FIN 310 Chapter 7-8 KU

A specialist is a(n): A. employee who executes orders to buy and sell for clients of his or her brokerage firm. B. individual who trades on the floor of an exchange for his or her personal account. C. NYSE member who functions as a dealer for a limited number of securities. D. broker who buys and sells securities from a market maker. E. trader who only deals with primary offerings.

C.

An investment has conventional cash flows and a profitability index of 1.0. Given this, which one of the following must be true? A. The internal rate of return exceeds the required rate of return. B. The investment never pays back. C. The net present value is equal to zero. D. The average accounting return is 1.0. E. The net present value is greater than 1.0.

C.

An investment has conventional cash flows and a profitability index of 1.0. Given this, which one of the following must be true? A. The internal rate of return exceeds the required rate of return. B. The investment never pays back. C. The net present value is equal to zero. D. The average accounting return is 1.0. E. The net present value is greater than 1.0.

C.

Fill in the blanks: Stock prices fall if investors either expect _________ growth rates or require _________ returns. A. higher, higher B. higher, lower C. lower, higher D. lower, lower

C.

If any, which of the following statements is FALSE? A. NPV measures the value created by taking on an investment B. NPV indicates how much a project will improve owner wealth C. NPV is the discounted present value of a project's expected future accounting net income at the required return, subtracting the initial investment D. None of the above statements is false

C.

Inside quotes are defined as the: A. bid and asked prices presented by NYSE specialists. B. last bid and asked price offered prior to the market close. C. lowest asked and highest bid offers. D. daily opening bid and asked quotes. E. last traded bid and asked prices.

C.

Inside quotes are defined as the: A. bid and asked prices presented by NYSE specialists. B. last bid and asked price offered prior to the market close. C. lowest asked and highest bid offers. D. daily opening bid and asked quotes. E. last traded bid and asked prices.

C.

Which of the following statements is FALSE? A. The bid price is the price that a dealer is willing to pay for a security and is lower than the ask price. B. Bonds trade less frequently than stocks. C. In the stock market, the secondary market is the market where new securities are originally sold to investors by the issuing company. D. Dividends received by corporations have a 70% to 100% exclusion from taxable income.

C.

Which one of the following indicates that a project is expected to create value for its owners? A. Profitability index less than 1.0 B. Payback period greater than the requirement C. Positive net present value D. Positive average accounting rate of return E. Internal rate of return that is less than the requirement

C.

Which one of the following indicates that a project is expected to create value for its owners? A. Profitability index less than 1.0 B. Payback period greater than the requirement C. Positive net present value D. Positive average accounting rate of return E. Internal rate of return that is less than the requirement

C.

Which one of the following methods of analysis ignores cash flows? A. Profitability index B. Net present value C. Average accounting return D. Modified internal rate of return E. Internal rate of return

C.

Which one of the following methods of analysis ignores cash flows? A. Profitability index B. Net present value C. Average accounting return D. Modified internal rate of return E. Internal rate of return

C.

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)? A. Internal rate of return B. Profitability index C. Average accounting return D. Net present value E. Payback

C.

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)? A. Internal rate of return B. Profitability index C. Average accounting return D. Net present value E. Payback

C.

Which one of the following types of securities has no priority in a bankruptcy proceeding? A. Convertible bond B. Senior debt C. Common stock D. Preferred stock E. Straight bond

C.

Which one of the following types of securities has no priority in a bankruptcy proceeding? A. Convertible bond B. Senior debt C. Common stock D. Preferred stock E. Straight bond

C.

A broker is an agent who: A. Trades on the floor of an exchange for himself or herself. B. Buys and sells from inventory. C. Offers new securities for sale to dealers only. D. Brings buyers and sellers together.

D.

Newly issued securities are sold to investors in which one of the following markets? A. Proxy B. Inside C. Secondary D. Primary

D.

Which of the following statements is FALSE? A. The Gordon Growth Model assumes constant dividend growth and implies that stock prices grow at the same rate. B. A stock's price is the present value of the expected dividends and capital gains. C. Dealers buy and sell securities from their own inventory, while brokers bring buyers and sellers together to complete transactions. D. Holders of preferred stock have greater voting rights in corporate decisions than holders of common stock.

D.

Which one of the following generally pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred? A. Cumulative common B. Noncumulative common C. Noncumulative preferred D. Cumulative preferred E. Senior common

D.

Which one of the following generally pays a fixed dividend, receives first priority in dividend payment, and maintains the right to a dividend payment, even if that payment is deferred? A. Cumulative common B. Noncumulative common C. Noncumulative preferred D. Cumulative preferred E. Senior common

D.

A broker is an agent who: A. trades on the floor of an exchange for himself or herself. B. buys and sells from inventory. C. offers new securities for sale to dealers only. D. who is ready to buy or sell at any time. E. brings buyers and sellers together.

