Corporate Finance Quiz Helper

9/15/2015
CorporateFinanceFinalExamQUESTIONSflashcards|Quizlet
Corporate Finance - Final Exam

QUESTIONS
78 terms by trunganhhung
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Whichoneofthefollowingbest
definesthevarianceofaninvestment's
annualreturnsoveranumberof
years?
Theaveragesquareddifference
betweentheactualreturnsandthe
arithmeticaveragereturn.
A.Theaveragesquareddifference
betweenthearithmeticandthe
geometricaverageannualreturns.
B.Thesquaredsummationofthe
differencesbetweentheactualreturns
andtheaveragegeometricreturn.
C.Theaveragedifferencebetweenthe
annualreturnsandtheaveragereturn
fortheperiod.
D.Thedifferencebetweenthe
arithmeticaverageandthegeometric
averagereturnfortheperiod.
E.Theaveragesquareddifference
betweentheactualreturnsandthe
arithmeticaveragereturn.
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1/28
9/15/2015
Standarddeviationisameasureof
whichoneofthefollowing?
volatility
A.averagerateofreturn
B.volatility
C.probability
D.riskpremium
E.realreturns
Whichoneofthefollowingisdefined
byitsmeananditsstandarddeviation?
normaldistribution
A.arithmeticnominalreturn
B.geometricrealreturn
C.normaldistribution
D.variance
E.riskpremium
Theaveragecompoundreturnearned
peryearoveramultiyearperiodis
calledthe_____averagereturn.
geometric
A.arithmetic
B.standard
C.variant
D.geometric
E.real
5.Whichofthefollowingstatementsis
correctinrelationtoastock
investment?
I.Thecapitalgainsyieldcanbe
positive,negative,orzero.
II.Thedividendyieldcanbepositive,
negative,orzero.
III.Thetotalreturncanbepositive,
negative,orzero.
IV.Neitherthedividendyieldnorthe
totalreturncanbenegative.
IandIIIonly
2/28
9/15/2015
Therealrateofreturnonastockis
approximatelyequaltothenominal
rateofreturn:
minustheinflationrate.
A.multipliedby(1+inflationrate).
B.plustheinflationrate.
C.minustheinflationrate.
D.dividedby(1+inflationrate).
E.dividedby(1inflationrate).
7.Whichoneofthefollowing
statementsiscorrect?
A.Thegreaterthevolatilityofreturns,
thegreatertheriskpremium.
B.Thelowerthevolatilityofreturns,
C.Thelowertheaveragereturn,the
greatertheriskpremium.
D.Theriskpremiumisunrelatedto
theaveragerateofreturn.
E.Theriskpremiumisnotaffectedby
thevolatilityofreturns.
A.Thegreaterthevolatilityofreturns,
Ifthevariabilityofthereturnson
largecompanystocksweretoincrease
overthelongterm,youwouldexpect
whichofthefollowingtooccurasa
result?
I.decreaseintheaveragerateofreturn
II.increaseintheriskpremium
III.increaseinthe68percent
probabilityrangeofthefrequency
distributionofreturns
IV.decreaseinthestandarddeviation
IIandIIIonly
3/28
9/15/2015
Estimatesoftherateofreturnona
securitybasedonahistorical
arithmeticaveragewillprobablytend
to_____theexpectedreturnforthe
longtermwhileestimatesusingthe
historicalgeometricaveragewill
probablytendto_____theexpected
returnfortheshortterm.
overestimateunderestimate
Whichtwoofthefollowingarethe
mostlikelyreasonswhyastockprice
mightnotreactatallonthedaythat
newinformationrelatedtothestock
issuerisreleased?
I.insidersknewtheinformationprior
totheannouncement
II.investorsneedtimetodigestthe
informationpriortoreacting
III.theinformationhasnobearingon
thevalueofthefirm
IV.theinformationwasanticipated
IIIandIVonly
Whichoneofthefollowingmeasures
theamountofsystematicriskpresent
inaparticularriskyassetrelativeto
thesystematicriskpresentinan
averageriskyasset?
beta
A.beta
B.rewardtoriskratio
C.riskratio
D.standarddeviation
E.priceearningsratio
4/28
9/15/2015
Whichoneofthefollowingisa
positivelyslopedlinearfunctionthatis
createdwhenexpectedreturnsare
graphedagainstsecuritybetas?
