Question 15. 15.(TCO 1) Why is maximization of the current value per share a more appropriate financial management goal than profit maximization? (Points : 4)
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Because by maximizing the current stock value, you also maximize the company s profit for the year. Because this criterion is non-ambiguous. Because financial managers always act in the best interest of shareholders. Because it creates short-term gains in the financial statements.
6.(TCO 1) Provide three examples of recent well-known unethical behavior cases. Explain the situation in one or two paragraphs. How do you believe that this behavior affected the firm s value? (Points : 10)
7.(TCO 4) What are sunk costs? Provide at least two real-life examples of sunk costs for a project. Should sunk costs be included as incremental cash flows? Why or why not? Explain your rationale. (Points : 10)
8.(TCO 8) What is the difference between business risk and financial risk? If Company A has a higher business risk than Company B, should its cost of capital be higher? Why or why not? Explain your rationale.(Points : 10)
9.(TCO 2) What are some important factors to consider when conducting a credit evaluation and scoring?(Points : 10)
0. Do you believe that it is appropriate for some industries to be more leveraged than others? Explain your rationale. (Points : 10)
1.(TCO 1) Which of the following are capital structure concerns?
I. how to obtain short-term financing II. the company’s financing mix III. the cost of funds IV. how and where to raise money (Points : 4)
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I and II I, II and III II, III and IV I, III and IV All of the above
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Question 2. 2.(TCO 1) Book values are different from market values because: (Points : 4)
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Book values reflect the value of the asset based on generally-accepted accounting principles. Book values are used in the company s balance sheet. Book values do not reflect the amount someone is willing to pay today for an asset. All of the above None of the above
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Question 3. 3.(TCO 1) Use the following tax table to answer this question:
Taxable Income
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Tax Rate
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$0-
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$50,000
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15%
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$50,001-
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75,000
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25
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$75,001-
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100,000
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34
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$100,001-
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335,000
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39
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$335,001-
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10,000,000
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34
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John has taxable income of $389,745. What is John s average tax rate? (Points : 4)
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33% 34% 36% 37% 38%
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Question 4. 4.(TCO 3) Regional Bank offers you an APR of 19 percent compounded semiannually, and Local Bank offers you an EAR of 19.50 percent for a new automobile loan. You should choose ______________ because its _______ is lower. (Points : 4)
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Regional Bank, APR Local Bank, EAR Regional Bank, EAR Local Bank, APR
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Question 5. 5.(TCO 3) You deposited $11,000 in your bank account today. Which of the following will decrease the future value of your deposit, assuming that all interest is reinvested? Assume the interest rate is a positive value. Select all that apply:(Points : 4)
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a decrease in the interest rate increasing the initial amount of your deposit increasing the frequency of the interest payments decreasing the length of the investment period
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Question 6. 6.(TCO 3) Amy needs to save $20,000 in cash to buy a new car five years from today. She expects to earn 6.5 percent, compounded annually, on her savings. How much does she need to deposit today, if this is the only money she saves for this purpose? (Points : 4)
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$12,468.07 $12,502.14 $14,597.62 $17,044.32 $17,129.01
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Question 7. 7.(TCO 3) Paper Pro needed a new store. The company spent $65,000 to refurbish an old shop and create the current facility. The firm borrowed 75 percent of the refurbishment cost at eight percent interest for 11 years. What is the amount of each monthly payment? (Points : 4)
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$91.05 $284.13 $556.50 $682.87 $731.60
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Question 8. 8.(TCO 3) John borrowed $5,500 four years ago at an annual interest rate of 10 percent. The loan term is seven years. Since he borrowed the money, Sonny has been making annual payments of $550 to the bank. Which type of loan does John have? (Points : 4)
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interest-only pure discount compounded amortized complex
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Question 9. 9.(TCO 3) Fanta Cola has $1,000 par value bonds outstanding at 12 percent interest. The bonds mature in 25 years. What is the current price of the bond, if the YTM is 11 percent? Assume annual payments. (Points : 4)
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$1080 $1085 $925 $1000
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Question 10. 10.(TCO 6) The market where one shareholder sells shares to another shareholder is called the _____ market. (Points : 4)
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primary main secondary principal dealer
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Question 11. 11.(TCO 7) Which one of the following statements concerning financial leverage is correct? (Points : 4)
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Financial leverage increases profits and decreases losses. Financial leverage has no effect on a firm’s return on equity. Financial leverage, refers to the use of common stock. Financial leverage magnifies both profits and losses. Increasing financial leverage will always increase the earnings per share.
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Question 12. 12.(TCO 3) What is the approximate yield to maturity for a seven-year bond that pays 11 percent interest on a $1000 face value annually if the bond sells for $952? (Points : 4)
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10.5% 10.6% 11.5% 12.1%
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Question 13. 13.(TCO 8) Which of the following is true regarding bonds? (Points : 4)
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Most bonds do not carry default risk. Municipal bonds are free of default risk. Bonds are not sensitive to changes in the interest rates. Moody s and Standard and Poor s provide information regarding a bond s interest rate risk. None of the above is true
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Question 14. 14.(TCO 8) Which one of the following bonds is the most sensitive to interest rate movements (Points : 4)
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zero-coupon, five year seven percent annual coupon, five year zero-coupon, 10 year five percent semi-annual coupon, 10 year five percent annual coupon, 10 year
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Question 15. 15.(TCO 6) A sinking fund is an account managed by a bond trustee for the sole purpose of: (Points : 4)
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paying interest payments on a semi-annual basis. redeeming bonds early. repaying the face value at maturity. paying the expenses required to reissue outstanding bonds. paying the “balloon payment” at maturity.
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