FIN FINAL
Which one of the following statements related to cash dividends is correct?
A dividend is never a liability until it has been declared.
Which one of the following statements related to stock repurchases is correct?
A firm may spend more cash over the course of a year on stock repurchases than it does on cash dividends.
Which one of the following statements is correct?
A project that is unacceptable today might be acceptable tomorrow given a change in market returns.
An increase in which one of the following will increase a firms quick ratio without affecting its cash ratio?
Accounts receivable
Which one of the following is a source of cash?
Acquisition of Debt
Which one of the following statements is correct?
An increase in the depreciation expense will not affect the cash coverage ratio.
Which one of the following statements is correct concerning the relationship between a levered and an unlevered capital structure? Assume there are no taxes.
At the break-even point, there is no advantage to debt.
Als has a price-earnings ratio of 18.5. Bens also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Als has a higher PEG ratio than Bens?
Bens is increasing its earnings at a faster rate than the Als.
A supplier, who requires payment within ten days, should be most concerned with which one of the following ratios when granting credit?
Cash
Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?
Common base-year statement
Textile Mills borrows money at a rate of 13.5 percent. This interest rate is referred to as the:
Cost of debt
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
Which one of the following is a use of cash?
Decrease in Common Stock
Which one of the following is a source of cash?
Decrease in Inventory
An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.
Decrease in the quick ratio
According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities.
Decrease; operating
A stock split:
Decreases the market value per share
Which one of the following statements related to dividend policy is correct?
Dividend policy focuses on the timing of dividend payments.
Which one of the following statements appears to be supported by the current dividend policies of U.S. industrial firms?
Dividends are still viewed by shareholders as a signal of a firms future outlook.
The formula which breaks down the return on equity into three component parts is referred to as which one of the following?
Du Pont identity
Relationships determined from a firms financial information and used for comparison purposes are known as:
Financial ratios
Which one of the following statements is correct?
Financial statements are frequently used as the basis for performance evaluations.
If a firm produces a twelve percent return on assets and also a twelve percent return on equity, then the firm:
Has an equity multiplier of 1.0
An increase in which of the following will increase the return on equity, all else constant? I. sales II. net income III. depreciation IV. total equity
I and II only
Which of the following statements are correct in relation to M & M Proposition II with no taxes? I. The required return on assets is equal to the weighted average cost of capital. II. Financial risk is determined by the debt-equity ratio. III. Financial risk determines the return on assets. IV. The cost of equity declines when the amount of leverage used by a firm rises.
I and II only
Which two of the following are the best justifications for a reverse stock split? I. combine a reverse stock split with a stock repurchase to enable a firm to go dark II. increase the respectability of the stock III. avoid delisting IV. reduce transaction costs for shareholders
I and III only
If you ignore taxes and costs, a stock repurchase will: I. reduce the total assets of a firm. II. decrease the earnings per share. III. reduce the PE ratio more so than an equivalent stock dividend. IV. reduce the total equity of a firm.
I and IV only
On the Statement of Cash Flows, which of the following are considered financing activities? I. increase in long-term debt II. decrease in accounts payable III. interest paid IV. dividends paid
I and IV only
Which of the following account balance changes occur as a result of a large stock dividend? I. increase in common stock II. decrease in capital in excess of par III. increase in capital in excess of par IV. decrease in retained earnings
I and IV only
By definition, which of the following costs are included in the term "financial distress costs"? I. direct bankruptcy costs II. indirect bankruptcy costs III. direct costs related to being financially distressed, but not bankrupt IV. indirect costs related to being financially distressed, but not bankrupt
I, II, III, and IV
If a firm uses its WACC as the discount rate for all of the projects it undertakes then the firm will tend to: I. reject some positive net present value projects. II. accept some negative net present value projects. III. favor high risk projects over low risk projects. IV. increase its overall level of risk over time.
I, II, III, and IV
The weighted average cost of capital for a firm may be dependent upon the firms: I. rate of growth. II. debt-equity ratio. III. preferred dividend payment. IV. retention ratio.
I, II, III, and IV
Which of the following represent problems encountered when comparing the financial statements of two separate entities? I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods. IV. The two firms may be seasonal in nature and have different fiscal year ends.
