FIN.4200 Exam 1 Review

Sales

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of:

has more interest rate risk than a comparable coupon bond.

A zero coupon bond:

Total asset turnover and debt-equity ratio

An increase in which of the following must increase the return on equity, all else constant?

increases at a decreasing rate.

As a bond's time to maturity increases, the bond's sensitivity to interest rate risk:

both the lessor and the lessee benefit.

If a firm enters a sale and leaseback agreement, then:

cost of debt.

Textile Mills borrows money at a rate of 8.7 percent. This interest rate is referred to as the:

weighted average cost of capital.

The average of a company's cost of equity, cost of preferred, and aftertax cost of debt that is weighted based on the company's capital structure is called the:

market price.

The current yield is defined as the annual interest on a bond divided by the:

direct bankruptcy

The explicit costs, such as legal and administrative expenses, associated with corporate default are classified as ________ costs.

debt-equity ratio results in the lowest possible weighted average cost of capital.

The optimal capital structure has been achieved when the:

marginal

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _______ tax rate.

TcD

The present value of the interest tax shield is expressed as:

the static theory of capital structure.

The proposition that a company borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs is called:

rate of return a company must earn on its existing assets to maintain the current value of its stock.

The weighted average cost of capital for a firm with debt is the:

Tax reduction is a legitimate reason for leasing.

Which on of the following statements is correct concerning taxes and leasing?

Accounts Receivable

Which one of the following accounts is the most liquid?

Stock dividend

Which one of the following involves a payment in shares that increases the number of shares a shareholder owns but also decreases the value per share?

Paying an outside accountant to prepare bankruptcy reports

Which one of the following is a direct cost of bankruptcy?

Decrease in inventory

Which one of the following is a source of cash?

Production equipment

Which one of the following is classified as a tangible fixed asset?

The addition to retained earnings is equal to net income less cash dividends.

Which one of the following is correct in relation to pro forma statements?

The firm utilized outside funding.

Which one of the following must be true if a firm had a negative cash flow from assets?

Dividends are still viewed by shareholders as a signal of a company's future outlook.

Which one of the following statements appears to be supported by the current dividend policies of U.S. industrial firms?

Split-rated bonds are called crossover bonds.

Which one of the following statements concerning bond ratings is correct?

The required return on assets is equal to the weighted average cost of capital.

Which one of the following statements is correct in relation to M&M Proposition II, without taxes?

Under a Chapter 7 bankruptcy, a trustee will assume control of the company's assets until those assets can be liquidated.

Which one of the following statements related to Chapter 7 bankruptcy is correct?