securitymarketline
A.rewardtoriskmatrix
B.portfolioweightgraph
C.normaldistribution
D.securitymarketline
E.marketrealreturns
Whichoneofthefollowingis
representedbytheslopeofthesecurity
marketline?
marketriskpremium
A.rewardtoriskratio
B.marketstandarddeviation
C.betacoefficient
D.riskfreeinterestrate
E.marketriskpremium
Whichoneofthefollowingisthe
formulathatexplainstherelationship
betweentheexpectedreturnona
securityandthelevelofthatsecurity's
systematicrisk?
capitalassetpricingmodel
A.capitalassetpricingmodel
B.timevalueofmoneyequation
C.unsystematicriskequation
D.marketperformanceequation
E.expectedriskformula
Standarddeviationmeasureswhich
typeofrisk?
total
A.total
B.nondiversifiable
C.unsystematic
D.systematic
E.economic
5/28
9/15/2015
Theexpectedreturnonaportfolio
considerswhichofthefollowing
factors?
I.percentageoftheportfolioinvested
ineachindividualsecurity
II.projectedstatesoftheeconomy
III.theperformanceofeachsecurity
givenvariouseconomicstates
IV.probabilityofoccurrenceforeach
stateoftheeconomy
I,II,III,andIV
Whichoneofthefollowingisan
exampleofsystematicrisk?
investorspaniccausingsecurityprices
aroundtheglobetofallprecipitously
A.investorspaniccausingsecurity
pricesaroundtheglobetofall
precipitously
B.afloodwashesawayafirm's
warehouse
C.acityimposesanadditionalone
percentsalestaxonallproducts
D.atoymakerhastorecallitstop
sellingtoy
E.cornpricesincreasedueto
increaseddemandforalternativefuels
Unsystematicrisk
canbeeffectivelyeliminatedby
portfoliodiversification.
A.canbeeffectivelyeliminatedby
portfoliodiversification.
B.iscompensatedforbytherisk
premium.
C.ismeasuredbybeta.
D.ismeasuredbystandarddeviation.
E.isrelatedtotheoveralleconomy.
6/28
9/15/2015
Theprimarypurposeofportfolio
diversificationisto:
eliminateassetspecificrisk.
A.increasereturnsandrisks.
B.eliminateallrisks.
C.eliminateassetspecificrisk.
D.eliminatesystematicrisk.
E.lowerbothreturnsandrisks.
Systematicriskismeasuredby:
beta.
A.themean.
B.beta.
C.thegeometricaverage.
D.thestandarddeviation.
E.thearithmeticaverage.
Totalriskismeasuredby_____and
systematicriskismeasuredby_____.
standarddeviationbeta
A.betaalpha
B.betastandarddeviation
C.alphabeta
D.standarddeviationbeta
E.standarddeviationvariance
Themarketrateofreturnis11percent
andtheriskfreerateofreturnis3
percent.Lexantstockhas3percent
lesssystematicriskthanthemarket
andhasanactualreturnof12percent.
Thisstock:
isunderpriced.
A.isunderpriced.
B.iscorrectlypriced.
C.willplotbelowthesecuritymarket
line.
D.willplotonthesecuritymarketline.
E.willplottotherightoftheoverall
marketonasecuritymarketline
graph.
7/28
9/15/2015
Themarketriskpremiumiscomputed
by:
subtractingtheriskfreerateofreturn
fromthemarketrateofreturn.
A.addingtheriskfreerateofreturnto
theinflationrate.
B.addingtheriskfreerateofreturnto
themarketrateofreturn.
C.subtractingtheriskfreerateof
returnfromtheinflationrate.
D.subtractingtheriskfreerateof
returnfromthemarketrateofreturn.
E.multiplyingtheriskfreerateof
returnbyabetaof1.0.
AccordingtoCAPM,theamountof
rewardaninvestorreceivesforbearing
theriskofanindividualsecurity
dependsuponthe:
marketriskpremiumandtheamount
ofsystematicriskinherentinthe
security.
A.amountoftotalriskassumedand
themarketriskpremium.
B.marketriskpremiumandthe
amountofsystematicriskinherentin
thesecurity.
C.riskfreerate,themarketrateof
return,andthestandarddeviationof
thesecurity.
D.betaofthesecurityandthemarket
rateofreturn.
E.standarddeviationofthesecurity
andtheriskfreerateofreturn.
