Finance 310 multiple choice

Company A has an ROE of 17% while Company B has an ROE of 12%. Which of the following statements WILL ALWAYS be true? A. if neither company pays dividends, Company A will be able to sustain faster growth B. Company A has a higher profit margin than Company B C. Company B has more financial leverage than Company A D. Company A has a higher asset turnover ration that Company B

A

If any, which of the following statements is FALSE? A. sensitivity analysis helps determine the reasonable range of expectations for a project's outcome B. the impacts of estimation errors and forecasting risks are small when NPV are large and positive C. under intense competition, positive NPV projects are rare D. none of the above choices are false

A

One of the stakeholders, the ______ have the highest priority , while the ____ have the lowest priority; A: Customers: shareholders B. societies: environmental issues C. Shareholders: Employees D. Creditors/Banks: shareholders

A

Sierra has $100,000 is cash today. which of the following investment options is most apt to double her money? A. 6 percent compound return fro 12 years B. 11 percent compound return for 6 years C. 7 percent compound return for 9 years D. 8 percent compound return for 8 years

A

Which of the following statements is correct? A. shareholders equity is the residual value of a firm B. net working capital must be a positive value C. an increase in cash reduces the liquidity of a firm D. equipment is generally considered a highly liquid asset

A

Which of the following statements is false? A. the cost of capital for a project depends primarily on the source of funds B. a firms WACC reflect the average risk of the existing projects undertaken by the firm C. the cost of capital is the minimum required return to compensate financial investors D. there cost of equity is the return required by equity investors given the risk of the cash flows from the firm

A

Which of the following statements is true? A. by investing in varied and numerous assets, an investor is able to virtually eliminate all asset specific risks in her portfolio, both easily and cheaply B. it is possible, but no very easy for an investor to control market-wide risk in his portfolio, and increase in these market wide risk are costly because they reduce expected returns C. the most important characteristics in determining the expected return of a well diversified portfolio is the total variance risks of the individual assets in the portfolio D. when a portfolio has a positive investment in every one of its assets, its standard deviation cannot be less that then on every asset in the portfolio

A

Which of the following statements is true? A. if markets are semi-strong form efficient, then all publicly available info is reflected in stock prices and fundamental analysis is useless B. efficient markets protect investors from wrong choices even if they do not diversify C. consistent with efficient markets, stock prices reach equilibrium several time per hour D. efficient markets react to new info by partially and slowly adjusting the price of a stock to its new fair market value with delay since it takes a while for everyone to agree

A

other things equal, investors will require higher yields on, and be willing to pay lower prices for, with the following characteristics, except those which: A. have less protective covenants B. are secured with financial assets as collateral C. Have lower credit quality D. Are callable

A

today, courtney wants to invest an amount less than $5000 with the goal of receiving $5000 back some time in the future. Which on of the following statements is CORRECT? A. the period of time she has to wait until she reachers her goal decreases with more frequent compounding of interest B. the lower the rate of interest she earns, the shorter the time she will have to wait to reach her goal C. the length of time she has to wait to reach her goal is directly related to the interest rate she earns D. the period of time she has to wait increases as the amount she invests today increases

A

which of the following is NOT an effective means of aligning management goals with shareholder interests? A. compensating managers with salaries significantly higher that their peers B. hiring internal job candidates C. threat of a takeover D. management bonuses tied to performance goals

A

Which of the following statements is false? A. financial rations help compare over time companies of different sizes and industries, and since not all sources calculate them the same way, managers should understand how they are derived B. asset utilization rations describe how efficiently, or intensively, a firm uses its current input costs to generate sales C. to a firms creditors, particularly short term creditors such as suppliers, the higher the current ratio is the better D. higher margin, turnover, and leverage, but lower dividends, generally allow a firm to grow faster over the long run

B

Which of the following statements is false? A. over the long run, investments in small-company stocks have had the largest return but also the most risk, when compared with large company stocks, bonds, and T-bills B. the average return is always less than the geometric return C. investors who hold bonds instead of stocks over long horizons can be rational and relatively averse to risk D. unlike the capital gains yield, the dividend yield can never be negative

