The overall rationale under which a firm pays dividends is referred to as its:
A.dividend practice.
B.corporate dividend preference.
C.dividend policy.
D.payout ratio.
The main purpose of a stock split is to:
A.give stockholders something that doesn’t cost the company anything.
B.keep the price in a trading range so it’s accessible to small investors.
C.immediately increase shareholder wealth.
D.send a positive signal when the firm can’t afford to give stockholders cash.
The capital structure that should be used to plan for next year’s capital program is the:
A.book value based capital structure.
B.market value based capital structure.
C.either the book value or the market value capital structure is satisfactory.
D.neither the book value or the market value capital structure is satisfactory.
Working capital policy involves a tradeoff between easier operation and ____.
A.more working capital
B.spontaneous liabilities
C.temporary financing
D.the cost of carrying short-term assets
A firm’s cost of capital:
A.is the rate at which it borrows from its bank.
B.is the average rate it pays investors for the use of their money (capital).
C.is the cost the facility housing its executive offices.
D.is the rate earned by its stockholders.
When estimating cash flows for capital budgeting projects:
A.interest expenses incurred to finance the project are included.
B.interest expense is considered in the cash flow estimates only if the financing is
principally from debt.
C.interest expense is never included in the cash flow estimates.
D.None of the above
NM Mining Company has a standard deviation on its common stock of 60 percent and a
correlation with market returns of 0.65. The market’s standard deviation and expected
return are 15 percent and 14 percent, respectively, and the risk-free rate of return is 8
percent. What is NM Mining’s beta?
A.3.5
B.2.6
C.1.0
D.0.06
The degree of total leverage is equal to the degree of operating leverage ____ the
degree of financial leverage.
A.added to
B.divided by
C.multiplied by
D.subtracted from
A bond is available for purchase that has a face value of $10,000, an 8% coupon,
payable semiannually, and 20 years of its original 25 years left to maturity.
Approximately how much would you pay for the bond if the market return on similar
bonds is 10%?
A.$8,184.60
B.$8,296.88
C.$8,283.64
D.$8,174.36
A cash flow is expected to be $500.00 (50% probability) or $1,000.00 (50%
probability) next year. Assuming the cash flow next year is $500.00, the cash flow the
following year is $400.00 (60% probability) or $600.00 (40% probability). Assuming
the cash flow next year is $1,000.00, the cash flow the following year is $1,200.00
(80% probability) or $2,000.00 (20%) probability. What is the probability of a
$1,200.00 cash flow two years from today?
A.40%
B.30%
C.20%
D.10%
What is the internal rate of return for a project that requires an initial investment of
$76,000 and then generates cash flows of $20,507 per year for 7 years?
A.16%
B.17%
C.18.2%
D.19%
The managerial value of planning includes:
A.the planning process brings the management team together.
B.a resulting road map for running the business.
C.planning that provides credibility to employees.
D.Both a & b
E.All of the above
Decision tree analysis shows a project to have several possible outcomes the best of
which has an NPV of $12M calculated over a five-year life. This best case path has an
overall probability of occurring of 20%. A real option is available at an initial cost of
$800,000 which will add a single $6M cash inflow to this best case path at its end. The
option doesn’t have a significant effect on the project’s risk. What is the option’s value?
The company’s cost of capital is 12%.
A.($3,404)
B.$2,604,000
C.($119,000)
D.$274,000
In a Leveraged buyout (LBO):
A.an acquiring company uses a great deal of debt to acquire a debt free target.
B.private investors buy the company’s stock using debt that’s secured by the firm’s own
assets.
C.the target’s debt is eliminated by the buyer’s leverage resulting in a debt free
company.
D.the buyers purchase the stock with their own money which leaves them free to
borrow heavily using their stock as collateral.
In general, which of the securities below has the most risk?
A.U.S. government bonds
B.Corporate bonds
C.Preferred stock
D.Common stock