In a merger, all but one of the combining firms ceases to exist as a legal entity.
International transactions handled on a cash basis are subject to a high degree of
exchange rate risk.
The following is an accurate schematic representation of a stock market transaction:
Seller-Local Broker-Specialist-Local Broker-Buyer
In a pledging agreement the borrower is obligated for default on any account
receivable.
The business planning spectrum is a graphic depiction of how the types of plans vary in
time horizon and detail.
Because of the short-term nature of working capital assets and liabilities, it is always
necessary to support working capital with short-term borrowing. To do otherwise would
violate the matching principle, which is of paramount importance in financial
management.
The Securities and Exchange Commission (SEC) supervises the trading of securities,
approves new issues, and ensures that individuals do not take advantage of information
available only to them and not to the public.
The sole driving force behind investor expectations about returns is always the
company’s potential sales.
Financing long-term projects with short term financing is risky because the bank may
refuse to renew the short-term loan when it comes due.
Processing float in the check clearing system is the time required for checks to clear
through the banking system.
The Du Pont equation, enables the financial analyst to evaluate the interaction of basic
profitability, the efficient use of resources, and the degree to which the company uses
debt financing.
Treasury (federal government) securities are default and maturity risk free.
Although it is recommended that the return on assets ratio be formulated to reflect
average assets, either way (average assets or ending assets), the result discloses the
firm’s capacity to utilize its assets efficiently without regard to the sources of capital
that fund the assets, while the return on equity can bias the results by the degree to
which the company leverages itself (uses debt).
The dividends paid to investors are adjusted for floatation expenses to arrive at the
company’s cost.
The price of a share of stock today is $50.00, and the projected selling price in one year
is $55.00. The estimated dividend during the year is $1.00. The expected return on the
stock is:
A.12.00%.
B.2.00%.
C.10.91%.
D.10.00%.
Which of the following defensive tactics is not appropriate after a takeover attempt is
underway?
A.Issue debt and repurchase its own shares
B.Adopt a poison pill
C.Claim an antitrust violation
D.Seek a white knight
Which of the following describes the cash conversion cycle?
A.From the purchase of inventory to the collection of cash from the sale of that
inventory.
B.From the payment for inventory to the sale of that inventory.
C.From the payment for inventory to the collection of cash from the sale of that
inventory.
D.From the purchase of inventory to the sale of that inventory.
E.None of the above describes the cash conversion cycle.
The narrower the probability distribution of expected future returns, the smaller the
____ of a given investment.
A.risk
B.variance
C.standard deviation
D.Both a & b
E.All of the above
Subjective benefits:
A.based upon opinions are hard to quantify.
B.are unethical.
C.contain bias.
D.All of these are correct.
Yang Centers has a book value of $8.75, a 10% cost of debt, operating income of
$500,000, and a 30% tax rate. If Yang Centers finances 75% of its $4 million of total
capital needs with debt, what is its earnings per share?
A.$0.88
B.$1.22
C.$1.75
D.$2.21
A car loan that charges 1.25% interest per month has an annual percentage rate of:
A.12.50%.
B.13.55%.
C.15%.
D.None of the above
The risks that diversification cannot eliminate are:
A.interest rate risk.
B.risk due to a recession.
C.inflation risk.
D.systematic risk.
E.All of the above
Kirchner Exports has a beta of 1.2. The risk free rate is 5% and the return on an average
stock is 10.6%. Estimate Kirchner’s cost of retained earnings.
A.10.60%
B.11.72%
C.12.72%
D.13.72%
E.16.60%
Cash flow from operating activities is increased by:
A.an increase in accounts receivable.
B.an increase in inventory.
C.depreciation.
D.an increase in accounts payable.
Felix Industries purchased a grinder 5 years ago for $15,000. It is being depreciated on
a straight-line basis over 15 years to an estimated salvage value of zero. It could be sold
now for $6,000. The firm is considering selling it and purchasing a new one. The new
grinder would cost $25,000 installed and would be depreciated on a straight-line basis
over 10 years to a zero estimated salvage value. The company’s marginal tax rate is
40%. Determine the net investment if the old grinder is sold and the new one purchased.
A.$19,000
B.$16,600
C.$17,400
D.None of the above/cannot be computed
The contractual document containing restrictive covenants that limit the borrower’s
activities while a bond is outstanding is called:
A.a debenture.
B.an indenture.
C.a sinking fund.
D.Both a and b
E.All of the above
Supporting working capital with long-term financing is:
A.risky, but inexpensive.
B.conservative, but expensive.
C.expensive and risky.
D.conservative and inexpensive.
Preferred stock dividends are:
A.paid on demand.
B.amortized.
C.a perpetuity.
D.due at the end of an investment.
Typically debt financing can be either short- or long-term, whereas equity financing is
almost always long-term, the word “term” meaning:
A.the time between a security’s issue and its retirement.
B.the duration specified on all debt and equity securities.
C.the amount of time necessary to realize the required return on the investment.
D.All of the above
What is the sustainable growth rate of a firm with the following selected financial
results
A.25%
B.7%
C.8.75%
D.17.5%