Introduction to Finance Final Exam
Questions
Course Introduction
Introduction to Finance offers students a foundational understanding of financial principles, concepts, and practices that guide individual and organizational decision-making. The course covers essential topics such as the time value of money, risk and return, financial markets and institutions, investment analysis, and basic corporate finance. Through real-world examples and problem-solving exercises, students learn how to analyze financial statements, understand capital budgeting, assess investment opportunities, and explore the influence of economic and financial environments. This course is ideal for those seeking a comprehensive overview of finance to support further study or informed personal and professional financial decisions.
Recommended Textbook
Corporate Finance 10th Edition by Stephen A. Ross
Available Study Resources on Quizplus
31 Chapters
2486 Verified Questions
2486 Flashcards
Source URL: https://quizplus.com/study-set/2539
Page 2
Chapter 1: Introduction to Corporate Finance
Available Study Resources on Quizplus for this Chatper
67 Verified Questions
67 Flashcards
Source URL: https://quizplus.com/quiz/50487
Sample Questions
Q1) The Sarbanes Oxley Act was enacted in:
A) 1952.
B) 1967.
C) 1998.
D) 2002.
E) 2006.
Answer: D
Q2) One thing lenders sometimes require when loaning money to a small corporation is an assignment of the common stock as collateral on the loan. Then,if the business fails to repay its loan,the ownership of the stock certificates can be transferred directly to the lender. Why might a lender want such an assignment? What advantage of the corporate form of organization comes into play here?
Answer: In the event of a loan default,a lender may wish to liquidate the business. Often it is time consuming and difficult to take title of all of the business assets individually. By taking control of the stock,the lender is able to sell the business simply by reselling the stock in the business. This illustrates once again the ease of transfer of ownership of a corporation.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 2: Financial Statements and Cash Flow
Available Study Resources on Quizplus for this Chatper
94 Verified Questions
94 Flashcards
Source URL: https://quizplus.com/quiz/50486
Sample Questions
Q1) The long-term debts of a firm are liabilities:
A) that come due within the next 12 months.
B) that do not come due for at least 12 months.
C) owed to the firm's suppliers.
D) owed to the firm's shareholders.
E) the firm expects to incur within the next 12 months.
Answer: B
Q2) Note that in all of our cash flow computations to determine cash flow of the firm,we never include the addition to retained earnings. Why not?
Is this an oversight?
Answer: The addition to retained earnings is not a cash flow. It is simply an accounting entry that reconciles the balance sheet. Any additions to retained earnings will show up as cash flow changes in other balance sheet accounts.
Q3) Why is interest expense excluded from the operating cash flow calculation?
Answer: Operating cash flow is designed to represent the cash flow a firm generates from its day-to-day operating activities. Interest expense arises from a financing decision and thus should be considered as a cash flow to creditors.
To view all questions and flashcards with answers, click on the resource link above. Page 4
Chapter 3: Financial Statements Analysis and Financial Models
Available Study Resources on Quizplus for this Chatper
120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/50485
Sample Questions
Q1) The main objective of long-term financial planning models is to:
A) determine the asset requirements given the investment activities of the firm.
B) plan for contingencies or uncertain events.
C) determine the external financing needs.
D) All of these.
E) None of these.
Answer: D
Q2) State the assumptions that underlie the sustainable growth rate and interpret what the sustainable growth rate means.
Answer: The usual assumptions are: Costs and assets increase proportionately with sales,the dividend payout ratio is fixed (or is given),the current debt-equity ratio is optimal,and no new equity sales are possible. The sustainable growth rate is the maximum rate at which sales can increase with the restriction that no new equity sales are possible and long-term debt increases only in an amount that keeps the debt-equity ratio fixed.
To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Discounted Cash Flow Valuation
Available Study Resources on Quizplus for this Chatper
134 Verified Questions
134 Flashcards
Source URL: https://quizplus.com/quiz/50484
Sample Questions
Q1) Beatrice invests $1,000 in an account that pays 4% simple interest. How much more could she have earned over a five-year period if the interest had compounded annually?