Whichoneofthefollowingshould
earnthemostriskpremiumbasedon
CAPM?
stockwithabetaof1.38
A.diversifiedportfoliowithreturns
similartotheoverallmarket
B.stockwithabetaof1.38
C.stockwithabetaof0.74
D.U.S.Treasurybill
E.portfoliowithabetaof1.01
8/28
9/15/2015
Agroupofindividualsgottogetherand
purchasedalloftheoutstandingshares
ofcommonstockofDLSmith,Inc.
Whatisthereturnthatthese
individualsrequireonthisinvestment
called?
costofequity
A.dividendyield
B.costofequity
C.capitalgainsyield
D.costofcapital
E.incomereturn
TextileMillsborrowsmoneyatarate
of13.5percent.Thisinterestrateis
referredtoasthe:
costofdebt.
A.compoundrate.
B.currentyield.
C.costofdebt.
D.capitalgainsyield.
E.costofcapital.
Theaverageofafirm'scostofequity
andaftertaxcostofdebtthatis
weightedbasedonthefirm'scapital
structureiscalledthe:
weightedaveragecostofcapital.
A.rewardtoriskratio.
B.weightedcapitalgainsrate.
C.structuredcostofcapital.
D.subjectivecostofcapital.
E.weightedaveragecostofcapital.
9/28
9/15/2015
Afirm'scostofcapital:
dependsuponhowthefundsraisedare
goingtobespent.
A.willdecreaseastherisklevelofthe
firmincreases.
B.foraspecificprojectisprimarily
dependentuponthesourceofthe
fundsusedfortheproject.
C.isindependentofthefirm'scapital
structure.
D.shouldbeappliedasthediscount
rateforanyprojectconsideredbythe
firm.
E.dependsuponhowthefundsraised
aregoingtobespent.
Whichoneofthefollowingstatements
relatedtotheSMLapproachtoequity
valuationiscorrect?Assumethefirm
usesdebtinitscapitalstructure.
Themodelisdependentupona
reliableestimateofthemarketrisk
premium.
A.Thismodelconsidersafirm'srateof
growth.
B.Themodelappliesonlytonon
dividendpayingfirms.
C.Themodelisdependentupona
reliableestimateofthemarketrisk
premium.
D.Themodelgenerallyproducesthe
samecostofequityasthedividend
growthmodel.
E.Thisapproachgenerallyproducesa
costofequitythatequalsthefirm's
overallcostofcapital.
10/28
9/15/2015
Thepretaxcostofdebt:
A.isbasedonthecurrentyieldto
maturityofthefirm'soutstanding
bonds.
B.isequaltothecouponrateonthe
latestbondsissuedbyafirm.
C.isequivalenttotheaveragecurrent
yieldonallofafirm'soutstanding
bonds.
D.isbasedontheoriginalyieldto
maturityonthelatestbondsissuedby
afirm.
E.hastobeestimatedasitcannotbe
directlyobservedinthemarket.
isbasedonthecurrentyieldto
maturityofthefirm'soutstanding
bonds.
Theaftertaxcostofdebtgenerally
increaseswhen:
I.afirm'sbondratingincreases.
II.themarketrateofinterest
increases.
III.taxratesdecrease.
IV.bondpricesrise.
IIandIIIonly
Thecostofpreferredstockis
computedthesameasthe:
returnonaperpetuity.
A.pretaxcostofdebt.
B.returnonanannuity.
C.aftertaxcostofdebt.
D.returnonaperpetuity.
E.costofanirregulargrowthcommon
stock.
11/28
9/15/2015
Thecapitalstructureweightsusedin
computingtheweightedaveragecost
ofcapital:
arebasedonthemarketvalueofthe
firm'sdebtandequitysecurities.
A.arebasedonthebookvaluesoftotal
debtandtotalequity.
B.arebasedonthemarketvalueofthe
firm'sdebtandequitysecurities.
C.arecomputedusingthebookvalue
ofthelongtermdebtandthebook
valueofequity.
D.remainconstantovertimeunless
thefirmissuesnewsecurities.
E.arerestrictedtothefirm'sdebtand
commonstock.
IfafirmusesitsWACCasthediscount
rateforalloftheprojectsitundertakes
thenthefirmwilltendto:
I.rejectsomepositivenetpresent
valueprojects.
II.acceptsomenegativenetpresent
valueprojects.
