Bob and Lisa are both married, working adults. They both plan for retirement and consider the $2,000 annual contribution a must.
July 11, 2019
well-respected chairman of the Federal Reserve Bank suddenly resigns
July 11, 2019

well-respected chairman of the Federal Reserve Bank suddenly resigns

FIN 571 Final Exam August 2017

1

Which one of the following is an example of a nondiversifiable risk?​

· Correct Answer

​A well-respected chairman of the Federal Reserve Bank suddenly resigns

· Correct Answer

​A poorly managed firm suddenly goes out of business due to lack of sales

· Correct Answer

​A well-respected president of a firm suddenly resigns

· Correct Answer

​A key employee suddenly resigns and accepts employment with a key competitor

· Correct Answer

​A well-managed firm reduces its work force and automates several jobs

question2

A firm has a debt-equity ratio of .64, a pretax cost of debt of 8.5 percent, and a required return on assets of 12.6 percent. What is the cost of equity if you ignore taxes?​

· Correct Answer

​15.22%

· Correct Answer

​16.38%

· Correct Answer

​8.06%

· Correct Answer

​11.12%

· Correct Answer

​8.55%

question3

Which term defines the tax rate that applies to the next dollar of taxable income earned?​

· Correct Answer

​Deductible

· Correct Answer

​Marginal

· Correct Answer

​Average

· Correct Answer

​Total

· Correct Answer

​Residual

question4

All else held constant, interest rate risk will increase when the time to maturity:​

· Correct Answer

​Increases or the coupon rate decreases.

· Correct Answer

​Decreases or the coupon rate increases.

· Correct Answer

​Increases or the coupon rate increases.

· Correct Answer

​Decreases or the coupon rate decreases.

· Correct Answer

​Decreases and the coupon rate equals zero.

question5

Under the _______ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the _______ method, the underwriter does not purchase the shares but merely acts as an agent.​

· Correct Answer

​Negotiated offer; competitive offer

· Correct Answer

​Firm commitment; best efforts

· Correct Answer

​Competitive offer; negotiated offer

· Correct Answer

​Best efforts; firm commitment

· Correct Answer

​Seasoned; unseasoned

question6

The underlying assumption of the dividend growth model is that a stock is worth:​

· Correct Answer

​An amount computed as the next annual dividend divided by the market rate of return.

· Correct Answer

​The present value of the future income that the stock is expected to generate.

· Correct Answer

​The same amount to every investor regardless of their desired rate of return.

· Correct Answer

​The same amount as any other stock that pays the same current dividend and has the same required rate of return.

· Correct Answer

​An amount computed as the next annual dividend divided by the required rate of return.

question7

The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:​

· Correct Answer

​Inflation premium.

· Correct Answer

​Risk premium.

· Correct Answer

​Arithmetic average return.

· Correct Answer

​Time premium.

· Correct Answer

​Geometric average return.

question8

Which one of these statements is correct concerning the cash cycle?​

· Correct Answer

​A positive cash cycle is preferable to a negative cash cycle.

· Correct Answer

​Increasing the accounts payable period increases the cash cycle.

· Correct Answer

​The longer the cash cycle, the more likely a firm will need external financing.

· Correct Answer

​The cash cycle can exceed the operating cycle if the payables period is equal to zero.

· Correct Answer

​Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.

question9

​Which one of the following statements about preferred stock is true?

· Correct Answer

​If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year.

· Correct Answer

​Preferred stock usually has a stated liquidating value of $100 per share.

· Correct Answer

​Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense.

· Correct Answer

​There is no significant difference in the voting rights granted to preferred and common shareholders.

· Correct Answer

​Dividends on preferred stock payable during the next twelve months are considered to be a corporate liability.

question10

​What is the present value of $6,811 to be received in one year if the discount rate is 6.5 percent?

· Correct Answer

​$6,023.58

· Correct Answer

​$6,671.13

· Correct Answer

​$6,395.31

· Correct Answer

​$6,643.29

· Correct Answer

​$7,253.72

question11

The market price of a bond increases when the:​

· Correct Answer

​Coupon rate decreases.

· Correct Answer

​Par value decreases.

· Correct Answer

​Face value decreases.

· Correct Answer

​Discount rate decreases.

· Correct Answer

​Coupon is paid annually rather than semiannually.

question12

​The process of planning and managing a firm’s long-term assets is called:

· Correct Answer

​Capital structure.

· Correct Answer

​Financial depreciation.

· Correct Answer

​Working capital management.

· Correct Answer

​Agency cost analysis.

· Correct Answer

​Capital budgeting.

question13

The discount rate that makes the net present value of an investment exactly equal to zero is called the:​

· Correct Answer

​Profitability index.

· Correct Answer

​Average accounting return.

· Correct Answer

​External rate of return.

· Correct Answer

​Internal rate of return.

· Correct Answer

​Equalizer.

question14

The cash flow resulting from a firm’s ongoing, normal business activities is referred to as the:​

· Correct Answer

​Cash flow to investors.

· Correct Answer

​Operating cash flow.

· Correct Answer

​Additions to net working capital.

· Correct Answer

​Cash flow to retained earnings.

