51) ___ is the chance of loss or the variability of returns associated with a
given asset.
a. Value
b. Probability
c. Risk
d. Return
52) The goal of an efficient portfolio is to
a. minimize profit in order to minimize risk.
b. maximize risk for a given level of return.
c. maximize risk in order to maximize profit.
d. minimize risk for a given level of return.
53) Combining negatively correlated assets having the same expected return
results in a portfolio with ___ level of expected return and ___
level of risk.
a. the same; a lower
54) The purpose of adding an asset with a negative or low positive beta is to
a. reduce risk.
b. increase profit.
c. reduce profit.
d. increase risk.
55) The portion of an asset's risk that is attributable to firm-specific, random
causes is called
a. unsystematic risk.
b. systematic risk.
c. nondiversifiable risk.
d. none of the above
56) ___ risk represents the portion of an asset's risk that can be eliminated
by combining assets with less than perfect positive correlation.
a. Systematic
b. Total
c. Nondiversifiable
d. Diversifiable
57) Nico owns 100 shares of stock X which has a price of $12 per share and 200
shares of stock Y which has a price of $3 per share. What is the proportion of
Nico's portfolio invested in stock X?
58) As risk aversion increases
a. investors' required rate of return will decrease.
b. a firm's beta will decrease.
c. a firm's beta will increase.
d. investors' required rate of return will increase.
59) The ___ rate of interest creates equilibrium between the supply of savings
and the demand for investment funds.
a. infl ationary
b. risk-free
c. real
d. nominal
60) The ___ rate of interest is typically the required rate of return on a
three-month U.S. Treasury bill.
a. premium
b. real
c. nominal
d. risk-free
61) An upward-sloping yield curve that indicates generally cheaper short-term
borrowing costs than long-term borrowing costs is called
62) The cost of long-term debt generally ___ that of short-term debt.
a. has no relation to
b. is less than
c. is equal to
d. is greater than
63) ___ is a paid individual, corporation, or commercial bank trust department
that acts as a third party to a bond indenture to ensure that the issuer
does not default on its contractual responsibilities to the bondholders.
a. A trustee
b. A bond rating agency
c. A bond issuer
d. An investment banker
67) In utilizing a ___ the issuer can annually deduct the current year's interest
accrual without having to actually pay the interest until the bond matures.
a. junk bond
b. extendible notes
c. zero coupon bond
d. floating rate bond
68) The less certain a cash flow, the ___ the risk, and the ___ the
present value of the cash flow.
a. higher; higher
b. lower; lower
c. higher; lower
d. lower; higher
69) Jia Hua Enterprises wants to issue sixty 20-year, $1,000 par value, zerocoupon
bonds. If each bond is priced to yield 7 percent, how much will Jia
Hua receive (ignoring issuance costs) when the bonds are first sold?
a. $12,393
b. $15,505
c. $18,880
d. $11,212
e. $20,000
70) If bankruptcy were to occur, stockholders would have prior claim on assets
over
a. preferred stockholders.
b. unsecured creditors.
c. secured creditors.
d. no one.
Final Examination
74) The opportunity for management to purchase a certain number of shares of
their firm's common stock at a specified price over a certain period of time
is a
a. stock option.
b. stock right.
c. pre-emptive right.
d. warrant.
75) Stock rights provide the stockholder with
a. cumulative voting privileges.
b. the opportunity to receive extraordinary earnings.
c. the right to elect the board of directors.
d. certain purchase privileges of additional stock shares in direct proportion
based on their number of owned shares.
Final Examination
76) Tangshan China Company's stock is currently selling for $80.00 per share.
The expected dividend one year from now is $4.00 and the required return is
13 percent. What is Tangshan's dividend growth rate assuming that dividends
are expected to grow at a constant rate forever?
a. 9%
b. 10%
c. 8%
d. 11%
77) Which of the following valuation methods is superior to the others in the list
since it considers expected earnings?
a. P/E multiple
b. liquidation value
c. book value
d. present value of the interest
78) Nico Corporation expects to generate free-cash flows of $200,000 per year
for the next five years. Beyond that time, free cash flows are expected to grow
at a constant rate of 5 percent per year forever. If the firm's average cost of
capital is 15 percent, the market value of the firm's debt is $500,000, and
Nico has a half million shares of stock outstanding, what is the value of
Nico's stock?
a. $0.00
b. $1.43
c. $3.43
d. $2.43
79) A capital expenditure is all of the following EXCEPT
a. an outlay for current asset expansion.
b. an outlay made for the earning assets of the firm.
c. commonly used to expand the level of operations.
d. expected to produce benefits over a period of time greater than one year.