A) $15.45
B) $15.97
C) $16.65
D) $17.09
E) $21.67
Q2) You are going to loan your friend $1,000 for one year at a 5% rate of interest. How much additional interest can you earn if you compound the rate continuously rather than annually?
A) $.97
B) $1.09
C) $1.27
D) $1.36
E) $1.49
Q3) Using the example of a savings account,explain the difference between the effective annual rate and the annual percentage rate.
Q4) What is meant by "amortizing a loan"?
To view all questions and flashcards with answers, click on the resource link above. Page 6
Chapter 5: Net Present Value and Other Investment Rules
Available Study Resources on Quizplus for this Chatper
105 Verified Questions
105 Flashcards
Source URL: https://quizplus.com/quiz/50483
Sample Questions
Q1) The internal rate of return (IRR): I. rule states that a typical investment project with an IRR that is less than the required rate should be accepted. II) is the rate generated solely by the cash flows of an investment. III) is the rate that causes the net present value of a project to exactly equal zero. IV) can effectively be used to analyze all investment scenarios.
A) I and IV only
B) II and III only
C) I, II, and III only
D) II, III, and IV only
E) I, II, III, and IV
Q2) You are considering a project with an initial cost of $4,300. What is the payback period for this project if the cash inflows are $550,$970,$2,600,and $500 a year over the next four years?
A) 2.04 years
B) 2.36 years
C) 2.89 years
D) 3.04 years
E) 3.36 years
To view all questions and flashcards with answers, click on the resource link above. Page 7
Chapter 6: Making Capital Investment Decisions
Available Study Resources on Quizplus for this Chatper
101 Verified Questions
101 Flashcards
Source URL: https://quizplus.com/quiz/50482
Sample Questions
Q1) Jamie's Motor Home Sales currently sells 1,000 Class A motor homes,2,500 Class C motor homes,and 4,000 pop-up trailers each year. Jamie is considering adding a mid-range camper and expects that if she does so she can sell 1,500 of them. However,if the new camper is added,Jamie expects that her Class A sales will decline to 950 units while the Class C campers decline to 2,200. The sales of pop-ups will not be affected. Class A motor homes sell for an average of $125,000 each. Class C homes are priced at $39,500 and the pop-ups sell for $5,000 each. The new mid-range camper will sell for $47,900. What is the erosion cost?
A) $6,250,000
B) $18,100,000
C) $53,750,000
D) $93,150,000
E) $118,789,500
Q2) A pro forma financial statement is one that:
A) projects future years' operations.
B) is expressed as a percentage of the total assets of the firm.
C) is expressed as a percentage of the total sales of the firm.
D) is expressed relative to a chosen base year's financial statement.
E) reflects the past and current operations of the firm.
Q3) Explain the half year convention used in MACRS depreciation.
To view all questions and flashcards with answers, click on the resource link above. Page 8
Chapter 7: Risk Analysis, Real Options, and Capital Budgeting
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/50481
Sample Questions
Q1) All else constant,the accounting break-even level of sales will decrease when the: A) fixed costs increase.
B) depreciation expense decreases.
C) contribution margin decreases.
D) variable costs per unit increase.
E) selling price per unit decreases.
Q2) Ralph and Emma's is considering a project with total sales of $17,500,total variable costs of $9,800,total fixed costs of $3,500,and estimated production of 400 units. The depreciation expense is $2,400 a year. What is the contribution margin per unit?
A) $4.50
B) $10.50
C) $14.14
D) $19.09
E) $19.25
Q3) Discuss two shortcomings in the standard decision tree analysis that a financial manager should be cognizant of?
Q4) Can different discount rates be used for different stages in a decision tree? If so,what would be the benefit of such action?
Page 9
To view all questions and flashcards with answers, click on the resource link above.