B

Which of the following statements is false? A. the internal rate of return is define as the discount rate which results in zero net present value for the project B. one reason why the Average Accounting Return is a flawed measure in making business decisions is that it is based on cash flows C. the profitability index reflects the value created per dollar invested D. NPV indicates how much a project will improve owner wealth

B

Which of the following statements is false? A. unlike equity holders, debt holders are not owners B. lenders can exert control over a company's managers by voting for its board of directors C. a corporation cannot deduct its payments to preferred shareholders before it pays taxes D. a corporation can deduct its payments to the bank from interest on their loans before it pays taxes

B

Which of the following statements is false? A. with simple interest, the interest is not reinvested, so interest is earned each period only on the original principle B. both lenders and borrowers prefer more frequent compounding C. amortizing a loan allows for a portion of principal to be paid with the interest each period principle that the portion of each payment going to interest will decease with each payment D. treasury bills are pure discount loans sold by the US government that repay a fixed as on lump sum at some time in the future

B

Which of the following statements is true? A. opportunity costs are those values that have already been incurred, cannot be recouped, and should not be considered in an investment decision B. managerial real options can be very valuable but difficult to measure, and ignoring them underestimate a projects true Net Present Value C. the error of omission, of type 2 error NPV estimation, is the risk that a project will be accepted when its true NPV is negative D. under hard capital rationing, a business enforces limits investment budgets because it prefers not to raise financing from the capital markets

B

fill in the blanks: stock prices rise if investors either expect _____ growth rates or require _____ returns. A. higher, higher B. higher, lower C. Lower, lower D. Lower, higher

B

other things equal, investors will require higher yields on, bonds with the following characteristics, except those which: A. have less protective covenants B. are secured with physical assets as collateral C. Have lower credit quality D. Are issued by companies nearing financial distress

B

the average accounting return method of analyzing projects: A. incorporates cash flows B. is similar to calculating the Return on Assets C. is difficult to estimate using information from accounting statements D. should accept all projects with positive AAR

B

today, courtney wants to invest an amount less than $5000 with the goal of receiving $5000 back some time in the future. Which on of the following statements is INCORRECT? A. the period of time she has to wait until she reachers her goal decreases with more frequent compounding of interest B. the lower the rate of interest she earns, the shorter the time she will have to wait to reach her goal C. the length of time she has to wait to rechristen her goal is inversely related to the interest rate she earns D. the period of time she has to wait increases as the amount she invests today decreases

B

which of the following statements about the corporate form of ownership is false? A. the shareholders are the owners of the firm and hold the lowest priority claim among all stakeholders B. the shareholders elect the directors of the corporation, usually in uncontested elections C. the directors appoint the firms management, and all shareholders are invited to participate in nominating new candidates for directors D. separating of ownership from control can cause agency problems where managers act in their own interest, rather than the shareholders interests

B

There are two broad ways for publicly traded companies to raise capital. The first is equity, and an example fo this would be to issue a bond A. True B. False

B. False

Fill in the blanks: Standard deviation measures ______ risk, while beta measures ______ risk. A. Asset-specific; market-wide B. Market-wide; total C. Total; market-wide D. Total; asset-specific

C

Fill in the blanks: Stock prices fall if investors either expect _________ growth rates or require _________ returns. A. higher, higher B. higher, lower C. lower, higher D. lower, lower

C

Which of the following statements is false? A. sensitivity analysis helps identify the variable within a project that presents the greater forecasting risk B. the impacts of estimation errors and forecasting risks are small when NPV are large and positive C. under intense competition, positive NPV projects are as common as negative NPV projects D. scenario analysis helps determine the reasonable range of expectations for a projects outcome

C

Which of the following statements is true? A. efficient markets will protect investors from wrong choices if they do not diversify B. consistent with efficient markets, stock prices reach equilibrium several times per week C. efficient markets react to new info by instantly adjusting the price of a stock to its new fair market value without any delay or overreaction D. weak form efficiency implies that all info is reflected in stock prices

C

what question does the geometric average return answer? A. what was the return in an average year over a period? B. if you were to put all of the yearly returns into a hat, what would be the expected return you would pull out? C. what was the compound return per year over a period? D. what is the average return minus the average T-Bill return?

