Estimate the cost of new equity using the Gordon or dividend growth model, if last
year’s dividend was $2.00, the anticipated constant growth rate is 5%, the stock’s selling
price is $30 per share, and flotation costs are estimated to be 10%?
A.7.8%
B.12.0%
C.7.0%
D.12.8%
There’s a strong argument that terminal values based on infinite projections shouldn’t be
used in capital budgeting because of the uncertainty of the distant future. This position
maintains that if a project can’t be justified in a reasonably long time, it shouldn’t be
undertaken. The time frame associated with this argument is usually about:
A.5 years.
B.10 years.
C.20 years.
D.None of the above
To create CDOs, a bank sells most of its loans to _____ that specializes in issuing
securities and bundles the loans into a pool.
A.an investment bank
B.a federal bank
C.the government
D.borrowers
Kermit’s Hardware’s (KH) fixed operating costs are $20.8 million and its variable cost
ratio is 0.30. The firm has $10 million in bonds outstanding with a coupon interest rate
of 9%. KH has 200,000 shares of common stock outstanding. The firm has revenues of
$32.2 million and its marginal tax rate is 40%. Compute KH’s degree of total leverage.
A.26.8
B.5.5
C.29.1
D.4.7
____ are liquid investments that can be held instead of cash and earn a modest return.
A.Fixed asset investments
B.Marketable securities
C.Real estate securities
D.Treasury bonds
Use the following information to calculate your company’s expected return.
A.11%
B.13%
C.15%
D.17%
Which of the following statements best addresses the role of government in the
stabilization of exchange rates?
A.Government is not overly concerned with the movement of exchange rates because it
does not have a significant impact on the local economy.
B.Governments prefer to see the local currency strengthen against foreign currencies
because imports become cheaper.
C.Governments prefer to see the local currency weaken against foreign currencies
because exports become cheaper and demand for local products increases.
D.Ultimately, governments can exercise very tight control over exchange rates by
purchasing and selling their own currency.
E.None of the above accurately addresses the role of government in the stabilization of
exchange rates.
A firm that employs relatively large amounts of labor-saving equipment in its
operations will have a relatively ____ degree of operating leverage.
A.low
B.constant
C.insignificant
D.high
Devin Corporation generally collects 20 percent of its sales in the month of sale, 30
percent in the next month, 40 percent in the next month, and 10 percent in the third
month after the sale. Based on a sales forecast of $60 for March, $100 for April, $75 for
May, and $85 for June, estimate cash collections for June.
A.$80.5
B.$83.0
C.$85.5
D.$88.5
A project is expected to last ten years with an initial cost of $10,000.00. Assuming the
present value payback method produces a value of 7.25 years and there are no
additional costs beyond the initial cost, the PI is ____.
A.less than 1.0
B.greater than 1.0
C.equal to 1.0
D.undetermined
Which statement is true?
A.The finance department has an oversight responsibility for the effective management
of the money other departments spend.
B.The Vice President of Finance is usually a position very different from that of a CFO.
C.The finance department will oversee the selling of stock, but not the paying of
dividends.
D.Individual departments determine the feasibility of projects, while the finance
department is only concerned with the funding of the project.