Convertible bonds allow the issuing company to convert outstanding bonds to shares of
common stock when the company deems necessary.
The present value of a stock’s projected future cash flows is what the share is worth
today.
All capital budgeting techniques ignore the time value of money.
Small businesses tend to do a single business plan when they need funding that contains
both strategic and operating elements.
If a firm’s sales are held constant, an increase in inventory would increase both the
current ratio and inventory turnover.
All streams of cash flows are called annuities.
The dividend decision is whether to pay_____ or _____ for growth, both of which
benefit stockholders.
A.cash dividends or retain earnings
B.cash or bonuses
C.stockholders in cash or issue new stock
D.stock dividends or hold onto cash
$3,947 deposited four years ago has grown to $5,000. What semiannually compounded
rate of interest has the bank been paying?
A.5.26%
B.6.00%
C.3.00%
D.6.67%
Which of the following is a long-term exercise in which managers try to predict what
the business will do in rough terms?
A.Operational planning
B.Budgeting
C.Strategic planning
D.Controlling
If an investor is indifferent between $1.00 today and $1.33 in three years:
A.$1.00 must be the present value of $1.33 in three years.
B.$1.33 must be the future value of $1.00 today.
C.the relevant interest rate is positive.
D.a and b.
E.All of the above
The type of business combination in which the acquiring firm becomes the parent and
the target a subsidiary is:
A.a consolidation.
B.an acquisition.
C.a merger.
D.b and c
Which of the following is a primary market transaction in the capital market?
A.Purchase of a new issue of IBM
B.Purchase of an existing issue of Intel
C.Purchase of a new 30-day treasury bill
D.Both a & b
Financial assets:
A.include cars, houses, and factory equipment.
B.provide some kind of service.
C.have value because of claims to future cash flows.
D.are not legal documents.
A $1000 par value convertible bond has a conversion price of $50. It is currently selling
for $1,120 despite the fact that the bond€s coupon rate and the market rate are equal.
The common stock obtained upon conversion is selling for $54 per share. What is the
convertible bond€s conversion premium?
A.$4
B.$40
C.$80
D.$120
Payback does not include the following in its analysis:
A.the time value of money.
B.all of the project’s cash flows.
C.a measure of the change in shareholders wealth.
D.All of the above
Traditional reasons for holding cash DO NOT include:
A.to make transactions.
B.to pay dividends.
C.for speculative opportunities.
D.to maintain compensating balances.
If a depreciable asset is sold:
A.there is no tax consequence.
B.the sale price minus the book value is added to the firm’s income and is taxed at the
firm’s long term capital gain tax rate.
C.the sale price is added to the firm’s income and is taxed at the firm’s marginal tax rate.
D.the sale price minus the book value is added to the firm’s income and is taxed at the
firm’s marginal tax rate.
E.the sale price minus the book value is added to the firm’s income and is taxed at the
firm’s average tax rate.
Management wishes to reduce next year’s external funding needs. Which of the
following will accomplish this task?
A.Decrease profit margins
B.Decrease the dividend payout ratio
C.Increase the assets/sales ratio
D.None of the above
Overland paid a dividend of $3 last year and its stock is selling at $75 per share. A
constant growth rate of 5% is expected. Overland’s flotation costs for a new issue are
10% and the marginal tax rate is 40%.Calculate the cost of new equity.
A.8.3%
B.8.8%
C.9.2%
D.9.7%
Loosening a firm’s credit standards is likely to result in:
A.lower sales.
B.smaller bad-debt losses.
C.a shorter average collection period.
D.None of the above