frl chapter 9, chapter 10, chapter 12
One year ago, you purchased a stock at a price of $32.16. The stock pays quarterly dividends of $0.20 per share. Today, the stock is selling for $28.20 per share. What is your capital gain on this investment? A. -$4.16 B. -$3.96 C. -$3.76 D. -$3.16 E. -$2.96
- 3.96
Kelly's Corner Bakery purchased a lot in Oil City 6 years ago at a cost of $280,000. Today, that lot has a market value of $340,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1.47 million. What amount should be used as the initial cash flow for this project? A. -$1,470,000 B. -$1,810,000 C. -$1,825,000 D. -$1,845,000 E. -$1,860,000
-$1,810,000 CF0 = -$340,000 - $1,470,000 = -$1,810,000
Mason Farms purchased a building for $729,000 eight years ago. Six years ago, repairs were made to the building which cost $136,000. The annual taxes on the property are $11,000. The building has a current market value of $825,000 and a current book value of $494,000. The building is totally paid for and solely owned by the firm. If the company decides to use this building for a new project, what value, if any, should be included in the initial cash flow of the project for this building? A. $494,000 B. $582,000 C. $825,000 D. $865,000 E. $953,000
825,000
Which one of the following statements is correct concerning bid prices? A. The bid price is the maximum price that a firm should bid. B. A firm can submit a bid that is higher than the computed bid price and still break even. C. A bid price ignores taxes. D. A bid price should be computed based solely on the operating cash flows of the project. E. A bid price should be computed based on a zero percent required rate of return.
A firm can submit a bid that is higher than the computed bid price and still break even.
Which one of the following statements is correct concerning market efficiency? A. Real asset markets are more efficient than financial markets. B. If a market is efficient, arbitrage opportunities should be common. C. In an efficient market, some market participants will have an advantage over others. D. A firm will generally receive a fair price when it issues new shares of stock. E. New information will gradually be reflected in a stock's price to avoid any sudden change in the price of the stock.
A firm will generally receive a fair price when it issues new shares of stock.
Which one of the following statements is correct? A. Project analysis should only include the cash flows that affect the income statement. B. A project can create a positive operating cash flow without affecting sales. C. The depreciation tax shield creates a cash outflow for a project. D. Interest expense should always be included as a cash outflow when analyzing a project. E. The opportunity cost of a company-owned building that is going to be used in a new project should be included as a cash inflow to the project.
A project can create a positive operating cash flow without affecting sales.
Today, you sold 200 shares of Indian River Produce stock. Your total return on these shares is 5.65 percent. You purchased the shares one year ago at a price of $31.10 a share. You have received a total of $100 in dividends over the course of the year. What is your capital gains yield on this investment? A. 3.68 percent B. 4.04 percent C. 5.67 percent D. 7.26 percent E. 7.41 percent
Capital gains yield = .0565 - [($100/$200)/$31.10] = 4.04 percent
West Wind Tours stock is currently selling for $48 a share. The stock has a dividend yield of 2.6 percent. How much dividend income will you receive per year if you purchase 200 shares of this stock? A. $24.96 B. $36.20 C. $124.80 D. $362.00 E. $249.60
Dividend income = $48 0.026 200 = $249.60
You own 400 shares of Western Feed Mills stock valued at $51.20 per share. What is the dividend yield if your annual dividend income is $352? A. 1.68 percent B. 1.72 percent C. 1.83 percent D. 1.13 percent E. 1.21 percent
Dividend yield = ($352/400)/$51.20 = 1.72 percent
Which one of the following was the least volatile over the period of 1926-2007? A. large-company stocks B. inflation C. long-term corporate bonds D. U.S. Treasury bills E. intermediate-term government bonds
U.S. Treasury bills
Which one of the following statements correctly applies to the period 1926-2007? A. Large-company stocks earned a higher average risk premium than did small-company stocks. B. Intermediate-term government bonds had a higher average return than long-term corporate bonds. C. Large-company stocks had an average annual return of 14.7 percent. D. Inflation averaged 2.6 percent for the period. E. U.S. Treasury bills had a positive average real rate of return.
U.S. Treasury bills had a positive average real rate of return.
Which one of the following statements is a correct reflection of the U.S. markets for the period 1926-2007? A. U.S. Treasury bill returns never exceeded a 9 percent return in any one year during the period. B. U.S. Treasury bills provided a positive rate of return each and every year during the period. C. Inflation equaled or exceeded the return on U.S. Treasury bills every year during the period. D. Long-term government bonds outperformed U.S. Treasury bills every year during the period. E. National deflation occurred at least once every decade during the period.
U.S. Treasury bills provided a positive rate of return each and every year during the period.
Douglass Interiors is considering two mutually exclusive projects and have determined that the crossover rate for these projects is 11.7 percent. Project A has an internal rate of return (IRR) of 15.3 percent and Project B has an IRR of 16.5 percent. Given this information, which one of the following statements is correct? A. Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR. B. Project B should be accepted as it has the higher IRR. C. Both projects should be accepted as both of the project's IRRs exceed the crossover rate. D. Neither project should be accepted since both of the project's IRRs exceed the crossover rate. E. You cannot determine which project should be accepted given the information provided.
You cannot determine which project should be accepted given the information provided.
A project with financing type cash flows is typified by a project that has which one of the following characteristics? A. conventional cash flows B. cash flows that extend beyond the acceptable payback period C. a year or more in the middle of a project where the cash flows are equal to zero D. a cash inflow at time zero E. cash inflows which are equal in amount
a cash inflow at time zero
When the present value of the cash inflows exceeds the initial cost of a project, then the project should be: A. accepted because the internal rate of return is positive. B. accepted because the profitability index is greater than 1. C. accepted because the profitability index is negative. D. rejected because the internal rate of return is negative. E. rejected because the net present value is negative.
accepted because the profitability index is greater than 1.
