31 Jan D.none of the above

BUSN602 Final Exam

Question 1

If the _____________ of a stock is known, an investor can use the security market line to determine the expected return on that stock.

A.standard deviation

B.beta

C.coefficient of variation

D.unsystematic risk

Question 2

When the market interest rate is below the coupon rate for a particular quality of bond, the bond will be priced:

A.below its par value

B.at its par value

C.above its par value

D.The bond price cannot be determined

Question 3

The Public Company Accounting Oversight Board (PCAOB) is

A.a not-for-profit corporation that oversees auditors of public corporations

B.a not-for-profit corporation that oversees managers of public corporations

C.a for-profit corporation that oversees auditors of public corporations

D.a not-for-profit corporation that oversees CEOs of public corporations

E.a for-profit corporation that oversees CEOs of public corporations

Question 4

A bond that can be changed into a specified number of shares of the issuer’s common stock is called a:

A.retractable bond

B.convertible bond

C.callable bond

D.collateralized bond

Question 5

The risk cause by changes in inflation that affect revenues, expenses and profitability is called:

A.interest rate risk

B.business risk

C.purchasing power risk

D.financial risk

E.none of the above

Question 6

Which one of the following is not considered to be a generally recognized type of market efficiency?

A.strong-form

B.semi-strong form

C.weak-form

D.insider-information form

Answer Key: D

Question 7

The Sarbanes-Oxley Act established this entity. .

A.Auditing Commission

B.Accounting Accuracy Board

C.FASB

D.SEC

E.Public Company Accounting Oversight Board

Question 8

Owners’ equity may include:

A.par value of the common stock

B.retained earnings

C.capital paid in excess of par account

D.all the above

E.none of the above

Question 9

Cash flows from operating activities might include:

A.net income

B.increase in equity sold to investors

C.dividend payment

D.all the above

E.none of the above

Question 10

The ________ is the discount rate that equates the present value of the cash inflows with the initial investment.

A.payback period

B.average rate of return

C.cost of capital

D.internal rate of return

Question 11

Given the conflict between risk and return, the purpose of capital structure management is to find the debt level:

A.that will always be kept below the equity level

B.where the price of company stock is maximized

C.that most adequately supports corporate goals

D.that is equal in dollar value to the equity level

Question 12

Marketable securities are held primarily to meet:

A.transactions motives

B.precautionary motives

C.speculative motives

D.leverage motives

Question 13

If firms select the proportion of debt in their capital structures in order to balance the benefits of tax-deducible interest payments with opportunity costs, this would support the notion of:

A.the static trade-off hypothesis

B.pecking order theory

C.efficient markets hypothesis

D.none of the above

Question 14

Several factors will be considered by the board of directors and management as they consider the level of dividend payout. Some of these factors include:

A.the ability of the firm to generate cash to sustain the level of dividends.

B.legal and contractual considerations

C.growth opportunities

D.cost of other financing sources

E.all of the above

Question 15

When the net present value is negative, the internal rate of return is __________ the cost of capital.

A.greater than

B.greater than or equal to

C.less than

D.equal to

E.none of the above

Question 16

As a general rule, the capital structure that:

A.minimizes the cost of equity also maximizes the stock price

B.maximizes the stock price also minimizes the weighted average cost of capital

C.minimizes the cost of debt also maximizes the expected earnings per share

D.none of the above is a true statement

Question 17

Which one of the following financial statements shows a relationship between assets and liabilities plus owners’ equity?

A.income statement

B.statement of cash flows

C.balance sheet

D.statement of retained earnings

Question 18

Your company owns land in a busy shopping district. If the chair of the company’s board of directors thinks they can build a plant on that land and that the land will incur no additional cost, the chair fails to take into account:

A.capital expenditures

B.opportunity costs

C.sunk costs

D.depreciation

Question 19

The ability of a firm to meet its short-term debt obligations as they come due is indicated by which of the following ratios:

A.liquidity ratios

B.asset utilization ratios

C.financial leverage ratios

D.profitability ratios

Question 20

The _______________ established the Public Company Accounting Oversight Board (PCAOB).

A.Smoot-Hawley Act

B.Sarbanes-Oxley Act

C.Gram-Harkins Act

D.McKean-Obama Act

E.none of the above

Question 21

The final step in the capital budgeting process is

A.implementation

B.selection

C.follow-up

D.development

Question 22

Two years ago, a company spent $450,000 on a consulting study that focused on the technology of the firm’s operations. Now it appears that technology is noncompliant with existing regulations. New technology must replace the old project. The $450,000 would represent:

A.an opportunity cost

B.an operating expenditure

C.a sunk cost

D.none of the above

Question 23

A firm’s degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:

A.plus

B.minus

C.times

D.divided by

Question 24

Asset A has a coefficient of variation of 1.2 and asset B has a coefficient of variation of 1.0. Based on this information, an individual would choose asset ____ if he or she wishes to maximize return for a given level of risk.

A.A

B.B

C.either A or B

D.none of the above

Question 25

When a project’s net present value exceeds zero, then:

A.the project should be accepted

B.the project will be acceptable using the payback period method

C.the IRR should be calculated to ensure that the project’s IRR exceeds the cost of capital

D.both a and c are true