Chapter 8: Interest Rates and Bond Valuation
Available Study Resources on Quizplus for this Chatper
69 Verified Questions
69 Flashcards
Source URL: https://quizplus.com/quiz/50480
Sample Questions
Q1) Consider a bond which pays 8% semiannually and has 8 years to maturity. The market requires an interest rate of 10% on bonds of this risk. What is this bond's price?
A) $530.58
B) $891.62
C) $893.30
D) $3129.17
E) None of these.
Q2) The bonds of Jerrod's Welding,Inc. pay an 8% coupon,have a 7.98% yield to maturity and have a face value of $1,000. The current rate of inflation is 2.5%. What is the real rate of return on these bonds?
A) 5.32%
B) 5.35%
C) 5.37%
D) 5.42%
E) 5.48%
Q3) Interest rate risk is often explained by using the concept of a teeter-totter. Explain interest rate risk and how it is related to the movements of a teeter-totter.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 9: Stock Valuation
Available Study Resources on Quizplus for this Chatper
77 Verified Questions
77 Flashcards
Source URL: https://quizplus.com/quiz/50479
Sample Questions
Q1) The common stock of Eddie's Engines,Inc. sells for $25.71 a share. The stock is expected to pay $1.80 per share next month when the annual dividend is distributed. Eddie's has established a pattern of increasing its dividends by 4% annually and expects to continue doing so. What is the market rate of return on this stock?
A) 7%
B) 9%
C) 11%
D) 13%
E) 15%
Q2) Martha's Vineyard recently paid a $3.60 annual dividend on its common stock. This dividend increases at an average rate of 3.5% per year. The stock is currently selling for $62.10 a share. What is the market rate of return?
A) 2.5%
B) 3.5%
C) 5.5%
D) 6.0%
E) 9.5%
Q3) What are the components of the required rate of return on a share of stock?
Briefly explain each component.
To view all questions and flashcards with answers, click on the resource link above.
Page 11
Chapter 10: Risk and Return: Lessons From Market History
Available Study Resources on Quizplus for this Chatper
84 Verified Questions
84 Flashcards
Source URL: https://quizplus.com/quiz/50478
Sample Questions
Q1) One year ago,you purchased a stock at a price of $33. The stock pays quarterly dividends of $.60 per share. Today,the stock is worth $35.2 per share. What is the total amount of your dividend income to date from this investment?
A) $0.60
B) $1.80
C) $2.40
D) $3.00
E) $3.20
Q2) Today,you sold 200 shares of SLG,Inc. stock. Your total return on these shares is 12.5%. You purchased the shares one year ago at a price of $28.50 a share. You have received a total of $280 in dividends over the course of the year. What is your capital gains yield on this investment?
A) 4.80%
B) 5.00%
C) 6.67%
D) 7.59%
E) 11.67%
Q3) What are the lessons learned from capital market history? What evidence is there to suggest these lessons are correct?
To view all questions and flashcards with answers, click on the resource link above.
Page 12
Chapter 11: Return and Risk: the Capital Asset Pricing Model
Available Study Resources on Quizplus for this Chatper
136 Verified Questions
136 Flashcards
Source URL: https://quizplus.com/quiz/50477
Sample Questions
Q1) A risk that affects a large number of assets,each to a greater or lesser degree is called:
A) total risk.
B) systematic risk.
C) unsystematic risk.
D) economic risk.
E) standard error.
Q2) Your portfolio is comprised of 30% of stock X,50% of stock Y,and 20% of stock Z. Stock X has a beta of .64,stock Y has a beta of 1.48,and stock Z has a beta of 1.04. What is the beta of your portfolio?
A) 1.01
B) 1.05
C) 1.09
D) 1.14
E) 1.18
Q3) Explain in words what beta is and why it is important.
Q4) A portfolio is made up of 75% of stock 1,and 25% of stock 2. Stock 1 has a variance of .08,and stock 2 has a variance of .035. The covariance between the stocks is -.001. Calculate both the variance and the standard deviation of the portfolio.
Page 13
To view all questions and flashcards with answers, click on the resource link above.
