Which of the following types of firms does NOT have limited liability?
What is the major way in which the roles and obligations of the owners of a limited liability company differ from the roles and obligations of limited partners in a limited partnership?
Which of the following features of a corporation is LEAST accurate?
What is the major advantage corporations have over other business entities?
Which of the following is a major duty of a financial manager? I. To make investment decisions II. To make financing decisions III. To manage cash flow from operating activities
Which of the following is NOT a reason why a firm's financial managers must take great care when making investment decisions?
What is the process of double taxation for the stockholders in a C corporation?
A factory owner wants his workers to produce as many widgets as they can so he pays his workers based on how many widgets they produce. However, in order to make sure that the workers do not rush and produce a large number of poorly made widgets, he checks the widgets at random during various stages of their manufacture. If a defect is found in a widget, the pay of the entire section of the factory responsible for that defect is docked. How is this factory owner seeking to solve the agency conflict problem in this case?
Which of the following best describes why a firm produces financial statements?
The third party who checks annual financial statements to ensure that they are prepared according to Generally Accepted Accounting Principles (GAAP) and verifies that the information reported is reliable is the ________.
The major components of stockholders' equity are ________.
Convex Industries has inventories of $218 million, current assets of $1.4 billion, and current liabilities of $504 million. What is its quick ratio?
_____ refers to the difference between a firm's current assets and its current liabilities.
Mario's Home Systems has sales of $2,800, cost of goods sold of $2,100, inventory of $500, and accounts receivable of $400. How many days, on average, does it take Mario's to sell its inventory?
Why is the personal decision a financial manager makes as to whether to buy or to rent an apartment as a personal residence most like the professional decision that manager makes as to whether her firm should try to acquire a stake in a fast growing new Internet-based company?
You have a used CD store. At an estate sale, you can purchase 230 compact discs for $356.5. You believe you could sell the CDs for an average of $3.05 each. What is the net benefit of buying the CDs at the estate sale and selling them in your store?
Which of the following best describes the valuation principle?
"If equivalent investment opportunities trade simultaneously in different competitive markets, then they must trade for the same price in both markets." What do we call the above statement?
Whose cash flow is best described by the timeline shown below? Date (years) 0 1 2 3 4 Cash Flows -$3,500 $1,000 $1,000 $1,000 $1,000
If the rate of interest (r) is 9%, then you should be indifferent about receiving $750 in one year or ________.
If $432 invested today yields $450 in a year's time, what is the discount factor?
What is the present value (PV) of $90,000 received six years from now, assuming the interest rate is 5% per year?
Which of the following investments has a higher present value, assuming the same (strictly positive) interest rate applies to both investments? Year Investment X Investment Y 1 $5,000 $11,000 2 $7,000 $9,000 3 $9,000 $7,000 4 $11,000 $5,000
Which of the following statements regarding perpetuities is FALSE?
Which of the following is true about perpetuities?
If the current rate of interest is 7%, then the future value (FV) of an investment that pays $1200 per year and lasts 18 years is closest to ________.
You are borrowing money to buy a car. If you can make payments of $320 per month starting one month from now at an interest rate of 12%, how much will you be able to borrow for the car today if you finance the amount over 4 years?
Suppose that a young couple has just had their first baby and they wish to insure that enough money will be available to pay for their child's college education. They decide to make deposits into an educational savings account on each of their daughter's birthdays, starting with her first birthday. Assume that the educational savings account will return a constant 9%. The parents deposit $2400 on their daughter's first birthday and plan to increase the size of their deposits by 7% each year. Assuming that the parents have already made the deposit for their daughter's 18th birthday, then the amount available for the daughter's college expenses on her 18th birthday is closest to ________.
What is the effective annual rate (EAR)?
Which of the following statements is FALSE about interest rates?
What is the present value (PV) of an investment that pays $100,000 every year for four years if the interest rate is 5% APR, compounded quarterly?
Which of the following computes the growth in purchasing power?
Suppose the term structure of interest rates is shown below: Term 1 year 2 years 3 years 5 years 10 years 20 years Rate (EAR%) 5.00% 4.80% 4.60% 4.50% 4.25% 4.15% The present value (PV) of receiving $1100 per year with certainty at the end of the next three years is closest to ________.
Which of the following statements regarding bonds and their terms is FALSE?
Which of the following statements regarding bonds and their terms is FALSE?
Which of the following risk-free, zero-coupon bonds could be bought for the lowest price?
What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons, and five years to maturity if it has a yield to maturity of 10% APR?
Which of the following bonds will be most sensitive to a change in interest rates if all bonds have the same initial yield to maturity?
