Finance Final

which of the following is a capital structure decision? determining how much debt should be assumed to fund a project OR deciding whether or not to purchase a new machine for the product line
which one of the following statements concerning a sole proprietorship is correct? the owner of a sole proprietorship is personally responsible for all of the company’s debts
which one of the following statements related to liquidity is correct? liquid assets are valuable to a firm
which one of the following accounts are included in working capital management? accounts payable, accounts receivable, inventory
which one of the following is (are) included in the market value of a firm but are excluded from the firm’s book value? value of management skills, value of the firm’s reputation, value of employee’s experience
which one of the following will increase the cash flow from assets, all else equal? decrease in net capital spending
your grandmother has promised to give you $5,000 when you graduate from college. she is expecting you to graduate two years from now. what happens to the present value of this gift if you delay your graduation by one year and graduate three years from now? decreases
Sara invested $500 six years ago at a 5% interest. she spends her earnings as soon as she earns any interest so she only receives interest on her initial $500 investment. which type of interest is Sara earning? simple interest
which one of the following accurately defines a perpetuity? unending equal payments paid at equal time intervals
which one of the following statements correctly states a relationship? time and present value are inversely related, all else held constant, given positive rates
which one of the following terms is used to describe a loan wherein each payment is equal in amount and includes both interest and principal? amortized loan
you are comparing two annuities which offer monthly payments of $2,500 for five years and pay 0.75 percent interest per month. annuity A will pay you on the first day of each month while annuity B will pay you on the last day of each month. which one of the following statements is correct concerning these two annuities? annuity B has a smaller present value than annuity A
which one of the following statements related to annuities and perpetuities is correct? a perpetuity comprised of $100 monthly payments is worth more than a three year annuity comprised of $100 monthly payments, given an interest rate of 12%, compounded monthly
which one of the following statements concerning interest rates is correct? the effective annual rate equals the annual percentage rate when interest is compounded annually OR savers would prefer monthly compounding over annual compounding given the same APR
the Fisher Effect is defined as the relationship between which of the following variables? real rates, inflation rates, and nominal rates
a bond has a market price that exceeds its face value. which of the following features currently apply to this bond? premium price, yield-to-maturity that is less than the coupon rate
Green Roof Inns is preparing a bond offering with a 6%, semiannual coupon and face value of $1,000. the bonds will be repaid in 10 years and will be sold at par. given this, which one of the following statements is correct? the bonds will sell at a premium if the market rate is 5.5%
an increase in which of the following will increase the current value of a stock according to the dividend growth model? divided amount, number of future dividends (provided the current number is less than infinite), dividend growth rate
the dividend growth model: assumes that dividends increase at a constant rate forever, can be used to compute a stock price at any point in time, can be used to value zero-growth stocks, requires the growth rate to be less than the required returns
which one of the following represents the capital gains yield as used in the dividend growth model? g
the internal rate of return is: discount rate which causes the net present value of a project to equal zero
which one of the following will decrease the net present value of a project? increasing the project’s initial cost at a time zero
which one of the following is a project acceptance indicator given an independent project with conventional cash flows? internal rate of return exceeds the required rate of return
a project has a net present value of zero. which one of the following best describes this project? the project’s present value of all cash inflows equals its present value of all cash outflows
the depreciation tax shield is best defined as the: amount of tax that is saved because of the depreciation expense
which one of the following should be included in the analysis of a new product? reduction in sales for a current product once the new product is introduced, increase in inventory needed for the new product, market value of a machine owned by the firm which will be used to produce the new product
which of the following best illustrates erosion as it relates to a hot dog stand located on the beach? selling fewer hot dogs because hamburgers were added to the menu
Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately. if the dividend yield remains at its pre-announcement level, then you know the stock price: decreased proportionately with the dividend decrease
if you excel in analyzing the future outlook of firms, you would prefer the financial markets be ______ form efficient so that you can have an advantage in the marketplace weak
which of the following statements is correct in relation to a stock investment? the capital gains yield can be positive/negative/zero, the total return can be positive/negative/zero
which one of the following best states the primary goal of financial management? increase (maximize) the current market value per share
which one of the following statements is correct? corporations can raise large amounts of capital generally easier than partnerships can
which form of business structure is most associated with agency problems? corporation
the decision to issue additional shares of stock is an example of which one of the following? capital structure decision
which one of the following parties has ultimate control of a corporation? shareholders
which one of the following are advantages of the corporate form of business ownership? limited liability, ability to raise capital, unlimited firm life
you want to have $1 million in your savings account when you retire. you plan on investing a single lump sum today to fund this goal. you are planning on investing in an account which will pay 7.5% annual interest. which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire? invest in a different account paying a higher rate of interest, retire later
Steve invested $100 two years ago at 10% interest. the first year, he earned $10 interest on his $100 investment. he reinvested the $10. the second year, her earned $11 on his $110 investment. the extra $1 he earned in interest the second year is referred to as: interest on interest
which one of the following is the financial statement that shows the accounting value of a firm’s equity as of a particular date? balance sheet
a bond’s coupon rate is equal to the annual interest divided by which one of the following? face value
all else constant, a bond will sell at ______ when the coupon rate is ______ the yield to maturity a discount; less than
