Business Policy Exam

Which of the following statements is CORRECT, assuming stocks are in equilibrium? a. A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return. b. The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield. c. Assume that the required return on a given stock is 13%. If the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well. d. Other things held constant, the higher a company's beta coefficient, the lower its required rate of return. e. A stock's dividend yield can never exceed its expected growth rate.

B

Which of the following statements is CORRECT? a. To implement the corporate valuation model, we discount projected free cash flows at the cost of equity capital. b. The corporate valuation model requires the assumption of a constant growth rate in all years. c. To implement the corporate valuation model, we discount projected free cash flows at the weighted average cost of capital. d. To implement the corporate valuation model, we discount net operating profit after taxes (NOPAT) at the weighted average cost of capital. e. To implement the corporate valuation model, we discount projected net income at the weighted average cost of capital.

C

Mothers Against Drunk Driving (MADD) is a group that works to change attitudes and laws about driving under the influence of alcohol. MADD primarily markets

Ideas

Yvonne and Garret are looking at information about how their organization's products could fit potential customers' needs. This information deals with demographic characteristics, product benefits sought, lifestyles, geographic factors, brand preferences, and usage rates. They are most likely looking at

Market Segment Profile

The makers of Tide Detergent recently created "pods" of the product, characterized by a small, square, plastic-wrapped packet that was easier to use. Since it is packaged in these square pods, it requires no measuring and can be transported more easily if one is carrying clothes to a laundromat. This change in packaging is a strategy that can most likely help boost sales in the ____ stage of the product life cycle.

Maturity

Which of the following is generally regarded by academics as being the best single method for evaluating capital budgeting projects?

Net present value (NPV) method

Kashi Heart to HeartTM cereal is aimed at people concerned about their heart health. These people represent the Kashi

Target Market

A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company is in equilibrium and its expected and required rate of return is 15%, which of the following statements is CORRECT?

The company's expected stock price at the beginning of next year is $9.50.

Which of the following statements applies to media planning? a. Characteristics of the product are the most important consideration in selecting the media for a campaign. b. Total media dollars spent on advertising have decreased over the last 30 years. c. The location of the advertising target is irrelevant in media planning. d. The message content affects the types of media used for an advertising campaign. e. Regardless of the message to be conveyed, newspapers are one medium that is appropriate for almost any circumstances.

The message content affects the types of media used for an advertising campaign

Marissa, a product manager, thinks her company's InstaCup coffee maker is currently in the growth stage of the product life cycle. If so, the profits for the InstaCup coffee maker ___ and the number of competitors ____.

are increasing, is growing

The effectiveness of an advertising campaign can be measured

before, during, and after the campaign through the use of pretests, inquiries, and posttests.

Centrum vitamins segments its line of vitamins based on gender and age group (e.g., one line of vitamins is for men over the age of 50). This is an example of market segmentation based on variables of

demographics

Dial Soap's advertising slogan "Aren't you glad you use Dial? Don't you wish everybody did?" exemplifies the use of ____ advertising.

reinforcement

Companies HD and LD have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power. Both companies have positive net incomes. Company HD has a higher debt ratio and, therefore, a higher interest expense. Which of the following statements is CORRECT?

Company HD pays less in taxes.

Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? Stock A Market price $25 Required return 10%Expected growth 7% Stock B Market price $40 Required return 12% Expected growth 9%

These two stocks must have the same dividend yield.

Which of the following statements is CORRECT? a. The stock valuation model, P0 = D1/(rs - g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate. b. If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%. c. The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years. d. The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time. e. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate

a

Which of the following statements is CORRECT? a. If two firms have identical sales, interest rates paid, operating costs, and assets, but differ in the way they are financed, the firm with less debt will generally have the higher expected ROE. b. A firm that employs financial leverage will have a higher equity multiplier than an otherwise identical firm that has no debt in its capital structure. c. The use of debt financing will tend to lower the basic earning power ratio, other things held constant. d. The numerator used in the TIE ratio is earnings before taxes (EBT). EBT is used because interest is paid with post-tax dollars, so the firm's ability to pay current interest is affected by taxes. e. All else equal, increasing the debt ratio will increase the ROA.

b

Which of the following statements is CORRECT? a. The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the risk-free rate. b. The NPV method does not consider all relevant cash flows, particularly cash flows beyond the payback period. c. The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR. d. The IRR method does not consider all relevant cash flows, particularly cash flows beyond the payback period. e. The NPV method assumes that cash flows will be reinvested at the risk-free rate, while the IRR method assumes reinvestment at the IRR.

c