Finance Test (Chapters 6, 7, & 8)

T/F: Payback period ignores the time value of money

True

An agent who buys and sells securities from inventory is called a:

dealer

The net present value

decreases as the required rate of return increases

The internal rate of return is the

discount rate that results in a zero net present value for the project.

A person who executes customer orders to buy and sell securities on the floor of the NYSE is called a

floor broker

Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. What term best describes the relationship between Project A and Project B?

mutually exclusive

The dividend yield is defined as

next year's expected dividend divided by the current market price per share.

What indicates that a project is expected to create value for its owners?

positive net present value

The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to

recoup its initial cost

If the internal rate of return equals the required return, ...

the net present value will equal zero

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

The price of a stock at Year 4 can be expressed as:

D5/(R-G)

The capital gains yield equals

Dividend growth rate

The required return on a stock is equal to which one of the following if the dividend on the stock decreases by a constant percent per year?

Dividend yield + Capital gains yield

The constant growth model can be used to value the stock of firms that have which type(s) of dividends?

Dividends that are either constant or change annually at a constant rate

What is an indicator that an investment is acceptable? Assume cash flows are conventional.

Internal rate of return that exceeds the required return

A DMM is a(n):

NYSE member who functions as a dealer for a limited number of securities.

What 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?

Net present value

What offers the best assurance that a project will produce value for its owners?

Positive NPV

Newly issued securities are sold to investors in which one of the following markets?

Primary