MFT Finance

A firm that would like to know whether it has enough cash to meet its bills would be most likely to use which category of financial ratio? Liquidity Leverage Efficiency Profitability

Liquidity

The greater the beta, the of the security involved. greater the unavoidable risk greater the avoidable risk less the unavoidable risk less the avoidable risk

greater the unavoidable risk

Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average of 1.4. This means that the company: will not experience any difficulty with its creditors. has less liquidity than other firms in the industry. will be viewed as having high creditworthiness. has greater than average financial risk when compared to other firms in its industry.

has greater than average financial risk when compared to other firms in its industry- Wrong

An "aggressive" common stock would have a "beta": equal to zero. greater than one. equal to one. less than one.

greater than one.

What are the earnings per share (EPS) for a company that earned $100,000 last year in after-tax profits, has 200,000 common shares outstanding and $1.2 million in retained earning at the year end? $100,000 $6.00 $0.50 $6.50

100,000/200,000= .50

Adam Smith is considering automating his pin factory with the purchase of a $475,000 machine. Shipping and installation would cost $5,000. Smith has calculated that automation would result in savings of $45,000 a year due to reduced scrap and $65,000 a year due to reduced labor costs. The machine has a useful life of 4 years and falls in the 3-year property class for MACRS depreciation purposes. The estimated final salvage value of the machine is $120,000. The firm's marginal tax rate is 34 percent. The incremental cash outflow at time period 0 is closest to: $280,000 $380,000 $480,000 $580,000

475,000 + 5,000 = 480,000- wrong

You are considering investing in a zero-coupon bond that sells for $250. At maturity in 16 years it will be redeemed for $1,000. What approximate annual rate of growth does this represent? 8 percent 9 percent 12 percent 25 percent

9 percent.

Which of the following bonds offer the investor the most protection? First-mortgage bonds Debentures Subordinated debentures Income bonds

Income bonds- wrong

Which asset-liability combination would most likely result in the firm's having the greatest risk of technical insolvency? Increasing current assets while lowering current liabilities. Increasing current assets while incurring more current liabilities. Reducing current assets, increasing current liabilities, and reducing long-term debt. Replacing short-term debt with equity.

Reducing current assets, increasing current liabilities, and reducing long-term debt.

A company can improve (lower) its debt-to-total assets ratio by doing which of the following? Borrow more. Shift short-term to long-term debt. Shift long-term to short-term debt. Sell common stock.

Sell common stock.

In proper capital budgeting analysis we evaluate incremental accounting income. cash flow. earnings. operating profit.

cash flow.

In 3 years you are to receive $5,000. If the interest rate were to suddenly increase, the present value of that future amount to you would: fall rise remain unchanged cannot be determined with the information given

fall

The call-option value of a callable bond is likely to be high when: interest rates are volatile. interest rates are low and expected to remain low. interest rate are high and expected to remain high. markets are inefficient.

interest rates are volatile.

If the spread between the spot and forward exchange rates of two currencies equals the interest rate difference between the two countries, this phenomenon is referred to as: purchasing-power equality commodity arbitrage currency hedging interest-rate parity

interest-rate parity

Within the context of the capital asset pricing model (CAPM), the risk measure known as beta is often computed by regressing the return of the company's stock against the: return on the company's bonds return on the market portfolio change in the gross domestic product change in the consumer price index

return on the market portfolio

"Shareholder wealth" in a firm is represented by: the number of people employed in the firm. the book value of the firm's assets less the book value of its liabilities. the amount of salary paid to its employees. the market price per share of the firm's common stock.

the market price per share of the firm's common stock.

A profitability index of .85 for a project means that: the project returns 85 cents in present value for each current dollar invested. the present value of benefits is 85% greater than the project's costs. the project's NPV is greater than zero. the payback period is less than one year.

the project returns 85 cents in present value for each current dollar invested.

The common stock of a company must provide a higher expected return than the debt of the same company because: there is less demand for stock than for bonds. there is greater demand for stock than for bonds. there is more systematic risk involved for the common stock. there is a market premium required for bonds.

there is more systematic risk involved for the common stock.

Market values are often used in computing the weighted average cost of capital because: this is the simplest way to do the calculation. this is consistent with the goal of maximizing shareholder value. this is required in the U.S. by the Securities and Exchange Commission. this is a very common mistake.

this is consistent with the goal of maximizing shareholder value.

When the investment banker bears the risk of not being able to sell a new security at the established price, this is known as: a best efforts offering. underwriting. shelf registration. making a market.

underwriting.