Chapter 12: An Alternative View of Risk and Return: The Arbitrage Pricing Theory
Available Study Resources on Quizplus for this Chatper
51 Verified Questions
51 Flashcards
Source URL: https://quizplus.com/quiz/50476
Sample Questions
Q1) A growth stock portfolio and a value portfolio might be characterized:
A) each by their P/E relative to the index P/E; high P/E for growth and lower for value.
B) as earning a high rate of return for a growth security and a low rate of return for value security irrespective of risk.
C) low unsystematic risk and high systematic risk respectively.
D) moderate systematic risk and zero systematic risk respectively.
E) None of these.
Q2) Suppose the Binder Corporation's common stock has a return of 17%. Assume the risk-free rate is 5%,the expected market return is 8%,and no unsystematic influence affected Binder's return. The beta for Binder is:
A) 0.
B) 2.
C) 3.
D) 4.
E) It is impossible to calculate beta without the inflation ratE. 17 = 5 + (8 - 5); = 4
Q3) Discuss the Fama-French three factor model; both what it means and the factors of the model.
To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Risk, Cost of Capital, and Valuation
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/50475
Sample Questions
Q1) The beta of a firm is more likely to be high under what two conditions?
A) High cyclical business activity and low operating leverage
B) High cyclical business activity and high operating leverage
C) Low cyclical business activity and low financial leverage
D) Low cyclical business activity and low operating leverage
E) None of these.
Q2) The Norris Co. has an improved version of its hotel stand. The investment cost is expected to be $72 million and will return $13.5 million for 5 years in net cash flows. The ratio of debt to equity is 1 to 1. The cost of equity is 13%,the cost of debt is 9%,and the tax rate is 34%. The appropriate discount rate,assuming average risk,is:
A) 8.65%
B) 9%
C) 9.47%
D) 10.5%
E) 13%
Q3) Given the sample of returns of the Top Black Asphalt Company and the S&P 500 index,calculate Top Black's correlation. What can be said about the relationship of Top Black and the market return behavior?
To view all questions and flashcards with answers, click on the resource link above. Page 15
Chapter 14: Efficient Capital Markets and Behavioral Challenges
Available Study Resources on Quizplus for this Chatper
65 Verified Questions
65 Flashcards
Source URL: https://quizplus.com/quiz/50474
Sample Questions
Q1) A semistrong form efficient market is distinct from a weak form efficient market by:
A) incorporating only random movements in the price.
B) incorporating all publicly available information in the price.
C) incorporating inside information in the price.
D) All of these.
E) None of these.
Q2) Define the three forms of market efficiency.
Q3) Strong form market efficiency
A) accurately reflects all information, both public and private.
B) only accurately reflects private information.
C) reflects only public information.
D) implies weak form market inefficiency.
E) implies semi-strong form market inefficiency.
Q4) In the five years after the offering,______ underperform matched control groups.
A) initial public offerings
B) seasoned equity offerings
C) bond offerings
D) initial public offerings and seasoned equity offerings
E) initial public offerings; seasoned equity offerings; and bond offerings
To view all questions and flashcards with answers, click on the resource link above. Page 16
Chapter 15: Long-Term Financing
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/50473
Sample Questions
Q1) The book capital of a corporation is determined by:
A) the sum of the capital in excess of par and the retained earnings.
B) the par value of preferred stock.
C) the sum of the treasury stock and the preferred stock.
D) the number of shares issued multiplied by the par value of each share.
E) the market price of the company's debt.
Q2) Financial deficits are created when:
A) profits and retained earnings are greater than the capital-spending requirement.
B) profits and retained earnings are less than the capital-spending requirement.
C) profits and retained earnings are equal to the capital-spending requirement.
D) All of these.
E) None of these.
Q3) Different countries have different sources of funds. For example,in the United States,internally generated funds count for over 4/5 of all funds while in Japan,it is about ½ with externally generated funds making up the remainder. The disparities are less in the United Kingdom and Germany,with about 2/3 of funds coming from internal sources. Discuss this disparity and why it might exist.