III.favorhighriskprojectsoverlow
riskprojects.
IV.increaseitsoveralllevelofriskover
time.
I,II,III,andIV
12/28
9/15/2015
Theflotationcostforafirmis
computedas:
theweightedaverageoftheflotation
costsassociatedwitheachformof
financing.
A.thearithmeticaverageofthe
flotationcostsofbothdebtandequity.
B.theweightedaverageoftheflotation
costsassociatedwitheachformof
financing.
C.thegeometricaverageofthe
flotationcostsassociatedwitheach
formoffinancing.
D.onehalfoftheflotationcostofdebt
plusonehalfoftheflotationcostof
equity.
E.aweightedaveragebasedonthe
bookvaluesofthefirm'sdebtand
equity.
Incorporatingflotationcostsintothe
analysisofaprojectwill:
increasetheinitialcashoutflowofthe
project.
A.causetheprojecttobeimproperly
evaluated.
B.increasethenetpresentvalueofthe
project.
C.increasetheproject'srateofreturn.
D.increasetheinitialcashoutflowof
theproject.
E.havenoeffectonthepresentvalue
oftheproject.
13/28
9/15/2015
Jones&Co.isfundedbyagroupof
individualinvestorsforthesole
purposeofprovidingfundingfor
individualswhoaretryingtoconvert
theirnewideasintoviableproducts.
Whatisthistypeoffundingcalled?
venturecapital
A.greenshoefunding
B.tombstoneunderwriting
C.venturecapital
D.redherringfunding
E.lifecyclecapital
Whatisanissueofsecuritiesthatis
offeredforsaletothegeneralpublicon
adirectcashbasiscalled?
generalcashoffer
A.besteffortsunderwriting
B.firmcommitmentunderwriting
C.generalcashoffer
D.rightsoffer
E.herringoffer
Tonycurrentlyowns12,000sharesof
GLTools.Hehasjustbeennotified
thatthefirmisissuingadditional
sharesofstockandthatheisbeing
givenachancetopurchasesomeof
thesesharespriortothesharesbeing
offeredtothegeneralpublic.Whatis
thistypeofanoffercalled?
rightsoffer
A.besteffortsoffer
B.firmcommitmentoffer
C.generalcashoffer
D.rightsoffer
E.priorityoffer
14/28
9/15/2015
SoupGaloreisapartnershipthatwas
formedthreeyearsagoforthepurpose
ofcreating,producing,and
distributinghealthysoupsinadried
form.Thefirmhasbeenextremely
successfulthusfarandhasdecidedto
incorporateandoffersharesofstockto
thegeneralpublic.Whatisthistypeof
anequityofferingcalled?
initialpublicoffering
A.venturecapitaloffering
B.shelfoffering
C.privateplacement
D.seasonedequityoffering
E.initialpublicoffering
Whatisaseasonedequityoffering?
saleofnewlyissuedequitysharesbya
firmthatiscurrentlypubliclyowned
A.anofferingofsharesby
shareholdersforrepurchasebythe
issuer
B.sharesofstockthathavebeen
recommendedforpurchasebytheSEC
C.equitysecuritiesheldbyafirm's
founderthatarebeingofferedforsale
tothegeneralpublic
D.saleofnewlyissuedequitysharesby
afirmthatiscurrentlypubliclyowned
E.asetnumberofequitysharesthat
areissuedandofferedtothepublic
annually
15/28
9/15/2015
ExecutiveTourshasdecidedtotakeits
firmpublicandhashiredan
investmentfirmtohandlethis
offering.Theinvestmentfirmis
servingasa(n):
underwriter.
A.aftermarketspecialist.
B.venturecapitalist.
C.underwriter.
D.seasonedwriter.
E.primaryinvestor.
DenverLiquidWholesalersrecently
offered50,000newsharesofstockfor
sale.Theunderwriterssoldatotalof
53,000sharestothepublic.The
additional3,000shareswere
purchasedinaccordancewithwhich
oneofthefollowing?
Greenshoeprovision
A.Greenshoeprovision
B.Redherringprovision
C.quietprovision
D.lockupagreement
E.postissueagreement
Royowns200sharesofR.T.F.,Inc.He
hasoptednottoparticipateinthe
currentrightsofferingbythisfirm.As
aresult,Roywillmostlikelybesubject
to:
dilution.
A.anoversubscriptioncost.
B.underpricing.