· Correct Answer

​Net capital spending.

question15

Lois is purchasing an annuity that will pay $5,000 annually for 20 years, with the first annuity payment made on the date of purchase. What is the value of the annuity on the purchase date given a discount rate of 7 percent?​

· Correct Answer

​$66,916.21

· Correct Answer

​$54,282.98

· Correct Answer

​$56,191.91

· Correct Answer

​$52,970.07

· Correct Answer

​$56,677.98

question16

Which one of the following statements is false?​

· Correct Answer

​An aging schedule includes only overdue accounts.

· Correct Answer

​Investments in accounts receivable equal average daily sales times average collection period.

· Correct Answer

​Collection efforts may involve legal action.

· Correct Answer

​Aging schedules are used to monitor accounts receivable.

· Correct Answer

​If sales are seasonal, the percentages shown on an aging schedule will vary during the year.

question17

The primary goal of financial management is to:​

· Correct Answer

​Minimize operational costs and maximize firm efficiency.

· Correct Answer

​Maximize current dividends per share of the existing stock.

· Correct Answer

​Avoid financial distress.

· Correct Answer

​Maximize the current value per share of the existing stock.

· Correct Answer

​Maintain steady growth in both sales and net earnings.

question18

A project has an initial cost of $2,250. The cash inflows are $0, $500, $900, and $700 for Years 1 to 4, respectively. What is the payback period?​

· Correct Answer

​3.92 years

· Correct Answer

​2.97 years

· Correct Answer

​2.84 years

· Correct Answer

​3.98 years

· Correct Answer

​never

question19

Futures contracts contrast with forward contracts by:​

· Correct Answer

​Marking to the market on a weekly basis.

· Correct Answer

​Providing an option for the buyer rather than an obligation.

· Correct Answer

​Allowing the parties to negotiate the contract size.

· Correct Answer

​Requiring contract fulfillment by the two originating parties.

· Correct Answer

​Allowing the seller to deliver any day during the delivery month.

question20

All else equal, the contribution margin must increase as:​

· Correct Answer

​The variable cost per unit declines.

· Correct Answer

​The sales price minus the fixed cost per unit increases.

· Correct Answer

​Sales price per unit declines.

· Correct Answer

​The fixed cost per unit declines.

· Correct Answer

​Both the sales price and variable cost per unit increase.

question21

Ratios that measure a firm’s ability to pay its bills over the short run without undue stress are known as:​

· Correct Answer

​Market value ratios.

· Correct Answer

​Asset management ratios.

· Correct Answer

​Liquidity measures.

· Correct Answer

​Profitability ratios.

· Correct Answer

​Long-term solvency measures.

question22

The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as _____ costs.

· Correct Answer

​Flotation

· Correct Answer

​Capital structure

· Correct Answer

​Financial solvency

· Correct Answer

​Direct bankruptcy

· Correct Answer

​Indirect bankruptcy

question23

An interest rate that is compounded monthly, but is expressed as if the rate were compounded annually, is called the _____ rate.​

· Correct Answer

​Daily interest

· Correct Answer

​Compound interest

· Correct Answer

​Effective annual

· Correct Answer

​Periodic interest

· Correct Answer

​Stated interest

question24

The higher the inventory turnover, the:​

· Correct Answer

​Lesser the amount of inventory held by a firm.

· Correct Answer

​Longer it takes a firm to sell its inventory.

· Correct Answer

​Higher the inventory as a percentage of total assets.

· Correct Answer

​Greater the amount of inventory held by a firm.

· Correct Answer

​Less time inventory items remain on the shelf.

question25

You plan to invest $6,500 for three years at 4 percent simple interest. What will your investment be worth at the end of the three years?​

· Correct Answer

​$6,760.00

· Correct Answer

​$6,941.11

· Correct Answer

​$7,311.62

· Correct Answer

​$7,250.00

· Correct Answer

​$7,280.00

question26

​Which one of these is a correct definition?

· Correct Answer

​Tangible assets are fixed assets such as patents.

· Correct Answer

​Net working capital equals current assets plus current liabilities.

· Correct Answer

​Current assets are assets with short lives, such as inventory.

· Correct Answer

​Current liabilities are debts that must be repaid in 18 months or less.

· Correct Answer

​Long-term debt is defined as a residual claim on a firm’s assets.

question27

One disadvantage of the corporate form of business ownership is the:​

· Correct Answer

​Double taxation of profits.

· Correct Answer

​Difficulties encountered when changing ownership.

· Correct Answer

​Firms ability to raise cash.

· Correct Answer

​Limited liability protection provided for all owners.

· Correct Answer

​Unlimited life of the firm.

question28

​A firm has a total debt ratio of .47. This means the firm has 47 cents in debt for every:

· Correct Answer

​$1 in current assets.

· Correct Answer

​$1 in fixed assets.

· Correct Answer

​$.53 in total equity.

· Correct Answer

​$.53 in total assets.

· Correct Answer

​$1 in total equity.

question29

Book value:​

· Correct Answer

​Generally tends to exceed market value when fixed assets are included.

· Correct Answer

​Is based on historical cost.

· Correct Answer

​Is more of a financial than an accounting valuation.

· Correct Answer

​Is equivalent to market value for firms with fixed assets.

· Correct Answer

​Is adjusted to market value whenever the market value exceeds the stated book value.

question30

An efficient capital market is one in which:​

· Correct Answer

​All investments earn the market rate of return.

· Correct Answer

​Securities always offer a positive NPV.

· Correct Answer

​Security prices reflect all available information.

· Correct Answer

​Taxes are irrelevant.

· Correct Answer

​Brokerage commissions are zero.

 

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