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 16: Capital Structure: Basic Concepts
Available Study Resources on Quizplus for this Chatper
91 Verified Questions
91 Flashcards
Source URL: https://quizplus.com/quiz/50472
Sample Questions
Q1) Your firm has a $250,000 bond issue outstanding. These bonds have a 7% coupon,pay interest semiannually,and have a current market price equal to 103% of face value. What is the amount of the annual interest tax shield given a tax rate of 35%?
A) $6,125
B) $6,309
C) $9,500
D) $17,500
E) $18,025
Q2) Explain homemade leverage and why it matters.
Q3) Uptown Interior Designs is an all equity firm that has 40,000 shares of stock outstanding. The company has decided to borrow $1 million to buy out the shares of a deceased stockholder who holds 2,500 shares. What is the total value of this firm if you ignore taxes?
A) $15.5 million
B) $15.6 million
C) $16.0 million
D) $16.8 million
E) $17.2 million
To view all questions and flashcards with answers, click on the resource link above.
Chapter 17: Capital Structure: Limits to the Use of Debt
Available Study Resources on Quizplus for this Chatper
74 Verified Questions
74 Flashcards
Source URL: https://quizplus.com/quiz/50471
Sample Questions
Q1) Your firm has a debt-equity ratio of .60. Your cost of equity is 11% and your after-tax cost of debt is 7%. What will your cost of equity be if the target capital structure becomes a 50/50 mix of debt and equity?
A) 9.50%
B) 10.50%
C) 11.00%
D) 11.25%
E) 12.00%
Q2) Given the following information,leverage will add how much value to the unlevered firm per dollar of debt?
Corporate tax rate: 34%
Personal tax rate on income from bonds: 10%
Personal tax rate on income from stocks: 50%
A) $-0.050
B) $-0.188
C) $0.367
D) $0.633
E) None of these.
Q3) What are the advantages of a prepackaged bankruptcy for a firm? What are the disadvantages?
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Valuation and Capital Budgeting for the Levered Firm
Available Study Resources on Quizplus for this Chatper
57 Verified Questions
57 Flashcards
Source URL: https://quizplus.com/quiz/50470
Sample Questions
Q1) The Telescoping Tube Company is planning to raise $2,500,000 in perpetual debt at 11% to finance part of their expansion. They have just received an offer from the Albanic County Board of Commissioners to raise the financing for them at 8% if they build in Albanic County. What is the total added value of debt financing to Telescoping Tube if their tax rate is 34% and Albanic raises it for them?
A) $850,000
B) $1,200,000
C) $1,300,000
D) $1,650,000
E) There is no value to the scheme; Albanic is just conning Telescoping Tube into moving.
Q2) The Delta Company has a capital structure of 30% risky debt with a of 1.1 and 70% equity with a of 1.4. Their current tax rate is 30%. What is the for Delta Company?
A) 0.95
B) 1.00
C) 1.10
D) 1.31
E) 1.40
To view all questions and flashcards with answers, click on the resource link above.
Page 20
Chapter 19: Dividends and Other Payouts
Available Study Resources on Quizplus for this Chatper
90 Verified Questions
90 Flashcards
Source URL: https://quizplus.com/quiz/50469
Sample Questions
Q1) The Retail Outlet has 6,000 shares of stock outstanding with a par value of $1.00 per share. The current market value of the firm is $420,000. The balance sheet shows a capital in excess of par account value of $136,000 and retained earnings of $234,000. The company just announced a 2-for-1 stock split. What will the retained earnings account balance be after the split?
A) $117,000
B) $234,000
C) $351,000
D) $410,000
E) $468,000
Q2) The KatyDid Co. is paying a $1.25 per share dividend today. There are 120,000 shares outstanding with a par value of $1.00 per share. As a result of this dividend,the:
A) retained earnings will decrease by $150,000.
B) retained earnings will decrease by $120,000.
C) common stock account will decrease by $150,000.
D) common stock account will decrease by $120,000.
E) capital in excess of par value account will decrease by $120,000.
To view all questions and flashcards with answers, click on the resource link above.