C.dilution.
D.theGreenShoeprovision.
E.alockedinperiod.
16/28
9/15/2015
Agroupoffiveprivateinvestors
recentlyloaned$6millionto
HendersonHardwarefortenyearsat9
percentinterest.Thisloanisbest
describedasa:
privateplacement.
A.privateplacement.
B.debtSEO.
C.notespayable.
D.debtIPO.
E.termloan.
PearsonElectricrecentlyregistered
250,000sharesofstockunderSEC
Rule415.Thefirmplanstosell
150,000sharesthisyearandthe
remaining100,000sharesnextyear.
Whattypeofregistrationwasthis?
shelfregistration
A.standbyregistration
B.shelfregistration
C.RegulationAregistration
D.RegulationQregistration
E.privateplacementregistration
Whichofthefollowingshouldbe
consideredwhenselectingaventure
capitalist?
I.levelofinvolvement
II.pastexperiences
III.terminationoffunding
IV.financialstrength
I,II,III,andIV
17/28
9/15/2015
TheSecuritiesandExchange
Commission:
isconcernedonlythatanissue
complieswithallrulesandregulations.
A.verifiestheaccuracyofthe
informationcontainedinthe
prospectus.
B.verifiestheaccuracyofthe
informationcontainedinthered
herring.
C.examinestheregistrationstatement
duringtheGreenShoeperiod.
D.isconcernedonlythatanissue
complieswithallrulesandregulations.
E.determinesthefinalofferpriceonce
theyhaveapprovedtheregistration
statement.
Withfirmcommitmentunderwriting,
theissuingfirm:
knowsupfronttheamountofmoney
itwillreceivefromthestockoffering.
A.isunsureofthetotalamountof
fundsitwillreceiveuntilafterthe
offeringiscompleted.
B.isunsureofthenumberofsharesit
willactuallyissueuntilafterthe
offeringiscompleted.
C.knowsexactlyhowmanyshareswill
bepurchasedbythegeneralpublic
duringtheofferperiod.
D.retainsthefinancialriskassociated
withunsoldshares.
E.knowsupfronttheamountof
moneyitwillreceivefromthestock
offering.
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Afirmshouldselectthecapital
structurethat:
maximizesthevalueofthefirm.
A.producesthehighestcostofcapital.
B.maximizesthevalueofthefirm.
C.minimizestaxes.
D.isfullyunlevered.
E.equatesthevalueofdebtwiththe
valueofequity.
Theunleveredcostofcapitalrefersto
thecostofcapitalfora(n):
allequityfirm.
A.privateentity.
B.allequityfirm.
C.governmentalentity.
D.privateindividual.
E.corporateshareholder.
Bydefinition,whichofthefollowing
costsareincludedintheterm
"financialdistresscosts"?
I.directbankruptcycosts
II.indirectbankruptcycosts
III.directcostsrelatedtobeing
financiallydistressed,butnot
bankrupt
IV.indirectcostsrelatedtobeing
financiallydistressed,butnot
bankrupt
I,II,III,andIV
19/28
9/15/2015
Thepropositionthatafirmborrowsup
tothepointwherethemarginalbenefit
oftheinteresttaxshieldderivedfrom
increaseddebtisjustequaltothe
marginalexpenseoftheresulting
increaseinfinancialdistresscostsis
called:
thestatictheoryofcapitalstructure.
A.thestatictheoryofcapitalstructure.
B.M&MPropositionI.
C.M&MPropositionII.
D.thecapitalassetpricingmodel.
E.theopenmarketstheorem.
Theoptimalcapitalstructurehasbeen
achievedwhenthe:
debtequityratioresultsinthelowest
possibleweightedaveragecostof
capital.
A.debtequityratioisequalto1.
B.weightofequityisequaltothe
weightofdebt.
C.costofequityismaximizedgivena
pretaxcostofdebt.
D.debtequityratioissuchthatthe
costofdebtexceedsthecostofequity.
E.debtequityratioresultsinthe
lowestpossibleweightedaveragecost
ofcapital.
iscorrectconcerningtherelationship
betweenaleveredandanunlevered
capitalstructure?Assumethereareno
taxes.
Atthebreakevenpoint,thereisno
advantagetodebt.
20/28
9/15/2015
Whichofthefollowingstatements
relatedtofinancialriskarecorrect?
I.Financialriskistheriskassociated
withtheuseofdebtfinancing.
