Chapters 7, 8 & 10

U. S. Treasury bonds: A) are highly illiquid B) are quoted as a percentage of par C) are quoted at the dirty price D) pay interest that is federally tax-exempt E) must be held until maturity.

Are quoted as a percentage of par.

Callable bonds generally: A) grant the bondholder the option to call the bond any time after the deferment period B) are callable at par as soon as the call-protection period ends C) are called when market interest rates increase D) are called within the first three years after issuance E) have a sinking fund provision.

have a sinking fund provision

Atlas Manufacturing purchased a new computer system in 2018 at a cost of $622,400. This system falls in the 5-year MACRS class that has depreciation allowance percentages of 20, 32, 19.2, 11.52, 11.52, and 5.76. What is the maximum amount of depreciation the firm can claim on this system in the first year if it selects the bonus depreciation method? A) $311,200 B) $124,480 C) $199,168 D) $622,400 E) $155,600

$622,400

Which one of the following best illustrates erosion as it relates to a hot dog stand located on the beach? A) Providing both ketchup and mustard for customers' use B) Repairing the roof of the hot dog stand because of water damage C) Selling fewer hot dogs because hamburgers were added to the menu D) Offering french fries but not onion rings E) Losing sales due to bad weather

Selling fewer hot dogs because hamburgers were added to the menu

NYSE designated market makers: A) execute trades on behalf of their clients. B) are guaranteed a profit on every stock purchased and resold. C) act as dealers. D) provide a one-sided market. E) are also referred to as "$2 brokers."

acts as dealers

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? A) Dual class B) Cumulative C) Non-cumulative D) Preferred E) Common

common

Municipal bonds: A) are totally risk free B) generally have higher coupon rates than corporate bonds C) pay interest that is federally tax free D) are rarely callable E) are free of default risk.

pay interest that is federally tax free.

The dividend growth model: A) assumes dividends increase at a decreasing rate B) only values stocks at Time 0 C) cannot be used to value constant dividend stocks D) can be used to value both dividend-paying and non-dividend-paying stocks E) requires the growth rate to be less than the required return.

requires the growth rate to be less than the required return.

The yields on a corporate bond differ from those on a comparable Treasury security primarily because of: A) interest rate risk and taxes B) taxes and default risk C) default and interest rate risks D) liquidity and inflation rate risks E) default, inflation, and interest rate risks.

taxes and default risk

Nelson Mfg. owns a manufacturing facility that is currently sitting idle and is debt-free. The facility is located on a piece of land that originally cost $159,000. The facility itself cost $1,390,000 to build. As of now, the book value of the land and the facility are $159,000 and $458,000, respectively. The firm received a bid of $1,700,000 for the land and facility last week. The firm's management rejected this bid even though they were told that it is a reasonable offer in today's market. If the firm was to consider using this land and facility in a new project, what cost, if any, should it include in the project analysis? A) $0 B) $617,000 C) $1,083,000 D) $1,700,000 E) $1,619,000

$1,700,000

Which one of the following statements is correct concerning bid prices? A) The bid price is the maximum price that a firm should bid B) A firm can submit a bid that is higher than the computed bid price and still break even C) A bid price ignores taxes D) A bid price should be computed based solely on the operating cash flows of the project E) A bid price should be computed based on a zero percent required rate of return.

A firm can submit a bid that is higher than the computed bid price and still break even

A $1,000 par value corporate bond that pays $60 annually in interest was issued last year. Which one of these would apply to this bond today if the current price of the bond is $996.20? A) The bond is currently selling at a premium B) The current yield exceeds the coupon rate C) The bond is selling at par value D) The current yield exceeds the yield to maturity E) The coupon rate has increased to 7 percent.

The current yield exceeds the coupon rate.