FNCE 301 Final Exam (Dr. Grimm)

Which one of the following actions will increase the present value of an amount to be received sometime in the future?

Decrease in the interest rate.

A decrease in which of the following will increase the current value of a stock according to the dividend growth model?

Discount rate

Assume all stock prices fairly reflect all of the available information on those stocks. Which one of the following terms best defines the stock marker under these conditions?

Efficient capital market

Which one of the following is an agency cost?

Hiring outside accountants to audit the company's financial statements.

Solanki Partners has been extremely successful during its three years of existence. The owners have decided to incorporate and offer shares of stock to the general public. what is this type of an equity offering called?

IPO (initial public offering)

Which of the following statements regarding a firm's pretax cost of debt is accurrate?

It is based on the current yield to maturity of the company's outstanding bonds

Biff believes he can accurately forecast the future and makes business decisions based on this belief. Which characteristics does this belief represent?

Overconfidence

Assume that last year T-bills returned 2.2 percent while your investment in large-company stocks earned an average of 8.1 percent. Which one of the following terms refers to the difference between these two rates of return?

Risk premium

Which one of the following statements is correct? (Regarding stocks)

Stocks can have negative growth rates

A $1,000 par value cooperate bond that pays $45 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 $989.42?

The current yield exceeds the coupon rate

The late return on which a type of security is normally used as the risk-free rate of return?

Treasury bills

Which one of the following statements concerning venture capital financing is correct?

Venture capitalists should have key contacts and financial strength.

Standard deviation is a measure of which on of the following?

Volatility

An agent who arranges a transaction between a buyer and a seller of equity securities is called

a broker

When calculating a firm's weighted average cost of capital, the capital structure weights:

are based on the market values of the outstanding securities

When using the subjective approach to project analysis, a firm:

assigns discount rates to projects based on the discretion of the senior managers of a firm.

A bond is payable to whomever has physical possession of the bond is said to be in:

bearer form

Financial managers should strive to maximize the current value per share of existing stock to:

best represent the interests of the current owns of the firm.

Net working capital

can create either an initial cash inflow or outflow

Wright Market Research is able to borrow money at a rate of 6.8 percent per year. This interest is called the:

cost of debt

The tendency to sell winners and hold losers is known as the

disposition effect

An ordinary annuity is best defined as:

equal payments paid at the end of regular intervals over a stated time period.

A syndicate group can best be defined as a

group of underwriters sharing the risk of selling new issue of securities

The operating cash flow for a project should exclude which of the following?

interest expense

A "fallen angel" is a bond that has moved from:

investment grade to speculative grade

NPV

is commonly used in practice for evaluating the merit of projects

Municipal bonds

pay interest that is usually risk free from federal taxation.

A preliminary prospectus is sometimes called a:

red herring

When an issuer offers new securities to the general public, it must file an ____ with the SEC to disclose all material information about the issuer.

registration statement

Which one of the following best illustrates erosion as it relates to a snack stand located on the beach?

selling fewer cookies because ice cream was added to the menu

Cerda Diagnostics spent $5,000 last week repairing equipment. This week the company is trying to decide whether the equipment could be better utilized by assigning it to a proposed project. When analyzing the proposed project, the $5,000 should be treated as which type of cost?

sunk cost

Javangula Foods is considering two mutually exclusive projects and has determined that the crossover rate for these projects is 12.3 percent. Given this information, you know that

the project is acceptable at a discount rate of 12 percent should be rejected at a discount rate of 13 percent

A perpetuity is defined as:

unending equal payments paid at equal time intervals.

The secondary market is best defined as the market:

where outstanding shares of stock are resold