conceptual final
which of the following is an example of a sunk cost
2,000 paid last year to rent equipment
which of the following actions will decrease the firm's cost of equity?
A decrease in the firm's beta
Which of the following actions would be considered an agency problem?
A shareholder in a corporation sells shares of the company's stock when the price rises
Which one of the following is a use of cash
Decrease in accounts payable
According to ________, the value of a company is unrelated to its capital structure.
M&M Proposition I, no tax
when utilizing the percentage of sales approach, managers
consider the current production capacity level
The bid price is the:
minimum price that will provide your target rate of return.
A perpetuity is defined as:
unending equal payments paid at equal time intervals.
You recently purchased a restaurant that had equal market and book values. The purchase included the building, fixtures, and inventory. Which one of the following would be most likely to cause the market value of the restaurant to fall below its book value?
A pandemic that required restaurants to limit the number customers allowed inside
Which one of the following is a current liability?
An invoice payable to a supplier in 45 days
Which one of the following compounding periods will yield the lowest effective annual rate given a stated future value at Year 5 and an annual percentage rate of 10 percent?
Annual
Of the options listed below, which is the best measure of systematic risk?
Beta
Today, June 15, you want to buy a bond with a quoted price of 98.64. The bond pays interest on January 1 and July 1. Which one of the following prices represents your total cost of purchasing this bond today?
Dirty price
Which one of the following sets of dividend payments best meets the definition of twostage growth as it applies to the two-stage dividend growth model?
Dividend payments that increase by 10 percent per year for five years followed by dividends that increase by 3 percent annually thereafter
A firm is operating at less than 100 percent of capacity. When preparing pro forma statements, this information is primarily needed to project which one of the following account values?
Fixed assets
Of the options listed below, which are examples of diversifiable risk? I. Wildfires damage an entire town II. The federal government imposes a $1,000 fee on all business entities III. Payroll taxes are increased nationally IV. All software providers are required to improve their privacy standards
I and IV
Which of the following are assumptions of the capital asset pricing model (CAPM)? I. A riskfree asset has no systematic risk. II. Beta is a reliable estimate of total risk. III. The reward-to-risk ratio is constant. IV. The market rate of return can be approximated.
I, III, and IV only
An analyst wishes to estimate the amount of additional reward she will receive for investing in a risky asset rather than a risk-free asset. The minimum values she will need to know are: I. both assets' standard deviations II. the risky asset's beta III. the risk-free rate of return IV. the market risk premium
II and IV
Which of the following statements regarding the weighted average cost of capital is accurate?
It is the return investors require on the total assets of the firm.
Which one of the following best states the primary goal of financial management?
Maximize the current value per share
Chemical Mines has 5,000 shareholders and is preparing to elect two new board members. You do not own enough shares to personally control the elections but are determined to oust the current leadership. Likewise, no other single shareholder owns sufficient shares to personally control the outcome of the election. Which one of the following is the most likely outcome of this situation given that some shareholders are happy with the existing management?
Proxy fight for control of the board
Which one of the following transactions occurs in the primary market?
Purchase of newly issued stock from the issuer
Which one of the following questions involves a capital budgeting decision?
Should the firm purchase a new machine for the production line?
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.
When valuing an entire firm using the cash flow from assets approach, why must the tax amount be adjusted?
The tax effect of the interest expense must be removed.
A premium bond that pays $60 in interest annually matures in seven years. The bond was originally issued three years ago at par. Which one of the following statements is accurate in respect to this bond today?
The yield to maturity is less than the coupon rate.
Assume you are an analyst monitoring Okello stock. Which one of the following would be reflected in Okello's expected return?
This morning Okello confirmed that, as expected, the CFO is retiring at the end of the year.
The bond market requires a return of 6.2 percent on the 15 year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the:
Yield to maturity
M&M Proposition II, without taxes, is the proposition that:
a company's cost of equity is a linear function with a slope equal to (RA − RD).
which one of the following accounts is the most liquid
accounts receivable
Which one of the following is a source of cash?
acquisition of debt
The depreciation tax shield is best defined as the:
amount of tax that is saved because of the depreciation expense.
bond issued by the U.S. government
are considered to be free or default risk
fixed costs:
are constant over the short run regardless of the quantity of output produced
When utilizing the capital asset pricing model approach to value equity, the outcome:
assumes the reward-to-risk ratio is constant.
Mutually exclusive projects are best defined as competing projects that:
both require the total use of the same limited resource.
Recently, you discovered a convertible, callable bond with a semiannual coupon of 5 percent. If you purchase this bond you will have the right to:
convert the bond into equity shares.
