QUESTION 1 The largest investors in corporate bonds are state government agencie

Question

QUESTION 1

The largest investors in corporate bonds are state government agencies.

True

False

QUESTION 3

Equity securities are certificates of ownership of a corporation

True

False

QUESTION 9

Total variable costs for a firm do not vary directly with the number of units sold.

True

False

QUESTION 10

Taxes do not enter into the equation for the degree of cash flow of operating leverage because both fixed costs and pretax operating cash flows are measured on a pretax basis.

True

False

QUESTION 11

The finance balance sheet is based on market values, just like the accounting balance sheet.

True

False

4 points   

QUESTION 12

Long-term debt typically describes debt that will mature in two years or more.

True

False

QUESTION 14

Bonds sell at a discount when the market rate of interest is:

less than the bond's coupon rate.

greater than the bond's coupon rate.

equal to the bond's coupon rate.

None of the above is true.

4 points   

QUESTION 15

Bonds sell at a premium when the market rate of interest is:

less than the bond's coupon rate.

greater than the bond's coupon rate.

equal to the bond's coupon rate.

None of the above is true.

4 points   

QUESTION 16

Which one of the following statements is true of a bond’s yield to maturity?

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.

It is the annual yield that the investor earns if the bond is held to maturity, and all the coupon and principal payments are made as promised.

A bond's yield to maturity changes daily as interest rates increase or decrease.

All of the above are true.

4 points   

QUESTION 17

Which of the following statements is true?

Long-term bonds have lower price volatility than short-term bonds of similar risk.

As interest rates decline, the prices of bonds rise; and as interest rates rise, the prices of bonds decline.

All other things being equal, short-term bonds are riskier than long-term bonds.

Interest rate risk decreases as maturity increases.

4 points   

QUESTION 18

Which of the following statements is true?

The longer the maturity of a security, the greater its interest rate risk.

If investors believe inflation will be subsiding in the future, the prevailing yield will be upward sloping.

The real rate of interest varies with the business cycle, with the lowest rates seen at the end of a period of business expansion and the highest at the bottom of a recession.

The interest rate risk premium always adds a downward bias to the slope of the yield curve.

4 points   

QUESTION 19

Downward-slopping yield curves are observed

when the economy is growing.

when the economy is stagnant.

before the beginning of a recession.

None of the above.

4 points   

QUESTION 20

Which of the following statements is true about secondary markets?

In secondary markets, outstanding shares of stock are bought and sold among investors

Most secondary market transactions directly affect the capital of the firm that issues the securities

An active secondary market causes firms to sell their new debt or equity issues at a higher transaction cost of funds

All of the above statements are true

4 points   

QUESTION 21

In comparison to the NYSE,

NASDAQ has less company listed

total share volume is lower on the NASDAQ

firms listed on the NASDAQ tend to be smaller

NASDAQ firms exceed NYSE listed firms in total capitalization

4 points   

QUESTION 22

Applying the valuation procedure to common stocks is more difficult than applying it to bonds because:

the size and timing of the dividend cash flows are less certain than the coupon payments for bonds

common stocks have no final maturity date

unlike the rate of return, or yield, on bonds, the rate of return on common stock is not directly observable

All of the above are true

QUESTION 24

Which of the following statements is NOT true about constant-growth stocks?

Cash dividend remains constant over time

Mature companies with a history of stable growth show this pattern

Dividends grow at a constant rate from one period to the next forever

Far distant-dividends have a very small present value and add little to the stock’s price

4 points   

QUESTION 25

Which of the following statements is true?

In order for the constant growth dividend model to properly value a firm’s common stock, R must be greater than g.

From a practical perspective, the growth rate in the constant growth dividend model must be greater than the sum of the long-term rate of inflation and the long-term real growth rate of the economy.

In order for the constant growth dividend model to properly value a firm’s common stock, g must be greater than R.

The constant growth dividend model can be used effectively to value the common shares of a mixed growth stock.

QUESTION 29

Which of the following statements about the payback method is true?

The payback method is consistent with the goal of shareholder wealth maximization

The payback method represents the number of years it takes a project to recover its initial investment plus a required rate of return.

There is no economic rational that links the payback method to shareholder wealth maximization.

None of the above statements are true.

QUESTION 32

Additions to tangible assets, intangible assets ,and current assets can be described as:

cash flows associated with investments.

operating cash flows.

free cash flows.

None of the above.

