FNCE Test 5

For a company with unpredictable investment needs and​ opportunities, the best way to distribute cash to shareholders would be A. to pay dividends on an irregular basis. B. to repurchase company stock. C. a residual dividend policy. D. to issue preferred rather than common stock.

B

Short−term financial plans span a period of A. 1 month or less. B. a year or less. C. up to five years. D. one to three years.

B

The first step involved in predicting financing needs is A. determining the​ firm's financing needs throughout the planning period. B. projecting the​ firm's sales revenues and expenses over the planning period. C. estimating the levels of investment in current and fixed assets that are necessary to support the projected sales. D. none of the above.

B

Discretionary financing needs implies A. that management may choose between various forms of debt and equity. B. that the purchases being financed are optional rather than necessary. C. that management has considerable discretion in how to dispose of retained earnings. D. that management may choose between​ debt, new equity or retained earnings.

A

What is the most important ingredient in developing a​ firm's financial​ plan? A. Determining the amount of dividends to pay shareholders B. A forecast of sales revenues C. Projecting the rate of interest on proposed new debt D. Deciding upon which method of depreciation a firm should utilize

B

From the information​ below, select the optimal capital structure for Mountain High Corp. A. Debt​ = 60%; Equity​ = 40%; EPS​ = $3.18; Stock price​ = $31.20 B. Debt​ = 40%; Equity​ = 60%; EPS​ = $2.95; Stock price​ = $26.50 C. Debt​ = 50%; Equity​ = 50%; EPS​ = $3.05; Stock price​ = $28.90 D. Debt​ = 80%; Equity​ = 20%; EPS​ = $3.42; Stock price​ = $30.40

A

In​ practice, firms tend to increase their dividend A. only when they believe they can sustain the increased payout indefinitely. B. when company is holding more cash than it would like. C. when the stock seems to be underpriced in the market. Your answer is not correct. D. Reducing cash to force executives to focus on efficient investment decisions

A

Long−term financial planning results in A. pro forma financial statements. B. a cash budget. C. a general narrative detailing near−term scenarios. D. a sales forecast for the next 1 to 3 years.

A

Long−term financial plans typically encompass A. about 5 years. B. 5 to 10 years. C. the entire life cycle of the corporation. D. 6 to 12 months.

A

Most stock splits A. increase the number of shares outstanding. B. increase the value of the company. C. tend to raise the price of the stock. D. all of the above.

A

Which of the following statements about the percent−of−sales method of financial forecasting is​ true? A. It involves estimating the level of an​ expense, asset, or liability for a future period as a percent of the forecast for sales revenues. B. It is a much more precise method of financial forecasting than a cash budget would be. C. It is the least commonly used method of financial forecasting. D. It projects all liabilities as a fixed percentage of sales.

A

Which should be excluded from a firms capital structure?

non-interest bearing debt

Optimal capital structure is

the funding mix that will maximize the​ company's common stock price.

A company that earns a rate of return on its investments lower than the interest rate on its debt is said to have

unfavorable financial leverage

Common stock dividends tend to be more stable than A. earnings. B. cash flow. C. bond interest d) preferred stock dividends

A

Which of the following is the correct method of determining discretionary financing needed​ (DFN)? A. Projected change in​ assets, divided by projected change in​ liabilities, plus projected change in​ owner's equity B. Projected change in​ assets, minus projected change in​ liabilities, minus projected change in​ owner's equity C. Projected change in​ owner's equity, minus projected change in​ liabilities, plus projected change in assets D. Projected change in​ assets, times projected change in​ owner's equity, minus projected change in liabilities

B

discretionary form of financing would be A. accounts payable. B. notes payable. . C. accrued expenses. D. none of the above.

B

Strategic planning encompasses all of the following​ EXCEPT: A. a description of the​ firm's competitors and its own competitive strengths and weaknesses. B. a definition of the​ firm's customers. Your answer is not correct. C. a cash budget. D. a description of the​ firm's core competencies and activities

C

Which of the following are considered to be spontaneous sources of financing​ (i.e., they arise naturally during the course of doing​ business)? A. Notes payable and common stock B. Accounts receivable and bonds C. Accounts payable and accrued expenses D. Fixed assets and inventory

C

Which of the following describes the effect of a stock​ dividend? A. A stock dividend immediately decreases the paid−in capital account. B. A stock dividend indicates that the company must be short on cash. C. A stock dividend immediately increases the number of shares outstanding. D. A stock dividend immediately increases the market price of a share of stock.

C

Which of the following motivates corporations to split their common​ stock? A. To reallocate capital to shareholders B. To narrow ownership of the firm. C. To keep the price of the​ firm's common stock within an optimum price range D. To increase retained earnings

C

How does the text distinguish between​ firm's financial structure and its capital structure​?

Capital structure includes only interest bearing debt

Dividend policy is influenced by A. a​ firm's capital structure mix. B. a​ company's availability of internally generated funds. C. a​ company's investment opportunities. D. all of the above

D

The percent−of−sales method can be used to forecast A. expenses. B. assets. C. liabilities. D. all of the above.

D

Which of the following circumstances is likely to motivate a firm to repurchase some of its​ stock? A. Management believes that the​ stock's market price is below its intrinsic value. B. The firm has excess cash. C. Institutional investors prefer stock repurchases to cash dividends. D. All of the above.

D

Which of the following is most likely to increase​ EPS? A. a​ 20% stock dividend B. a​ 20% cash dividend C. a 6 for 5 stock split D. The company repurchases​ 20% of outstanding shares.

D

Which of the following accounts would normally increase with an increase in sales and approximately in proportion to the sales​ increase? A. Inventory B. Common stock C. Dividends D. Notes payable

Inventory

A​ firm's capital structure consists of which of the​ following?

The amount of interest-bearing debt, preferred stock, and common stock that a firm utilizes

Which of the following is a reason that a company would repurchase its own shares of stock in the​ market? A. To increase outstanding equity shares B. To have shares available to offer a merger target C. To reduce cash and the number of shares outstanding D. Both A and B

c

Which of the following is most likely to have a negative impact on stock​ price? A. Failure to increase the dividend at the same rate as previous years B. Reducing the dividend payout ratio C. Cutting the dividend per share in dollar terms D. Omitting a stock repurchase offer

c

f​ investor's expect a​ 15% rate of return on their​ investment, they will be indifferent between a​ $1.00 dividend received immediately or A. ​$0.87 received at the end of the year. B. ​$1.00 received later. C. ​$1.15 received at the end of the year. D. ​$1.00 increase in the stock price a year later.

c