I, II, III, and IV
Which of the following tends to increase the ability of a shareholder to create his or her own homemade dividend policy? I. low taxes on capital gains II. dividend reinvestment plans III. large holdings of shares IV. low cost equity purchases
I, II, III, and IV
A firm may file for Chapter 11 bankruptcy: I. in an attempt to gain a competitive advantage. II. using a prepack. III. while allowing the current management to continue running the firm. IV. only after the firm becomes insolvent.
I, II, and III only
On the Statement of Cash Flows, which of the following are considered operating activities? I. costs of goods sold II. decrease in accounts payable III. interest paid IV. dividends paid
I, II, and III only
The Du Pont identity can be used to help managers answer which of the following questions related to a firm's operations? I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders' equity? III. How much net profit is a firm generating per dollar of sales? IV. Does the firm have the ability to meet its debt obligations in a timely manner?
I, II, and III only
Which of the following shareholders tend to favor a high dividend policy? I. retired individuals II. endowment funds III. corporate investors IV. investors with high dividend tax rates but low capital gains tax rates
I, II, and III only
Which of the following statements related to financial risk are correct? I. Financial risk is the risk associated with the use of debt financing. II. As financial risk increases so too does the cost of equity. III. Financial risk is wholly dependent upon the financial policy of a firm. IV. Financial risk is the risk that is inherent in a firms operations.
I, II, and III only
Which of the following are correct according to pecking-order theory? I. Firms stockpile internally-generated cash. II. There is an inverse relationship between a firms profit level and its debt level. III. Firms avoid external debt at all costs. IV. A firms capital structure is dictated by its need for external financing.
I, II, and IV only
The interest tax shield has no value when a firm has a: I. tax rate of zero. II. debt-equity ratio of 1. III. zero debt. IV. zero leverage.
I, III, and IV only
The after-tax cost of debt generally increases when: I. a firms bond rating increases. II. the market rate of interest increases. III. tax rates decrease. IV. bond prices rise.
II and III only
Which of the following can be used to compute the return on equity? I. Profit margin × Return on assets II. Return on assets × Equity multiplier III. Net income/Total equity IV. Return on assets × Total asset turnover
II and III only
Which of the following ratios are measures of a firms liquidity? I. cash coverage ratio II. interval measure III. debt-equity ratio IV. quick ratio
II and IV only
Automatic dividend reinvestment plans: I. require that stockholders reinvest all of the dividends to which they are entitled. II. sometimes grant shareholders the privilege of purchasing additional shares at a discounted price. III. help shareholders create their own homemade dividend policies. IV. help make corporate dividend policies irrelevant to individual stockholders.
II, III, and IV only
The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations? I. firms that have a 100 percent retention ratio II. firms that pay a constant dividend III. firms that pay an increasing dividend IV. firms that pay a decreasing dividend
II, III, and IV only
Which of the following balance sheet accounts are affected by a small stock dividend? I. cash II. common stock III. retained earnings IV. capital in excess of par value
II, III, and IV only
Which of the following statements are correct? I. The SML approach is dependent upon a reliable measure of a firms unsystematic risk. II. The SML approach can be applied to firms that retain all of their earnings. III. The SML approach assumes a firms future risks are similar to its past risks. IV. The SML approach assumes the reward-to- risk ratio is constant.
II, III, and IV only
Which of the following tend to keep dividends low? I. shareholders desiring current income II. terms contained in bond indenture agreements III. the desire to maintain constant dividends over time IV. flotation costs
II, III, and IV only
Which one of the following is a source of cash?
Increase in Accounts Payable
Which one of the following is a result of a small stock dividend?
Increase in common stock
According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities.
Increase; operating
Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7 th . Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8 th . Fast Deliveries declared a dividend on June 20 th to shareholders of record on July 12 th and payable on August 1 st . Which one of the following statements concerning the dividend paid on August 1 st is correct given this information?
Kate is entitled to the dividend but Ted is not.
Ratios that measure a firms financial leverage are known as _____ ratios.
Long-term solvency
Which one of the following states that the value of a firm is unrelated to the firms capital structure?
M & M Proposition I
The concept of homemade leverage is most associated with:
M & M Proposition I with no tax.