4 points   

QUESTION 33

The impact of a project on a firm's overall value depends on

a firm's accounting earnings.

a firm's cash flow.

a project's cash flow.

None of the above.

4 points   

QUESTION 34

Which of the following should not be included in a project's cash flow calculations?

cash expenses

cash revenues

allocated expenses

None of the above.

4 points   

QUESTION 35

Corporate overhead allocations should only be taken into account on project analysis if:

the firm is currently covering all of its overhead allocations.

the firm is currently unable to cover all of its overhead allocations.

the overhead allocations involve cash expenditures.

None of the above.

4 points   

QUESTION 36

In order to calculate free cash flow by starting with incremental cash flow from operations, we should

subtract the incremental capital expenditures and add the incremental additions to working capital.

add the incremental capital expenditures and the incremental additions to working capital.

subtract the incremental capital expenditures and the incremental additions to working capital.

None of the above.

4 points   

QUESTION 37

Whenever a project has a negative impact on an existing project's cash flows, then that effect should:

be ignored.

be ignored if the project is evaluated using the correct cost of capital.

be included as a negative revenue amount on the new project's cash flow analysis.

be included if the impact is limited to noncash expenditures.

4 points   

QUESTION 38

Another name for EBITDA is:

pretax operating cash flow.

accounting operating cash flow.

net income before tax.

net income after tax.

4 points   

QUESTION 39

If a firm is about to operate in an environment in which there will be a great deal of variability in the level of revenues, then the firm:

should structure its cost structure to have high fixed costs and higher total variable costs.

should structure its cost structure to have high fixed costs and consequently lower per unit variable costs.

should structure its cost structure to have low fixed costs and consequently higher per unit variable costs.

should leave the cost structure unchanged.

4 points   

QUESTION 40

The degree of pretax cash flow operating leverage provides us with:

a measure of how sensitive pretax operating cash flows are to changes in revenue.

a measure of how sensitive accounting operating profits are to changes in revenue.

a measure of how sensitive NOPAT is to changes in tax rates.

a measure of how sensitive accounting operating profits are to changes in tax rates.

4 points   

QUESTION 41

Which of the following statements is true?

The degree of pretax cash flow operating leverage remains same for any level of revenue.

The higher the proportion of fixed costs to variable costs in a project, the greater the sensitivity of pre-tax operating cash flows to changes in revenue.

Depreciation and amortization are deducted to get pretax operating cash flows.

The lower the proportion of fixed costs to variable costs in a project, the more pre-tax operating cash flows will vary as revenue varies.

4 points   

QUESTION 42

Which of the following differentiates accounting operating profit break-even point from pre-tax operating cash flow break-even point?

Accounting operating profit break-even point includes interest expense in the numerator, whereas pre-tax operating cash flow does not.

Pre-tax operating cash flow break-even point includes income taxes in the denominator, whereas accounting operating profit break-even point does not.

Accounting operating profit break-even point includes depreciation & amortization in the numerator, whereas pre-tax operating cash flow does not.

Pre-tax operating cash flow break-even point includes interest expense in the numerator, whereas accounting operating profit break-even point does not.

QUESTION 43

Sancore Inc. decided to invest in a project costing $35,000. It is assumed that all of $8,000 working capital will be recovered at the end of the project, which is four years. The opportunity cost of capital is 10%. Compute the present value of net non-recurring investment of the project. (Do not round intermediate calculation. Round the final answer to the nearest dollar.)

$36,713

$45,657

$46,713

$35,657

4 points   

QUESTION 44

If a firm wanted to find the effect of a change in the variable cost per unit of production on the net present value of a project, then the firm might perform:

a sensitivity analysis.

a scenario analysis.

a Monte Carlo simulation.

a cash flow simulation.

less than the bond's coupon rate.

greater than the bond's coupon rate.

equal to the bond's coupon rate.

None of the above is true.

Explanation / Answer

Answer 1 :- True . The largest investors in corporate bonds are state government agencies.

Answer 3 : True : Equity securities are certificates of ownership of a corporation.

Answer 9 : False :- The Total Variable do vary with the number of units sold

Answer 11 : False

Answer 12 : True :- Long-term debt typically describes debt that will mature in two years or more.

Answer 14 :- Bonds sell at a discount when the market rate of interest is: greater than the bond's coupon rate

Answer 15 : Bonds sell at a premium when the market rate of interest is: less than the bond's coupon rate

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