A project's average net income divided by its average book value is referred to as the project's average: A. net present value. B. internal rate of return. C. accounting return. D. profitability index. E. payback period.
accounting return
Which one of the following is the depreciation method which allows accelerated write-offs of property under various lifetime classifications? A. IRR B. ACRS C. AAR D. straight-line to zero E. straight-line with salvage
acrs
The equivalent annual cost considers which of the following? I. required rate of return II. operating costs III. need for replacement IV. aftertax salvage value A. I and II only B. II and IV only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV
all
You are comparing two mutually exclusive projects. The crossover point is 12.3 percent. You have determined that you should accept project A if the required return is 13.1 percent. This implies you should: A. always accept project A. B. be indifferent to the projects at any discount rate above 13.1 percent. C. always accept project A if the required return exceeds the crossover rate. D. accept project B only when the required return is equal to the crossover rate. E. accept project B if the required return is less than 13.1 percent.
always accept project A if the required return exceeds the crossover rate.
The depreciation tax shield is best defined as the: A. amount of tax that is saved when an asset is purchased. B. tax that is avoided when an asset is sold as salvage. C. amount of tax that is due when an asset is sold. D. amount of tax that is saved because of the depreciation expense. E. amount by which the aftertax depreciation expense lowers net income.
amount of tax that is saved because of the depreciation expense
Which one of the following would make a project unacceptable? A. cash inflow for net working capital at time zero B. requiring fixed assets that would have no salvage value C. an equivalent annual cost that exceeds that of an alternative project D. lack of revenue generation E. a depreciation tax shield that exceeds the value of the interest expense
an equivalent annual cost that exceeds that of an alternative project
Which one of the following increases the net present value of a project? A. an increase in the required rate of return B. an increase in the initial capital requirement C. a deferment of some cash inflows until a later year D. an increase in the aftertax salvage value of the fixed assets E. a reduction in the final cash inflow
an increase in the aftertax salvage value of the fixed assets
Which one of the following will increase a bid price? A. a decrease in the fixed costs B. a reduction in the net working capital requirement C. a reduction in the firm's tax rate D. an increase in the salvage value E. an increase in the required rate of return
an increase in the required rate of return
The return earned in an average year over a multi-year period is called the _____ average return. A. arithmetic B. standard C. variant D. geometric E. real
arithmetic
Roger's Meat Market is considering two independent projects. The profitability index decision rule indicates that both projects should be accepted. This result most likely does which one of the following? A. conflicts with the results of the net present value decision rule B. assumes the firm has sufficient funds to undertake both projects C. agrees with the decision that would also apply if the projects were mutually exclusive D. bases the accept/reject decision on the same variables as the average accounting return E. fails to provide useful information as the firm must reject at least one of the projects
assumes the firm has sufficient funds to undertake both projects
In actual practice, managers frequently use the: I. average accounting return method because the information is so readily available. II. internal rate of return because the results are easy to communicate and understand. III. discounted payback because of its simplicity. IV. net present value because it is considered by many to be the best method of analysis. A. I and III only B. II and III only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV
average, internal, net present
Pro forma statements for a proposed project should: I. be compiled on a stand-alone basis. II. include all the incremental cash flows related to the project. III. generally exclude interest expense. IV. include all project-related fixed asset acquisitions and disposals. A. I and II only B. II and III only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV
be compelled, include all, generally exclude, include all
Assume that you invest in a portfolio of large-company stocks. Further assume that the portfolio will earn a rate of return similar to the average return on large-company stocks for the period 1926-2007. What rate of return should you expect to earn? A. less than 10 percent B. between 10 and 12.5 percent C. between 12.5 and 15 percent D. between 15 and 17.5 percent E. more than 17.5 percent
between 10 and 12.5 percent
What was the average rate of inflation over the period of 1926-2007? A. less than 2.0 percent B. between 2.0 and 2.5 percent C. between 2.5 and 3.0 percent D. between 3.0 and 3.5 percent E. greater than 3.5 percent
between 3.0 and 3.5 percent
Mutually exclusive projects are best defined as competing projects which: A. would commence on the same day. B. have the same initial start-up costs. C. both require the total use of the same limited resource. D. both have negative cash outflows at time zero. E. have the same life span.
both require the total use of the same limited resource.
Changes in the net working capital requirements: A. can affect the cash flows of a project every year of the project's life. B. only affect the initial cash flows of a project. C. only affect the cash flow at time zero and the final year of a project. D. are generally excluded from project analysis due to their irrelevance to the total project. E. reflect only the changes in the current asset accounts.
can affect the cash flows of a project every year of the project's life.
The operating cash flow of a cost cutting project: A. is equal to the depreciation tax shield. B. is equal to zero because there is no incremental sales. C. can only be analyzed by projecting the sales and costs for a firm's entire operations. D. includes any changes that occur in the current accounts. E. can be positive even though there are no sales.
can be positive even though there are no sales.
Net working capital: A. can be ignored in project analysis because any expenditure is normally recouped at the end of the project. B. requirements, such as an increase in accounts receivable, create a cash inflow at the beginning of a project. C. is rarely affected when a new product is introduced. D. can create either a cash inflow or a cash outflow at time zero of a project. E. is the only expenditure where at least a partial recovery can be made at the end of a project.
can create either a cash inflow or a cash outflow at time zero of a project.
Which of the following statements is correct in relation to a stock investment? I. The capital gains yield can be positive, negative, or zero. II. The dividend yield can be positive, negative, or zero. III. The total return can be positive, negative, or zero. IV. Neither the dividend yield nor the total return can be negative. A. I only B. I and II only C. I and III only D. I and IV only E. IV only
capital gains,total returns
Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an AFTER TAX SALVAGE VALUE of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project? A. reduction in the cash outflow at time zero B. cash inflow in the final year of the project C. cash inflow for the year following the final year of the project D. cash inflow prorated over the life of the project E. not included in the net present value
cash inflow in the final year of the project
Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project's internal rate of return? A. decreasing the required discount rate B. increasing the initial investment in fixed assets C. condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows D. eliminating the salvage value E. decreasing the amount of the final cash inflow
condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows
Which one of the following is a project cash inflow? Ignore any tax effects. A. decrease in accounts payable B. increase in inventory C. decrease in accounts receivable D. depreciation expense based on MACRS E. equipment acquisition
decrease in AR
The net book value of equipment will: A. remain constant over the life of the equipment. B. vary in response to changes in the market value. C. decrease at a constant rate when MACRS depreciation is used. D. increase over the taxable life of an asset. E. decrease slower under straight-line depreciation than under MACRS.
decrease slower under straight-line depreciation than under MACRS.
Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately. If the dividend yield remains at its pre-announcement level, then you know the stock price: A. was unaffected by the announcement. B. increased proportionately with the dividend decrease. C. decreased proportionately with the dividend decrease. D. decreased by $0.14 per share. E. increased by $0.14 per share.
decreased proportionately with the dividend decrease.
Increasing which one of the following will increase the operating cash flow assuming that the bottom-up approach is used to compute the operating cash flow? A. erosion effects B. taxes C. fixed expenses D. salaries E. depreciation expense
depreciation expense
Which of the following correspond to a wide frequency distribution? I. relatively low risk II. relatively low rate of return III. relatively high standard deviation IV. relatively large risk premium A. II only B. III only C. I and II only D. II and III only E. III and IV only
deviation and large risk
When using the equivalent annual cost as a basis for deciding which equipment should be purchased, the equipment under consideration must fit which two of the following criteria? I. differing productive lives II. differing manufacturers III. required replacement at end of economic life IV. differing initial cost A. I and II B. I and III C. I and IV D. II and IIII E. II and IV
differing productive, replacement
The internal rate of return is defined as the: A. maximum rate of return a firm expects to earn on a project. B. rate of return a project will generate if the project in financed solely with internal funds. C. discount rate that equates the net cash inflows of a project to zero. D. discount rate which causes the net present value of a project to equal zero. E. discount rate that causes the profitability index for a project to equal zero.
discount rate which causes the net present value of a project to equal zero.
Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows? A. constant dividend growth model B. discounted cash flow valuation C. average accounting return D. expected earnings model E. internal rate of return
discounted cash flow
The length of time a firm must wait to recoup, in PRESENT VALUE TERMS, the money it has in invested in a project is referred to as the: A. net present value period. B. internal return period. C. payback period. D. discounted profitability period. E. discounted payback period.
discounted payback period
Six months ago, you purchased 100 shares of stock in Global Trading at a price of $38.70 a share. The stock pays a quarterly dividend of $0.15 a share. Today, you sold all of your shares for $40.10 per share. What is the total amount of your dividend income on this investment? A. $15 B. $30 C. $45 D. $50 E. $60
dividend income = .15 *100*2 = 30
Which one of the following is an advantage of the average accounting return method of analysis? A. easy availability of information needed for the computation B. inclusion of time value of money considerations C. the use of a cutoff rate as a benchmark D. the use of pre-tax income in the computation E. use of real, versus nominal, average income
easy availability of information needed for the computation
The internal rate of return: A. may produce multiple rates of return when cash flows are conventional. B. is best used when comparing mutually exclusive projects. C. is rarely used in the business world today. D. is principally used to evaluate small dollar projects. E. is easy to understand.
easy to understand
Assume that the market prices of the securities that trade in a particular market fairly reflect the available information related to those securities. Which one of the following terms best defines that market? A. riskless market B. evenly distributed market C. zero volatility market D. Blume's market E. efficient capital market
efficient capital market
Dan is comparing three machines to determine which one to purchase. The machines sell for differing prices, have differing operating costs, differing machine lives, and will be replaced when worn out. Which one of the following computational methods should Dan use as the basis for his decision? A. internal rate of return B. operating cash flow C. equivalent annual cost D. depreciation tax shield E. bottom-up operating cash flow
equivalent annual cost
Decreasing which one of the following will increase the acceptability of a project? A. sunk costs B. salvage value C. depreciation tax shield D. equivalent annual cost E. accounts payable requirement
equivalent annual cost
The annual annuity stream of payments that has the SAME PRESENT value as a project's COSTS is referred to as which one of the following? A. yearly incremental costs B. sunk costs C. opportunity costs D. erosion cost E. equivalent annual cost
equivalent annual cost
Which of the following are considered weaknesses in the average accounting return method of project analysis? I. exclusion of time value of money considerations II. need of a cutoff rate III. easily obtainable information for computation IV. based on accounting values
exclusion,need, and based
Which one of the following best describes pro forma financial statements? A. financial statements expressed in a foreign currency B. financial statements where the assets are expressed as a percentage of total assets and costs are expressed as a percentage of sales C. financial statements showing projected values for future time periods D. financial statements expressed in real dollars, given a stated base year E. financial statements where all accounts are expressed as a percentage of last year's values
financial statements showing projected values for future time periods
The average compound return earned per year over a multi-year period is called the _____ average return. A. arithmetic B. standard C. variant D. geometric E. real
geometric
There are two distinct discount rates at which a particular project will have a zero net present value. In this situation, the project is said to: A. have two net present value profiles. B. have operational ambiguity. C. create a mutually exclusive investment decision. D. produce multiple economies of scale. E. have multiple rates of return.
have multiple rates of return
Kelley's Baskets makes handmade baskets for distribution to upscale retail outlets. The firm is currently considering making handmade wreaths as well. Which one of the following is the best example of an incremental operating cash flow related to the wreath project? A. storing supplies in the same space currently used for materials storage B. utilizing the basket manager to oversee wreath production C. hiring additional employees to handle the increased workload should the firm accept the wreath project D. researching the market to determine if wreath sales might be profitable before deciding to proceed E. planning on lower interest expense by assuming the proceeds of the wreath sales will be used to reduce the firm's currently outstanding debt
hiring additional employees to handle the increased workload should the firm accept the wreath project
Graphing the crossover point helps explain: A. why one project is always superior to another project. B. how decisions concerning mutually exclusive projects are derived. C. how the duration of a project affects the decision as to which project to accept. D. how the net present value and the initial cash outflow of a project are related. E. how the profitability index and the net present value are related.
how decisions concerning mutually exclusive projects are derived.
