Finance final exam (exams 1-2)
an investor can virtually eliminate all asset specific risks in their portfolio by
investing in varied and numerous assets
Average taxe rate
it is the total tax expenses divided by the total taxable income and it is always less than or equal to or considerably less than the marginal tax rate
A stocks price is
present value of the (future cash flows) expected dividends and capital gains
Newly issued securities are sold to investors in _____ markets
primary
a firm uses its weighted average cost of capital to evaluate the proposed projects for all of its varying divisions and by doing so
the firm automatically gives preferential treatment to the allocation of funds to its riskiest division
the higher the expected rate of return the wider the distribution of returns
the higher the expected rate of return the wider the distribution of returns
The market prices of bonds with longer maturities are more sensitive to changes in market interest rates.
the market prices of bonds with longer maturities are more sensitive to changes in market interest rates
It is not true that a firms cost fo capital primarily depends on
the source of the funds. it actually depends on use
standard deviation measures _________ while beta measures__________
total risk , market wide risk
all of the following have the potential to increase the NPV of an investment
1. ability to immediatley shut down 2. ability to wait until economy improves 3. option to increase production
Managers should act in shareholders interest because shareholders have _______ priority in receiving their claims
Bottom
the average return is __________ less than the geometric return
NOT ALWAYS
it is __________ that the primary advantage of payback analysis is that it biases companies to invest in long term projects that require large expenditures
NOT TRUE - its for short term projects
the price earnings ratio __________ the book value per share per dollar of an accounting firms earnings
DOES NOT REFLECT
Profits being taxed at the corporate level is a ___________ to the corporate form of an organization
Disadvantage
Practice problems exam 1-2
Ok
given an interest rate of zero percent the future value of a lump sum invested today will
always remain constant regardless of investment time period
Firms that compile financial statements according to GAAP:
can still manipulate their earnings to some degree
the future value of annuity ___________ with a higher interest rate
does not fall
the effect of compunding is great for short periods but begins to decline as horizon grows
false
whats an example of something that should not be used in the analysis of a proposed investment
the amount paid 4 years ago for an existing building to be used in the project
Operating cash flow
the cash that a firm generates from its normal business activities using its existing assets
When should you never use the average tax rate
when making decisions regarding new investments and financial choices