Page 21
Chapter 20: Raising Capital
Available Study Resources on Quizplus for this Chatper
73 Verified Questions
73 Flashcards
Source URL: https://quizplus.com/quiz/50468
Sample Questions
Q1) A shareholder who has rights is:
A) always better off to exercise the rights.
B) always better off to sell the rights into the market.
C) able to exercise their rights or sell them.
D) never in the same ownership position again with rights.
E) None of these.
Q2) The first public equity issue made by a company is a(n):
A) initial private offering.
B) initial public offering.
C) secondary offering.
D) seasoned new issue.
E) None of these.
Q3) The market for venture capital refers to the:
A) private financial marketplace for servicing small, young firms.
B) bond markets.
C) market for selling rights to individuals who already own shares.
D) market for selling equity securities for firms with equity already outstanding.
E) None of these.
Q4) Discuss what a Dutch auction is and how it works.
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: Leasing
Available Study Resources on Quizplus for this Chatper
55 Verified Questions
55 Flashcards
Source URL: https://quizplus.com/quiz/50467
Sample Questions
Q1) Your firm is considering leasing a new radiographic device. The lease lasts for 3 years. The lease calls for 4 payments of $25,000 per year with the first payment occurring immediately. The computer would cost $140,000 to buy and would be straight-line depreciated to a zero salvage value over 3 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 12%. The corporate tax rate is 40%. What is the after-tax cash flow from leasing relative to the after-tax cash flow from purchasing in year 0?
A) -$125,000
B) -$15,000
C) $15,000
D) $125,000
E) None of these.
Q2) In valuing the lease versus purchase option,the relevant cash flows are the:
A) tax shield from depreciation.
B) investment outlay for the equipment.
C) a decrease in the firm's operating costs that are not affected by leasing.
D) All of these are relevant.
E) None of these. are relevant.
Q3) What are some of the advantages and disadvantages of leasing?
To view all questions and flashcards with answers, click on the resource link above.
Page 23
Chapter 22: Options and Corporate Finance
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/50466
Sample Questions
Q1) Suppose your wealthy Aunt Minnie has asked you to manage her large stock portfolio. You would like to buy and/or sell options on many of the stocks she owns. Describe the types of options you would buy or sell,as well as your rationale,given the following circumstances:
a. Aunt Minnie owns 10,000 shares of IBM common stock. You believe it is going to fall in price,but she won't let you sell it because her late husband told her never to let it go. How do you protect her from the impending price decline?
b. Your analysis suggests that the common stock of Jet-Electro is poised to increase in value sharply over the next year. Aunt Minnie doesn't want to buy any of the stock,but does want you to use options to profit if the price rises. What do you do?
c. Although Aunt Minnie doesn't want you to sell any of the stocks she owns,she would like you to use options to generate a little extra income. How might you do this?
Looking at each option,we see:
Q2) Explain the rationale behind the statement that equity is a call option on the firm's assets. When would a shareholder allow the call to expire?
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Options and Corporate Finance: Extensions and Applications
Available Study Resources on Quizplus for this Chatper
46 Verified Questions
46 Flashcards
Source URL: https://quizplus.com/quiz/50465
Sample Questions
Q1) The most correct method to determine the current value of future payoffs would be to:
A) take the discounted expected value at the risk-free rate.
B) take the expected value using the probabilities.
C) take the discounted expected value using the risk-neutral probabilities and the risk free rate.
D) sum the payoffs discounted at the risk free rate.
E) None of these.
Q2) The opportunity to defer investing to a later date may have value because:
A) the cost of capital may decline in the near future.
B) certainty may be reduced in the future.
C) investment costs fluctuate in time.
D) All of these.
E) None of these.
Q3) Why would the company pay the executive in options as opposed to salary?
Q4) If real options were not included in calculations of value,would the valuation be under or over-valued and why?
Q5) Why is straight NPV analysis flawed as compared to models that include option pricing in the NPV analysis?
