Financial literacy

Which of the following statements is CORRECT? a. For a project to have more than

Which of the following statements is CORRECT? a. For a project to have more than one IRR, then both IRRs must be greater than the WACC. b. If two projects are mutually exclusive, …

Which of the following statements is CORRECT? a. For a project with normal cash

Which of the following statements is CORRECT? a. For a project with normal cash flows, any change in the WACC will change both the NPV and the IRR. b. The NPV and IRR methods both…

Which of the following statements is CORRECT? a. For a stock to be in equilibriu

Which of the following statements is CORRECT? a. For a stock to be in equilibrium, its intrinsic value must be greater than the actual market price. b. Most business in the U.S. i…

Which of the following statements is CORRECT? a. Home mortgage loans are traded

Which of the following statements is CORRECT? a. Home mortgage loans are traded in the money market. b. The New York Stock Exchange is an auction market, and it has a physical loc…

Which of the following statements is CORRECT? a. If Mutual Fund A held equal amo

Which of the following statements is CORRECT? a. If Mutual Fund A held equal amounts of 100 stocks, each of which had a beta of 1.0, and Mutual Fund B held equal amounts of 10 sto…

Which of the following statements is CORRECT? a. If a firm follows Generally Acc

Which of the following statements is CORRECT? a. If a firm follows Generally Accepted Accounting Principles (GAAP), then its reported net income will be identical to its reported …

Which of the following statements is CORRECT? a. If a firm has high current and

Which of the following statements is CORRECT? a. If a firm has high current and quick ratios, this always indicate that the firm is managing its liquidity position well. b. The in…

Which of the following statements is CORRECT? a. If a firm\'s after-tax cost of

Which of the following statements is CORRECT? a. If a firm's after-tax cost of equity exceeds its after-tax cost of debt, it can always reduce its WACC by increasing its use of de…

Which of the following statements is CORRECT? a. If a project has two IRRs, then

Which of the following statements is CORRECT? a. If a project has two IRRs, then the smaller one is the one that is most relevant, and it should be accepted and relied upon. b. Mu…

Which of the following statements is CORRECT? a. If an asset is sold for less th

Which of the following statements is CORRECT? a. If an asset is sold for less than its book value at the end of a project's life, it will generate a loss for the firm, hence its t…

Which of the following statements is CORRECT? a. If interest rates increase, a 1

Which of the following statements is CORRECT? a. If interest rates increase, a 10-year zero coupon bond's price will drop by a greater percentage than will a 10-year, 8% coupon bo…

Which of the following statements is CORRECT? a. If interest rates increase, a 1

Which of the following statements is CORRECT? a. If interest rates increase, a 10-year zero coupon bond's price will drop by a greater percentage than will a 10-year, 8% coupon bo…

Which of the following statements is CORRECT? a. If investors become more risk a

Which of the following statements is CORRECT? a. If investors become more risk averse but rRF does not change, then the required rate of return on high-beta stocks will rise and t…

Which of the following statements is CORRECT? a. If the cost of capital declines

Which of the following statements is CORRECT? a. If the cost of capital declines, this lowers a project's NPV. b. The NPV and IRR methods may give different recommendations regard…

Which of the following statements is CORRECT? a. If the market risk premium rema

Which of the following statements is CORRECT? a. If the market risk premium remains constant, but the risk-free rate declines, then the required returns on low-beta stocks will ri…

Which of the following statements is CORRECT? a. If you have a series of cash fl

Which of the following statements is CORRECT? a. If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of…

Which of the following statements is CORRECT? a. If you have a series of cash fl

Which of the following statements is CORRECT? a. If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of…

Which of the following statements is CORRECT? a. If you purchase 100 shares of D

Which of the following statements is CORRECT? a. If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction. b. The NY…

Which of the following statements is CORRECT? a. In finance, we are generally mo

Which of the following statements is CORRECT? a. In finance, we are generally more interested in cash flows than in accounting profits. Free cash flow (FCF) is calculated as after…

Which of the following statements is CORRECT? a. In managing a firm\'s accounts

Which of the following statements is CORRECT? a. In managing a firm's accounts receivable, it is possible to increase credit sales per day yet still keep accounts receivable fairl…

Which of the following statements is CORRECT? a. Managerial compensation plans c

Which of the following statements is CORRECT? a. Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers. b. The threat of tak…

