Which of the following is (are) effective in controlling the agency problem?
A.Tie a large part of managements’ compensation to company profit
B.Offer numerous perquisites
C.Employ auditors to periodically review company books
D.Both a and c
Subordinated debt means debt that is:
A.higher in rank.
B.paid before other debts.
C.lower in priority for payment of principal and interest.
D.senior in rank.
Cash flow from operating activities is increased by:
A.depreciation.
B.an increase in accounts receivable.
C.an increase in inventory.
D.a decrease in accounts payable.
E.All of the above
Assume a firm has declared a 20% stock dividend on its 1 million shares of outstanding
$5 par value common stock. If the market value of the stock at the date of the stock
dividend is $14 per share and the retained earnings account balance before the stock
dividend was $7,600,000, what is the retained earnings account balance after the stock
dividend?
A.$3,600,000
B.$1,960,240
C.$7,600,000
D.$4,800,000
A combination of companies that have a buyer-seller relationship is a:
A.conglomerate merger.
B.vertical merger.
C.horizontal merger.
D.takeover.
The relationship between NPV and IRR is such that:
A.both approaches always provide the same ranking of alternative investment projects.
B.the IRR of a project is equal to the firm’s cost of capital if the NPV of a project is $0.
C.if the NPV of a project is negative, the IRR must be greater than the cost of capital.
D.None of the above
The probabilities along a path are called ____ probabilities.
A.joint
B.conditional
C.complex
D.None of the above
If the U.S. dollar weakens against the British pound, which of the following will not be
true?
A.British goods will be more expensive in the US.
B.U.S. production will diminish because of reduced demand for U.S. products in
Britain.
C.U.S. goods will be less expensive in Britain.
D.All of the above are true.
After the initial sale of a security, subsequent sales between investors are carried out in
the:
A.stock market.
B.financial market.
C.secondary market.
D.primary market.
If a $1,000, 8% coupon rate bond currently sells for $627.76 and has 15 years
remaining to its maturity, what is the bond’s and the market’s yield?
A.8.00%
B.14.00%
C.7.00%
D.16.00%
The current market price of a common stock is $22.50. The annual dividend just paid
was $1.70 per share. It is expected to grow indefinitely at 6%. What is the cost of new
equity if floatation costs are 15%?
A.13.56%
B.14.01%
C.14.89%
D.15.42%
E.16.07%
When a loan is amortized over a five year term, the:
A.rate of interest is reduced each year.
B.amount of interest paid is reduced each year.
C.payment is reduced each year.
D.balance is paid as a balloon payment in the fifth year.