Financial Management Final
Katie owns 100 shares of ABC stock. Which one of the following terms is used to refer to the return that Katie and the other shareholders require on their investment in ABC?
Cost of equity
In an efficient market, the cost of equity for a risky firm does which one of the following according to the security market line?
Increases in direct relation to the stock's systematic risk
Which one of the following is an example of a direct bankruptcy cost?
Incurring legal fees for the preparation of bankruptcy filings
Which one of the following terms applies to the costs incurred by a firm which is trying to avoid filing for bankruptcy?
Indirect bankruptcy costs
Which one of the following is the primary determinant of an investment's cos of capital?
Level of risk
Which one of the following terms refers to the termination of a firm as a going concern?
Liquidation
The computation of which one of the following requires assigning every proposed investment to a particular risk class?
Subjective cost of capital
Which one of the following is a non-cash payment made by a firm to its shareholders and is a payment that lessens the value of each outstanding share?
stock dividend
This morning, Lambert Materials bought 10,000 of its outstanding shares in the open market. What type of transaction was this?
stock repurchase
Martin & Martin, Inc. stock is currently selling for $19 per share. The firm just made an offer to one of its major shareholders to repurchase all the shares owned by that shareholder for $25 per share. What type of offer is being made?
targeted repurchase
Joseph Turner and Sons has 125,000 shares of stock outstanding. The firm has extra cash so it announced this morning that it is willing to repurchase 25,000 of its shares. What type of offer is the firm making?
tender offer
Which one of the following is the equity risk arising from the daily operations of a firm?
Business risk
Which one of the following is basically equivalent to a 2-for-1 stock split?
100 percent stock dividend
Which one of the following events must occur before a firm can offer a liquidating dividend?
Asset Sale
Which one of the following will generally receive the highest priority in a bankruptcy liquidation, assuming the absolute priority rule is followed?
Bankruptcy administrative expenses
Which one of the following best defines a regular cash dividend?
Cash payment by a firm to its owners as a part of a firm's normal operations
Which one of the following statements concerning financial leverage is correct?
Changes in the capital structure of a firm will generally change the firm's earnings per share. and Financial leverage magnifies both profits and losses.
Which one of the following factors favors a high dividend payout?
Corporate shareholders
One which one of the following dates is the determination made as to which shareholders will receive a dividend payment?
Date of record
Which one of the following is the date on which the board of directors agrees to pay a dividend and passes a resolution to do so?
Declaration date
Which one of the following is a payment by a firm to its shareholders from any source other than current or accumulated retained earnings?
Distribution
Which one of the following is a payment of either cash or shares of stock that is paid out of earnings to a firm's shareholders?
Dividend
Which one of the following statements is correct?
Dividend policy is the time pattern of dividend payout.
Which one of the following is the equity risk arising from the capital structure selected by a firm?
Financial risk
Which of the following features are advantages of the dividend growth model? I. easy to understand II. model simplicity III. constant dividend growth rate IV. model's applicability to all common stocks
I and II only
Which one of the following reduces the number of shares outstanding but does not change a firm's total equity?
Reverse split
Ted is trying to decide what cost of capital he should assign to a project. Which one of the following should be his primary consideration in this decision?
Risk level of the project
Which one of the following statements is the core principle of M&M Proposition I, without taxes?
The capital structure of a firm is totally irrelevant.
Which one of the following is minimized when the value of a firm is maximized?
WACC
Which one of the following conditions exists at the point where a firm maximizes its value?
WACC is minimized
Which one of the following represents the rate of return a firm must earn on its assets if it is to maintain the current value of its securities?
Weighted average cost of capital
When is a firm insolvent from an accounting perspective?
Whe the firm has a negative net worth
Assume both corporat taxes and financial distress costs apply to a firm. Given this, the static theory of capital structure illustrates that:
a firm's value and its weighted average cost of capital are inversely related.
Lester lent money to The Corner Store by purchasing bonds issued by the store. The rate of return that he and the other lenders require is referred to as the:
cost of debt
The weighted average cost of capital is defined as the weighted average of a firm's:
cost of equity and its aftertax cost of debt
The level of financial risk to which a firm is exposed is dependent upon the firm's:
debt-equity ratio
Downtown Merchants has paid a quarterly dividend of $0.60 per share for the past two years. This quarter, the firm plans to pay $0.60 plus an additional $0.05. The firm has stated that it uncertain whether it will pay $0.60 or $0.65 per share next quarter. Which one of the following is the best description of the additional $0.05 that is being paid this quarter?
extra dividend
The cost of preferred stock:
is equal to the stock's dividend yield
A prepack
is the joint filing of both a bankruptcy filing and a creditor-approved reorganization plan.