Which one of the following states that a firms cost of equity capital is directly and proportionally related to the firms capital structure?
M & M Proposition II
Which one of the following statements is correct?
Maintaining a steady dividend is a key goal of most dividend-paying firms.
The price-sales ratio is especially useful when analyzing firms that have which one of the following?
Negative earnings
Which one of the following statements is correct?
Overall, a firm makes better decisions when it uses the subjective approach than when it uses its WACC as the discount rate for all projects.
Which one of the following is a result of a stock repurchase?
PE ratio equal to that resulting from a comparable cash dividend
Which one of the following will decrease if a firm can decrease its operating costs, all else constant?
Price-earnings ratio
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.
Profitablility
When a manager develops a cost of capital for a specific project based on the cost of capital for another firm which has a similar line of business as the project, the manager is utilizing the _____ approach.
Pure play
Sligo Minerals stock is currently trading at $6 a share. The firm believes its primary clientele can afford to spend between $1,500 and $2,000 to purchase a round lot of 100 shares. The firm should consider a:
Reverse stock split
A common-size income statement is an accounting statement that expresses all of a firms expenses as percentage of:
Sales
The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:
Standard Industrial Classification Code
The sources and uses of cash over a stated period of time are reflected on the:
Statement of cash flows
Which one of the following statements related to stock repurchases is correct?
Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders.
Revol-Tech is a technology firm with excellent growth prospects. The firm wishes to do something to acknowledge the loyalty of the shareholders but needs all of its available cash to fund the firm's rapid growth. The market price of the stock is currently trading at the upper end of its preferred trading range. The firm is most apt to consider which one of the following in this situation?
Stock split
The present value of the interest tax shield is expressed as:
T c × D.
Which one of the following statements is correct for a firm that uses debt in its capital structure?
The WACC should decrease as the firm's debt-equity ratio increases.
Morris Industries has a capital structure of 55 percent common stock, 10 percent preferred stock, and 45 percent debt. The firm has a 60 percent dividend payout ratio, a beta of 0.89, and a tax rate of 38 percent. Given this, which one of the following statements is correct?
The firms cost of equity is unaffected by a change in the firms tax rate.
Which one of the following statements related to the SML approach to equity valuation is correct? Assume the firm uses debt in its capital structure.
The model is dependent upon a reliable estimate of the market risk premium.
Jasper United had sales of $21,000 in 2011 and $24,000 in 2012. The firms current accounts remained constant. Given this information, which one of the following statements must be true?
The net working capital turnover rate increased.
Which one of the following statements correctly applies to U.S. industrial firms based on the period of 1984-2004?
The total amount of dividends paid by these firms was greater in 2004 than in 1984.
Taylors Tools declared a $0.48 per share dividend on Friday, March 7. The dividend will be paid on Monday, April 7. The ex-dividend date is Tuesday, March 18. What is the record date?
Thursday, March 20
On a common-size balance sheet all accounts are expressed as a percentage of:
Total assets for the current year
Which one of the following statements related to Chapter 7 bankruptcy is correct?
Under a Chapter 7 bankruptcy, a trustee will assume control of the firms assets until those assets can be liquidated.
Which one of the following is the primary determinant of a firms cost of capital?
Use of the funds
Activities of a firm which require the spending of cash are known as:
Uses of cash
Billingsley United declared a $0.20 a share dividend on Thursday, October 16. The dividend will be paid on Monday, November 10 to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date?
Wednesday, October 29
The average of a firms cost of equity and after-tax cost of debt that is weighted based on the firms capital structure is called the:
Weighted average cost of capital
Which one of the following is a direct result of a 2-for- 1 stock split?
a 50 percent decrease in the par value per share
A reverse stock split is defined as:
a decrease in the number of shares outstanding that does not affect owners equity.
M & M Proposition II is the proposition that:
a firms cost of equity is a linear function with a slope equal to (R A - R D ).
M & M Proposition I with tax supports the theory that:
a firms weighted average cost of capital decreases as the firms debt-equity ratio increases.
All else constant, which one of the following will increase a firms 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.
a reduction in the risk-free rate
Stock splits can be used to:
adjust the market price of a stock such that it falls within a preferred trading range.
The dividend market is in equilibrium when:
all clienteles are satisfied.