Which form of business would be the best choice if it were necessary to raise large amounts of capital?
corporation
Bowman's Boats has an interval measure of 53. This means that the firm has sufficient liquid assets to:
cover its operating costs for the next 53 days
A firm's liquidity is measured with which one of the following ratios?
current ratio
When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to:
decrease
A firm's aftertax cost of debt will increase if there is a(n):
decrease in the company's tax rate.
a member who acts as a dealer in a limited number of securities on the floor of the nyse is called a
designated market maker
The internal rate of return is defined as the:
discount rate which causes the net present value of a project to equal zero.
Andrew just calculated the present value of a $15,000 bonus he will receive next year. The interest rate he used in his calculation is referred to as the:
discount rate.
The process of determining the present value of future cash flows in order to know their value today is referred to as:
discounted cash flow valuation
Cash flow to stockholders is defined as:
dividend payments less net new equity raised
An ordinary annuity is best defined as:
equal payments paid at the end of regular intervals over a stated time period.
Moreno Refurbishing is currently operating at full-capacity sales. Accordingly, sales are currently being limited by the firm's level of:
fixed assets.
Which one of the following determines the standards and procedures with which audited financial statements are prepared?
generally accepted accounting principles
graphing the crossover point helps explain
how decisions concerning mutually exclusive projects are derived
Which one of the following questions involves a capital structure decision?
how much debt should the firm incur to fund a project?
which one of the following financial statements summarizes a firms revenue and expenses during a period of time
income statement
Forecasting risk is defined as the possibility that:
incorrect decisions will be made due to erroneous cash flow projections.
Assume a firm's flotation costs are 7.8 percent of the funding need. Accordingly, when analyzing capital projects, the firm's managers should:
increase the initial project cost by dividing that cost by (1 − .078)
to convince investors to accept greater volatility, you must
increase the risk premium
To convince investors to accept greater volatility, you must:
increase the risk premium.
For a firm that must pay income taxes, depreciation expense:
increases expenses and lowers taxes
Which one of the following is the most likely reason why a stock price might not react at all on the day that new information related to the stock's issuer is released? Assume the market is semistrong form efficient.
info was expected
The cash coverage ratio directly measures the ability of a company to meet its obligation to pay:
interest to a lender.
of the options listed below, which is the best example of systematic risk?
investors panic causing security prices around the globe to fall precipitously
With firm commitment underwriting, the issuing firm:
knows upfront the amount of money it will receive from the stock offering.
The base-case values used in scenario analysis are the values considered to be the most:
likely to occur.
a corporation issued bonds three years ago. which one of the following is most apt to be included in the bonds indenture?
list of collateral used as bond security
dividend payout ratio is constant at 40 percent. If the firm has a positive external financing need, that need will be met by:
long term debt
The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes.
marginal
The change in revenue that occurs when one more unit of output is sold is referred to as:
marginal revenue
According to the capital asset pricing model (CAPM), the amount of reward an investor receives for bearing the risk of an individual security depends upon the:
market risk premium and the amount of systematic risk inherent in the security.
decisions made by financial managers should primarily focus on increasing the
market value per share of outstanding stock
given a well diversified stock portfolio, the variance of the portfolio
may be less than the variance of the least risky stock in the portfolio
the profitability index is most closely related to which one of the following
net present value
a project that has a project IRR of negative 100% will also have a
net present value that is negative and equal to the initial investment
municipal bonds
pay interest that is free from federal taxation
Which two methods of project analysis are the most biased towards short-term projects?
payback and discounted payback
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ______ ratios.
profitability
If a borrower receives money today and must repay the loan in a single lump sum on a future date, the loan is called a(n) ___ loan
pure discount
The most acceptable method of evaluating the financial statements is to compare the company's current financial:
ratios to the company's historical ratios
The excess return is computed as the:
return on a risky security minus the risk-free rate.
Valenica Corporation has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders?
right to share in company profits prior to other shareholders
If a security is fairly priced, its ________ divided by its beta will equal the slope of the security market line.
risk premium
A commonsize income statement is an accounting statement that expresses all of a firm's expenses as a percentage of: -
sales
An analysis of the change in a project's NPV when a single variable is changed is called _____ analysis.
sensitivity
Ultimately, the ______ control(s) the corporation.
shareholders
The difference between the price that a dealer is willing to pay and the price at which he or she is willing to sell is called the:
spread
A project has a net present value of zero. Given this information:
the projects cash inflows equal it's cash outflows in current dollar terms
Reyes has a dividend yield of 5.4 percent and a total return for the year of 4.8 percent. Which one of the following must be true?
the stock has a negative capital gains yield
Cheung Software has decided to go public and has hired an investment firm to handle the offering. The investment firm's role is to be a(n):
underwriter
An unexpected post on social media caused the prices of 22 different companies' stocks to immediately increase by 10 to 15 percent. This occurrence is best described as an example of ________ risk.
unsystematic
which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst
weak
the secondary market is best defined as the market
where outstanding shares of stock are resold
A company that utilizes the MACRS system of depreciation but does not use bonus depreciation:
will have a greater depreciation tax shield in Year 2 than in Year 1.
