Finance Chapter 8 Homework

You were recently hired by a firm as a project analyst. The owner of the firm is unfamiliar with financial analysis and wants to know only what the expected dollar return is per dollar spent on a given project. Which financial method of analysis will provide the information that the owner requests? Profitability index
A broker is an agent who: brings buyers and sellers together.
Which one of the following will occur when the internal rate of return equals the required return? The profitability index will equal 1.0.
Based on the most recent survey information presented in your textbook, CFOs tend to use which two methods of investment analysis the most frequently? Internal rate of return and net present value
Which one of the following is most closely related to the net present value profile? Internal rate of return
The stream of customer instructions to buy and sell securities is called the: order flow.
Net present value involves discounting an investment’s: future cash flows.
Which one of the following is specifically designed to compute the rate of return on a project that has a multiple negative cash flows that are interrupted by one or more positive cash flows? Modified internal rate of return
The net present value: decreases as the required rate of return increases.
Which one of the following indicates that a project is expected to create value for its owners? Positive net present value
An investment has conventional cash flows and a profitability index of 1.0. Given this, which one of the following must be true? The net present value is equal to zero
Which one of the following is an indicator that an investment is acceptable? Assume cash flows are conventional. Internal rate of return that exceeds the required return
If an investment is producing a return that is equal to the required return, the investment’s net present value will be: zero
If shareholders are granted a preemptive right they will: have priority in the purchase of any newly issued shares.
Kate could not attend the last shareholders’ meeting and thus she granted the authority to vote on her behalf to the managers of the firm. Which term applies to this granting of authority? Proxy
Which one of the following methods of analysis ignores cash flows? Average accounting return
Which one of the following indicates that a project should be rejected? Assume the cash flows are normal, i.e., the initial cash flow is negative. Profitability index less than 1.0
What is the market called that facilitates the sale of shares between individual investors? Secondary
To be a member of the NYSE, you must: own a trading license.
Which one of the following methods of analysis ignores the time value of money? Payback
Mary has just been asked to analyze an investment to determine if it is acceptable. Unfortunately, she is not being given sufficient time to analyze the project using various methods. She must select one method of analysis and provide an answer based solely on that method. Which method do you suggest she use in this situation? Net present value
The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following? The investment is mutually exclusive with another investment of a different size.
Jensen Shipping has four open seats on its board of directors. How many shares will a shareholder need to control to ensure that his or her candidate is elected to the board given the fact that the firm uses straight voting? Assume each share receives one vote. Fifty percent of the shares plus one share
On which one of the following dates do dividends become a liability of the issuer for accounting purposes? On the date the board declares the dividend
Which one of the following statements is correct?- The payback period considers the timing and amount of all of a project’s cash flows.- The payback rule is biased in favor of long-term projects.- The payback period ignores the time value of money.- The payback rule states that you should accept a project if the payback period is less than one year.- A longer payback period is preferred over a shorter payback period. The payback period ignores the time value of money.
Mary owns 100 shares of stock. Each share entitles her to one vote per open seat on the board of directors. Assume there are three open seats in the current election and Mary casts all 300 of her votes for a single candidate. What is the term used to describe this type of voting? Cumulative

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