82) When evaluating a capital budgeting project, the change in net working capital
must be considered as part of
a. the initial investment.
b. the incrementaloperating cash inflows.
c. the operating cash inflows.
d. the operating cash outflows.
87) The minimum return that must be earned on a project in order to leave the
firm's value unchanged is
a. the compound rate.
b. the cost of capital.
c. the interest rate.
d. the internal rate of return.
88) A firm would accept a project with a net present value of zero because
a. the project would enhance the wealth of the firm's owners.
b. the return on the project would be positive.
c. the project would maintain the wealth of the firm's owners.
d. the return on the project would be zero.
89) What is the NPV for the following project if its cost of capital is 15 percent
and its initial after tax cost is $5,000,000 and it is expected to provide
after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year
2, $1,700,000 in year 3 and $1,300,000 in year 4?
a. ($137,053)
b. $371,764
c. $1,700,000
d. None of the above
90) What is the NPV for the following project if its cost of capital is 0 percent and
its initial after tax cost is $5,000,000 and it is expected to provide aftertax
operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2,
$1,700,000 in year 3 and $1,300,000 in year 4?
a. $1,700,000
b. $137,053
c. $371,764
d. None of the above
91) The ___ is the compound annual rate of return that the firm will earn if
it invests in the project and receives the given cash inflows.
a. internal rate of return
b. cost of capital
c. discount rate
d. opportunity cost
92) When evaluating projects using internal rate of return,
a. the discount rate and magnitude of cash flows do not affect internal rate of
return.
b. projects having higher early-year cash flows tend to be preferred at lower
discount rates.
c. projects having higher early-year cash flows tend to be preferred at higher
discount rates.
d. projects having lower early-year cash flows tend to be preferred at higher
discount rates.
93) Diagrams that permit the mapping of the various investment decision alternatives
and payoffs as well as their probabilities of occurrence are called
a. multiple regression analysis.
b. simulations.
c. decision trees.
d. sensitivity analysis.
94) The advantage of using simulation in the capital budgeting process is
a. the availability of a continuum of risk-return trade-offs which may be used as
the basis for decision-making.
b. that it generates a continuum of risk-return trade-offs rather than a singlepoint
estimate.
c. dependability of predetermined probability distributions.
d. ease of calculation.
95) Breakeven cash inflow refers to
a. the minimum level of cash inflow necessary for a project to be acceptable,
that is, IRR < cost of capital.
b. the minimum level of cash inflow necessary for a project to be acceptable,
that is, NPV > $0.
c. the minimum level of cash inflow necessary for a project to be acceptable,
that is, NPV < $0.
d. none of the above is correct
Final Examination
96) A behavioral approach that evaluates the impact on the firm's return of simultaneous
changes in a number of project variables is called
a. simulation analysis.
b. scenario analysis.
c. sensitivity analysis.
d. none of the above
97) The ___ reflects the return that must be earned on the given project to
compensate the firm's owners adequately according to the project's variability
of cash flows.
a. internal rate of return
b. cost of capital
c. average rate of return
d. risk-adjusted discount rate
98) An approach to capital rationing that involves graphing project returns in
descending order against the total dollar investment to determine the group
of acceptable projects is called the
a. net present value approach.
b. the internal rate of return approach.
c. the profitability index approach.
d. the payback approach.
99) The cost to a corporation of each type of capital is dependent upon
a. the risk-free rate of each type of capital plus the business risk and the financial
risk of the firm.
b. the risk-free rate of each type of capital plus the business risk of the firm.
c. the risk-free rate of each type of capital plus the financial risk of the firm.
d. the risk-free rate of bonds plus the business risk of the firm.
