Since high use of debt is associated with more risk, it may also lower the stock’s price.
Your broker recommends that you purchase Good Mills at $30. The stock pays a $2.20
annual dividend, which (like its per share earnings) is expected to grow annually at 8
percent. If you want to earn 15 percent on your funds, is this stock a good buy?
The rate of return on a stock considers the price change but not dividend income.
If a stock increased from $25 to $50 in five years, the annual rate of return was 20
percent.
Interest and dividends are paid before income taxes.
The interest paid by municipal bonds is not subject to federal income taxation.
A firm increases its use of operating leverage by converting variable costs into fixed
costs.
Beta coefficients and standard deviations may be used as indicators of risk.
Collecting accounts receivable are including on the cash budget.
A convertible bond has the following features:
Convertible preferred stock
Currently the common stock is selling for $13; the yield on non-convertible bonds is
10%, and the yield on comparable preferred stocks is 14%. What is the value of the
above securities in terms of the common stock? What would be the value of each
security if it lacked the conversion feature?
If preferred stock paid a dividend that varied with the firm’s earnings, preferred stock
would not be a source of financial leverage.
A high cost of capital favors investments with large initial cash inflows.
The speculator must make a good faith deposit after entering a futures contract to sell.
The risk premium in the capital asset pricing model rises with the expected return on
the market.
Treasury bills and commercial paper are examples of liquid assets.
The use of leasing does not increase the firm’s use of financial leverage.
Convertible bond prices rise when interest rates increase.