Conglomerate mergers don’t generally have significant anticompetitive effects.
The optimal capital structures can be precisely calculated with the latest technology.
Unlike car loans, mortgage loans on real estate generally require larger payments of
principal in the early years of the mortgage and lower payments of interest in the later
years.
The real risk-free rate of interest is determined by the Federal Reserve.
A firm can increase the size of the cash discount received by paying on the first day of
the discount period rather than on the last day.
When a new stock is introduced into a portfolio and the ups and downs of its return
appear to coincide with those of the portfolio’s return, the stock’s return is said to be
perfectly positively correlated with the portfolio’s, and its addition will reduce portfolio
risk.
Risk can be defined as the probability that the return on an investment will turn out to
be more or less than the investor expected when the investment was originally made.
Preferred stock is referred to as a cross between debt and common equity because it has
some characteristics of each.
A worst case scenario analysis evaluates the potential cash flows for a project that
represent the worst possible outcome for the project.
The income statement reflects flows of money over a period of time. The balance sheet
represents stocks of money at a point in time.
Acquiring a firm with a tax loss can shelter the acquirer’s earnings, unless the primary
reason for the merger is:
A.diversification to reduce risk.
B.to benefit from economies of scale.
C.to lock in the acquired firm’s source of critical supplies.
D.tax avoidance.
Holding cash for speculative demand refers to:
A.keeping cash on hand to pay for emergency needs.
B.holding cash to compensate banks for the services they perform.
C.keeping money in the bank to pay bills for the goods and services they use.
D.keeping cash to take advantage of unexpected opportunities.
HBA Limited purchased equipment manufactured in Australia. The contract was for
10,000,000 Australian dollars, due in 180 days. The present exchange rate in US dollars
is $.51 per Australian dollar and the 180-day forward rate is $.514. If the rate actually
goes to $.50 in 180 days, what is the US dollar gain or loss incurred if no hedge is taken
relative to a hedged position?
A.$392,157 gain
B.$ 40,000 loss
C.$100,000 gain
D.None of the above
If a vendor’s invoice states terms of sale of 2/10 net 60, the implied annual cost of
interest from foregoing the discount would be:
A.13.2%.
B.14.6%.
C.2.0%.
D.13.7%.
If you were to borrow $10,000 over five years at 12% compounded monthly, what
would be your monthly payment?
A.$122.44
B.$222.44
C.$168.38
D.$187.28
You have just won a lottery that promises to pay you and your heirs $1000 dollars a
month forever. How much could you get for this stream of cash if the rate of return is
6% compounded monthly?
A.$200,000
B.$166,667
C.$943,520
D.None of the above
The ____ method consists of regressing historical values of a division€s return on
equity against the return on a major stock market index.
A.accounting beta model
B.CAPM
C.overlay
D.pure play
Stockholders sell their investment:
A.at the prevailing market price.
B.when the board of directors call for the stock.
C.for the price they paid plus interest.
D.when the preferred stock holders demand.
The two distinctly different parts of the movement of stock returns are:
A.market risk and systematic risk.
B.business-specific and unsystematic risk.
C.unsystematic risk and systematic risk.
D.All of the above
If the current ratio is below one then:
A.net working capital is zero.
B.net working capital is greater than zero.
C.net working capital is greater than one.
D.net working capital is less than zero.
Ship-to-Shore had a net income of $280,000 last year. Its expenses included
depreciation of $55,000 and interest of $40,000. It sold new stock for which it received
$20,000. The company also purchased a new commercial fishing boat for $40,000.
What is Ship-to-Shore’s net cash flow for last year?
A.$395,000
B.$355,000
C.$315,000
D.$280,000
An expected physical or economic condition that dictates the size of one or more
financial statement items is a:
A.cash budget.
B.stretch plan.
C.planning assumption.
D.sustainable growth rate.
____ are contracts that give the owner a temporary right to buy an asset from the
issuing firm at a fixed price.
A.Bonds
B.Futures
C.Options
D.Warrants
Financial leverage decreases a firm’s ROE and EPS under which of the following
circumstances?
A.ROCE > cost of debt
B.ROCE = cost of debt
C.ROA = after tax cost of equity
D.ROCE < after tax cost of debt
The principal business of commercial banks is to make short-term loans to businesses.
About two thirds of commercial bank loans are for less than:
A.six months.
B.three years.
C.nine months.
D.one year.
A project’s ____ is the sum of the present values of all cash inflows and outflows
discounted at the cost of capital.
A.NPV
B.IRR
C.payback period
D.All of the above
Characteristics of a line of credit include:
A.guaranteed access to funds.
B.commitment fee.
C.annual clean-up period.
D.All of the above
E.None of the above
Foreign exchange rates are set by:
A.the International Monetary Fund.
B.ultimately, the demand within each country for the other country’s goods and
investments.
C.movements in the cross rate between the two countries.
D.government policy.