E.

A broker is an agent who: A. trades on the floor of an exchange for himself or herself. B. buys and sells from inventory. C. offers new securities for sale to dealers only. D. who is ready to buy or sell at any time. E. brings buyers and sellers together.

E.

Newly issued securities are sold to investors in which one of the following markets? A. Proxy B. Stated Value C. Inside D. Secondary E. Primary

E.

Newly issued securities are sold to investors in which one of the following markets? A. Proxy B. Stated value C. Inside D. Secondary E. Primary

E.

Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities? A. Payback B. Profitability index C. Accounting rate of return D. Internal rate of return E. Net present value

E.

Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities? A. Payback B. Profitability index C. Accounting rate of return D. Internal rate of return E. Net present value

E.

A specialist is a(n): A. employee who executes orders to buy and sell for clients of his or her brokerage firm. B. individual who trades on the floor of an exchange for his or her personal account. C. NYSE member who functions as a dealer for a limited number of securities. D. broker who buys and sells securities from a market maker. E. trader who only deals with primary offerings.

C.

The profitability index reflects the value created per dollar: A. invested. B. of sales. C. of net income. D. of taxable income. E. of shareholders' equity.

A.

The profitability index reflects the value created per dollar: A. invested. B. of sales. C. of net income. D. of taxable income. E. of shareholders' equity.

A.

Which of the following statements is FALSE? A. One reason why the Average Accounting Return is a flawed measure in making business decisions is that it is based on cash flows. B. IRR measures the dollar-weighted return on an investment. C. In order to use the Payback Rule as a tool to determine if an investment is acceptable, a manager needs to provide a pre-specified limit of time for recouping investment costs. D. The Profitability Index measures the value created per dollar invested, based on the time value of money.

A.

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)? A. Average accounting return B. Payback C. Internal rate of return D. Profitability index

A.

.Which one of the following statements is correct? A. The internal rate of return is the most reliable method of analysis for any type of investment decision. B. The payback method is biased towards short-term projects. C. The modified internal rate of return is most useful when projects are mutually exclusive. D. The average accounting return is the most difficult method of analysis to compute. E. The net present value method is only applicable if a project has conventional cash flows.

B.

An agent who buys and sells securities from inventory is called a: A. Specialist B. Dealer C. Broker D. Floor Trader

B.

An agent who buys and sells securities from inventory is called a: A. floor trader B. dealer C. commission broker D. broker E. floor broker

B.

An agent who buys and sells securities from inventory is called a: A. floor trader. B. dealer. C. commission broker. D. broker. E. floor broker.

B.

The average accounting return method of analyzing projects: A. Incorporates cash flows. B. Is similar to calculating the Return on Assets. C. Is difficult to estimate using information from accounting statements. D. Should accept all projects with positive AAR.

B.

Which of the following statements is FALSE? A. Unlike equity holders, debt holders are not owners B. Lenders can exert control over a company's managers by voting for its board of directors. C. A corporation cannot deduct its payments to preferred shareholders before it pays taxes D. Holders of convertible bonds can force bankruptcy if their coupons are not paid

B.

Which of the following statements is FALSE? A. The internal rate of return is defined as the discount rate which results in a zero net present value for the project. B. The primary advantage to payback analysis is that it biases companies to invest in long-term projects that require large current expenditures on research and development. C. The average accounting return ignores cash flows is most similar to computing the return on assets (ROA). D. The profitability index reflects the value created per dollar invested.

B.

Which of the following statements is TRUE? A. The Gordon Growth Model assumes constant dividend growth but implies that stock prices grow at a different rate. B. A stock's price is the present value of its future cash flows, namely, its expected capital gains and dividends. C. Brokers buy and sell securities from their own inventory, while dealers bring buyers and sellers together to complete transactions. D. Holders of common stock have greater voting rights in corporate decisions than holders of preferred stock, but they have less voting rights than creditors of the corporation.

B.

Which one of the following defines the internal rate of return for a project? A. Discount rate that creates a zero cash flow from assets B. Discount rate which results in a zero net present value for the project C. Discount rate which results in a net present value equal to the project's initial cost D. Rate of return required by the project's investors E. The project's current market rate of return

B.

Which one of the following defines the internal rate of return for a project? A. Discount rate that creates a zero cash flow from assets B. Discount rate which results in a zero net present value for the project C. Discount rate which results in a net present value equal to the project's initial cost D. Rate of return required by the project's investors E. The project's current market rate of return

B.

Which one of the following statements is correct? A. The internal rate of return is the most reliable method of analysis for any type of investment decision. B. The payback method is biased towards short-term projects. C. The modified internal rate of return is most useful when projects are mutually exclusive. D. The average accounting return is the most difficult method of analysis to compute. E. The net present value method is only applicable if a project has conventional cash flows.

B.