comprehensive
True
When comparing a 10-year bond versus a 1-year bond, the 10-year bond has a much greater interest rate risk.
Cash flow from assets equals:
cash flow to creditors + cash flow to stockholders
Which of the following parties are not considered stakeholders of a firm?
competitors
operating cash flow
= EBIT + Depreciation - Taxes
Which one of the following is a disadvantage of the corporate form of business?
Distributed profits may experience double taxation.
Which one of the following is least apt to help convince managers to work in the best interest of the stockholders? Assume there are no golden parachutes.
Increasing managers' base salaries
Lower, greater
Interest Rate Risk is the risk that arises for bond owners from fluctuating interest rates. All other things being equal, the _______ the coupon rate, the _________ the interest rate risk.
False
Municipal bonds are taxable for federal, state and local taxes.
The Internal Rate of Return (IRR) represents which of the following:
The discount rate that makes the net present value equal to zero
Corporate dividends represent:
aftertax income from the corporation which becomes taxable income for the recipient.
Agency problems are most likely to be associated with:
corporations
The Sarbanes-Oxley Act of 2002 is a governmental response to:
management greed and abuses
The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes.
marginal
If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
.5
EBT
= net income (1-.21)
Callable
A bond that can be paid off early at the issuer's discretion is referred to as being which type of bond?
What are non-conventional cash flows?
A combination of cash outflows and inflows.
discount rate
A decrease in which of the following will increase the current value of a stock according to the dividend growth model
Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?
A project's discounted payback increases as the discount rate increases.
An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio?
Accounts receivable
An income statement prepared using GAAP will show revenue when it is:
Accrued.
a discount; less than
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity.
Which one of the following statements is correct?
An increase in the depreciation expense will not affect the cash coverage ratio.
Which one of the following best illustrates that the management of a firm is adhering to the goal of financial management?
An increase in the market value per share
coupon
Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment.
Yield to maturity < Coupon rate
Assume the current market price of a bond exceeds its par value. Which one of these equations applies?
Which one of the following is the financial statement that shows the accounting value of a firm's equity as of a particular date?
Balance sheet
Which of the following yields on a stock can be negative?
Capital gains yield and total return
How would an increase in the interest rate effect the present value of an annuity problem (all other variables remain the same)?
Decrease the present value.
On the statement of cash flows, which one of the following is considered a financing activity?
Dividends paid
Net income =
Dividends paid + Change in retained earnings
What is the first step in the Net Present Value (NPV) process?
Estimate the future cash flows
Which one of the following describes a noncash item?
Expenses that do not consume cash
Miles invested $5,000 ten years ago and expected to have $10,000 today. He has neither added nor withdrawn any money since his initial investment. All interest was reinvested and compounded annually. As it turns out, he only has $8,400 in his account today. Which one of the following statements must be true?
He earned a lower interest rate than he expected.
According the video, one of the biggest challenges for the Net Present Value method is:
Identifying the appropriate discount rate to use
Which one of the following is a source of cash for a tax-exempt firm?
Increase in common stock
Longer, greater
Interest Rate Risk is the risk that arises for bond owners from fluctuating interest rates. All other things being equal, the _______ the time to maturity, the _________ the interest rate risk.
Which loan type requires calls for the borrower to pay interest each period and to repay the entire principal at some point in the future?
Interest-only
Maintained a fixed real rate of return
Last year, you purchased a TIPS at par. Since that time, both market interest rates and the inflation rate have increased by .25 percent. Your bond has most likely done which one of the following since last year?
Current Growth Rate
Model that determines the market value of a stock based on its next annual dividend, the dividend growth rate, and the applicable discount rate?
All of the following are commonly cited reasons for using the Internal Rate of Return, except:
Multiple IRR's allow the company to choose the best one when evaluating projects.
Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted?
Net present value
All else constant, if a firm decreases its operating costs, which one of the following will also decrease?
Price-earnings ratio
The three parts of the Dupont equation are:
Profit Margin * Total Asset Turnover * Equity Multiplier
Return on equity can be calculated as ROA × Equity multiplier. What is another way to express this equation?
