If the direct quote shows the Canadian dollar at $.7376, prices stated in American
dollars will be higher than the prices for the same goods stated in Canadian dollars.
Marketable securities are also referred to as near cash or cash equivalents.
Foreign firms can finance facilities in the United States, by issuing foreign bonds,
which are denominated in the currency of the borrower’s country but sold in the U.S.
Free trade advocates argue that low Chinese product prices are hampering the American
manufacturers and are begging the government to impose tariffs on Chinese imports to
level the playing field.
Bond price changes brought about by interest rate changes are smaller for bonds of long
maturity than for bonds of short maturity.
Spontaneous financing can take the form of current liabilities or long-term debt.
Because investment banks pass newly issue securities through to investors, the process
is considered a direct transfer of funds from investors to companies.
A fundamental issue of dividend policy is whether stockholders prefer dividend income
or capital gains.
Executive bonuses are often tied to the achievement of goals spelled out within the
firm’s business plan.
With a combined federal and state corporate tax rate of 40% and a market yield of 8%
on long-term debt, the after-tax cost of debt is 3.20%.
When company A and company B combine to form company C, the action is referred to
as a merger or an acquisition.
At the appropriate interest rate people are indifferent between the present and future
values of a sum of money.
A firm can never go out of business as long as it makes a profit, even if it manages its
cash poorly.
If a company has attracted a “clientele” of shareholders who like receiving dividends
and who were attracted to the firm because it does pay out most of its earnings in
dividends:
A.the company would be wise to avoid changing its dividend practices.
B.the company should attempt to modify its dividend practices and find an investor
clientele that favors income through capital appreciation, so it can retain earnings and
grow.
C.Neither a nor b
D.Both a and b
Ratios by themselves have some value, but not nearly as much as they have when
compared with other similar figures. Which of the following comparisons are generally
used by managers and analysts?
A.Historical
B.Competition
C.Budgeted
D.All of the above
Use the following information for questions 9-A and 9-B: Dowen Corp. purchased a
piece of equipment two years ago for $40,000. It has been depreciated straight line over
a five- year life with an expected salvage value of $10,000. Dowen is considering
replacing this equipment with a machine that would cost $80,000 and would be
depreciated on a straight line basis over 10 years with a projected salvage value of zero.
The old piece of equipment can be sold today for $22,000. The applicable tax rate is
40%.A. What is the initial outlay for this project?
a. $55,600
b. $58,000
c. $60,400
d. $72,000
e. $80,000B. What is the change in depreciation in Year 3 of the new machine’s life?
a. $2,000 increase
b. $2,000 decrease
c. $6,000 increase
d. $8,000 increase
e. $8,000 decrease
A call provision:
A.is exercised when interest rates are falling.
B.increases risk to the bondholder.
C.can be exercised any time after a bond is issued.
D.Both a & b
E.All of the above
Depreciation matches the recognition of a long lived asset€s cost with its service life.
An example of this kind of asset would be:
A.office supplies for a private school.
B.raw materials for a textile plant.
C.phone jacks for an electronics store.
D.machinery for a factory.
All of the following are defensive measures except:
A.black night.
B.staggered board elections.
C.super majority voting rules.
D.poison pills.
Portfolio theory makes it possible to incorporate Risk into capital budgeting through
risk adjusted returns. However, portfolio theory omits an important element of risk that
is relevant in capital budgeting. That missing element is:
A.systematic risk.
B.unsystematic risk.
C.market risk.
D.liquidity risk.
Belvedere, Inc. has an annual payroll of $250,000. The firm pays employees every two
weeks on Friday afternoon. Last month, the books were closed on the Thursday after
payday. How much is the payroll accrual at the end of the month? (Round to nearest $)
A.$2,852
B.$3,846
C.$4,780
D.$5,119
The effective rate of interest will always be ____ the nominal rate.
A.greater than
B.equal to
C.less than
D.equal to or greater than
Which of the following is not one of the most common dividend policies?
A.Stable dividends
B.Target payout ratio
C.Discretionary dividend
D.Small regular dividend with extras when earnings permit