Principles of Finance Final MILESTONE
The capital asset pricing model is useful for _____.
assessing the ratio between risk and return on an investment
You would like to have $8,000 in an account after four years' time. If the account earns 4% compounded interest yearly, how much would you have to deposit today?
$6,838
Determine the value of a stock with the following variables using the constant growth model: Current annual dividend: $2.75 per share Required return rate: 8.5% Constant growth rate: 6%
$116.60
Using the following variables, calculate an organization's cost of debt on a $500,000 bond. Rf: 1% credit-risk rate: 5% t: 15%
$25,500
You invest $7,000 in a stock that has a 25% chance of a 6% return, a 35% chance of a 9% return and a 40% chance of a 10% return. What is your expected return after one year?
8.65%
Consider what you have learned about valuing bonds. A: Coupon rate = 2.5%, YTM = 3% B: Coupon rate = 3%, YTM = 2.75% C: Coupon rate = 3.5%, YTM = 3.5% D: Coupon rate = 4%, YTM = 3.5% Which of the bonds is selling at a discount?
A
Which of the following best describes a bond?
A debt security that typically pays an investor a fixed rate of return for a specified period of time.
Which of the following is true of portfolio diversification?
A diversified portfolio containing negatively correlated investments has a lower variance than a portfolio containing a single asset type.
Select the true statement about the concept of agency cost.
An agency cost is one that is incurred when an agent's actions deviate from the principal's interests.
Which organization most fully protects owners from personal liabilities and is taxed separately?
C Corp
In which scenario would benchmarking be least useful?
Comparing financial ratios of a company in an extractive industry and a tertiary industry
What principle of corporate governance requires public clarification of the roles and responsibilities of board and management in order to provide stakeholders with a level of accountability?
Disclosure and transparency
Seed money is a type of financing appropriate for a company in what stage of development?
Introduction
Which of the following is true of systematic risk?
It cannot be diversified away by holding a pool of individual assets.
What is one advantage of NPV as a capital budget method?
It is flexible, in the sense that the discount rate can be adjusted to account for factors like risk.
Company A Company B Market Value of Equity $400,000 $800,000 Market Value of Debt $100,000 $600,000 Cost of Equity 9% 9% Cost of Debt 3% 4% Tax Rate 35% 35% Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 6%?
Neither Company A nor Company B
Determine whether the following description is true of a capital lease, an operating lease, neither or both. "A way for a company to acquire equipment for a relatively short-term period, after which the equipment returns to the owner"
Operating lease
Which of the following is a disadvantage of bonds for a potential investor?
Some bonds can be redeemed early by the issuer.
Select one advantage of IRR as a capital budget method.
The IRR can easily be evaluated alongside a company's threshold rate.
Which of the following is true of ethics and its application to the business environment?
The ethical norms and values of a business can have a powerful influence on its employees.
Which of the following is a disadvantage of venture capital?
Venture capital investors may place restrictions on company operations, such as setting salary caps.
Hunter is going to receive $3,000 in one year, and he wants to know its equivalent value today. The process of determining the answer is called ___
discounting
By appropriately preparing a forecast budget, a company can avoid _____.
insolvency
Ratios that measure a company's ability to manage its long-term debt are _____.
leverage ratios
When performing capital budgeting, _____ incurred by a project are irrelevant to future investment decisions.
sunk costs