The top-down approach to computing the operating cash flow: A. ignores noncash expenses. B. applies only if a project increases sales. C. applies only to cost cutting projects. D. is equal to sales - costs - taxes + depreciation. E. is used solely to compute a bid price.
ignores noncash expenses
If the variability of the returns on large-company stocks were to increase over the long-term, you would expect which of the following to occur as a result? I. decrease in the average rate of return II. increase in the risk premium III. increase in the 68 percent probability range of the frequency distribution of returns IV. decrease in the standard deviation A. I only B. IV only C. II and III only D. I and III only E. II and IV only
increase risk, 68
To convince investors to accept greater volatility, you must: A. decrease the risk premium. B. increase the risk premium. C. decrease the real return. D. decrease the risk-free rate. E. increase the risk-free rate.
increase the risk premium
Which one of the following will decrease the net present value of a project? A. increasing the value of each of the project's discounted cash inflows B. moving each of the cash inflows back to a later time period C. decreasing the required discount rate D. increasing the project's initial cost at time zero E. increasing the amount of the final cash inflow
increasing the project's initial cost at time zero
The stand-alone principle advocates that project analysis should be based solely on which one of the following costs? A. sunk B. total C. variable D. incremental E. fixed
incremental
The difference between a firm's future cash flows if it accepts a project and the firm's future cash flows if it does not accept the project is referred to as the project's: A. incremental cash flows. B. internal cash flows. C. external cash flows. D. erosion effects. E. financing cash flows.
incremental cash flows
The operating cash flow for a project should exclude which one of the following? A. taxes B. variable costs C. fixed costs D. interest expense E. depreciation tax shield
interest expense
Which two methods of project analysis were the most widely used by CEO's as of 1999? A. net present value and payback B. internal rate of return and payback C. net present value and average accounting return D. internal rate of return and net present value E. payback and average accounting return
internal rate of return and NPV
According to theory, studying historical stock price movements to identify mispriced stocks: A. is effective as long as the market is only semistrong form efficient. B. is effective provided the market is only weak form efficient. C. is ineffective even when the market is only weak form efficient. D. becomes ineffective as soon as the market gains semistrong form efficiency. E. is ineffective only in strong form efficient markets.
is ineffective even when the market is only weak form efficient.
Net present value: A. is the best method of analyzing mutually exclusive projects. B. is less useful than the internal rate of return when comparing different sized projects. C. is the easiest method of evaluation for non-financial managers to use. D. is less useful than the profitability index when comparing mutually exclusive projects. E. is very similar in its methodology to the average accounting return.
is the best method of analyzing mutually exclusive projects.
Which of the following statements are true based on the historical record for 1926-2007? I. Risk and potential reward are inversely related. II. Risk-free securities produce a positive real rate of return each year. III. Returns are more predictable over the short-term than they are over the long-term. IV. Bonds are generally a safer investment than are stocks. A. I only B. IV only C. II and III only D. II and IV only E. II, III, and IV only
iv only. binds are generally safer than stocks
As long as the inflation rate is positive, the real rate of return on a security will be ____ the nominal rate of return. A. greater than B. equal to C. less than D. greater than or equal to E. unrelated to
less than
Which of the following are advantages of the payback method of project analysis? I. works well for research and development projects II. liquidity bias III. ease of use IV. arbitrary cutoff point
liquidity, ease of use
You are considering the purchase of a new machine. Your analysis includes the evaluation of two machines which have differing initial and ongoing costs and differing lives. Whichever machine is purchased will be replaced at the end of its useful life. You should select the machine which has the: A. longest life. B. highest annual operating cost. C. lowest annual operating cost. D. highest equivalent annual cost. E. lowest equivalent annual cost.
lowest equivalent annual cost.
The real rate of return on a stock is approximately equal to the nominal rate of return: A. multiplied by (1 + inflation rate). B. plus the inflation rate. C. minus the inflation rate. D. divided by (1 + inflation rate). E. divided by (1- inflation rate).
minus the inflation rate
Which one of the following is a project acceptance indicator given an independent project with investing type cash flows? A. profitability index less than 1.0 B. project's internal rate of return less than the required return C. discounted payback period greater than requirement D. average accounting return that is less than the internal rate of return E. modified internal rate of return that exceeds the required return
modified internal rate of return that exceeds the required return
If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be: A. independent. B. interdependent. C. mutually exclusive. D. economically scaled. E. operationally distinct.
mutually exclusive
A project has an INITIAL COST of $27,400 and a MARKET VALUE of $32,600. What is the difference between these two values called? A. net present value B. internal return C. payback value D. profitability index E. discounted payback
net present
Southern Chicken is considering two projects. Project A consists of creating an outdoor eating area on the unused portion of the restaurant's property. Project B would use that outdoor space for creating a drive-thru service window. When trying to decide which project to accept, the firm should rely most heavily on which one of the following analytical methods? A. profitability index B. internal rate of return C. payback D. net present value E. accounting rate of return
net present value
The profitability index is most closely related to which one of the following? A. payback B. discounted payback C. average accounting return D. net present value E. modified internal rate of return
net present value
Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm? A. net present value B. discounted payback C. internal rate of return D. profitability index E. payback
net present value
Which one of the following correctly describes the dividend yield? A. next year's annual dividend divided by today's stock price B. this year's annual dividend divided by today's stock price C. this year's annual dividend divided by next year's expected stock price D. next year's annual dividend divided by this year's annual dividend E. the increase in next year's dividend over this year's dividend divided by this year's dividend
next year's annual dividend divided by today's stock price
Which two of the following are the most likely reasons why a stock price might not react at all on the day that new information related to the stock issuer is released? I. insiders knew the information prior to the announcement II. investors need time to digest the information prior to reacting III. the information has no bearing on the value of the firm IV. the information was anticipated A. I and II only B. I and III only C. II and III only D. II and IV only E. III and IV only
no bearing/ anticipated
Which of the following statements generally apply to the cash flows of a financing type project? I. nonconventional cash flows II. cash outflows exceed cash inflows prior to any time value adjustments III. cash for services rendered is received prior to the cash that is spent providing the services IV. the total of all cash flows must equal zero on an unadjusted basis
non-conventional, outflows,cash for services
Which one of the following is defined by its mean and its standard deviation? A. arithmetic nominal return B. geometric real return C. normal distribution D. variance E. risk premium
normal distribution
You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph? A. project tract B. projected risk profile C. NPV profile D. NPV route E. present value sequence
npv profile
The option that is foregone so that an asset can be utilized by a specific project is referred to as which one of the following? A. salvage value B. wasted value C. sunk cost D. opportunity cost E. erosion
opportunity cost
Estimates of the rate of return on a security based on a historical arithmetic average will probably tend to _____ the expected return for the long-term while estimates using the historical geometric average will probably tend to _____ the expected return for the short-term. A . overestimate; overestimate B. overestimate; underestimate C. underestimate; overestimate D. underestimate; underestimate E. accurately; accurately
overestimate;underestimate
Which two methods of project analysis are the most biased towards short-term projects? A. net present value and internal rate of return B. internal rate of return and profitability index C. payback and discounted payback D. net present value and discounted payback E. discounted payback and profitability index
payback and discounted payback
The length of time a firm must wait to recoup the money it has invested in a project is called the: A. internal return period. B. payback period. C. profitability period. D. discounted cash period. E. valuation period.
