of the following is not considered to be an institutional investor?
A.Governments
B.Pension funds
C.Insurance companies
D.Mutual funds
A variance cannot be ____.
A.positive
B.zero
C.the same sign as the standard deviation
D.negative
Monte Carlo simulations are so named because it is the name of:
A.a famous European gambling casino.
B.a popular brand of automobile.
C.the first individual to develop an automated simulation machine.
D.the person who discovered the necessary algebraic computations.
Holding all other variables constant, which of the following would increase return on
equity? An increase in ____.
A.the tax rate
B.the equity ratio (equity/total assets)
C.total assets
D.total asset turnover
Assuming a project is expected to last fifteen years, which form of funding would be
most consistent with the idea of maturity matching?
A.Fifteen-year bonds issued in the money market
B.Fifteen-year bonds issued in the capital market
C.Stock issued in the capital market
D.Stock issued in the money market
Baker Company is considering an investment in a new metal lathe. If the new lathe is
purchased, revenues will increase by $5,000 per year and cash operating costs will
decline by $10,000 per year. The lathe will cost $60,000 and will be depreciated on a
straight-line basis over 10 years to a zero estimated salvage value. Baker’s marginal tax
rate is 40%. Determine the annual net cash flows generated by the lathe.
A.$11,400
B.$9,000
C.$600
D.$5,400
If a project’s present value payback period equals the length of the project, then ____.
A.the NPV is greater than zero
B.the NPV is zero
C.the PI less than 1.0
D.the payback period is equal to the length of the project