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QUESTION

*Finance may be defined as: *"MACRS" is:

*Finance may be defined as:

*"MACRS" is:

*Last RJR question( please see the other 2 "RJR" questions in this section of the test before answering this one): immediately following the take-over, which Balance Sheet item would show the greatest reduction:

*In determining interest rates, the FED has the most direct influence on the total change in which variable:

a. The nominal rate of interest

b. The real rate of interest

c. the inflation premium

d. the prime rate of interest

*Next month when the FED's Open Market Committee (FOMC) meets, some economists are predicting that they will raise interest rates because they fear inflation coming back into the US economy. If the FED does this, the prices of existing corporate bonds should:

*Considering the CAPM, which of the following is most useful:

a.     90-day T-Bill

b.     Prime rate

c.      company net income

d.     depreciation from the balance sheet

*A corporate bond is sold for $1,000 (par value) with a 6% coupon. Shortly thereafter, interest rates in the economy (the nominal rate of interest) increases to 8% due to inflation worries. Give this scenario (all other things being equal), which of the following bond valuations for this bond in the secondary market would most likely happen:

a.     $1,000

b.     $1,080

c.      $1,196

d.     nothing given the choices

*Risk and return are key determinants in share price. Increased risk, other things remaining constant, results in:

a. a lower share price

b. a higher share price

c. an unchanged share price

d. cannot be determined from the information given

*The longer the maturity of a Treasury security, the higher the risk.

True

False

* A(n) __________ yield curve reflects higher expected future rates of interest.

a. upward sloping

b. flat

c. downward sloping

d. linear

*Generally, an increase in risk will result in a(n) ________ required return or interest rate.

a. higher

b. lower

c. unchanged

d. reduction of the

*Common stock is generally:

a. more risky than treasury bonds

b. less risky than preferred stock

c. less risky than investment grade bonds

d. both b & c

*A "legal entity" which can sue, be sued, make and be party to contracts is:

a. sole proprietorship

b. partnership

c. receivership

d. corporation

*Managing the firm's assets includes all of the following except:

a. accounts receivable

b. cash

c. buildings

d. all of the above are assets

8. Liabilities include all of the following except:

a. accounts payable

b. long-term debt

c. notes payable

d. all of the above are liabilities

9. The primary goal of the financial manager is:

a. maximizing wealth

b. maximizing risk

c. maximizing profit

d. minimizing return

*Another name for corporate owners is:

a. stakeholder

b. agent

c. stockholder

d. customer

*If you were trying to determine the value of a stock in the secondary market using the Gordon, or Constant Growth, Model, all of the following would be needed except:

a. the last dividend paid

b. the net income for the year

c. the growth rate (for dividends or earnings)

d. all of the above are required for the model

*All of the following are examples of fixed assets except:

a. accounts receivable

b. land

c. a truck

d. an air conditioning system

*All of the following are measures of risk except:

a. beta

c. coefficient of variation

c. episilon

d. standard deviation

*If a firm's quick ratio is better than industry averages but its current ratio is worse, the probable problem is:

a. lack of cash flow

b. too much inventory

c. low return on equity

d. too many fixed assets

*Which of the following statements is NOT true about a normal probability distribution:

a. 95% of all outcomes lie within 2 standard deviations of the expected value

b. from the peak, the curves are mirror images of each other

c. greater risk is represented by a more peaked curve

d. half of the curves area lies to the right of the peak

*In theory, if one were to average the betas of all the stocks on the NYSE, the beta would be:

a. zero

b. 0.5

c. 1.0

d. in excess of 2,000

*If I were to use the Capital Asset Pricing Model to judge the required return on a stock, which piece of information would I find useful:

a. the current price of the stock

b. the stock's EPS

c. the prime interest rate

d. the yield on 90-day T-Bills

*Next month when the FED's Open Market Committee meets, some economists are predicting that they will raise interest rates because they fear inflation coming back into the U.S. economy. If the FED does this, the prices of existing bonds should:

a. go up

b. go down

c. stay the same

d. not be affected due to corporations "calling in" their lower interest rate bonds.

*The value of a bond is the present value of the

a. required rate of return

b. interest payments and maturity value

c. dividends paid

d. semi-annual interest payments made

*Another term for present value is discounting and for future value is compounding.

True

False

*The yield curve will be upward sloping if short term interest rates are higher than long term rates.

True

False

*All other things being equal, the higher a stock's growth rate

a. the higher the price

b. the lower the price

c. the higher the current ratio

d. the lower the current ratio

*Corporations are allowed to deduct all of the following expenses except

a. sales commissions

b. advertising expenses

c. interest

d. dividends

e. all of the above are deductible

*Everything else being equal, the longer the period of time, the lower the present value.

True

False

*Retained earnings on the balance sheet represent

a. net profit after tax

b. cash & marketable securities

c. net profits after tax minus preferred dividends (if any)

d. assets (buildings, trucks, etc) purchased with the excess cash

*"Common sized" financial statements can be useful when

a. industry ratios and reports are not available

b. comparing a small company with a larger one

c. you are limited with the amount of available space on a spreadsheet

d. controlling costs over time

e. both b & d

*The goal of the "DuPont System" of analysis is to

a. minimize costs

b. maximize return on equity

c. reduce excess inventory turnover

d. increase net profit margin (the "bottom line")

*MACRS is a form of depreciation used for

a. tax purposes

b. financial reports to shareholders

c. assets with a useful life of 10 years or more

d. non-profit organizations

*Publicly held corporations are those which are financed by the sale of treasury securities.

True

False

*The less fixed-cost debt or financial leverage a firm uses, the greater will be its risk and return.

True

False

* For a given discount rate, the present value of a dollar increases with the passage of time.

True

False

*The future value of an initial deposit _______________________ both with increases in the interest rate and with the passage of time.

a. increases

b. decreases

c. first increases then decreases

d. first decreases then increases

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