Which of the following statements is CORRECT? a. One advantage of the NPV over t

Which of the following statements is CORRECT? a. One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project's full life whereas MIRR does…

Which of the following statements is CORRECT? a. One drawback of the discounted

Which of the following statements is CORRECT? a. One drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback ov…

Which of the following statements is CORRECT? a. One of the advantages of a corp

Which of the following statements is CORRECT? a. One of the advantages of a corporation from a social standpoint is that every stockholder has equal voting rights, i.e., "one pers…

Which of the following statements is CORRECT? a. Potential agency problems can a

Which of the following statements is CORRECT? a. Potential agency problems can arise between stockholders and managers, because managers hired as agents to act on behalf of the ow…

Which of the following statements is CORRECT? a. Preferred dividends are not gen

Which of the following statements is CORRECT? a. Preferred dividends are not generally cumulative. b. A big advantage of preferred stock is that dividends on preferred stocks are …

Which of the following statements is CORRECT? a. Relative to a coupon-bearing bo

Which of the following statements is CORRECT? a. Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestme…

Which of the following statements is CORRECT? a. Retained earnings as reported o

Which of the following statements is CORRECT? a. Retained earnings as reported on the balance sheet represent cash and, therefore, are available to distribute to stockholders a…

Which of the following statements is CORRECT? a. Sole proprietorships and partne

Which of the following statements is CORRECT? a. Sole proprietorships and partnerships generally have a tax advantage over corporations. b. Corporations of all types are subject t…

Which of the following statements is CORRECT? a. Sound working capital policy is

Which of the following statements is CORRECT? a. Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on…

Which of the following statements is CORRECT? a. Sound working capital policy is

Which of the following statements is CORRECT? a. Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on…

Which of the following statements is CORRECT? a. Suppose you are managing a stoc

Which of the following statements is CORRECT? a. Suppose you are managing a stock portfolio, and you have information that leads you to believe the stock market is likely to be ve…

Which of the following statements is CORRECT? a. The AFN equation for forecastin

Which of the following statements is CORRECT? a. The AFN equation for forecasting funds requirements requires only a forecast of the firm's balance sheet. Although a forecasted in…

Which of the following statements is CORRECT? a. The DCF model is preferred by a

Which of the following statements is CORRECT? a. The DCF model is preferred by academics and finance practitioners over other cost of capital models because it correctly recognize…

Which of the following statements is CORRECT? a. The IRR is generally regarded b

Which of the following statements is CORRECT? a. The IRR is generally regarded by academics as being the best single method for evaluating capital budgeting projects. b. The payba…

Which of the following statements is CORRECT? a. The IRR method appeals to some

Which of the following statements is CORRECT? a. The IRR method appeals to some managers because it gives an estimate of the rate of return on projects rather than a dollar amount…

Which of the following statements is CORRECT? a. The IRR method appeals to some

Which of the following statements is CORRECT? a. The IRR method appeals to some managers because it gives an estimate of the rate of return on projects rather than a dollar amount…

Which of the following statements is CORRECT? a. The IRR method appeals to some

Which of the following statements is CORRECT? a. The IRR method appeals to some managers because it gives an estimate of the rate of return on projects rather than a dollar amount…

Which of the following statements is CORRECT? a. The IRR method appeals to some

Which of the following statements is CORRECT? a. The IRR method appeals to some managers because it gives an estimate of the rate of return on projects rather than a dollar amount…

Which of the following statements is CORRECT? a. The NPV method assumes that cas

Which of the following statements is CORRECT? a. The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR. b. Th…

Which of the following statements is CORRECT? a. The NPV method assumes that cas

Which of the following statements is CORRECT? a. The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR. b. Th…

Which of the following statements is CORRECT? a. The NYSE operates as an auction

Which of the following statements is CORRECT? a. The NYSE operates as an auction market, whereas Nasdaq is an example of a dealer market. b. A liquid security is a security whose …

Which of the following statements is CORRECT? a. The \"break point\" as discusse

Which of the following statements is CORRECT? a. The "break point" as discussed in the text refers to the point where the firm has exhausted its supply of new retained earnings an…

Which of the following statements is CORRECT? a. The annual report is an interna

Which of the following statements is CORRECT? a. The annual report is an internal document prepared by a firm's managers solely for the use of its creditors/lenders. b. The four m…

Which of the following statements is CORRECT? a. The balance sheet for a given y