The unlevered cost of capital refers to the cost of capital for a(n):
all-equity firm.
The capital structure weights used in computing the weighted average cost of capital:
are based on the market value of the firm's debt and equity securities.
Preston Industries has two separate divisions. Each division is in a separate line of business. Division A is the largest division and represents 70 percent of the firms overall sales. Division A is also the riskier of the two divisions. Division B is the smaller and least risky of the two. When management is deciding which of the various divisional projects should be accepted, the managers should:
assign appropriate, but differing, discount rates to each project and then select the projects with the highest net present values.
The subjective approach to project analysis:
assigns discount rates to projects based on the discretion of the senior managers of a firm.
Which one of the following is the legal proceeding under which an insolvent firm can be reorganized?
bankruptcy
On a common-base year financial statement, accounts receivables will be expressed relative to which one of the following?
base year accounts receivable
Flotation costs for a levered firm should:
be weighted and included in the initial cash flow.
Phils is a sit-down restaurant that specializes in home-cooked meals. Theresas is a walk-in deli that specializes in specialty soups and sandwiches. Both firms are currently considering expanding their operations during the summer months by offering pre-wrapped donuts, sandwiches, and wraps at a local beach. Phils currently has a WACC of 14 percent while Theresas WACC is 10 percent. The expansion project has a projected net present value of $12,600 at a 10 percent discount rate and a net present value of -$2,080 at a 14 percent discount rate. Which firm or firms should expand and offer food at the local beach during the summer months?
both Phils and Theresas
Which one of the following is the equity risk that is most related to the daily operations of a firm?
business risk
Scholastic Toys is considering developing and distributing a new board game for children. The project is similar in risk to the firms current operations. The firm maintains a debt-equity ratio of 0.40 and retains all profits to fund the firms rapid growth. How should the firm determine its cost of equity?
by using the capital asset pricing model
The common stock of Pierson Enterprises has historically had a high dividend yield and is expected to continue to do so. As a result, the majority of its shareholders are individuals and entities that are seeking a regular source of cash income. Most of these shareholders pay either no taxes or a relatively low amount of taxes. The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms?
clientele effect
A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which one of the following?
cover its operating costs for the next 48 days
Dividend payments are mailed on which one of the following dates?
date of payment
Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment?
date of record
The optimal capital structure has been achieved when the:
debt-equity ratio results in the lowest possible weighted average cost of capital.
The board of directors of Wilson Sporting Equipment met this afternoon and passed a resolution to pay a cash dividend of $0.42 a share next month. In relation to this dividend, today is referred to as which one of the following dates?
declaration date
The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firms financial ratios in which one of the following ways?
decrease in the days sales in inventory
Based on M & M Proposition II with taxes, the weighted average cost of capital:
decreases as the debt-equity ratio increases.
A firm's cost of capital:
depends upon how the funds raised are going to be spent.
The explicit costs, such as legal and administrative expenses, associated with corporate default are classified as _____ costs.
direct bankruptcy
Lesters Frozen Foods just paid out $0.50 a share to its shareholders. The cash for these payments came from a large sale of assets, not from any earnings of the firm. What are these payments to shareholders called?
distributions
Green Roof Motels has more cash on hand than its operations require. Thus, the firm has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called?
dividends
The static theory of capital structure advocates that the optimal capital structure for a firm:
equates the tax savings from an additional dollar of debt to the increased bankruptcy costs related to that additional dollar of debt.
A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?
equity multiplier
Which one of the following accurately describes the three parts of the Du Pont identity?
equity multiplier, profit margin, and total asset turnover
All else equal, the market value of a stock will tend to decrease by roughly the after-tax value of the dividend on the:
ex-dividend date.
Which one of the following is the equity risk related to a firms capital structure policy?
financial
The most acceptable method of evaluating the financial statements of a firm is to compare the firms current:
financial ratios to the firms historical ratios.
You have computed the break-even point between a levered and an unlevered capital structure. Assume there are no taxes. At the break-even level, the:
firm is just earning enough to pay for the cost of the debt.
The after-tax cost of debt:
has a greater effect on a firms cost of capital when the debt-equity ratio increases.
The business risk of a firm:
has a positive relationship with the firms cost of equity.