II.Asfinancialriskincreasessotoo
doesthecostofequity.
III.Financialriskiswhollydependent
uponthefinancialpolicyofafirm.
IV.Financialriskistheriskthatis
inherentinafirm'soperations.
I,II,andIIIonly
Thepresentvalueoftheinteresttax
shieldisexpressedas:
TcxD.
A.(TCxD)/RA.
B.VU+(TCxD).
C.[EBITx(TCxD)]/RU.
D.[EBITx(TCxD)]/RA.
E.TcxD.
Theinteresttaxshieldisakeyreason
why:
thenetcostofdebttoafirmis
generallylessthanthecostofequity.
A.therequiredrateofreturnonassets
riseswhendebtisaddedtothecapital
structure.
B.thevalueofanunleveredfirmis
equaltothevalueofaleveredfirm.
C.thenetcostofdebttoafirmis
generallylessthanthecostofequity.
D.thecostofdebtisequaltothecost
ofequityforaleveredfirm.
E.firmspreferequityfinancingover
debtfinancing.
21/28
9/15/2015
Theoptimalcapitalstructure:
willvaryovertimeastaxesandmarket
conditionschange.
A.willbethesameforallfirmsinthe
sameindustry.
B.willremainconstantovertime
unlessthefirmchangesitsprimary
operations.
C.willvaryovertimeastaxesand
marketconditionschange.
D.placesmoreemphasisonoperations
thanonfinancing.
E.isunaffectedbychangesinthe
financialmarkets.
Whichoneofthefollowingrefersto
theabilityofshareholderstoundoa
firm'sdividendpolicyandcreatean
alternativedividendpolicyby
reinvestingdividendsorsellingshares
ofstock?
homemadedividendpolicy
A.perfectforesightmodel
B.personalization
C.recapitalization
D.offsettingleverage
E.homemadedividendpolicy
22/28
9/15/2015
ThecommonstockofPierson
Enterpriseshashistoricallyhadahigh
dividendyieldandisexpectedto
continuetodoso.Asaresult,the
majorityofitsshareholdersare
individualsandentitiesthatare
seekingaregularsourceofcash
income.Mostoftheseshareholders
payeithernotaxesorarelativelylow
amountoftaxes.Thefactthatmostof
theseshareholdershavesimilar
characteristicsisreferredtobywhich
oneofthefollowingterms?
clienteleeffect
A.informationcontenteffect
B.clienteleeffect
C.efficientmarketshypothesis
D.distributioneffect
E.marketreactioneffect
HJCorporationhasexcesscashand
hasoptedtobuysomeofitssharesof
outstandingcommonstock.Whatis
thisprocessofbuyingcalled?
stockrepurchase
A.stockdividend
B.stocksplit
C.stockrepurchase
D.stockrecap
E.stockrepeal
Whichoneofthefollowinginvolvesa
paymentinsharesbyastockissuer
thatincreasesthenumberofsharesa
shareholderownsbutalsodecreases
thevaluepershare?
stockdividend
A.cashdividend
B.stockdividend
C.stockrepurchase
D.stocksplit
E.reversestocksplit
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relatedtocashdividendsiscorrect?
Adividendisneveraliabilityuntilit
hasbeendeclared.
A.Extracashdividendscannotbe
repeatedinthefuture.
B.Adividendisneveraliabilityuntilit
hasbeendeclared.
C.Ifafirmhaspaidregularquarterly
dividendsforatleastfiveconsecutive
yearsitislegallyobligatedtocontinue
doingso.
D.Regularcashdividendsreducepaid
incapital.
E.Thedividendyieldexpressesthe
annualdividendasapercentageofnet
income.
Allelseequal,themarketvalueofa
stockwilltendtodecreasebyroughly
theaftertaxvalueofthedividendon
the:
exdividenddate.
A.dividenddeclarationdate.
B.exdividenddate.
C.dateofrecord.
D.dateofpayment.
E.dayafterthedateofpayment.
Whichoneofthefollowingfavorsa
lowdividendpolicy?
thetaxoncapitalgainsisdeferred
untilthegainisrealized
A.thetaxoncapitalgainsisdeferred
untilthegainisrealized
B.few,ifany,positivenetpresent
valueprojectsareavailabletoafirm
C.amajorityoftheshareholdershasa
lowrelevanttaxrate
D.amajorityoftheshareholdershas
betterinvestmentopportunitieswith
similarrisks
E.corporatetaxratesexceedpersonal
taxrates
24/28
9/15/2015
Whichofthefollowingshareholders
tendtofavorahighdividendpolicy?