100) The before-tax cost of debt for a firm which has a 40 percent marginal tax rate
is 12 percent. The after-tax cost of debt is
a. 12 percent.
b. 7.2 percent.
c. 4.8 percent.
d. 6.0 percent.
given asset.
a. Value
b. Probability
c. Risk
d. Return
52) The goal of an efficient portfolio is to
a. minimize profit in order to minimize risk.
b. maximize risk for a given level of return.
c. maximize risk in order to maximize profit.
d. minimize risk for a given level of return.
53) Combining negatively correlated assets having the same expected return
results in a portfolio with ___ level of expected return and ___
level of risk.
a. the same; a lower
54) The purpose of adding an asset with a negative or low positive beta is to
a. reduce risk.
b. increase profit.
c. reduce profit.
d. increase risk.
55) The portion of an asset's risk that is attributable to firm-specific, random
causes is called
a. unsystematic risk.
b. systematic risk.
c. nondiversifiable risk.
d. none of the above
56) ___ risk represents the portion of an asset's risk that can be eliminated
by combining assets with less than perfect positive correlation.
a. Systematic
b. Total
c. Nondiversifiable
d. Diversifiable
57) Nico owns 100 shares of stock X which has a price of $12 per share and 200
shares of stock Y which has a price of $3 per share. What is the proportion of
Nico's portfolio invested in stock X?
58) As risk aversion increases
a. investors' required rate of return will decrease.
b. a firm's beta will decrease.
c. a firm's beta will increase.
d. investors' required rate of return will increase.
59) The ___ rate of interest creates equilibrium between the supply of savings
and the demand for investment funds.
a. infl ationary
b. risk-free
c. real
d. nominal
60) The ___ rate of interest is typically the required rate of return on a
three-month U.S. Treasury bill.
a. premium
b. real
c. nominal
d. risk-free
61) An upward-sloping yield curve that indicates generally cheaper short-term
borrowing costs than long-term borrowing costs is called
62) The cost of long-term debt generally ___ that of short-term debt.
a. has no relation to
b. is less than
c. is equal to
d. is greater than
63) ___ is a paid individual, corporation, or commercial bank trust department
that acts as a third party to a bond indenture to ensure that the issuer
does not default on its contractual responsibilities to the bondholders.
a. A trustee
b. A bond rating agency
c. A bond issuer
d. An investment banker
67) In utilizing a ___ the issuer can annually deduct the current year's interest
accrual without having to actually pay the interest until the bond matures.
a. junk bond
b. extendible notes
c. zero coupon bond
d. floating rate bond
68) The less certain a cash flow, the ___ the risk, and the ___ the
present value of the cash flow.
a. higher; higher
b. lower; lower
c. higher; lower
d. lower; higher
69) Jia Hua Enterprises wants to issue sixty 20-year, $1,000 par value, zerocoupon
bonds. If each bond is priced to yield 7 percent, how much will Jia
Hua receive (ignoring issuance costs) when the bonds are first sold?
a. $12,393
b. $15,505
c. $18,880
d. $11,212
e. $20,000
70) If bankruptcy were to occur, stockholders would have prior claim on assets
over
a. preferred stockholders.
b. unsecured creditors.
c. secured creditors.
d. no one.
Final Examination
74) The opportunity for management to purchase a certain number of shares of
their firm's common stock at a specified price over a certain period of time
is a
a. stock option.
b. stock right.
c. pre-emptive right.
d. warrant.
75) Stock rights provide the stockholder with
a. cumulative voting privileges.
b. the opportunity to receive extraordinary earnings.
c. the right to elect the board of directors.
d. certain purchase privileges of additional stock shares in direct proportion
based on their number of owned shares.
Final Examination
76) Tangshan China Company's stock is currently selling for $80.00 per share.
The expected dividend one year from now is $4.00 and the required return is
13 percent. What is Tangshan's dividend growth rate assuming that dividends
are expected to grow at a constant rate forever?
a. 9%
b. 10%
c. 8%
d. 11%
77) Which of the following valuation methods is superior to the others in the list
since it considers expected earnings?
a. P/E multiple
b. liquidation value
c. book value
d. present value of the interest
78) Nico Corporation expects to generate free-cash flows of $200,000 per year
for the next five years. Beyond that time, free cash flows are expected to grow
at a constant rate of 5 percent per year forever. If the firm's average cost of
capital is 15 percent, the market value of the firm's debt is $500,000, and
Nico has a half million shares of stock outstanding, what is the value of
Nico's stock?
a. $0.00
b. $1.43
c. $3.43
d. $2.43
79) A capital expenditure is all of the following EXCEPT
a. an outlay for current asset expansion.
b. an outlay made for the earning assets of the firm.
c. commonly used to expand the level of operations.
d. expected to produce benefits over a period of time greater than one year.
