Quiz 1

The voting procedure where shareholders may cast all of their votes for each member of the board is: Democratic voting. Cumulative voting. Straight voting. Deferred voting. Proxy voting.

3

Which of the following would be considered a primary market transaction?

A buy order to an investment banker for a new public stock offering

Which of the following statements about dividends is false? Preferred stock dividends often represent a tax-advantaged investment for some corporations. Dividends paid to shareholders represent a return on the capital directly or indirectly contributed to the corporation by shareholders. The payment of dividends is at the discretion of the board of directors. The payment of dividends by the corporation is not a tax-deductible business expense. A corporation can be sued for not paying undeclared dividends.

A corporation can be sued for not paying undeclared dividends.

A sole proprietorship is best defined as a business owned by:

A single individual who has unlimited liability for the firm's debts.

Double taxation refers to the taxation of

Both corporation's income and shareholders' dividend income.

Which of the following is the correct reporting relationship in a corporation?

CFO; COO; CEO; Chairman.

The mixture of debt and equity used by the firm to finance its operations is called:

Capital structure.

In almost all present value and future value calculations, it is implicitly assumption that

Cash flows occur at the end of each period.

Which of the following is the best example of direct agency costs.

Corporate expenditure that benefits management but costs the shareholders, and expenses that arises from the need to monitor management actions.

Which one of the following is a capital budgeting decision? Determining how much debt should be borrowed from a particular lender. Determining how much inventory to keep on hand. Determining how much money should be kept in the checking account. Deciding when to repay a long-term debt. Deciding whether or not to open a new store.

Deciding whether or not to open a new store.

Capital structure decisions include which of the following?

Determining the number of shares of stock to issue.

Which of the following statements about preferred stocks is TRUE? Unpaid preferred dividends are debt of the firm. All preferred dividends are cumulative. Deferred dividends on preferred stocks are accrued with interest. Dividend must be paid to preferred shareholders before common shareholders. Lightly-taxed corporations do not usually issue preferred shares.

Dividend must be paid to preferred shareholders before common shareholders

The primary purpose of capital budgeting is to:

Identify projects that produce cash flows that exceed the cost of the project.

Working capital management:

Includes the daily oversight of a firm's cash requirements.

Which of these debt instruments pays periodic interest during the life of the loan, but none of the principal is repaid until maturity? Debenture Interest-only loan Treasury bill Indenture Discount bond

Interest-only loan

hich of the following is a disadvantage of using the average accounting return (AAR) rule for capital budgeting? It is difficult to calculate. The information needed to calculate the AAR is difficult to obtain. It is not based on market value. It is biased against long-term projects. It is biased toward liquidity.

It is not based on market value.

Which one of the following is a correct statement concerning a sole proprietorship?

It may be difficult to transfer the ownership of a sole proprietorship

What are the three main factors that determine whether managers will act in the interest of shareholders?

Managerial compensation, control of the firm, and government legislation.

The decisions made by financial managers should all be ones which increase the:

Market value of the existing owners' equity.

When cash flows from a project are non-conventional, there may be ___________ on the project. Negative NPV. Multiple IRRs. Multiple NPVs. Negative profitability index. Non-existent IRR.

Multiple IRRs.

The method of calculating the present value of a future cash flow to determine its worth today is commonly called

Net present value method.

Which of the following statements about bond ratings is NOT true? Prices of AAA-rated bonds do not fluctuate as much as the lower rated bonds. AAA-rated bonds have a lower probability of default than lower rated bonds. Government-issued bonds can be downgraded below AAA-rated. AAA-rated bonds provide higher level of creditor-protection than lower rated bonds. High risk bonds are also termed junk bonds.

Prices of AAA-rated bonds do not fluctuate as much as the lower rated bonds.

Which of the following organizations does not offer their owners limited liability?

Sole proprietorship.

Agency costs are:

The costs of the conflict of interest between stockholders and management.

Which of the following provides the best definition of underwriting?

When an investment dealer or a group of investment dealers purchase the securities from a firm and market them to the public.

The difference between working capital management and capital budgeting is:

Working capital management evaluates projects that add value to a firm, while capital budgeting focuses on expanding current assets of a firm.

Which of the following are elements in financial management decision?

Working capital management, capital budgeting and capital structure.

If you are a manager whose main duties include monitoring and managing the day-to-day operations of a firm, you are, what function are you engaging in?

Working capital management.

In Canada, a company can attain the status of _________ by having five consecutive years of dividend increase. Dividend aristocrat S&P/TSX composite index company. AAA-rated. Fortune 500. Premium.

a

ayback period is the time it takes to break even on an investment in a/an _________ sense. Economic. Financial. Operating. Accounting. Capital.

accounting

Which of the following is not a required factor in calculating the PV tax shield on CCA? CCA rate. Salvage value. Required return. Life of the asset. All these are required factor in PVCCATS calculation.

all

junk bonds are bonds that are rated below _______ CCC B- BBB BB B

bbb

Equity without priority for dividends or in the event of bankruptcy is called: Dual class stock. Cumulative stock. Deferred stock. Preferred stock. Common stock.

common stock

You just voted against a merger proposal made by another corporation. You must own: Preferred stock. Debentures. Common stock. Cumulative dividend stock. Class B stock.

common stock

he dividend yield on a common stock is most similar to which yield on a bond? Yield to maturity Yield to call Coupon yield Market yield Current yield

current yield

Which of the following is true about the differences between debt and common stock? Debt is ownership in a firm but equity is not. Creditors have voting power while stockholders do not. Periodic payments made to either class of security are tax deductible for the issuer. Interest payments are promised while dividend payments are not. Bondholders can also own equity, but not vice versa.

d

he invoice price on a bond is called the ______ price. clean dirty pure coupon ask

dirty

A graph of discount rates against net present values on a project is called a _________. Term structure of interest rates. Project yield curve. Internal rate of return profile. Profitability profile. Net present value profile.

last

All of the followings are disadvantages of the modified internal rate of return (MIRR) investment rule except for: There are many methods of calculating MIRR but no clear choice of the best method to use. It is difficult to interpret MIRR. It is redundant as it uses the same data required for NPV. It depends on an estimated required rate of return which means that it is not a true internal rate of return which should depend only on the project's cash flows. It does not take into account the time value of money.

last

_ is the compensation to investors for purchasing bonds that do not trade on a regular basis. Trading premium. Interest rate risk premium. Default risk premium. Liquidity premium. Yield curve premium.

liquidty premium

The cost of giving up the most valuable alternative to investing in a project is called a/an __________ cost. Sunk. Opportunity. Erosion. Premium. Initial.

oppertunity

A bond that sells at its face value is called a _______ bond.

par bond

The dividend flow from a fixed-rate preferred stock can be viewed as a/an ___________. Annuity. Growing annuity. Perpetuity. Growing perpetuity. Annuity due.

perpetuity

Which of the following variables is not necessary in order to prepare pro forma financial statements?

risk per unit

he voting procedure where you must own 50% plus one of the outstanding shares of stock to guarantee that you will win a seat on the board of directors is called _____ voting. democratic cumulative straight deferred proxy

straight

hich of the following is not a relevant cash flow when evaluating a new project? Sunk cost. Opportunity cost. Inflation adjustments. Changes in net working capital. Opportunity basis.

sunk cost