FIN 571 QUIZ FOR FINAL EXAM.

FIN 571 QUIZ FOR FINAL EXAM.

1) Which of the following statements is true?A. A security is a claim issued by a firm that pays owners interest, not dividends.B. A call option analyzes conflicts of interest and behavior in a principal-agent relationship.C. An agent-manager can never make bad decisions.D. The difference between the value of one action and the value of the best alternative is called an opportunity cost.2) Book value, or net book value, refers toA. the statement of a firms financial position at one point in time, including its assets and the claims on those assets by creditors and ownersB. the price for which something could be bought or sold in a reasonable length of time, where reasonable length of time is defined in terms of the items liquidityC. an agent-manager never making bad decisionsD. the net of assets less liabilities shown in the accounting statements3) Assume that the par value of a bond is $1,000. Consider a bond where the coupon rate is 9% and the current yield is 10%. Which of the following statements is true?A. The current yield was less than 9% when the bond was first issued.B. The current yield was greater than 9% when the bond was first issued.C. The market value of the bond is more than $1,000.D. The market value of the bond is less than $1,000.4) If the yield to maturity for a bond is less than the bonds coupon rate, the market value of the bond is .A. greater than the par valueB. less than the par valueC. equal to the par valueD. cannot tell5) For investors, the proper measure of a stocks risk is its .A. nondiversifiable riskB. specific riskC. nonsystematic riskD. standard deviation6) A companys beta is -1.5. If the overall stock market decreases by 5%, what is the expected change in the firms stock price?A. Share price decreases by 5%B. Share price decreases by 6.5%C. Share price increases by 7.5%D. Share price decreases by 7.5%7) Which of these investments would you expect to have the highest rate of return for the next 20 years?A. U.S. Treasury billsB. Long-term corporate bondsC. Intermediate-term U.S. government bondsD. Money market funds8) Dimensions of risk include .A. uncertainty about the future outcomeB. the certainty of a negative outcomeC. the impossibility of the same returnD. uncertainty about yesterdays outcome9) One problem with using negative values for the proportion invested in the riskless asset to represent a borrowed amount is that the implied borrowing rate of interest is the same as the .A. prime rate of interestB. current rate of interestC. lending rate of interestD. nominal rate of interest10) If you were willing to bet that the overall stock market was heading up on a sustained basis, it would be logical to invest inA. high beta stocksB. low beta stocksC. stocks with large amounts of unique riskD. stocks that plot below the security market line11) Stony Products has an inventory conversion period (ICP) of about 70 days. The receivables collection period (RCP) is 30 days. The payables deferral period (PDP) is about 40 days. What is Stonys cash conversion cycle (CCC)?A. 100 daysB. 60 daysC. 140 daysD. 70 days12) The main source of short-term operating capital is .A. trade creditB. bank loansC. bondsD. sale of treasury stock13) An investors risky portfolio is made up of individual stocks. Which of the following statements about this portfolio is true?A. Each stock in the portfolio has its own beta.B. Selling any stock in this portfolio will lower the beta of the portfolio.C. An investor cannot change the risk of this portfolio by her choice about personal leverage.D. Each stock in the portfolio will have a beta greater than 1.14) An all-equity-financed firm would .A. not pay any income taxes, because interest would exactly offset its taxable income.B. pay corporate income taxes, because it would have interest expense.C. not pay corporate income taxes, because it would have no interest expense.D. pay corporate income taxes if its taxable income is positive.15) If a firm wants to lower its weighted average cost of capital (WACC), one way to do so would be toA. sell more common sharesB. sell more bondsC. pay a cash dividendD. issue a stock dividend16) Boeing? is a world leader in commercial aircraft. In the face of competition, Boeing? often faces a critical decision: whether to develop a new generation of passenger aircraft.A. present valueB. paybackC. capital budgetingD. dividend17) Ideas for capital budgeting projects come from all levels within an organization. The bottom-up process results in ideas moving through the organization.A. downwardB. upwardC. sidewaysD. any way18) Which of the following statements is true?A. A mutually exclusive project can be chosen independently of other projectsB. When undertaking one project prevents investing in another project, and vice versa, the projects have a positive payback.C. A conventional project has an initial cash outflow followed by one or more expected future cash inflows.D. Whenever projects are independent and conventional, the internal rate of return (IRR) and net present value (NPV) methods will disagree19) In practice, the rule is the preferred criteria to accept or reject a capital investment project.A. NPVB. profitability indexC. IRRD. payback20) The Jerome Inc. western regional branch has been looking to install a new distribution center. The analysts have run the numbers on the distribution center costs and annual inflow from the investment. The project will cost $5 million at the beginning of the first year. The project will generate $1 million in earnings before interest and taxes at the end of each year. Jerome is in the 35% tax bracket and annual depreciation equates to $500,000 per year. The distribution centers end of the fifth years salvage equals its book value, or $2,500,000. Compute the projects NPV, assuming Jeromes WACC equals 12%.A. -$1,238,328B. $564,060C. $1,825,731D. -$66,77621) The method breaks down when evaluating projects in which the sign of the cash flow changes.A. IRRB. NVPC. PID. Payback22) Studies show systematic differences in capital structures across industries. These are due primarily to differences in .A. a firms inventory turnover ratioB. the ability of assets to support borrowingC. accounting practicesD. managements attitude toward what other industries are doing23) Capital structure decisions refer to theA. dividend yield of the firms stockB. blend of equity and debt used by the firmC. capital gains available on the firms stockD. maturity date for the firms securities24) Which of the following statements concerning preferred stock is true?A. Preferred stockholders have a prior claim on the income and assets of the firm, as compared to the claims of lenders.B. Preferred stock dividends per share are normally increased as the earnings of the firm increase.C. Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems.D. Preferred stockholders are the ultimate owners of the firm.25) Mortgage bonds are .A. secured by a lien on the issuers general assetsB. secured by the lien on the issuers specific, real assetsC. usually secured by assets such as common shares of one of the issuers subsidiariesD. a form of unsecured debt26) says to calculate the net advantage of leasing based on the incremental after-tax benefits that leasing will provide.A. The capital market efficiencyB. The options principleC. The principle of comparative advantageD. The principle of incremental benefits27) From the lessees viewpoint, the relevant discount rate for evaluating a lease versus buy decision is the .A. cost of issuing new common stockB. pretax cost of issuing debtC. after-tax cost of issuing debtD. lessors cost of debt28) The wholesale price for Captain Johns is $0.612 per loaf, and the variable cost of production is $0.387 per loaf. Captain Johns expects that expansion will allow them to sell an additional 4.5 million loaves in the next 5 years. What additional revenues minus expenses will be generated from expansion?A. $912,500B. $1,000,500C. $1,012,500D. $1,102,50029) Which of the following statements is true?A. Soft capital rationing refers to the rationing imposed externally by limited funds for borrowing from outside sources.B. Hard capital rationing refers to the rationing imposed internally by the firm.C. A post audit is a set of procedures for evaluating a capital budgeting decision after the fact.D. Few firms will engage in capital rationing.30) In efficient markets, as in the United States, market prices are not expected to be .A. wrongB. fairC. followed by many analystsD. incorporate all information


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