Breakeven analysis is widely used to determine the level of activity a firm must achieve
to stay in business in the:
A.short run.
B.long run.
C.short and long run.
D.None of these are correct.
____ working capital arises from the seasonal or cyclical nature of a company’s sales.
A.Current
B.Permanent current
C.Temporary
D.None of the above
The times interest earned ratio for a firm with earnings before taxes of $30,000, interest
expense of $3,000, and income after taxes of $24,000, is:
A.8 times.
B.10 times.
C.11 times.
D.None of the above
Holding all other variables constant, which of the following would DECREASE the Net
Working Capital investment required on a project?
A.Allowing customers a shorter time to pay for purchases
B.Taking a longer time to pay suppliers
C.Reducing inventory levels
D.Both a & c
E.All of the above
The security market line proposes that the required rates of return are determined by the
following formulation:
A.km= krf+ (kx– krfx.
B.kx= krf+ (km– krfx.
C.krf= kx+ (km– kxx.
D.kx= krf+ (km– krfm.
Which of the following statements is most correct?
A.Business-specific risk cannot be eliminated by diversification.
B.Investors are not compensated for bearing business specific risk.
C.Risk that cannot be diversified away is the risk peculiar to the stock under
consideration.
D.You cannot ignore the business-specific risk even if you hold a very large portfolio.
E.All of the above statements are correct.
The prices that investors pay for securities are determined by:
A.The collateral of the firm’s liabilities and the profitability of the firm.
B.The profits of the firm and the stability of those profits.
C.What financial advisors think of the company.
D.The cash flows investors expect to receive from owning them.
Commercial paper:
A.is normally issued by smaller firms that require cash for less than 270 days.
B.is normally purchased by insurance companies and mutual funds that have excess
funds to invest for a short period.
C.is considered very safe and pays interest rates slightly below 3-month treasuries.
D.requires SEC registration.
E.All of the above are correct regarding commercial paper.
A stock that is risky on a stand-alone basis:
A.is just as risky in a portfolio.
B.is one that just about never produces a return that’s higher than expected.
C.is likely to produce a return that is substantially different from its mean or expected
return.
D.will have no effect on a portfolio’s risk if it is added carefully.
A revolving credit agreement:
A.is similar to a line of credit except that it is binding on the bank.
B.does not guarantee the availability of funds.
C.requires the lender to pay a commitment fee.
D.Both a& c.
E.All of the above
Why should the debt portion of the WACC be adjusted for tax?
A.Because the interest paid on debt is not taxable at the firm level
B.Because the interest paid on debt is not taxable at the investor level
C.Because all components of the WACC are not taxable
D.Because the principle paid on the debt is not taxable at the firm level
Three $1,000, 8% coupon rate bonds have 2,10 and 20 years until maturity respectively.
If interest rates move up to 10%, the following bond prices will occur: $828.36,
$964.54, and $875.39. Which term goes with which price?
A.two years/$875.39, 10 years/$964.54, 20 years/$828.36
B.two years/$964.54, 10 years/$875.39, 20 years/$828.36
C.two years/$875.39, 10 years/$828.36, 20 years/$964.54
D.two years/$964.54, 10 years/$828.36, 20 years/$875.36
A financial market is a(n):
A.framework or organization in which investors can buy and sell securities.
B.agency setup to certify creditworthiness of companies.
C.market place that requires physical presence for participation.
D.market in which both financial and real assets can be sold.
Joan is saving to open her own dress shop in 10 years. She currently has $10,000. In
addition, she plans to save $2,000 per year for the next 5 years and $3,000 per year for
the following 5 years. How much will Joan have in 10 years if she earns a 10 % return
on her savings?
A.$76,129
B.$63,925
C.$44,255
D.$159,370
If current interest rates are higher than a bond’s coupon rate, owners can:
A.hold the bond until maturity, at which point its market value will equal its face value.
B.sell the bond at a premium, because investors are sensitive to price changes in bonds
caused by increased interest rates.
C.sell the bond at a discount, because investors recognize that the lower the bond’s price
the higher is its yield.
D.a and c
A call provision allows bond issuers to retire bonds before maturity by:
A.discounting the face value of the bonds.
B.paying premiums to bondholders.
C.paying higher interest rates.
D.penalizing the bondholders.
As an American businessperson, you plan to visit Germany to expand your business.
You determine that you will need approximately $1000 American dollars to spend while
in Germany. The euro is quoted as $.9099. How many euros will you be able to
purchase with the $1000?
A.¬1,099
B.¬909.9
C.¬90.99
D.¬109.9
Capital projects are said to be mutually exclusive when:
A.the financial viability of a single project is being evaluated.
B.two or more projects are being evaluated and doing one precludes doing another.
C.one project is much easier to do than another.
D.b and c
If your parents put $2,000 a year into an IRA account for you in each of your last 4
teenage years (age 16,17,18, and 19), how much would the IRA account have in it at
your retirement 45 years later if the account earned 12% each year? (Assume
end-of-year payments.)
A.$1,567,455
B.$68,613
C.$3,457,169
D.$1,148,958