ROE = ROA × (1 + Debt − Equity Ratio)
capital gains yield
Read Corporation currently pays an annual dividend of $1.46 per share and plans on increasing that amount by 2.75 percent annually. Cho, Incorporated, currently pays an annual dividend of $1.42 per share and plans on increasing its dividend by 3.1 percent annually. Given this information, you know for certain that the stock of Cho has a higher ________ than the stock of Read.
convert the bond into equity shares.
Recently, you discovered a convertible, callable bond with a semiannual coupon of 5 percent. If you purchase this bond you will have the right to:
The first thing reported on an income statement would usually be:
Revenues
Which of the following actions would be most likely to decrease agency costs for the firm?
Reward high performing employees with shares of stock
Public offerings of debt and equity must be registered with the:
Securities and Exchange Commission.
Which one of the following questions involves a capital budgeting decision?
Should the firm purchase a new machine for the production line?
The Statement of Cash Flows has all of the following categories, except:
Standard
What does mutually exclusive mean?
Taking one project means that we cannot take the other.
Which one of the following statements is correct?
Taxable income earned by a partnership is treated as individual income.
Which one of the following statements concerning interest rates is correct?
The effective annual rate equals the annual percentage rate when interest is compounded annually.
Which one of the following statements concerning corporate income taxes is correct?
The federal income tax is applied at a flat rate across all levels of taxable income.
When choosing between mutually exclusive projects, what is the best method to use?
The highest NPV is always the best option.
The rate of return on which type of security is normally used as the risk-free rate of return?
Treasury bills
Which one of the following involves a working capital management decision?
What is the maximum level of cash to be kept in the firm's bank account?
Which one of the following statements related to loan interest rates is correct?
When comparing loans you should compare the effective annual rates.
Coupon rate > Current yield > Yield to maturity
Which one of the following applies to a premium bond?
Even if the dividend amount and growth rate remain constant, the value of a stock can vary.
Which one of the following applies to the dividend growth model?
Interest rate risk
Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?
Stocks can have negative growth rates
Which one of the following statements is correct?
common
Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings
voting by proxy
You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called?
You are comparing two mutually exclusive projects, Project X and Project Z. The crossover point is 11.4 percent. You have determined that you should accept project X if the required return is 12.7 percent. This implies you should:
always accept Project X if the required return exceeds the crossover rate.
The variables in a future value of a lump sum problem include all of the following, except:
annuity payments
Deciding which long-term investment a firm should make is a ______ decision.
capital budgeting
A firm's mixture of debt and equity financing is the result of its ______ decisions.
capital structure
Determining the number of shares of stock to issue is an example of a ______ decision.
capital structure
dividends per share
cash dividends/shares outstanding
Cullen invested $5,000 five years ago and earns 6 percent annual interest. By leaving his interest earnings in her account, he increases the amount of interest he earns each year. His investment is best described as benefitting from:
compounding
Cullen invested $5,000 five years ago and earns 6 percent annual interest. By leaving his interest earnings in her account, he increases the amount of interest he earns each year. His investment is best described as benefitting from:
compounding.
A business that is a legal entity separate from the owners, yet treated as a legal person, is called a(n):
corporation
Which form of business would be the best choice if it were necessary to raise large amounts of capital?
corporation
The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the:
crossover rate.
Net working capital
current assets - current liabilities
A _________ __________ is one that has a life of less than one year, meaning they must be paid within the year.
current liability
All other things beings equal, and assuming all ratios have positive values, an increase in current liabilities will:
decrease the quick ratio.
According to the statement of cash flows, an increase in inventory will ______ the cash flow from ______ activities.
decrease; operating
The internal rate of return is defined as the:
discount rate which causes the net present value of a project to equal zero.
The process of determining the present value of future cash flows in order to know their value today is referred to as:
discounted cash flow valuation
The process of determining the present value of future cash flows in order to know their value today is referred to as:
discounted cash flow valuation.
The length of time a firm must wait to recoup, in present value terms, the money it has invested in a project is referred to as the:
discounted payback period.
cash flow to stockholders
dividends paid - new equity raised
A firm owned by two or more people who each have unlimited liability for all of the firm's debts is called a:
general partnership
Jared invested $100 two years ago at 8 percent interest. The first year, he earned $8 interest on his $100 investment. He reinvested the $8. The second year, he earned $8.64 interest on his $108 investment. The extra $.64 he earned in interest the second year is referred to as:
interest on interest
cash flow to creditors
interest paid - net new borrowing
Net present value:
is the best method of analyzing mutually exclusive projects.