payback period
The present value of an investment's future cash flows divided by the initial cost of the investment is called the: A. net present value. B. internal rate of return. C. average accounting return. D. profitability index. E. profile period.
profitability index
Which one of the following methods of analysis provides the best information on the cost-benefit aspects of a project? A. net present value B. payback C. internal rate of return D. average accounting return E. profitability index
profitability index
Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.8 years and a net present value of $6,800. Project B has an expected payback period of 3.1 years with a net present value of $28,400. Which projects should be accepted based on the payback decision rule? A. Project A only B. Project B only C. Both A and B D. Neither A nor B E. Answer cannot be determined based on the information given.
project A only
Isaac has analyzed two mutually exclusive projects of similar size and has compiled the following information based on his analysis. Both projects have 3- year lives. Isaac has been asked for his best recommendation given this information. His recommendation should be to accept: A. both projects. B. project B because it has the shortest payback period. C. project B and reject project A based on their net present values. D. project A and reject project B based on their average accounting returns. E. neither project.
project B and reject project A based on their net present values.
Which one of the following is a correct ranking of securities based on their volatility over the period of 1926-2007? Rank from highest to lowest. A. large company stocks, U.S. Treasury bills, long-term government bonds B. small company stocks, long-term corporate bonds, large company stocks C. small company stocks, long-term corporate bonds, intermediate-term government bonds D. large company stocks, small company stocks, long-term government bonds E. intermediate-term government bonds, long-term corporate bonds, U.S. Treasury bills
small, long,intermediate
Which one of the following categories of securities has had the MOST VOLATILE returns over the period 1926-2007? A. long-term corporate bonds B. large-company stocks C. intermediate-term government bonds D. U.S. Treasury bills E. small-company stocks
small-company stocks
Small-company stocks, as the term is used in the textbook, are best defined as the: A. 500 newest corporations in the U.S. B. firms whose stock trades OTC. C. smallest twenty percent of the firms listed on the NYSE. D. smallest twenty-five percent of the firms listed on NASDAQ. E. firms whose stock is listed on NASDAQ.
smallest 20% on NYSE
Applying the discounted payback decision rule to all projects may cause: A. some positive net present value projects to be rejected. B. the most liquid projects to be rejected in favor of the less liquid projects. C. projects to be incorrectly accepted due to ignoring the time value of money. D. a firm to become more long-term focused. E. some projects to be accepted which would otherwise be rejected under the payback rule.
some positive net present value projects to be rejected.
The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles? A. underlying value principle B. stand-alone principle C. equivalent cost principle D. salvage principle E. fundamental principle
stand alone principles
Inside information has the least value when financial markets are: A. weak form efficient. B. semiweak form efficient. C. semistrong form efficient. D. strong form efficient. E. inefficient.
strong form efficient
G & L Plastic Molders spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost? A. opportunity B. fixed C. incremental D. erosion E. sunk
sunk
Which one of the following costs was incurred in the past and cannot be recouped? A. incremental B. side C. sunk D. opportunity E. erosion
sunk
The current book value of a fixed asset that was purchased two years ago is used in the computation of which one of the following? A. depreciation tax shield B. tax due on the salvage value of that asset C. current year's operating cash flow D. change in net working capital E. MACRS depreciation for the current year
tax due on the salvage value of that asset
The internal rate of return is: A. the discount rate that makes the net present value of a project equal to the initial cash outlay. B. equivalent to the discount rate that makes the net present value equal to one. C. tedious to compute without the use of either a financial calculator or a computer. D. highly dependent upon the current interest rates offered in the marketplace. E. a better methodology than net present value when dealing with unconventional cash flows.
tedious to compute without the use of either a financial calculator or a computer.
Which one of the following best describes the concept of erosion? A. expenses that have already been incurred and cannot be recovered B. change in net working capital related to implementing a new project C. the cash flows of a new project that come at the expense of a firm's existing cash flows D. the alternative that is forfeited when a fixed asset is utilized by a project E. the differences in a firm's cash flows with and without a particular project
the cash flows of a new project that come at the expense of a firm's existing cash flows
The bottom-up approach to computing the operating cash flow applies only when: A. both the depreciation expense and the interest expense are equal to zero. B. the interest expense is equal to zero. C. the project is a cost-cutting project. D. no fixed assets are required for a project. E. both taxes and the interest expense are equal to zero.
the interest expense is equal to zero.
Efficient financial markets fluctuate continuously because: A. the markets are continually reacting to old information as that information is absorbed. B. the markets are continually reacting to new information. C. arbitrage trading is limited. D. current trading systems require human intervention. E. investments produce varying levels of net present values.
the markets are continually reacting to new information.
The bid price is: A. an aftertax price. B. the aftertax contribution margin. C. the highest price you should charge if you want the project. D. the only price you can bid if the project is to be profitable. E. the minimum price you should charge if you want to financially breakeven.
the minimum price you should charge if you want to financially breakeven
If a project has a net present value equal to zero, then: A. the total of the cash inflows must equal the initial cost of the project. B. the project earns a return exactly equal to the discount rate. C. a decrease in the project's initial cost will cause the project to have a negative NPV. D. any delay in receiving the projected cash inflows will cause the project to have a positive NPV. E. the project's PI must be also be equal to zero.
the project earns a return exactly equal to the discount rate.