To view all questions and flashcards with answers, click on the resource link above. Page 25
Chapter 24: Warrants and Convertibles
Available Study Resources on Quizplus for this Chatper
58 Verified Questions
58 Flashcards
Source URL: https://quizplus.com/quiz/50464
Sample Questions
Q1) Two major differences between a warrant and a call option are:
A) warrants are contracts outside of the firm while options are within the firm.
B) warrants have long maturities while options are usually short maturities.
C) warrant exercise dilutes the value of equity while option exercise does not.
D) Both warrants are contracts outside of the firm while options are within the firm; and warrant exercise dilutes the value of equity while option exercise does not.
E) Both warrants have long maturities while options are usually short maturities; and warrant exercise dilutes the value of equity while option exercise does not.
Q2) The holders of Mikayla Corporation's bond with a face value of $1,000 can exchange that bond for 30 shares of stock. The stock is selling for $25.00. What is the conversion premium?
A) 10.00%
B) 27.58%
C) 33.32%
D) 103.23%
E) None of these.
Q3) Why are warrants and convertibles issued?
To view all questions and flashcards with answers, click on the resource link above. Page 26
Chapter 25: Derivatives and Hedging Risk
Available Study Resources on Quizplus for this Chatper
66 Verified Questions
66 Flashcards
Source URL: https://quizplus.com/quiz/50463
Sample Questions
Q1) Derivatives can be used to either hedge or speculate. These actions:
A) increase risk in both cases.
B) decrease risk in both cases.
C) spread or minimize risk in both cases.
D) offset risk by hedging and increase risk by speculating.
E) offset risks by speculating and increase risk by hedging.
Q2) Duration is a measure of the:
A) yield to maturity of a bond.
B) coupon yield of a bond.
C) price of a bond.
D) effective maturity of a bond.
E) All of
Q3) Hedging in the futures markets can reduce all risk if:
A) price movements in both the cash and futures markets are perfectly correlated.
B) price movements in both the cash and futures markets have zero correlation.
C) price movements in both the cash and futures markets are less than perfectly correlated.
D) the hedge is a short hedge, but not a long hedge.
E) the hedge is a long hedge, but not a short hedgE.
To view all questions and flashcards with answers, click on the resource link above.
Page 27
Chapter 26: Short-Term Finance and Planning
Available Study Resources on Quizplus for this Chatper
124 Verified Questions
124 Flashcards
Source URL: https://quizplus.com/quiz/50462
Sample Questions
Q1) Your bank offers you a $100,000 line of credit with an interest rate of 2.5% per quarter. The loan agreement also requires that 4% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying 1.25% per quarter. What is your effective annual interest rate if you borrow the whole $100,000 for the entire year? Assume that both the funds you borrow and the funds you invest use compound interest.
A) 10.00%
B) 10.25%
C) 10.38%
D) 10.50%
E) 10.67%
Q2) Which one of the following will decrease the operating cycle?
A) Paying accounts payable faster
B) Discontinuing the discount given for early payment of an accounts receivable
C) Decreasing the inventory turnover rate
D) Collecting accounts receivable faster
E) Increasing the accounts payable turnover rate
Q3) List and describe the three basic types of secured inventory loans. What are the advantages and disadvantages of each type of loan?
To view all questions and flashcards with answers, click on the resource link above.
Page 28
Chapter 27: Cash Management
Available Study Resources on Quizplus for this Chatper
59 Verified Questions
59 Flashcards
Source URL: https://quizplus.com/quiz/50461
Sample Questions
Q1) The Smythe firm expects a total cash need of $9,000 over the next 4 months. They have a beginning cash balance of $1,000,and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $4.00. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month. What is the total opportunity cost for a month based on the firm's current practice?
A) $3.33
B) $5.00
C) $5.65
D) $6.67
E) None of these.
Q2) A financial manager should be concerned about bank cash and net float,which is the sum of:
A) collection and book cash.
B) collection float and disbursement float.
C) disbursement float and book cash.
D) disbursement float and bank credit.
E) None of these.