When developing a common-size balance sheet to evaluate last year's performance, all accounts are expressed as a percentage of:
last year's total assets
Assume your goal is to have $2 million in your retirement account on the day you retire. To fund this goal, you will make one lump-sum deposit today. If you plan to retire ______ rather than ______ and you earn a ______ rate of interest, then you can deposit a smaller lump-sum today.
later; sooner; high
A partner in a firm knows that the maximum financial loss he or she will experience is the amount he or she invested in the firm. The partner is called a ______ partner.
limited
The Sarbanes-Oxley Act of 2002 holds a public company's ______ responsible for the accuracy of the company's financial statements.
managers
Decisions made by financial managers should primarily focus on increasing the:
market value per share of outstanding stock
Which one of the following best states the primary goal of financial management?
maximize current value per share
An amortized loan:
may have equal or increasing amounts applied to the principal from each loan payment.
A project has a discounted payback period that is equal to the required payback period. Given this information, the project:
must have a profitability index that is equal to or greater than 1.0.
Earnings per share (EPS)
net income/shares outstanding
Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction:
occurred in the secondary market
The length of time a firm must wait to recoup the money it has invested in a project is called the:
payback period.
If a borrower receives money today and must repay the loan in a single lump sum on a future date, the loan is called a(n) ________ loan.
pure discount
Eunchae invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately so she only receives interest on her initial $2,000 investment. Which type of interest is she earning?
simple interest
The variables in a present value of an annuity problem include all of the following, except:
source of funds
The sources and uses of cash over a stated period of time are reflected on the:
statement of cash flows.
The internal rate of return is:
tedious to compute without the use of either a financial calculator or a computer.
If a project has a net present value equal to zero, then:
the project earns a return exactly equal to the discount rate.
Javangula Foods is considering two mutually exclusive projects and has determined that the crossover rate for these projects is 12.3 percent. Given this information, you know that:
the project that is acceptable at a discount rate of 12 percent should be rejected at a discount rate of 13 percent.
A project has a net present value of zero. Given this information:
the project's cash inflows equal its cash outflows in current dollar terms.
Dominic's Custom Draperies has a fixed asset turnover rate of 1.13 and a total asset turnover rate of .94. Its competitor, Window Fashions, has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .91. Both companies have similar operations. Based on this information, Dominic's must be _____ than Window Fashions.
utilizing its total assets more efficiently
You recently purchased a restaurant that had equal market and book values. The purchase included the building, fixtures, and inventory. Which one of the following would be most likely to cause the market value of the restaurant to fall below its book value?
A pandemic that required restaurants to limit the number customers allowed inside
The Balance Sheet Identity is:
Assets = Liabilities + Owners Equity
Which one of the following statements regarding corporations is correct?
Corporations can have an unlimited life.
A firm's liquidity is measured with which one of the following ratios?
Current ratio
change in net working capital
Ending NWC - Beginning NWC
Which one of the following is an agency cost?
Hiring outside accountants to audit the company's financial statements
Which one of the following questions involves a capital structure decision?
How much debt should the firm incur to fund a project?
Which one of the following questions is a working capital management decision?
How much inventory should the company keep on hand?
You are viewing a graph that plots the NPVs of a project against the various discount rates that could be applied to the project's cash flows. What is the name given to this graph?
NPV profile
The controller, rather than the treasurer, is typically responsible for which one of the following functions?
Processing cost reports
Which loan type requires the borrower to repay a single lump sum payment at some time in the future with interest?
Pure Discount
Which one of the following is a primary market transaction?
Sale of a new share of stock from a corporation to an individual investor
Which one of the following is a working capital management decision?
Should the firm require immediate payment from customers or offer credit terms?
Which one of the following categories of securities had the highest average annual return for the period 1926-2019?
Small-company stocks
The historical record for the period 1926-2019 supports which one of the following statements?
Small-company stocks have lost as much as 50 percent and gained as much as 100 percent in a single year.
Madelyn is calculating the present value of a bonus she will receive next year. The process she is using is called:
discounting
Madelyn is calculating the present value of a bonus she will receive next year. The process she is using is called:
discounting.
Usually, the treasurer of a corporation reports directly to the:
vice president of finance.