A year ago, you purchased 400 shares of Stellar Wood Products, Inc. stock at a price of $8.62 per share. The stock pays an annual dividend of $0.10 per share. Today, you sold all of your shares for $4.80 per share. What is your total dollar return on this investment? A. -$382 B. -$372 C. -$1,528 D. -$1,488 E. -$1,360
total dollar return= 4.80-8.62 + 10 * 400 = -1488
Which one of the following categories of securities had the LOWEST AVG RISK premium for the period 1926-2007? A. long-term government bonds B. small company stocks C. large company stocks D. long-term corporate bonds E. U.S. Treasury bills
u.s. treasury bills
Danielle's is a furniture store that is considering adding appliances to its offerings. Which of the following should be considered incremental cash flows of this project? I. utilizing the credit offered by a supplier to purchase the appliance inventory II. benefiting from increased furniture sales to appliance customers III. borrowing money from a bank to fund the appliance project IV. purchasing parts for inventory to handle any appliance repairs that might be necessary
utilizing, benefiting, and purchasing
Standard deviation is a measure of which one of the following? A. average rate of return B. volatility C. probability D. risk premium E. real returns
volatility
which one of the following is the best example of two mutually exclusive projects? A. building a retail store that is attached to a wholesale outlet B. producing both plastic forks and spoons on the same assembly line at the same time C. using an empty warehouse to store both raw materials and finished goods D. promoting two products during the same television commercial E. waiting until a machine finishes molding Product A before being able to mold Product B
waiting until a machine finishes molding Product A before being able to mold Product B
If you excel in analyzing the future outlook of firms, you would prefer the financial markets be ____ form efficient so that you can have an advantage in the marketplace. A. weak B. semiweak C. semistrong D. strong E. perfect
weak
The equivalent annual cost method is useful in determining: A. which one of two machines to purchase if the machines are mutually exclusive, have differing lives, and are a one-time purchase. B. the tax shield benefits of depreciation given the purchase of new assets for a project. C. the operating cash flows of a cost-cutting project. D. which one of two investments to accept when the investments have different required rates of return. E. which one of two machines should be purchased when the machines are mutually exclusive, have different machine lives, and will be replaced once they are worn out.
which one of two machines should be purchased when the machines are mutually exclusive, have different machine lives, and will be replaced once they are worn out.
A company that utilizes the MACRS system of depreciation: A. will have equal depreciation costs each year of an asset's life. B. will have a greater tax shield in year two of a project than it would have if the firm had opted for straight-line depreciation, given the same depreciation life. C. can depreciate the cost of land, if it so desires. D. will expense less than the entire cost of an asset. E. cannot expense any of the cost of a new asset during the first year of the asset's life.
will have a greater tax shield in year two of a project than it would have if the firm had opted for straight-line depreciation, given the same depreciation life.
Which one of the following is most indicative of a totally efficient stock market? A. extraordinary returns earned on a routine basis B. positive net present values on stock investments over the long-term C. zero net present values for all stock investments D. arbitrage opportunities which develop on a routine basis E. realizing negative returns on a routine basis
zero net present values for all stock investments
26. Which one of the following correctly applies to the average accounting rate of return? A. It considers the time value of money. B. It measures net income as a percentage of the sales generated by a project. C. It is the best method of analyzing mutually exclusive projects from a financial point of view. D. It is the primary methodology used in analyzing independent projects. E. It can be compared to the return on assets ratio.
It can be compared to the return on assets ratio.
The historical record for the period 1926-2007 supports which one of the following statements? A. A higher-risk security will provide a higher rate of return next year than will a lower-risk security. B. If you need a stated amount of money next year, your best investment option today for those funds would be long-term government bonds. C. Increased long-run potential returns are obtained by lowering risks. D. It is possible for small-company stocks to more than double in value in any one given year. E. Inflation was positive each year throughout the period of 1926-2007.
It is possible for small-company stocks to more than double in value in any one given year.
Why is payback often used as the sole method of analyzing a proposed small project? A. Payback considers the time value of money. B. All relevant cash flows are included in the payback analysis. C. It is the only method where the benefits of the analysis outweigh the costs of that analysis. D. Payback is the most desirable of the various financial methods of analysis. E. Payback is focused on the long-term impact of a project
It is the only method where the benefits of the analysis outweigh the costs of that analysis.
Which one of the following statements is correct based on the historical record for the period 1926-2007? A. The standard deviation of returns for small-company stocks was double that of large-company stocks. B. U.S. Treasury bills had a zero standard deviation of returns because they are considered to be risk-free. C. Long-term government bonds had a lower return but a higher standard deviation on average than did long-term corporate bonds. D. Inflation was less volatile than the returns on U.S. Treasury bills. E. Long-term government bonds underperformed intermediate-term government bonds.
Long-term government bonds had a lower return but a higher standard deviation on average than did long-term corporate bonds.
Which one of the following statements related to payback and discounted payback is correct? A. Payback is a better method of analysis than is discounted payback. B. Discounted payback is used more frequently in business than is payback. C. Discounted payback does not require a cutoff point like the payback method does. D. Discounted payback is biased towards long-term projects while payback is biased towards short-term projects. E. Payback is used more frequently even though discounted payback is a better method.
Payback is used more frequently even though discounted payback is a better method.
Which one of the following statements is correct? A. The greater the volatility of returns, the greater the risk premium. B. The lower the volatility of returns, the greater the risk premium. C. The lower the average return, the greater the risk premium. D. The risk premium is unrelated to the average rate of return. E. The risk premium is not affected by the volatility of returns.
The greater the volatility of returns, the greater the risk premium.
The bid price always assumes which one of the following? A. A project has a one-year life. B. The aftertax net income of the project is zero. C. The net present value of the project is zero. D. Any assets purchased will have a positive salvage value at the end of the project. E. Assets will be depreciated based on MACRS.
The net present value of the project is zero.
Dexter Smith & Co. is replacing a machine simply because it has worn out. The new machine will not affect either sales or operating costs and will not have any salvage value at the end of its 5-year life. The firm has a 34 percent tax rate, uses straight-line depreciation over an asset's life, and has a positive net income. Given this, which one of the following statements is correct? A. As a project, the new machine has a net present value equal to minus one times the machine's purchase price. B. The new machine will have a zero rate of return. C. The new machine will generate positive operating cash flows, at least in the first few years of its life. D. The new machine will create a cash outflow when the firm disposes of it at the end of its life. E. The new machine creates erosion effects.