An investor is more likely to prefer a high dividend payout if a firm:
has few, if any, positive net present value projects.
M & M Proposition II with taxes:
has the same general implications as M & M Proposition II without taxes.
A firms overall cost of equity is:
highly dependent upon the growth rate and risk level of the firm.
Which one of the following refers to the ability of shareholders to undo a firms dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock?
homemade dividend policy
Which one of the following makes the capital structure of a firm irrelevant?
homemade leverage
The cost of equity for a firm:
ignores the firms risks when that cost is based on the dividend growth model.
A one-for- four reverse stock split will:
increase a $1 par value to $4.
Incorporating flotation costs into the analysis of a project will:
increase the initial cash outflow of the project.
When a firm has flotation costs equal to 7 percent of the funding need, project analysts should:
increase the initial project cost by dividing that cost by (1 - 0.07).
The costs incurred by a business in an effort to avoid bankruptcy are classified as _____ costs.
indirect bankruptcy
Butter & Jelly reduced its taxes last year by $350 by increasing its interest expense by $1,000. Which of the following terms is used to describe this tax savings?
interest tax shield
Which form of financing do firms prefer to use first according to the pecking-order theory?
internal funds
The pre-tax cost of debt:
is based on the current yield to maturity of the firms outstanding bonds.
The cost of preferred stock:
is equal to the dividend yield.
A stock repurchase program:
is essentially the same as a cash dividend program provided there are no taxes or other costs.
Steve owns 3,000 shares of NOP, Inc. stock, which he purchased six years ago at a price of $22 a share. Today, these shares are selling for $68 each. Assume the current tax laws are such that Steve is subject to a tax rate of 25 percent on both his dividend income and his capital gains. From Steve's point of view, a stock repurchase today: (Ignore costs)
is more desirable than a cash dividend in respect to taxes.
The dividend growth model:
is only as reliable as the estimated rate of growth.
The weighted average cost of capital for a wholesaler:
is the return investors require on the total assets of the firm.
A firm is technically insolvent when:
it is unable to meet its financial obligations.
A business firm ceases to exist as a going concern as a result of which one of the following?
liquidation
S.L. Moffatt, Inc. has paid a quarterly dividend of $1.20 per share for the last ten quarters. Which one of the following is most apt to cause the firm to reduce the amount of its next dividend payment?
loss of a major customer which lowers the firms outlook for the next few years
Which one of the following has the greatest tendency to increase the percentage of debt included in the optimal capital structure of a firm?
low probabilities of financial distress
The fact that flotation costs can be significant is an argument for:
maintaining a high dividend policy.
The information content of a dividend increase generally signals that:
management believes earnings growth will be strong going forward.
A firm should select the capital structure that:
maximizes the value of the firm.
Assigning discount rates to individual projects based on the risk level of each project:
may cause the firms overall weighted average cost of capital to either increase or decrease over time.
The capital structure that maximizes the value of a firm also:
minimizes the cost of capital.
Wilderness Adventures specializes in back-country tours and resort management. Travel Excitement specializes in making travel reservations and promoting vacation travel. Wilderness Adventures has an after-tax cost of capital of 13 percent and Travel Excitement has an after-tax cost of capital of 11 percent. Both firms are considering building wilderness campgrounds complete with man-made lakes and hiking trails. The estimated net present value of such a project is estimated at $87,000 at a discount rate of 11 percent and -$12,500 at a 13 percent discount rate. Which firm or firms, if either, should accept this project?
neither Wilderness Adventures nor Travel Excitement
Which one of the following is a direct bankruptcy cost?
paying an outside accountant fees to prepare bankruptcy reports
Which one of the following will generally have the highest priority when assets are distributed in a bankruptcy proceeding?
payment of employee wages
The cash coverage ratio directly measures the ability of a firms revenues to meet which one of its following obligations?
payment of interest to a lender
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005:
permits key employee retention plans only if an employee has another job offer.
Markley and Stearns is a multi-divisional firm that uses its WACC as the discount rate for all proposed projects. Each division is in a separate line of business and each presents risks unique to those lines. Given this, a division within the firm will tend to:
prefer higher risk projects over lower risk projects.
The weighted average cost of capital for a firm is the:
rate of return a firm must earn on its existing assets to maintain the current value of its stock.