To view all questions and flashcards with answers, click on the resource link above. Page 29
Chapter 28: Credit and Inventory Management
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/50460
Sample Questions
Q1) Businesses,in deciding to extend credit to new customers,try to reduce defaults by:
A) determining the probability of non-payment.
B) gathering independent credit checks.
C) determining if it is profitable to extend credit.
D) All of these.
E) None of these.
Q2) Rockwell Heating is selling a commercial heating unit at the price of $100,000 per unit. The variable cost of producing this unit is $75,000. Rockwell is considering offering credit terms to their customers,which would allow payment to be delayed one month. Rockwell predicts that offering these terms will increase monthly sales from 50 units to 60 units. Rockwell does not expect the increased production to change variable cost and Rockwell does not expect to charge a higher price. The appropriate discount rate is 1% a month. Determine the probability of payment that would make Rockwell indifferent between granting credit and the present policy.
B. b = .968
To view all questions and flashcards with answers, click on the resource link above.
Chapter 29: Mergers, Acquisitions, and Divestitures
Available Study Resources on Quizplus for this Chatper
83 Verified Questions
83 Flashcards
Source URL: https://quizplus.com/quiz/50459
Sample Questions
Q1) Cowboy Curtiss' Cowboy Hat Company recently completed a merger. When valuing the combined firm after the merger,which of the following is an example of the type of common mistakes that can occur?
A) The use of market values in valuing the new firm.
B) The inclusion of cash flows that are incremental to the decision.
C) The use of Curtiss' discount rate when valuing the cash flows of the entire company.
D) The inclusion of all relevant transaction costs associated with the acquisition.
E) None of these.
Q2) In a tax-free acquisition,the shareholders of the target firm:
A) receive income that is considered to be tax-exempt.
B) gift their shares to a tax-exempt organization and therefore have no taxable gain.
C) are viewed as having exchanged their shares.
D) sell their shares to a qualifying entity thereby avoiding both income and capital gains taxes.
E) sell their shares at cost thereby avoiding the capital gains tax.
Q3) Discuss why AT&T purchased T-Mobile in 2011.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 30: Financial Distress
Available Study Resources on Quizplus for this Chatper
52 Verified Questions
52 Flashcards
Source URL: https://quizplus.com/quiz/50458
Sample Questions
Q1) A firm in financial distress that reorganizes:
A) continues to run the business as a going concern.
B) must have acceptance of the plan by the creditors.
C) may distribute new securities to creditors and shareholders.
D) All of these.
E) None of these.
Q2) Most firms in financial distress do not fail and cease to exist. Many firms can actually benefit from distress by:
A) forcing a firm to reevaluate their core operations.
B) realigning their capital structure to reduce interest costs.
C) entering Chapter 11 and liquidating the firm.
D) Both forcing a firm to reevaluate their core operations; and realigning their capital structure to reduce interest costs.
E) Both forcing a firm to reevaluate their core operations; and entering Chapter 11 and liquidating the firm.
Q3) When choosing between liquidation and reorganization,what are some of the empirical factors that lead a firm toward one choice or the other?
To view all questions and flashcards with answers, click on the resource link above. Page 32
Chapter 31: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
95 Verified Questions
95 Flashcards
Source URL: https://quizplus.com/quiz/50457
Sample Questions
Q1) The current spot rate is C$1.362 and the one-year forward rate is C$1.371. The nominal risk-free rate in Canada is 6 percent while it is 3.5 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.
A) $.0018
B) $.0045
C) $.0120
D) $.0180
E) $.0240
Q2) The condition stating that the current forward rate is an unbiased predictor of the future spot exchange rate is called:
A) the unbiased forward rates condition.
B) uncovered interest rate parity.
C) the international Fisher effect.
D) purchasing power parity.
E) interest rate parity.
Q3) In international capital budgeting,there are two approaches- the home currency approach and the foreign currency approach. Describe both and explain the key difference from the aspect of capital budgeting for international firms.
To view all questions and flashcards with answers, click on the resource link above.
Page 33