A bond with an annual coupon payment of $100 originally sold at par for $1,000.
Market interest rates are currently 12%. This bond would be selling at a ____ in order
to compensate ____.
A.premium; the purchaser for the below market coupon rate
B.discount; the purchaser for the below market coupon rate
C.premium; the seller for the below market coupon rate
D.discount; the seller for the below market coupon rate
Firms prefer not paying _____if it avoids selling new stock, because _____cost less
than new equity.
A.dividends; retained earnings
B.cash; dividends
C.dividends; dividends
D.retained earnings; dividends
Use the following information to calculate the standard deviation of Macadam Corp.’s
returns.
A.8.6%
B.11.4%
C.19.2%
D.19.8%
The principal legal difference between a stockholder and a bondholder is:
A.the stockholder receives interest and the bondholder receives dividends.
B.only the bondholder can attend annual meetings.
C.the bondholder has an ownership interest and the shareholder is a lender.
D.the shareholder has an ownership interest and the bondholder is a lender.
Which of the following is a cash flow consideration in evaluating a proposed capital
project?
A.Incremental overhead effect
B.Basic overheads
C.Financing costs
D.All of the above
An aggressive working capital policy would include:
A.using short term financing to finance only the peak temporary working capital.
B.using short term financing to finance all temporary working capital.
C.using short term financing to finance all temporary and some permanent working
capital.
D.both a. and b. above describe aggressive working capital policies.
E.All of the above describe aggressive working capital policies.
All of the following are characteristics of C Corporations except:
A.unlimited life.
B.limited liability for the stockholders.
C.avoidance of double taxation.
D.ease of raising additional capital for expansion.
If the coefficient of variation is zero, then ____.
A.the security has no risk
B.the security has a zero expected return
C.the security is very risky
D.the security’s standard deviation is much larger than the security’s expected return
Because bond prices are sensitive to changes in interest rates:
A.bonds hardly ever sell in the secondary market at their face value.
B.bond prices are constantly changing.
C.interest rates in excess of the coupon rate cause the bond to sell at a discount, while
interest rates below the coupon rate cause the bond to sell at a premium.
D.All of the above
What is the after-tax cash flow that results from the sale of a capital asset for $150,000?
Assume that it has a book value of $100,000 and a 40% tax rate.
A.$150,000
B.$90,000
C.$130,000
D.$60,000
E.$170,000
The weighted-average cost of capital:
A.blends the returns required by all suppliers of funds.
B.incorporates the firm’s capital structure in its calculation.
C.is virtually never lower than the cost of debt nor higher than the cost of equity.
D.All of the above
How should managers deal with subjective cash flow estimates (e.g. claiming positive
cash flows for improved customer satisfaction related to better product quality)?
A.Cash flows that cannot be verified should be excluded.
B.A range of estimates should be considered, and the estimate that best justifies the
project should be selected.
C.A range of estimates should be considered, and the lowest end of the range should be
selected.
D.Subjective estimates should be included only if they are directly related to the project
and are reasonable and conservative.
E.Only subjective estimates relating to product quality should be considered.
Under which of the following theories is raising the dividend level good for the price of
the stock?
A.Dividend Aversion Theory
B.Residual Dividend Theory
C.Dividend Incentive Theory
D.Signaling Theory
You currently have $600,000.00 in the bank and intend to withdrawal $60,000.00 from
the account annually beginning next year. Assuming the account earns 10% annually,
how long can you keep withdrawing $60,000.00 from the account?
A.10 years
B.Forever
C.30 years
D.50 years
A business is expected to generate the following cash flows over the next five years
after which it will be dissolved. How much is the business worth today if the interest
rate is 8%?
A.$77,615
B.$68,304
C.$75,333
D.$100,025
The only component of the CAPM equation that relates specifically to a company is:
A.X.
B.kM.
C.kRF.
D.(kM– kRF).
If the present value of a given sum is equal to its future value, then:
A.the discount rate must be very high.
B.there is no inflation.
C.the discount rate must be zero.
D.none of the above are correct.
You have just looked up the stock quotation for Premier Images, Inc. in the Wall Street
Journal. The PE ratio is listed as 20. The dividend is shown as $1.00, and the stock just
closed (last) at $42.00. What are the yield % and the earnings per share (EPS) for
Premier Images, Inc.?
A.Yield = 2.4%; EPS = $2.10
B.Yield = 2.4%; EPS = $5.00
C.Yield = 2.4%; EPS = $20.00
D.Yield = 5.0%; EPS = $2.10
E.Yield = 5.0%; EPS = $5.00
Sunk costs:
A.cannot be estimated accurately.
B.represent an initial period of cash flow of a capital budgeting project.
C.have been incurred in prior periods.
D.None of the above