Shanghai Shipping is considering investing in a project that requires an after-tax initial
investment of 156 million and is expected to produce after-tax cash inflows of $40
million for each of the next five years. The firm’s cost of capital is 10%. Based on this
information, the IRR of the project is _________ percent and the firm should
_________ the project.
a. 9.9; accept
b. 9.9, reject
c. 8.9, accept
d. 8.9, reject
e. none of the above
If a Microsoft January 20 call option hada strike price of $20 and the market price of
the underlying Microsoft stock was $25.62, the call option would be
_______________.
a. in-the-money
b. out-of-the-money
c. fairly priced
d. not enough information to tell
All of the following statements regarding capital structure weights in the WACC
equation are correct except:
a. The weights represent a specific intended financing mix.
b. These target weights represent a mix of debt and equity that the firm will try to
achieve or maintain over the planning horizon.
c. As much as possible, the target weights should reflect the combination of debt and
equity that management believes will maximize the firm’s weighted average cost of
capital.
d. The firm should make an effort over time to move toward and maintain its target
capital structure mix of debt and equity.
e. All of the above statements are correct.
__________________ assess both the collateral and the ability of the issuer to make
timely interest and principal payments.
a. Bond covenants
b. Bond indentures
c. Bond ratings
d. none of the above
When a project’s net present value exceeds zero, then:
a. the project should be accepted
b. the project will be acceptable using the payback period method
c. the IRR should be calculated to ensure that the project’s IRR exceeds the cost of
capital
d. both a and c are true
Which of the following is not an influence affecting a firm’s capital structure choices?
a. corporate control
b. maturity matching
c. timing
d. all the above affect a firm’s capital structure choices
Suppose you receive $3,000 a year in Years One through Four, $4,000 a year in Years
Five through ine, and $2,000 in Year 10, with all the money to be received at the end of
the year. If your discount rate is 12%, what is the present value of these cash flows?
a. 18,926.12
b. 19,560.80
c. 20,651.24
d. 24,175.00
One way a firm can reduce the amount of cash it needs in any one month is to
a. speed up the collection of receivables
b. delay the payment of wages
c. delay the payment of taxes
d. delay the payment of payables
e. all of the above
The central bank in the United Kingdom is the:
a. Bank of Britain
b. British Fed
c. British Bank
d. Bank of England
e. none of the above
Which of the following statements is most correct?
a. The probability of an event occurring is the percentage of a given outcome.
b. A continuous probability distribution shows all possible outcomes and associated
probabilities for a given event.
c. The standard deviation measures the dispersion around the expected value.
d. The coefficient of variation is a measure of relative dispersion used in comparing the
risk of assets with differing expected returns.
e. all of the above
Which of the following activities is not the responsibility of registered traders?
a. buy and sell stocks for their own accounts
b. pay no commissions
c. match up buy and sell orders
d. all the above
e. none of the above
The brokers who handle the house broker’s overflow are called:
a. specialists
b. registered traders
c. independent brokers
d. all the above
The United States was one of the last major industrial nations to adopt a permanent
system of central banking.
The operating cycle is the inventory conversion period plus the accounts receivable
period.
Convertible preferred stock has a special provision that makes it possible to convert it
to common stock of the corporation, generally at the stockholder’s option.
All firms can use shelf registration which saves issuers both time and money.
A firm with an inventory period of 100 days and an accounts payable period of 50 days
will have an operating cycle of 150 days.
An increase in the cash conversion cycle would lead to an increase in the firm’s
short-term needs and financing costs.