FINA 2201

Which one of the following is an example of a sunk cost?

$2000 paid last year to rent equipment

The common stock of Xiang Estates has an expected return of 13.3 percent. The expected return on the market is 10 percent, the inflation rate is 1.4 percent, and the risk-free rate of return is 1.3 percent. What is the beta of this stock?

1.38

Which one of the following bonds is the least sensitive to interest rate risk?

3 year; 6 percent coupon

Which of the following questions is a working capital management decision?

Should the company pay the accounts payable this month?

Which of the following questions involves a capital budgeting decision?

Should the firm purchase a new machine for the production line?

You are comparing two mutually exclusive projects, Project X and Project Z. The crossover point is 11.4 percent. You have determined that you should accept project X if the required return is 12.7 percent. This implies you should:

always accept Project X if the required return exceeds the crossover rate

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

are based on the market values of the outstanding securities

Callable bonds generally:

are called when market interest rates decrease

An agent who maintains an inventory from which he or she buys and sells securities is called a:

dealer

A firm's external financing need is met by:

debt and/or equity

Which one of the following is a use of cash?

decrease in accounts payable

Which one of the following is a source of cash?

decrease in inventory

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

discount rate

On the statement of cash flows, which one of the following is considered a financing activity?

dividends paid

Of the options listed below, which is the best example of systematic risk?

investors panic causing security prices around the globe to fall precipitously

A pro forma statement indicates that both sales and fixed assets are projected to increase by 7 percent over their current levels. Given this, you can safely assume the firm:

is currently operating at full capacity

When evaluating any capital project proposal, the cost of capital

is determined by the overall risk level of the firm

Both Archer's and Burger Bar have price-earning ratios of 16.2. However, Archer's has a higher PEG ratio than Burger Bar. It must be true that Archer's _____ than Burger Bar.

is increasing its earnings at a slower rate

Which of the following statements is true of a portfolio's standard deviation?

it can be less than the weighted average of the standard deviations of the individual securities held in that portfolio

Which of the following are advantages of the payback method of project analysis?

liquidity bias; ease of use

Which of the following is the main advantage of using the dividend growth model to estimate a firm's cost of equity?

the simplicity of the model

With respect to risk, which of the following statements is accurate?

the systematic risk of a portfolio can be lowered by adding T-bills (a type of risk free asset) to the portfolio

The expected return of a stock, based on the likelihood of various economic outcomes, equals the:

weighted average of the returns for each economic state

Which of the following best illustrates that the management of the firm is adhering to the goal of financial management?

An increase in the market value per share

Bonds issued by the U.S. government:

are considered to be free of default risk

Pro forma statements:

are projections, not guarantees

The book value of the firm is:

based on historical transactions

If you sell a bond with a coupon of 6 percent to a dealer when the market rate is 7 percent, which one of the following prices will you receive?

bid price

Which of the following actions could cause a company's change in net working capital to be negative for a given year?

borrow money from the bank using a note payable in nine months

A firm's mixture of debt and equity financing is the result of its _____ decisions

capital structure

Which one of the following will decrease the value of a firm's net working capital?

donating inventory to charity

Which one of the following represents the capital gains yield as used in the dividend growth model?

g

Hulsey Outdoor had a return on assets of 15 percent and a return on equity of 15 percent. Given this information, the firm:

has an equity multiplier of 1.0

Ines owns 30 shares of stock of Welch Company and wants to win a seat on the board of directors. The firm has a total of 100 shares of stock outstanding. Each share receives one vote. Presently, the company is voting to elect three new directors. Which one of the following statements must be true given this information?

if cumulative voting applies, Ines is assured one seat on the board

Pro forma statements for a proposed project should generally do all of the following, except:

include interest expense

The maximum rate of growth a corporation can achieve can be increased by:

increasing the retention ratio

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

interest expense

Which one of the following is classified as a current asset?

inventory

The _____ tax rate is the percentage of the last dollar you earned that must be paid in taxes

marginal

The bid price is the:

minimum price that will provide your target rate of return

Which one of the following has the least effect on a firm's sustainable rate of growth?

quick ratio

A firm owned by a single person who has unlimited liability for the firm's debt is called a :

sole proprietorship

Which one of the following statements related to the internal rate of return (IRR) is correct?

the IRR is equal to the required return when the net present value is equal to zero

A project has a net present value of zero. Given this information:

the project's cash inflows equal its cash outflows in current dollar terms

To determine a firm's cost of capital, one must include:

the returns currently required by both debtholders and stockholders

A project has a discounted payback period that is equal to the required payback period. Given this information, the project:

must have a profitability index that is equal to or greater than 1.0

Assume interest expense is equal to zero. Which one of the following is a correct method for computing operating cash flow of a project?

Net Income + Depreciation

You purchased a 10 year bond at par value when it was originally issued with an annual coupon rate of 5% and maturing five years from now. Coupons are paid semiannually. Which one of the following is right if the relevant market rate is 4.7% now?

You will realize a positive return on the bond if you sell it today

Which one of the following statements is correct>?

not all stocks can be valued using the dividend discount models

Thornton Homes has multiple divisions which operate as separate lines of business and face risks unique to those lines. The firm uses its overall WACC as the discount rate to evaluate all proposed projects. Accordingly each division within the firm will

prefer higher risk projects over lower risk projects