1) Unlike convertible securities, warrants cannot be called, but their limited life
stimulates holders to exercise them when the exercise price is below the market price of
the firm’s stock.
2) In general, the greater a firm’s operating leverage, the higher its business risk.
3) In the case of liquidation, bondholders are paid first, followed by preferred
stockholders, followed by common stockholders.
4) The official melding of the national currencies of the European Union into one
currency, the euro, created the European monetary union in 2002.
5) Holders of record are stockholders whose names are recorded on the date of record
receive the declared dividend.
6) A compensating balance not only forces the borrower to be a good customer of the
bank but may also raise the interest cost to the borrower.
7) The cost of retained earnings will always equal the cost of preferred stock.
8) Net present value profiles are most useful when selecting among independent
projects.
9) A sunk cost is a cash outlay that has already been made and cannot be recovered.
10) If a firm increases its cash discount period, the firm’s investment in accounts
receivable due to discount takers still getting cash discounts but paying later is expected
to increase.
11) Whenever the percentage change in earnings before interest and taxes resulting
from a given percentage change in sales is greater than the percentage change in sales,
operating leverage exists.
12) Which of the following is a reason for growth of the Euromarket?
A) The sudden decline of U.S dollars after the introduction of Euro
B) The functional-currency-denominated financial statements of the foreign subsidiary
were translated into the parent’s currency without authorization
C) The existence of offshore centers caused massive financial losses and problems for
MNCs
D) The consistently large U.S. balance-of-payments deficits helped scatter dollars
around the world
13) If the coupon rate of a bond is equal to its required rate of return, then ________.
A) the current value is not equal to par value
B) the current value is equal to par value
C) the maturity value is equal to par value
D) the current value is equal to maturity value
14) A beta coefficient of -1 represents an asset that ________.
A) is more responsive than the market portfolio
B) has the same response as the market portfolio but in opposite direction
C) is less responsive than the market portfolio
D) is unaffected by market movement
15) Yield to maturity on a bond with price equal to its par value will ________.
A) be less than the coupon rate
B) be more than the coupon rate
C) always be equal to the coupon rate
D) be less than or equal to the coupon rate depending on the required return
16) Table 15.3
Ace’s Business Forms has compiled several factors relative to its financing mix. The
firm pays 8 percent on short-term funds and 10 percent on long-term funds. The firm’s
monthly current, fixed, and total asset requirements for the previous year are
summarized in Table 15.3.
Determine:
(a)the monthly permanent funds requirement
(b)the monthly average seasonal funds requirement
(c)the annual financing costs (aggressive strategy)
(d)the annual financing costs (conservative strategy)
17) Which of the following is true of an aggressive funding strategy of a firm?
A) Under an aggressive funding strategy, a firm funds it seasonal requirements with
bonds and long-term loans
B) Under an aggressive funding strategy, a firm funds its seasonal requirements with
short-term debt
C) Under an aggressive funding strategy, a firm funds both its seasonal and its
permanent requirements with long-term debt
D) Under an aggressive funding strategy, a firm funds it permanent requirements with
commercial paper and notes payable
18) The future value of a dollar ________ as the interest rate increases and ________
the further in the future an initial deposit is to be received.
A) decreases; decreases
B) decreases; increases
C) increases; increases
D) increases; decreases
19) An ethics program is expected to have ________ impact on a firm’s share price.
A) a positive
B) a negative
C) no impact
D) an unpredictable
20) Investment banks are institutions that ________.
A) perform all activities of commercial banks and retail banks
B) are exempted from Securities and Exchange Commission regulations
C) engage in trading and market making activities
D) are only limited to capital market activities
21) A(n) ________ is useful in evaluating credit policies.
A) average payment period
B) current ratio
C) average collection period
D) inventory turnover ratio
22) The EBIT-EPS approach to capital structure proposes that an optimal capital
structure be selected which ________.
A) maximizes the weighted average cost of capital
B) minimizes the cost of debt
C) maximizes the EPS
D) minimizes dividends
23) The percent-of-sales method to prepare a pro forma income statement assumes a
firm has no fixed costs. Therefore, the use of the past cost and expense ratios generally
tends to ________ profits when sales are increasing.
A) accurately predict
B) overstate
C) understate
D) have no effect on