FM Final - T/F

The CFO is responsible for overseeing financial planning, corporate strategic planning, and controlling the firm's cash flow

True - CFO

If a bond sells for its par value, the coupon interest rate and yield to maturity are equal

True - bond

Business risk refers to the relative dispersion of a firm's earnings before interest and taxes

True - business

Free cash flow represent benefits generated from accepting a capital budgeting proposal - True

true - free

Account profits are used to make capital budgeting decisions because generally accepted accounting principles ensure that profits are the best measure of a company's economic activity

False - accounting

Accounting profits is the most relevant variable the financial manager uses to measure returns

False - accounting

Economic value added is the difference in the current market value of the firm and the sum of all funds that are invested in the firm.

False - economic

External funding will be high during a recession characterized by low corporate profits and high inflation.

False - external

It is important to evaluate all financial decisions by measuring how they affect a firm's stock price, hence ensuring maximization of shareholder wealth

False - important

An income statement reports a firms cumulative revenues and expenses from the inception of the firm through the income statement date

False - income

The market price of a firms common stock equals the sum of all equity accounts as reported in its balance sheet (common stock + paid in capital + retained earnings) divided by the number of shares outstanding

False - market

The most critical aspect in determining the acceptability of a capital budgeting project is the impact the project will have on the company's net income over the projects entire useful life

False - most

Capital budgeting decisions are based on free cash flow because free cash flow better reflects when money is received and available for reinvestment than account profits

True - capital

Capital markets are all institutions and procedures that facilitate transactions in long term financial instruments

True - capital

The difference between the market value of the firm and the amount of money invested in the firm is known as market value added

True - difference

Dividends per share divided by earnings per share equal the dividend payout ratio

True - dividend

An example of Eurobond is a bond issued in Asia by a US Corporation with interest and principal payments made in US Dollars

True - example

A firm's dividend policy includes two basic components - the dividend payout ratio and a dividend stability

True - firm

Preferred stock is less risk than common stock but more risk than debt

True - preferred

Private equity funds tend to focus their investment in situations where promised returns are very high and the need for funds is brief.

True - private

Raising funds internally is effectively increasing the investment of the firm's existing common shareholders

True - raising

A stock split is defined as a stock dividend exceeding 25%

True - stock

Tim has $100 in a bank account paying 2% interest per year. At the end of 5 years Tim's bank account balance will be $110 if interest is not compounded, but will be greater than $110 if interest is compounded

True - tim

Variation in the rate of return of an investment is a measure of the riskiness of that investment

True - variation

Junk Bonds are also called high yield bonds

True- junk

The time value of money is the opportunity cost of passing up the earning potential of a dollar today

True- time

If two companies have the same revenues and operating expenses, their net incomes will still be different if one company finances its assets with more debt and the other company with more equity

True- two