20)Which of the following statements is FALSE?
A) Treasury bills are U.S. government bonds with a maturity of up to one year.
B)The amount of each coupon payment is determined by the coupon rate of the bond.
C) The simplest type of bond is a zero-coupon bond.
D) Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.
21)What is the yield to maturity of a ten-year, $1000 bond with a 5.2% coupon rate and semiannual coupons if this
bond is currently trading for a price of $884?
23)Which of the following statements are true?
A) A fall in bond prices causes interest rates to fall.
B) A rise in interest rates causes bond prices to fall.
C) Bond prices and interest rates are not connected.
D) A fall in interest rates causes a fall in bond prices.
A corporate bond which receives a BBB rating from Standard and Poor\'s is considered
A) an investment grade bond.
B) a defaulted bond.
C) a high-yield bond.
D) a junk bond.
Which of the following formulas is INCORRECT?
A) g = retention rate × return on new investment
C) Divt = EPSt × Dividend Payout Rate
r - g
26)Von Bora Corporation (VBC) is expected to pay a $2.00 dividend at the end of this year. If you expect VBC\'s dividend to grow by 5% per year forever and VBC\'s equity cost of capital is 13%, then the value of a share of
VBS stock is closest to:
27) Stocks that do not pay a dividend must have a value of $0.
28) An auto-parts company is deciding whether to sponsor a racing team for a cost of $1 million. The sponsorship would last for three years and is expected to increase cash flows by $580,000 per year. If the discount rate is
7.5%, what will be the change in the value of the company if it chooses to go ahead with the sponsorship? A) $508,305 B) $740,000 C) $863,000 D) $808,786
29)Which of the following statements is FALSE?
A) If the cost of capital estimate is more than the internal rate of return (IRR), the net present value (NPV) will be positive.
B) The internal rate of return (IRR) can provide information on how sensitive your analysis is to errors in the estimate of your cost of capital.
C) In general, the difference between the cost of capital and the internal rate of return (IRR) is the maximum amount of estimation error in the cost of capital estimate that can exist without altering the original decision.
D) If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate.
30)According to Graham and Harvey\'s 2001 survey (Figure 8.2 in the text), the most popular decision rules for capital budgeting used by CFOs are:
A) IRR, NPV, Payback period
C) NPV, IRR, MIRR
B) MIRR, IRR, Payback period D) Profitability index, NPV, IRR
31) Internal rate of return (IRR) can reliably be used to choose between mutually exclusive projects. A) True B) False
32) Which of the following decision rules is best defined as the amount of time it takes to pay back the initial investment?
A) profitability index
C) net present value (NPV)
B) payback period
D) internal rate of return (IRR)
33)How does the capital budgeting process begin?
A) by analyzing alternate projects
B) by forecasting the future consequences for the firm of each potential project
C) by evaluating the net present value (NPV) of each project\'s cash flows
D) by compiling a list of potential projects
34) Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $6 million to buy the machine and $10,000 to have it delivered and installed. Building a clean room in the plant for
the machine will cost an additional $3 million. The machine is expected to have a working life of six years. If
straight-line depreciation is used, what are the yearly depreciation expenses in this case?
35) Which of the following statements is FALSE?
A) Many projects use a resource that the company already owns.
B)As a practical matter, to derive the forecasted cash flows of a project, financial managers often begin by forecasting earnings.
C) Only include as incremental expenses in your capital budgeting analysis the additional overhead expenses that arise because of the decision to take on the project.
D) When evaluating a capital budgeting decision, we generally include interest expense.
36)Which of the following adjustments should NOT be made when computing free cash flow from incremental earnings?
A) subtracting increases in Net Working Capital
C) subtracting all non-cash expenses
D) subtracting depreciation expenses from taxable earnings
37)Which of the following statements is FALSE?
A) When evaluating a capital budgeting project, financial managers should make the decision that maximizes net present value (NPV).
B)Sensitivity analysis reveals which aspects of the project are most critical when we are actually managing the project.
C) The break-even level of an input is the level for which the investment has an internal rate of return (IRR) of zero.
D) The most difficult part of capital budgeting is deciding how to estimate the cash flows and the cost of capital.
38)Historically, stocks have delivered a ________ return on average compared to Treasury bills but have experienced ________ fluctuations in values.
A) higher, lower B) lower, higher C) higher, higher D) lower, lower
39)You own shares in Yahoo that were purchased at a price of $21 per share. Microsoft has offered to purchase Yahoo and buy your shares at a price of $31 per share. What will be your return if you tender your shares to Microsoft and the deal is completed?
A) 43.34% B) 49.65% C) 47.62% D) 33.45%
40)Which of the following statements is FALSE?
A) Riskier investments must offer investors higher average returns to compensate them for the extra risk they are taking on.
B)Volatility seems to be a reasonable measure of risk when evaluating returns on large portfolios and the returns of individual securities.
C) Investments with higher volatility have rewarded investors with higher average returns.
D) Investments with higher volatility should have a higher risk premium and, therefore, higher returns.
Paper#48755 | Written in 29-Oct-2015Price : $16