Under the fixed rate system, exchange rates were set by international treaty and
administered by the International Monetary Fund.
The firm’s cost of capital is a weighted average of the specific costs of debt and equity
and preferred stock.
Responsibilities of the chief financial officer are similar to the responsibilities of the
corporate controller when associated with the financial decision making process.
The return earned by investors on the security underlying a capital component is its
cost.
There is no immediate cash flow impact from the conversion of convertible debt.
Capital budgeting results are no more accurate than the projections of the future used as
inputs.
An increase in a firm’s payout ratio increases current dividends received by a
stockholder at the expense of lower future dividends.
Project proposals often come with favorably biased input assumptions. The finance
department should ensure that only reasonable assumptions are used in the capital
budgeting process.
A progressive tax system taxes incremental income at progressively higher rates.
The financial plan is the section of the business plan that sets forth projected financial
statements over the planning period.
A business combination can expand the value of combining firms due to the effect of
economies of scale.
The EAR associated with credit cards is actually the nominal rate and is less than the
APR.
The corporate tax system takes away the benefit of low rates on early income as income
increases.
The forward market enables companies to transfer foreign exchange risk to
professionals who are in the business of bearing such risks.
Acquiring firms rarely pay more than a small premium over their target’s premerger
market price, because to do so would be an irrational transfer of wealth to the target’s
stockholders.
Finance has its theoretical roots in ____, but requires a practical understanding of ____.
A.accounting, economics
B.accounting, the stock market
C.mathematics, accounting
D.economics, accounting
Century Corp and Haverty Inc. combined to form the Proton Company. Although the
term merger is loosely used to refer to many business combinations, this is technically
a:
A.merger.
B.acquisition.
C.consolidation.
D.combination.
Buying the stock of a French company is generally called making a(n):
A.direct investment in a foreign company.
B.foreign investment in France.
C.portfolio investment in a French company.
D.international investment.
The stock of Music City Inc. is selling for $37.50. The firm recently paid a dividend of
$1.10. What is its implied constant growth rate if the market return is 14 percent?
A.11.07%
B.14.0%
C.11.4%
D.10.75%
Which of the following is incorrect? Merger analysis is:
A.a straightforward capital budgeting exercise.
B.difficult because it’s hard for the acquirer to get an accurate estimate of the target’s
cash flows.
C.imprecise because of the variability of terminal value estimates.
D.not always performed rationally judging by the price premiums paid for many
acquisitions.
What type of merger listed below would have the most need for a holding company?
A.A vertical merger
B.A conglomerate merger
C.A horizontal merger
D.A consolidating merger
Which of the following is true of sunk costs?
A.Similar to opportunity costs
B.Not included in initial cash flow
C.Often combined with terminal cash flow
D.Deciding factor in most project decisions
E.Similar to variable costs
A four-year annuity of $1,000 annual payments at the end of each year, with a 10%
interest rate is worth how much today?
A.$2,914.67
B.$3,486.85
C.$3,169.87
D.None of the above
Which of the following equations is correct?
A.Dividends = Net income – Change in Retained Earnings
B.Dividends = Net income + Change in Retained Earnings
C.Dividends = Change in Retained earnings – Net income
D.None of the above
This year’s revenue is $2,000,0000 and the ACP is 75 days. Next year revenue is
forecast to grow by 20% and the ACP (based on a year-end balance) is planned to
improve to 60 days. What is the forecast for accounts receivable at the end of next year?
(Use a 360-day year.)
A.$333,333
B.$500,000
C.$400,000
D.$416,667
Which of the following is a part of the cash conversion cycle?
A.Bonds
B.Inventory
C.Equity stock
D.Depreciation
What is the debt/interest planning problem?
A.Planned debt is required to forecast interest, but interest is required to forecast debt.
B.Debt is constant, but interest varies through time.
C.The difficulty of knowing how much debt to issue because net income is constant.
D.The difficulty of knowing how much dividends to pay because debt is constant.
First Bank offers you a car loan at an annual interest rate of 10% compounded monthly.
What effective annual interest rate is the bank charging you?
A.10.38%
B.10.42%
C.10.45%
D.10.47%
Working capital increases when ____ decreases.
A.accounts receivable
B.inventory
C.accounts payable
D.cash
Bark Corporation’s 10% coupon rate bond was issued for 30 years 25 years ago at a par
value of $1000. Today’s interest rate is 10%, what is it selling for today?
A.$1000.00
B.$1150.00
C.$955.60
D.$988.00
With respect to valuation, stocks and bonds are dissimilar in that:
A.bond cash flows are known precisely while stock cash flows are estimates.
B.periodic bond interest payments form an annuity while dividends are unlikely to be
constant.
C.bond cash flows are contractual commitments, stock cash flows are not.
D.All of the above
According to the Capital Asset Pricing Model a stock’s risk premium is:
A.a price premium on low risk stocks that investors are willing to pay for safety.
B.the risk premium on an average stock factored by a measure of the stock’s market
risk.
C.the risk premium on an average stock factored by a measure of the stock’s total risk.
D.extra money paid for high risk stocks because they usually have high returns.