Which of the following is TRUE?
A.A bond’s price moves to par value as it approaches maturity.
B.Bond ratings measure the maturity risk associated with a given bond.
C.Bonds are referred to as amortized debt due to the fact that interest and principal
payments are made to the lender until maturity.
D.Both a & b
Taxable income is:
A.total income excluding exempt items less deductions and exemptions.
B.gross income less deductions.
C.the sum of everything a person makes.
D.gross income less state taxes, mortgage interest, and charitable contributions.
Which of the following is most correct?
A.The present value of an annuity due is always larger than the present value of an
ordinary annuity with the same cash flows.
B.The future value of an annuity due is always larger than the future value of an
ordinary annuity with the same cash flows.
C.The future value of an ordinary annuity is always larger than the future value of an
annuity due with the same cash flows.
D.Both a and b are correct.
E.Both a and c are correct.
Which of the following is(are) not related to the extension of credit to customers?
A.Compensating balances
B.Prompt payment discounts
C.Quantity discounts
D.a and c
Which of the following is considered a relevant cash flow?
A.A market feasibility study already performed prior to the project
B.Interest expense associated with financing the project
C.Initial cost of hiring and training employees
D.Both b & c
E.All of the above
The ratio of EBIT to interest expenses is known as the:
A.quick-ratio.
B.debt-to-assets ratio.
C.debt-to-equity ratio.
D.times interest earned.
E.None of the above
A company has EBIT of $2,400,000 and interest expense of $300,000. What is its DFL?
A.8.0
B.0.125
C.1.1429
D.Not enough information to determine the answer.
Because of conflicts of interest between shareholders and management, it is in the
interest of shareholders to monitor management’s performance through:
A.regular management letters to shareholders.
B.visits to the corporate facility.
C.attendance at the annual shareholder meetings.
D.periodic financial reports reviewed by independent auditors.
Assume the following facts about a firm that sells just one product:
What is the firm’s annual breakeven volume in units?
A.417 units
B.1,250 units
C.5,000 units
D.1,667 units
Operating leverage involves the use of:
A.equity and debt in equal proportions.
B.market power.
C.debt.
D.fixed costs.
Sally’s broker told her that the expected return from her portfolio was 14.2%. If 40% of
her securities have an expected return of 10.3 percent and 20% have an expected return
of 12.8 percent, what is the expected return of the remaining portion of her portfolio?
A.20.9%
B.18.8%
C.12.5%
D.Cannot be determined
John is 25 years old and wishes to retire in 30 years. His plan is to invest in a mutual
fund earning a 12 percent annual return and have a $1 million retirement fund at age 55.
How much must he invest at the end of each year to achieve this goal?
A.$7,499.96
B.$5,024.60
C.$4,143.65
D.$33,333.33
Which of the following component costs is expressed on an after-tax basis in the
calculation of a firm’s cost of capital?
A.Cost of debt
B.Cost of preferred stock
C.Cost of common equity
D.b and c
E.All of the above
Which of the following is true?
A.Transaction gains/losses are taxable, translation gains/losses are not.
B.Transaction gains/losses arise from having assets and liabilities in another country
when exchange rates change.
C.Translation gains/losses are “real,” transaction gains/losses are not.
D.Translation gains/losses arise from variations in exchange rates between order and
shipment.
Which of the following is not a cash flow consideration in evaluating a proposed capital
project?
A.Increases in net working capital
B.Basic overhead expenses
C.Sales lost from other parts of the company because of the project
D.Foregone depreciation resulting from a replacement machine
Which statement is most consistent with the efficient markets hypothesis?
A.Information in the market is always assessed correctly.
B.Information is reflected in security prices almost immediately.
C.Chartists have an advantage because the market is predictable.
D.Investors cannot consistently earn a positive return on investment over time.
The first step in the capital budgeting process is the identification of the project’s:
A.cost of capital.
B.incremental cash flows.
C.investment requirement.
D.overall cash flows.