I.retiredindividuals
II.endowmentfunds
III.corporateinvestors
IV.investorswithhighdividendtax
ratesbutlowcapitalgainstaxrates
I,II,andIIIonly
iscorrect?
A.Firmsprefertocutdividend
paymentsratherthanborrowmoney
tofundashorttermcashneed.
B.Sharerepurchasestendtoincrease
agencycosts.
C.Maintainingasteadydividendisa
keygoalofmostdividendpaying
firms.
D.Taxratesarethekeyfactorin
determiningafirm'sdividendpolicy.
E.Stockpricestendtoignoreexpected
changesindividendpayments.
C.Maintainingasteadydividendisa
keygoalofmostdividendpaying
firms.
Stocksplitscanbeusedto:
adjustthemarketpriceofastocksuch
thatitfallswithinapreferredtrading
range.
A.adjustthemarketpriceofastock
suchthatitfallswithinapreferred
tradingrange.
B.decreasetheexcesscashheldbya
firmtherebyloweringagencycosts.
C.increaseboththenumberofshares
outstandingandthemarketpriceper
share.
D.increasethetotalequityofafirm.
E.adjustthedebtequityratio.
25/28
9/15/2015
Thelengthoftimebetweenthe
purchaseofinventoryandthereceipt
ofcashfromthesaleofthatinventory
iscalledthe:
operatingcycle.
A.operatingcycle.
B.inventoryperiod.
C.accountsreceivableperiod.
D.accountspayableperiod.
E.cashcycle.
CentralSupplypurchasedatoboggan
forinventorythismorningandpaid
cashforit.Thetimeperiodbetween
todayandthedayCentralSupplywill
receivecashfromthesaleofthis
tobogganiscalledthe:
cashcycle.
A.operatingcycle.
B.inventoryperiod.
C.accountsreceivableperiod.
D.accountspayableperiod.
E.cashcycle.
Whichofthefollowingdeterminesthe
lengthoftheoperatingcycle?
I.cashcycle
II.inventoryperiod
III.accountspayableperiod
IV.accountsreceivableperiod
IIandIVonly
Whichofthefollowingareassociated
witharestrictiveshorttermfinancial
policy?
I.little,ifany,investmentin
marketablesecurities
II.liberalcredittermsforcustomers
III.lowcashbalances
IV.increasinginventorylevels
IandIIIonly
26/28
9/15/2015
Aflexibleshorttermfinancialpolicy:
increasesafirm'sneedforlongterm
financing.
A.increasesafirm'sneedforlong
termfinancing.
B.minimizesnetworkingcapital.
C.avoidsbaddebtsbyonlyselling
itemsforcash.
D.maximizesfixedassetsand
minimizescurrentassets.
E.ismostappropriateforafirmwith
relativelyhighcarryingcostsand
relativelylowshortagecosts.
Theoptimalinvestmentincurrent
assetsforanoperatingfirmoccursat
thepointwhere:
thetotalcostsofholdingcurrentassets
isminimized.
A.bothshortagecostsandcarrying
costsequalzero.
B.shortagecostsareequaltozero.
C.carryingcostsareequaltozero.
D.carryingcostsexceedshortage
costs.
E.thetotalcostsofholdingcurrent
assetsisminimized.
Acumulativecashdeficitindicatesa
firm:
hasatleastashorttermneedfor
externalfunding.
A.hasatleastashorttermneedfor
externalfunding.
B.isfacinglongtermfinancial
distress.
C.willgooutofbusinesswithinthe
year.
D.iscapableoffundingallofitsneeds
internally.
E.isusingitscashwisely.
27/28
9/15/2015
Afirm'soverallcostofequityis:
A.isgenerallylessthatthefirm's
WACCgivenaleveragedfirm.
B.unaffectedbychangesinthemarket
riskpremium.
C.highlydependentuponthegrowth
rateandrisklevelofthefirm.
D.generallylessthanthefirm's
aftertaxcostofdebt.
E.inverselyrelatedtochangesinthe
firm'staxrate.
highlydependentuponthegrowthrate
andrisklevelofthefirm.
28/28

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Corporate Finance - Final Exam

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