The new machine will generate positive operating cash flows, at least in the first few years of its life.
Which one of the following statements would generally be considered as accurate given independent projects with conventional cash flows? A. The internal rate of return decision may contradict the net present value decision. B. Business practice dictates that independent projects should have three distinct accept indicators before a project is actually implemented. C. The payback decision rule could override the net present value decision rule should cash availability be limited. D. The profitability index rule cannot be applied in this situation. E. The projects cannot be accepted unless the average accounting return decision ruling is positive.
The payback decision rule could override the net present value decision rule should cash availability be limited.
A project has a net present value of zero. Which one of the following best describes this project? A. The project has a zero percent rate of return. B. The project requires no initial cash investment. C. The project has no cash flows. D. The summation of all of the project's cash flows is zero. E. The project's cash inflows equal its cash outflows in current dollar terms.
The project's cash inflows equal its cash outflows in current dollar terms.
According to Jeremy Siegel, the real return on stocks over the long-term has averaged about: A. 6.8 percent B. 8.7 percent C. 10.4 percent D. 12.3 percent E. 14.8 percent
6.8 %
48. Sailcloth & More currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land 5 years ago at a cost of $319,000. At the time of purchase, the company paid $24,000 to level out the land so it would be suitable for future use. Today, the land is valued at $295,000. The company currently has some unused equipment that it currently owns valued at $38,000. This equipment could be used for producing awnings if $12,000 is spent for equipment modifications. Other equipment costing $490,000 will also be required. What is the amount of the initial cash flow for this expansion project? . -$785,000 B. -$823,000 C. -$835,000 D. -$859,000 E. -$883,000
-835,000 F0 = -$295,000 - $38,000 - $12,000 - $490,000 = -$835,000
Which of the following statements related to the internal rate of return (IRR) are correct? I. The IRR method of analysis can be adapted to handle non-conventional cash flows. II. 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. III. The IRR tends to be used more than net present value simply because its results are easier to comprehend. IV. Both the timing and the amount of a project's cash flows affect the value of the project's IRR.
1,2,3,4
Which one of the following is an example of a sunk cost? A. $1,500 of lost sales because an item was out of stock B. $1,200 paid to repair a machine last year C. $20,000 project that must be forfeited if another project is accepted D. $4,500 reduction in current shoe sales if a store commences selling sandals E. $1,800 increase in comic book sales if a store commences selling puzzles
1,200 paid to repair a machine last year
What was the highest annual rate of inflation during the period 1926-2007? A. between 0 and 3 percent B. between 3 and 5 percent C. between 5 and 10 percent D. between 10 and 15 percent E. between 15 and 20 percent
10% and 15%
The Beach House has sales of $784,000 and a profit margin of 11 percent. The annual depreciation expense is $14,000. What is the amount of the operating cash flow if the company has no long-term debt? A. $68,760 B. $72,240 C. $86,240 D. $100,240 E. $101,760
100,240
The Fluffy Feather sells customized handbags. Currently, it sells 18,000 handbags annually at an average price of $89 each. It is considering adding a lower-priced line of handbags that sell for $59 each. The firm estimates it can sell 7,000 of the lower-priced handbags but will sell 3,000 less of the higher-priced handbags by doing so. What is the amount of the sales that should be used when evaluating the addition of the lower-priced handbags? A. $146,000 B. $275,000 C. $413,000 D. $623,000 E. $680,000
146,00 Sales = (7,000 $59) + (-3,000 $89) = $146,000
Nelson Mfg. owns a manufacturing facility that is currently sitting idle. The facility is located on a piece of land that originally cost $159,000. The facility itself cost $1,460,000 to build. As of now, the book value of the land and the facility are $159,000 and $458,000, respectively. The firm owes no debt on either the land or the facility at the present time. The firm received a bid of $1,500,000 for the land and facility last week. The firm's management rejected this bid even though they were told that it is a reasonable offer in today's market. If the firm was to consider using this land and facility in a new project, what cost, if any, should it include in the project analysis? A. $0 B. $617,000 C. $1,460,000 D. $1,500,000 E. $1,619,000
1500000
What is the probability that small-company stocks will produce an annual return that is more than one standard deviation below the average? A. 1.0 percent B. 2.5 percent C. 5.0 percent D. 16 percent E. 32 percent
16 percent
Which one of the following time periods is associated with high rates of inflation? A. 1929-1933 B. 1957-1961 C. 1978-1981 D. 1992-1996 E. 2001-2005
1978-1981
Jefferson & Sons is evaluating a project that will increase annual sales by $138,000 and annual costs by $94,000. The project will initially require $110,000 in fixed assets that will be depreciated straight-line to a zero book value over the 4-year life of the project. The applicable tax rate is 32 percent. What is the operating cash flow for this project? A. $11,220 B. $29,920 C. $38,720 D. $46,480 E. $46,620
38720
The average annual return on small-company stocks was about _____ percent greater than the average annual return on large-company stocks over the period 1926-2007. A. 3 B. 5 C. 7 D. 9 E. 11
5
Which one of the following statements is correct in relation to independent projects? A. The internal rate of return cannot be used to determine the acceptability of a project that has financing type cash flows. B. A project with investing type cash flows is acceptable if its internal rate of return exceeds the required return. C. A project with financing type cash flows is acceptable if its internal rate of return exceeds the required return. D. The net present value profile is upsloping for projects with both investing and financing type cash flows. E. Projects with financing type cash flows are acceptable only when the internal rate of return is negative.
A project with investing type cash flows is acceptable if its internal rate of return exceeds the required return.
Which one of the following statements best defines the efficient market hypothesis? A. Efficient markets limit competition. B. Security prices in efficient markets remain steady as new information becomes available. C. Mispriced securities are common in efficient markets. D. All securities in an efficient market are zero net present value investments. E. Profits are removed as a market incentive when markets become efficient.
All securities in an efficient market are zero net present value investments.
Which one of the following statements related to capital gains is correct? A. The capital gains yield includes only realized capital gains. B. An increase in an unrealized capital gain will increase the capital gains yield. C. The capital gains yield must be either positive or equal to zero. D. The capital gains yield is expressed as a percentage of the sales price. E. The capital gains yield represents the total return earned by an investor.
