Sophia Principles of Finance Unit 3 Milestone

Calculate a company's total leverage given the following information: Net income = $80,000 Revenue = $120,000 Variable costs = $25,000 -1.6 -1.14 -1.19 -Cannot calculate without EPS data

1.19

Using the following variables, calculate an organization's cost of debt on a $500,000 bond. Rf: 1% credit-risk rate: 5% t: 15% -$4,500 -$29,550 -$30,000 -$25,500

$25,500

You own a small manufacturing business that produces widgets. You have spent $600,000 acquiring the fixed assets you need to produce widgets. Each widget costs you $20 to make and they sell for $65 each, so your variable cost is 30.8% of the overall revenue. At your current level of operating leverage, how many widgets must you sell to break even? -9,231 -7,059 -13,333 -18,000

13,333

Anais purchased stock with an initial share price of $52, and sold it when the share price was $60. While she owned the stock, she earned $7 in dividends. What was her total percentage return on the investment? -25.00% -13.33% -28.85% -19.83%

28.85%

You invest $7,000 in a stock that has a 25% chance of a 6% return, a 35% chance of a 9% return and a 40% chance of a 10% return. What is your expected return after one year? -8.25% -9.00% -8.65% -7.85%

8.65%

Select the true statement about the bankruptcy process. -Corporations file bankruptcy petitions with the states. -A bankruptcy reorganization plan is voted on by a company's shareholders. -A company receives a stay from any collections activity after filing a bankruptcy petition. -A Chapter 7 bankruptcy allows a company to restructure its debt.

A company receives a stay from any collections activity after filing a bankruptcy petition.

A security that falls below the security market line has __________. -a high expected return and a high price -a high expected return and a low price -a low expected return and a low price -a low expected return and a high price

a low expected return and a high price

What is the benefit of choosing an exchange-traded fund over an individual stock? -An exchange-traded fund eliminates more systemic risk than an individual stock. -An exchange-traded fund is diversified and therefore carries less risk than an individual stock. -An exchange-traded fund will have a higher return than an individual stock. -An exchange-traded fund has a higher variance than an individual stock.

An exchange-traded fund is diversified and therefore carries less risk than an individual stock.

A successful ride-sharing company has decided to raise money for its second phase of expansion by issuing shares of stock and becoming a publicly-traded company, so they create a prospectus for potential investors. What type of stock market transaction is taking place? -Secondary market offering -Share buyback -Private placement -IPO

IPO

Which of the following is a tenet of semi-strong-form efficiency? -Some forms of fundamental analysis can provide investors excess returns. -Individual investors can "beat" the market if enough information is made public. -Share prices respond immediately to new information that is made public. -Historical data can be used to generate excess returns in the present day.

Individual investors can "beat" the market if enough information is made public.

Which of the following is true of systematic risk? -It can be hedged against by choosing investments with negative correlations. -Research shows that investors can best mitigate this type of risk by holding ≤ 30 assets within a portfolio. -It is the risk associated with a general downward turn of the market or a market segment. -It is affected by the level of diversification within a portfolio.

It is the risk associated with a general downward turn of the market or a market segment.

Company A - Company B Market Value of Equity$400,000-$800,000 Market Value of Debt$100,000-$600,000 Cost of Equity9%-9% Cost of Debt3%-4% Tax Rate35%-35% Based solely on their current weighted average cost of capital, which company should pursue an investment opportunity with an expected return of 6%? -Only Company B -Neither Company A nor Company B -Only Company A -Both Company A and Company B

Neither Company A nor Company B

Which of the following portfolios theoretically diversifies away the most risk? -One whose investments have a large covariance -One whose investments have a negative covariance -One whose investments have zero correlation -One whose investments are highly correlated

One whose investments have a negative covariance

The risk that a bank will receive less interest from a lending product than it originally anticipated is known as __________. -interest rate risk -prepayment risk -operational risk -market risk

Prepayment risk

Select one reason a company's capital structure may include more equity than debt. -Taking on more equity means that a company will be more leveraged. -Relying too heavily on debt can increase the interest rate that a company must pay on its debt. -Equity has significant tax advantages that debt does not. -Too much debt will decrease a company's volatility.

Relying too heavily on debt can increase the interest rate that a company must pay on its debt.

Mason is a financial analyst who specializes in securities. When providing an analysis of securities to which he has a personal connection, he discloses his conflict of interest. By doing so, which federal regulation is he complying with? -Securities Act Amendments of 1975 -Securities Exchange Act of 1934 -Securities Act of 1933 -Sarbanes-Oxley Act of 2002

Sarbanes-Oxley Act of 2002

What is the weighted average cost of capital for a borrower equivalent to? -The net present value of all current investments -The valuation of the company's equity -The opportunity cost of foregone investments -The calculated required return of all sources of capital

The calculated required return of all sources of capital

What is the effect on the stock price of a company that announces it earned higher-than-expected quarterly profits? -The stock price will likely go down because analysts do not like unexpected surprises from company financial reporting. -The stock price will likely go up because the announcement suggests that the company is undervalued. -The company will most likely not see a shift in value. -The effect depends on what generated the profits and how analysts forecast this information.

The effect depends on what generated the profits and how analysts forecast this information.

The discounted cash flow approach is useful for __________. -graphing an asset's position on the security market line -determining the value of a company's publicly traded equity -determining the value of future profits (or losses) in today's terms -evaluating whether an asset is over-valued, under-valued or correctly priced

determining the value of future profits (or losses) in today's terms