Finance Final

The least efficient of all the different types of secondary markets is the:

direct search market.

In computing the NPV of a capital budgeting project, one should NOT

ignore the salvage value.

Preferred stock is sometimes treated like a debt security because

preferred dividend payments are similar to bond interest payments and are fixed in nature regardless of the firm's earnings.

Two projects are considered to be contingent projects if

the acceptance of one project is dependent on the acceptance of the other.

In evaluating capital projects, the decisions using the NPV method and the IRR method may disagree if

the cash flows pattern is unconventional. the projects are mutually exclusive. Both b and c are correct.

To accept a capital project when using NPV,

the project NPV should be greater than zero

Two projects are considered to be mutually exclusive if

the projects perform the same function// selecting one would automatically eliminate accepting the other. (Both a and b)

The net present value

uses the discounted cash flow valuation technique, will provide a direct measure of how much a firm's value will change because of the capital project, is consistent with shareholder wealth maximization goal. (all of the above)

Which of the following statements is NOT true about constant-growth stocks?

Cash dividend remains constant over time.

Which of the following statements is true about secondary markets?

In secondary markets, outstanding shares of stock are bought and sold among investors.

Given the historical information in the chapter, which of the following investment classes had the least variability in returns?

Intermediate-Term Government Bonds

Which of the following is the best measure of the systematic risk in a portfolio?

Beta

Which of the following statements about preferred stock is FALSE?

Failure to pay dividends on preferred stocks will result in a default.

Which of the following is a disadvantage of the payback method?

It ignores the time value of money. It is inconsistent with the goal of maximizing shareholder wealth. It ignores cash flows beyond the payback period. All of the above.

Which of the following is NOT true about capital budgeting?

It is easy for a firm to reverse the decision of large capital investments at any time.

Which of the following statements is NOT true about common stock?

Owners of common stock are guaranteed dividend payments by the firm.

Which of the following statements is NOT true about preferred stock?

Preferred stockholders are not eligible for guaranteed dividend payments by the firm.

Given the historical information in the chapter, which of the following investment classes had the greatest average return?

Small U.S. Stocks

Which of the following statements about IRR is NOT true?

The IRR is the discount rate that makes the NPV greater than zero.

Which of the following is true about the Net Present Value method?

The NPV assumes that all cash flows are reinvested at the firm's discount rate.

Which of the following is an aspect of independent projects?

The cash flows are unrelated.

Which of the following statements about the payback method is true?

There is no economic rational that links the payback method to shareholder wealth maximization.

Which of the following cash flow patterns is NOT an unconventional cash flow pattern?

A negative initial cash flow is followed by positive future cash flows.

Which one of the following statements is NOT true?

Accepting a negative-NPV project has no impact on shareholder wealth.

Which of the following investors should be willing to pay the highest price for an asset?

An investor with a diversified portfolio.