An increase in an unrealized capital gain will increase the capital gains yield.
Webster & Moore paid $139,000, in cash, for a piece of equipment 3 years ago. At the beginning of last year, the company spent $21,000 to update the equipment with the latest technology. The company no longer uses this equipment in its current operations and has received an offer of $89,000 from a firm that would like to purchase it. Webster & Moore is debating whether to sell the equipment or to expand its operations so that the equipment can be used. When evaluating the expansion option, what value, if any, should the firm assign to this equipment as an initial cost of the project? A. $0 B. $21,000 C. $89,000 D. $110,000 E. $160,000
Relevant value = $89,000
Three years ago, Knox Glass purchased a machine for a 3-year project. The machine is being depreciated straight-line to zero over a 5-year period. Today, the project ended and the machine was sold. Which one of the following correctly defines the aftertax salvage value of that machine? (T represents the relevant tax rate) A. Sale price + (Sales price - Book value) T B. Sale price + (Sales price - Book value) (1 - T) C. Sale price + (Book value - Sale price) T D. Sale price + (Book value - Sale price) (1 - T) E. Sale price (1 - T)
Sale price + (Book value - Sale price) *T
Which one of the following statements related to the internal rate of return (IRR) is correct? A. The IRR yields the same accept and reject decisions as the net present value method given mutually exclusive projects. B. A project with an IRR equal to the required return would reduce the value of a firm if accepted. C. The IRR is equal to the required return when the net present value is equal to zero. D. Financing type projects should be accepted if the IRR exceeds the required return. E. The average accounting return is a better method of analysis than the IRR from a financial point of view.
The IRR is equal to the required return when the net present value is equal to zero.
Which one of the following best defines the variance of an investment's annual returns over a number of years? A. The average squared difference between the arithmetic and the geometric average annual returns. B. The squared summation of the differences between the actual returns and the average geometric return. C. The average difference between the annual returns and the average return for the period. D. The difference between the arithmetic average and the geometric average return for the period. E. The average squared difference between the actual returns and the arithmetic average return.
The average squared difference between the actual returns and the arithmetic average return.
Stacy purchased a stock last year and sold it today for $3 a share more than her purchase price. She received a total of $0.75 in dividends. Which one of the following statements is correct in relation to this investment? A. The dividend yield is expressed as a percentage of the selling price. B. The capital gain would have been less had Stacy not received the dividends. C. The total dollar return per share is $3. D. The capital gains yield is positive. E. The dividend yield is greater than the capital gains yield.
The capital gains yield is positive.
A project has a required payback period of three years. Which one of the following statements is correct concerning the payback analysis of this project? A. The cash flows in each of the three years must exceed one-third of the project's initial cost if the project is to be accepted. B. The cash flow in year three is ignored. C. The project's cash flow in year three is discounted by a factor of (1 + R)3. D. The cash flow in year two is valued just as highly as the cash flow in year one. E. The project is acceptable whenever the payback period exceeds three years.
The cash flow in year two is valued just as highly as the cash flow in year one.
The primary purpose of Blume's formula is to: A. compute an accurate historical rate of return. B. determine a stock's true current value. C. consider compounding when estimating a rate of return. D. determine the actual real rate of return. E. project future rates of return.
project future rates of return.
A project has a discounted payback period that is equal to the required payback period. Given this, which of the following statements must be true? I. The project must also be acceptable under the payback rule. II. The project must have a profitability index that is equal to or greater than 1.0. III. The project must have a zero net present value. IV. The project's internal rate of return must equal the required return. A. I only B. I and II only C. II and III only D. I, III, and IV only E. I, II, III, and IV
project must be acceptable under payback, the project must have a profitibility index equal or greater than 1.0
All of the following are related to a proposed project. Which of these should be included in the cash flow at time zero? I. purchase of $1,400 of parts inventory needed to support the project II. loan of $125,000 used to finance the project III. depreciation tax shield of $1,100 IV. $6,500 of equipment needed to commence the project A. I and II only B. I and IV only C. II and IV only D. I, II, and IV only E. I, II, III, and IV
purchase, 6,500 of equipment
Which one of the following statements concerning U.S. Treasury bills is correct for the period 1926- 2007? A. The annual rate of return always exceeded the annual inflation rate. B. The average risk premium was 0.7 percent. C. The annual rate of return was always positive. D. The average excess return was 1.1 percent. E. The average real rate of return was zero.
rate of return was always positive
Which of the following should be included in the analysis of a new product? I. money already spent for research and development of the new product II. reduction in sales for a current product once the new product is introduced III. increase in accounts receivable needed to finance sales of the new product IV. market value of a machine owned by the firm which will be used to produce the new product A. I and III only B. II and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV
reduction, increase, market value
The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following? A. initial cost of each project B. timing of the cash inflows C. total cash inflows of each project D. required rate of return E. length of each project's life
required rate of return
The excess return is computed as the: A. return on a security minus the inflation rate. B. return on a risky security minus the risk-free rate. C. risk premium on a risky security minus the risk-free rate. D. the risk-free rate plus the inflation rate. E. risk-free rate minus the inflation rate.
return on a risky security minus the risk-free rate.
Last year, T-bills returned 2 percent while your investment in large-company stocks earned an average of 5 percent. Which one of the following terms refers to the difference between these two rates of return? A. risk premium B. geometric return C. arithmetic D. standard deviation E. variance
risk premium
Which one of the following best illustrates erosion as it relates to a hot dog stand located on the beach? A. providing both ketchup and mustard for its customer's use B. repairing the roof of the hot dog stand because of water damage C. selling fewer hot dogs because hamburgers were added to the menu D. offering French fries but not onion rings E. losing sales due to bad weather
selling fewer hot dogs because hamburgers were added to the menu
Which one of the following earned the highest risk premium over the period 1926-2007? A. long-term corporate bonds B. U.S. Treasury bills C. small-company stocks D. large-company stocks E. long-term government bonds
small company
Which one of the following categories of securities had the highest average return for the period 1926-2007? A. U.S. Treasury bills B. large company stocks C. small company stocks D. long-term corporate bonds E. long-term government bonds
small company stocks