82) When evaluating a capital budgeting project, the change in net working capital
must be considered as part of
a. the initial investment.
b. the incrementaloperating cash inflows.
c. the operating cash inflows.
d. the operating cash outflows.
87) The minimum return that must be earned on a project in order to leave the
firm's value unchanged is
a. the compound rate.
b. the cost of capital.
c. the interest rate.
d. the internal rate of return.
88) A firm would accept a project with a net present value of zero because
a. the project would enhance the wealth of the firm's owners.
b. the return on the project would be positive.
c. the project would maintain the wealth of the firm's owners.
d. the return on the project would be zero.
89) What is the NPV for the following project if its cost of capital is 15 percent
and its initial after tax cost is $5,000,000 and it is expected to provide
after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year
2, $1,700,000 in year 3 and $1,300,000 in year 4?
a. ($137,053)
b. $371,764
c. $1,700,000
d. None of the above
90) What is the NPV for the following project if its cost of capital is 0 percent and
its initial after tax cost is $5,000,000 and it is expected to provide aftertax
operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2,
$1,700,000 in year 3 and $1,300,000 in year 4?
a. $1,700,000
b. $137,053
c. $371,764
d. None of the above
91) The ___ is the compound annual rate of return that the firm will earn if
it invests in the project and receives the given cash inflows.
a. internal rate of return
b. cost of capital
c. discount rate
d. opportunity cost
92) When evaluating projects using internal rate of return,
a. the discount rate and magnitude of cash flows do not affect internal rate of
return.
b. projects having higher early-year cash flows tend to be preferred at lower
discount rates.
c. projects having higher early-year cash flows tend to be preferred at higher
discount rates.
d. projects having lower early-year cash flows tend to be preferred at higher
discount rates.
93) Diagrams that permit the mapping of the various investment decision alternatives
and payoffs as well as their probabilities of occurrence are called
a. multiple regression analysis.
b. simulations.
c. decision trees.
d. sensitivity analysis.
94) The advantage of using simulation in the capital budgeting process is
a. the availability of a continuum of risk-return trade-offs which may be used as
the basis for decision-making.
b. that it generates a continuum of risk-return trade-offs rather than a singlepoint
estimate.
c. dependability of predetermined probability distributions.
d. ease of calculation.
95) Breakeven cash inflow refers to
a. the minimum level of cash inflow necessary for a project to be acceptable,
that is, IRR < cost of capital.
b. the minimum level of cash inflow necessary for a project to be acceptable,
that is, NPV > $0.
c. the minimum level of cash inflow necessary for a project to be acceptable,
that is, NPV < $0.
d. none of the above is correct
Final Examination
96) A behavioral approach that evaluates the impact on the firm's return of simultaneous
changes in a number of project variables is called
a. simulation analysis.
b. scenario analysis.
c. sensitivity analysis.
d. none of the above
97) The ___ reflects the return that must be earned on the given project to
compensate the firm's owners adequately according to the project's variability
of cash flows.
a. internal rate of return
b. cost of capital
c. average rate of return
d. risk-adjusted discount rate
98) An approach to capital rationing that involves graphing project returns in
descending order against the total dollar investment to determine the group
of acceptable projects is called the
a. net present value approach.
b. the internal rate of return approach.
c. the profitability index approach.
d. the payback approach.
99) The cost to a corporation of each type of capital is dependent upon
a. the risk-free rate of each type of capital plus the business risk and the financial
risk of the firm.
b. the risk-free rate of each type of capital plus the business risk of the firm.
c. the risk-free rate of each type of capital plus the financial risk of the firm.
d. the risk-free rate of bonds plus the business risk of the firm.
100) The before-tax cost of debt for a firm which has a 40 percent marginal tax rate
is 12 percent. The after-tax cost of debt is
a. 12 percent.
b. 7.2 percent.
c. 4.8 percent.
d. 6.0 percent.
No comments:
Post a Comment