1) Possibly the most overlooked part of the capital budgeting process is the search for
new opportunities through innovation and creative thinking.
2) The Gramm-Leach-Bliley Act repealed the Bretton Woods Agreement.
3) Investors in the retirement phase of their life cycle tend to prefer reinvestment of
dividends by firms.
4) Although NASDAQ is a secondary market, some of the firms traded there, such as
Microsoft, are large enough to move to the primary market if they so desire.
5) Expected value is defined as £DP where the outcomes are D and probabilities are P.
6) Retained earnings shown on the balance sheet represents available cash on hand
generated from prior year’s earnings but not paid out in dividends.
7) The conversion price divided into the market value of a convertible bond provides
the conversion ratio.
8) The weighted average cost of capital is generally used as the discount rate in a
bond-refunding decision.
9) Because of their lower levels of risk to the underwriter, debt issuances have lower
spread percentages than equity percentages, and smaller issuances have lower spread
percentages than large issuances.
10) The use of common stock equity in the weighted average cost of capital is always
(Ke) and not (Kn), the cost of new common stock.
11) One of the primary disadvantages of maximizing shareholder value is that it only
provides a short-term perspective.
12) The primary rationale for repealing the Glass-Steagall Act was that the U.S.
Congress recognized the necessity for increased growth in the investment banking
industry within the U.S.
13) When inflation rises, preferred stock prices fall.
14) As the risk-free rate increases, the required rate of return for common stock
decreases.
15) If we examine the ratio of working capital to sales, we can see that for the last
several decades, firms’ liquidity has been increasing.
16) The risk premium is equal to the required yield to maturity (or rate of return) minus
both the real rate of return and the inflation premium.
17) A firm that perhaps suffers a loss as a result of a decline in the value of the Japanese
yen could offset part of that risk by selling Japanese yen futures.
18) A cash flow statement is considered correct if the net cash flow ties to the ending
cash balance.
19) When an investor buys stock in the stock market, he is purchasing shares from a
company.