A $0.60 quarterly cash payment paid by T.L. Jones & Co. to its shareholders in the normal course of business is called a:
regular cash dividend.
Edwards Farm Products was unable to meet its financial obligations and was forced into using legal proceedings to restructure itself so that it could continue as a viable business. The process this firm underwent is known as a:
reorganization
The cost of preferred stock is computed the same as the:
return on a perpetuity.
Shareholders probably have the most interest in which one of the following sets of ratios?
return on equity and price-earnings
AA Tours is comparing two capital structures to determine how to best finance its operations. The first option consists of all equity financing. The second option is based on a debt-equity ratio of 0.45. What should AA Tours do if its expected earnings before interest and taxes (EBIT) are less than the break-even level? Assume there are no taxes.
select the unlevered option since the expected EBIT is less than the break-even level
Jessica invested in Quantro stock when the firm was unlevered. Since then, Quantro has changed its capital structure and now has a debt-equity ratio of 0.30. To unlever her position, Jessica needs to:
sell some shares of Quantro stock and loan out the sale proceeds.
Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share?
stock dividend
HJ Corporation has excess cash and has opted to buy some of its shares of outstanding common stock. What is this process of buying called?
stock repurchase
Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding?
stock split
Homemade leverage is:
the borrowing or lending of money by individual shareholders as a means of adjusting their level of financial leverage.
M & M Proposition I with no tax supports the argument that:
the debt-equity ratio of a firm is completely irrelevant.
What is the information content effect?
the financial markets reaction to a change in the amount of a firms dividend
The interest tax shield is a key reason why:
the net cost of debt to a firm is generally less than the cost of equity.
The discount rate assigned to an individual project should be based on:
the risks associated with the use of the funds required by the project.
The proposition that a firm borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs is called:
the static theory of capital structure.
Which one of the following favors a low dividend policy?
the tax on capital gains is deferred until the gain is realized
The basic lesson of M & M Theory is that the value of a firm is dependent upon:
the total cash flow of the firm.
M & M Proposition I with taxes is based on the concept that:
the value of a firm increases as the firms debt increases because of the interest tax shield.
The flotation cost for a firm is computed as:
the weighted average of the flotation costs associated with each form of financing.
Tobins Q relates the market value of a firms assets to which one of the following?
todays cost to duplicate those assets
Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share. The difference between these two prices is referred to as the:
trading range.
Bankruptcy:
transfers value from shareholders to bondholders.
Corporations in the U.S. tend to:
underutilize debt.
It is easier to evaluate a firm using financial statements when the firm:
uses the same accounting procedures as other firms in the industry.
Dees has a fixed asset turnover rate of 1.12 and a total asset turnover rate of 0.91. Sams has a fixed asset turnover rate of 1.15 and a total asset turnover rate of 0.88. Both companies have similar operations. Based on this information, Dees must be doing which one of the following?
utilizing its total assets more efficiently than Sams
If a firm has the optimal amount of debt, then the:
value of the levered firm will exceed the value of the firm if it were unlevered.
In general, the capital structures used by U.S. firms:
vary significantly across industries.
The value of a firm is maximized when the:
weighted average cost of capital is minimized.
The absolute priority rule determines:
which parties receive payment first in a bankruptcy proceeding.
The optimal capital structure:
will vary over time as taxes and market conditions change.
During the year, Kitchen Supply increased its accounts receivable by $130, decreased its inventory by $75, and decreased its accounts payable by $40. How did these three accounts affect the firm's cash flows for the year?
$95 use of cash
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
0.5
A firm wants to maintain a minimum stock price of $15 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The firm should consider a:
1-for- 3 reverse stock split.
The ex-dividend date is defined as _____ business day(s) before the date of record.
2
A small stock dividend is defined as a stock dividend of less than _____ percent.
20 to 25
A firm uses 2011 as the base year for its financial statements. The common- size, base-year statement for 2012 has an inventory value of 1.08. This is interpreted to mean that the 2012 inventory is equal to 108 percent of which one of the following?
2011 inventory expressed as a percent of 2011 total assets
The last date on which you can purchase shares of stock and still receive the dividend is the date which is _____ business days prior to the date of record.
3