C

which of the following is true about bonds? A. all public companies have bonds B. Premium bonds will generally increase in price as they near maturity C. both premium and discount bonds tend to converge to face value at maturity D. similar to grocery stores, companies offer investors "coupons" or limited time discounts on bonds to sell them quicker

C

which of the following should not be included in the analysis of a proposed investment? A. the current market value of an existing building to be used in the project B. the company marginal tax rate C. the amount paid 4 years ago for an existing building to be used in the project D. the amount of net working capital to be recovered at the end of a project

C

which of the following situations is most apt to create agency conflict? A. giving all employees a bonus if a certain level of efficiency is maintained B. hiring an independent consultant to study the operating efficiency of the firm C. rejecting a profitable project to protect employee jobs D. selling an under producing segment of the firm

C

which of the following transactions would NOT take place in primary financial market? A. When target corporation takes out a loan from a regional bank B. Uber hawing its Initial Public Offering with the help of investment banks C. When a mutual fund buys securities on the NYSE D. A startup company getting early stage funding from investors

C

A broker is an agent who: A. Trades on the floor of an exchange for himself or herself. B. Buys and sells from inventory. C. Offers new securities for sale to dealers only. D. Brings buyers and sellers together.

D

Firms that compile financial statements according to GAAP: A. record income and expenses at the time they affect the firm's cash flows B. have no discretions of recording either revenue or expense items C. must record all expenses when incurred D. can still manipulate their earnings to some degree

D

Given an interest rate of zero percent, the future value of a lump sum invested today will always: A. Be infinite in value B. decrease if the investment time perish is shortened C. decrease if the investment time period is lengthened D. remain constant, regardless of the investment time period

D

Johnny I's is an example of a _____, similar to the NASDAQ and CBOE (BATS), and has ______. A. broker; an inventory ready to buy and sell at any time B. Broker; the capability of bringing together buyers and sellers C. Dealer; the capability of bringing together buyers and sellers D. Dealer; an inventory ready to buy and sell at any time

D

Which of the following statements is false? A. asset specific risks can be diversified in a portfolio is imperfectly correlated assets B. asset specific risks can be diversified with numerous assets in a portfolio C. bearing risk is rewarded with higher expected returns D. Only asset specific risks, not market wide risk, should earn rewards

D

Which of the following statements is false? A. financial rations help compare over time companies of different sizes and industries, and since not all sources calculate them the same way, managers should understand how they are derived B. asset utilization rations describe how efficiently, or intensively, a firm uses its current input costs to generate sales C. to a firms creditors, particularly short term creditors such as suppliers, the higher the current ratio is the better D. higher margin, dividends, and leverage, but lower dividends, generally allow a firm to grow faster over the long run

D

Which of the following statements is true? A. the APR is equal to the EAR for a loan that charges interest monthly B. the EAR is always strictly greater that the APR C. The APR on a monthly loan is equal to (1 + monthly interest rate)^12 -1 D. the EAR is the best measure of the actual rate you are paying on a loan

D

Which of the following statements is true? A. weak form efficiency implies that all information is reflected in stock prices B. efficient markets will protect investors from wrong choices even if they do not diversify C. consistent with efficient markets, stock prices reach equilibrium several time per week D. efficient markets react to new info by instantly adjusting the price of a stock to its new fair market value without any delay or overreaction

D

if any, which of the following does NOT have the potential to increase the net present value of a proposed investment? A. the ability to immediately shut down a project should the project become unprofitable B. the ability to wait until the economy improves before making the investment C. the option to increase production beyond the initially projected D. all of the above have the potential to increase the NPV of a proposed investment

D

which of the following statements is FALSE? A. When market yields rise, the price of discount bonds fall further below par or face value B. when market yields rise, the price of long term bonds fall by a greater percent the short term bonds C. when market yields rise, the price of bonds with small coupons fall by a greater percent hat those with large coupons D. when market yields rise, investors redeem or "call" the callable bond they own, forcing the issuer of the bond to pay at least the face value

D

which of the following statements is TRUE? A. the balance sheet starts with net income and ends with net change in cash B. Price-earnings ratio reflects the book value per share per dollar of accounting earnings for a firm C. since Tesla's stock price is $240, that means the Tesla Corporation is twice as valuable as a company with a stock price of $120 D. Times interest earned, also known as the interest coverage ratio, provides a relative measure of how well firm can service its debt

D