Why are the interest rates of U.S. Treasury securities less than the interest rates of equivalent corporate bonds?
Matilda Industries pays a idend of $2.10 per share and is expected to pay this amount indefinitely. If Matilda's equity cost of capital is 9%, which of the following would be closest to Matilda's stock price?
Which of the following formulas is INCORRECT?
Von Bora Corporation (VBC) is expected to pay a $3.00 idend at the end of this year. If you expect VBC's idend to grow by 6% per year forever and VBC's equity cost of capital to be 13%, then the value of a share of VBC stock is closest to ________.
Which of the following is a limitation of the idend-discount model?
Which of the following statements is FALSE?
Which of the following statements is FALSE?
Which of the following is NOT a limitation of the payback rule?
Use the information for the question(s) below. Project A Project B Time 0 -10,000 -10,000 Time 1 5,000 4,000 Time 2 4,000 3,000 Time 3 3,000 10,000 If WiseGuy Inc. uses payback period rule to choose projects, which of the projects (Project A or Project B) will WiseGuy Inc. prefer?
Which of the following statements is FALSE?
Time: 0 1 2 3 Investment A: -$1 million $300,000 $400,000 $500,000 Investment B: -$1 million $500,000 $400,000 $300,000 An investor is considering the two investments shown above. Her cost of capital is 8%. Which of the following statements about these investments is true?
Project Year 0 Cash Flow Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Year 4 Cash Flow Discount Rate A -100 40 50 60 N/A 0.13 B -73 30 30 30 30 0.13 The profitability index for project A is closest to ________.
The ultimate goal of the capital budgeting process is to ________.
Which of the following statements is FALSE?
Which of the following costs would you consider when making a capital budgeting decision?
The difference between scenario ysis and sensitivity ysis is ________.
The EBIT break-even point can be calculated using which of the following formulas?
Gonzales Corporation generated free cash flow of $86 million this year. For the next two years, the company's free cash flow is expected to grow at a rate of 10%. After that time, the company's free cash flow is expected to level off to the industry long-term growth rate of 4% per year. If the weighted average cost of capital is 11% and Gonzales Corporation has cash of $100 million, debt of $275 million, and 100 million shares outstanding, what is Gonzales Corporation's expected current share price?
If you want to value a firm but do not want to explicitly forecast its idends, the simplest model for you to use is ________.
Which of the following statements is FALSE?
Which of the following statements is FALSE?
If you want to value a firm that consistently pays out its earnings as idends, the simplest model for you to use is the ________.
Which of the following statements regarding real options is NOT correct?
Which of the following statements is FALSE?
Which of the following is NOT an advantage of the valuation multiple method as compared to the discounted cash flow method?
Which of the following is the best statement of the efficient markets hypothesis?
Stocks with high returns are expected to have ________.
Your retirement portfolio comprises 100 shares of the Standard & Poor's 500 fund (SPY) and 100 shares of iShares Barclays Aggregate Bond Fund (AGG). The price of SPY is $118 and that of AGG is $97. If you expect the return on SPY to be 11% in the next year and the return on AGG to be 6%, what is the expected return for your retirement portfolio?
Which of the following statements is FALSE?
Diversification reduces the risk of a portfolio because ________, and some of the risks are averaged out of the portfolio.
Which of the following statements is FALSE?
If you build a large enough portfolio, you can ersify away all ________ risk, but you will be left with ________ risk. A) ersifiable, unsystematic B) unsystematic, systematic C) systematic, unersifiable D) unersifiable, ersifiable
You expect General Motors (GM) to have a beta of 1.5 over the next year and the beta of Exxon Mobil (XOM) to be 1.9 over the next year. Also, you expect the volatility of General Motors to be 50% and that of Exxon Mobil to be 35% over the next year. Which stock has more systematic risk? Which stock has more total risk?
The relative proportion of debt, equity, and other securities that a firm has outstanding constitute its ________.
For an unlevered firm, the cost of capital can be determined by using the ________.
The ________ of a firm's debt can be used as the firm's current cost of debt.
Your estimate of the market risk premium is 6%. The risk-free rate of return is 4% and General Motors has a beta of 1.4. What is General Motors' cost of equity capital?
Equity in a firm with debt is called ________.
By adding leverage, the returns on a firm are split between debt holders and equity holders, but equity holder risk increases because ________.
Which of the following is NOT one of Modigliani and Miller's set of conditions referred to as perfect capital markets?
Which of the following statements is FALSE?
Suppose a project financed via an issue of debt requires five annual interest payments of $12 million each year. If the tax rate is 35% and the cost of debt is 5%, what is the value of the interest rate tax shield?