the Fisher Effect primarily emphasizes the effects of ______ on an investor’s rate of return inflation
National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future. given this, one share of the firm’s stock is: priced the same as a $1 perpetuity
you cannot attend the shareholder’s meeting for Alpha United so you authorized another shareholder to vote on your behalf. what is the granting of this authority called? voting by proxy
which one of the following statements is correct? the capital gains yield is the annual rate of change in a stock’s price
which one of the following represents the dividend yield as used in the dividend growth model? D1 / P0
which one of the following will increase the net present value of a project? moving each of the cash inflows forward to a sooner time period
mutually exclusive projects are best defined as projects which: both require the total use of the same limited resource
the net book value of equipment will: decrease at a constant rate when straight line depreciation is used
Tracy purchased a stock for $20 a share last year and the stock is now selling for $23 a share. she received a total of $0.75 in dividends. which one of the following statements is correct in relation to this investment? the capital gains yield is positive
which one of the following statements is correct? the greater the volatility of returns, the greater the average return
you are aware that your neighbor trades stock based on confidential information he overhears at his workplace. this information is not available to the general public. this neighbor continually brags to you about the profits he earns on these trades. given this, you would tend to argue that the financial markets are at best ______ form efficient semi strong
which one of the following terms is defined as the mixture of a firm’s debt and equity financing? capital structure
which of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? agency problem
the percentage of the next dollar you can earn that must be paid in taxes is referred to as the ______ tax rate marginal
an ordinary annuity is best defined by which of the following? equal payments paid at regular intervals over a stated time period
what is the interest rate charged per period multiplied by the number of periods per year called? annual percentage rate
which of the following statements related to interest rates are correct? when comparing loans, you should compare the effective annual rates; annual and effective interest rates are equal when interest is compounded annually
Mary just purchased a bond which pays $60 a year in interest. what is this $60 called? coupon
Bert owns a bond that will pay him $75 a year in interest plus a $1,000 principal payment at maturity. what is the $1,000 called? face value
currently, the bond market requires a return of 11.6% on the 10-year bonds issued by Winston Industries. the 11.6% is referred to as which one of the following? yield to maturity
High Country Builders currently pays an annual dividend of $1.35 and plans on increasing that amount by 2.5% each year. Valley High Builders currently pays an annual dividend of $1.20 and plans on increasing its dividend by 3% annually. given this information, you know for certain that the stock of High Country Builders’ has a lower ______ than the stock of Valley High Builders capital gains yield
a group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc. what is the return that these individuals require on this investment called? cost of equity
all else constant, which one of the following will increase a firm’s cost of equity if the firm computes that cost using the security market line approach? assume the firm currently pays an annual dividend of $1 a share and has a beta of 1.2 an increase in the dividend amount
Textile Mills borrows money at a rate of 13.5%. this interest rate is referred to as the: cost of debt
Mason Webb has funds on deposit with Iron Range bank. the funds are currently earning 6% interest. if he withdraws $15,000 to purchase an automobile, the 6% interest rate can be best thought of as a(n): opportunity cost
the difference between a firm’s future cash flows if it accepts a project and the firm’s future cash flows if it does not accept the project is referred to as the project’s: incremental cash flows
which one of the following costs was incurred in the past and cannot be recouped? sunk
which one of the following is an example of a sunk cost? $1,200 paid to repair a machine last year
last year, T-bills returned 2% while your investment in large-company stocks earned an average of 5%. which one of the following terms refers to the difference between these two rates of return? risk premium
standard deviation is a measure of which one of the following? volatility
which one of the following is represented by the slope of the security market line? reward to risk ratio OR market risk premium
which one of the following are examples of diversifiable risk? earthquake damages an entire town, toy makers are required to improve their safety standards
which one of the following indicates a portfolio is being effectively diversified? a decrease in the portfolio standard deviation
which one of the following measures the amount of systematic risk present in a particular risky asset relative to the systematic risk present in the overall market? beta
the reward to risk ratio for stock A is less than the reward to risk ratio of stock B. stock A has a beta of 0.82 and stock B has a beta of 1.29. this information implies that: either stock A is overpriced or stock B is under-priced or both
when calculating the weighted average cost of capital (WACC) an adjustment is made for taxes because: the interest on debt is tax deductible
assume that a company has equal amounts of debt and common stock. an increase in the corporate tax rate of a firm will cause its weighted average cost of capital (WACC) to: fall
which of the following are advantages of the corporate form of business ownership? limited liability for firm debt, ability to raise capital, unlimited firm life
which of the following is included in a firm’s market value but yet is excluded from the firm’s book value? good reputation of the company
Winston Co. has a dividend-paying stock with a total return for the year of -6.5%. which one of the following must be true? the stock has a negative capital gains yield
which one of the following are definite indicators of an accept decision for an independent project with conventional cash flows? positive net present value, internal rate of return greater than the required rate
which one of the following statements related to capital gains is correct? an increase in unrealized capital gain will increase the capital gains yield
which two of the following are the most likely reasons why a stock price might not react at all on the day that new information related to the stock issuer is release? the information has no bearing on the value of the firm, the information was anticipated
which of the following statements are correct concerning diversifiable risks? diversifiable risks can be reduced by adding unrelated securities to your portfolio, there is no reward for accepting diversifiable risks, diversifiable risks are generally associated with an individual firm or industry
a firm’s cost of equity is: highly dependent upon the growth rate and risk level of the firm

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