Common stock is considered to be a:
A.real Asset.
B.financial Asset.
C.debt Instrument.
D.Both b & c
Management’s propensity to overestimate the value of the target company in a merger
can lead to:
A.financial disaster for the acquiring company.
B.a financial windfall for the stockholders of the target company.
C.an irrational transfer of wealth from the shareholders of the acquirer to those of the
target.
D.All of the above
Stock price manipulation by executives results in massive investor _____.
A.fraud
B.losses
C.ethical violations
D.All of these are correct.
_____ is money owed by national governments.
A.International debt
B.Financial debt
C.Sovereign debt
D.Federal equity
A combination of two entities in which both legally cease to exist and a new legal entity
is formed is:
A.an acquisition.
B.a merger.
C.a consolidation.
D.a partnership.
The term “Cash” on a financial statement differs from the common definition of cash in
that
A.companies do not carry cash on hand and therefore do not use the term.
B.cash refers to the currency a company has on hand and not to any other assets.
C.cash is not considered an asset because of its highly liquid state.
D.cash refers checking account balances as well as currency.
J&J Production Inc. has annual sales of $30 million and accounts receivables of $1.5
million. They have an inventory turnover of 4. How long is J &J’s operating cycle?
(Assume a 360-day year)
A.18 days
B.90 days
C.108 days
D.72 days
Cantaloupe Growers Corp. is expanding into a new geographic area. Management
expects the new market to fuel growth of 22% for three years. After that normal growth
of 6% will resume. Cantaloupe’s most recent annual dividend was $1.25. Other fruit
companies have been returning about 12% lately. How much should a share of
Cantaloupe be worth?
A.$33.06
B.$38.00
C.$40.17
D.$68.32
A firm’s correctly computed capital structure consists of 20% debt, 10% preferred stock,
and 70% equity. If retained earnings of $2 million are expected, at what point will the
MCC schedule break upward as retained earnings are replaced with new equity?
A.$2,857,143
B.$2,000,000
C.$2,436,372
D.$3,400,000
Given the following information, calculate the inventory for J&C videos.
Quick ratio = 1.2; Current assets = $12,000; Current ratio = 2.5
A.$4,800
B.$6,240
C.$7,200
D.$5,660
A red herring is:
A.very volatile and risky.
B.an unapproved prospectus.
C.discloses information approved by the SEC.
D.is given to an investor when a security is sold for the first time.
A firm’s degree of financial leverage is 2 and the degree of operating leverage is 2.5. An
uncertain economic outlook could mean a 10% reduction in the current level of sales.
The firm is considering an increase of its degree of financial leverage to 3 by issuing
additional debt. The degree of total leverage suggests that the sales volatility could
result in a decrease in EPS of as much as:
A.5.5% if the additional debt is not issued.
B.7.5% if the additional debt is issued.
C.55% if the additional debt is issued.
D.75% if the additional debt is issued.
Which of the following statements about the marginal cost of capital (MCC) and the
investment opportunity schedule (IOS) is incorrect?
A.A company’s WACC for the planning period is at the intersection of the MCC and the
IOS.
B.The MCC will break when low cost debt runs out and is replaced with higher cost
debt.
C.The IOS ranks projects from highest to lowest according to their individual NPV’s.
D.A break in the MCC may occur because of the floatation costs associated with issuing
new stock.
E.All of the above statements are correct.
Zahn Enterprises pays $3 million annually to its bondholders and $7.5 million annual to
its stockholders. The required rates of return are 9 percent and 15 percent, respectively,
by the bondholders and stockholders. What is the value of Zahn Enterprises?
A.$1.40 million
B.$10.50 million
C.$16.66 million
D.$83.33 million
Firms raise capital by issuing various types of ____ such as ____.
A.securities, stocks and bonds
B.consumer products, goods and services
C.securities, interest and dividends
D.taxes, bonds and savings accounts
E.none of the above
What is the unit of currency for the country of Japan?
A.Yen
B.Yuan
C.Real
D.Peso
Which of the following is true of the book value of capital in calculating the WACC?
A.It reflects the revenues to be earned in the future.
B.It relates to the current state of capital markets.
C.It predicts the cost of capital to be raised in the near future.
D.It reflects the cost of capital already spent.