Which of the following is true regarding income bonds? (Points : 4) Are relatively uncommon Can be exchanged for a fixed number of shares at maturity only Can be exchanged for a fixed number of shares...

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Which of the following is true regarding income bonds? (Points : 4)

Are relatively uncommon
Can be exchanged for a fixed number of shares at maturity only
Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back
















2.
(TCO 6 and 7) Financial leverage deals with: (Points : 4)

the relationship of fixed and variable costs.
the percentage of debt in the capital structure.
the entire income statement.
the entire balance sheet.
















3.
(TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market price of $820, and a maturity date in five years. Assume the par value to be $1,000. What is the bond's current yield? (Points : 4)

9%
14%
11%
Cannot be determined
None of the above
















4.
(TCO 2) Which of the following does not reduce collection float? (Points : 4)

consolidate all lockboxes into one lockbox, located near the home office.
consolidate all lockboxes into one lockbox, located far from the home office.
make sure all checks it receives are properly dated and signed.
utilize the benefits of the Check Clearing Act for the 21st
Century.
















5.
(TCO 2) Storage and tracking costs, insurance and taxes, and losses due to theft are examples of: (Points : 4)

Inventory depletion costs
Sunk costs
Carrying costs
Shortage costs









6.
(TCO 1) Recent announcements of massive layoffs have increased stock prices for certain companies. Critics argue that this reaction encourages companies to fire employees. Do you agree or disagree? (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 the costs associated with extending (or not extending) a credit policy to customers? (Points : 10)












10.
(TCO 6 and 7) How can you calculate the cost of debt? What methods can you use? Provide at least two examples. (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)

I and II
I, II and III
II, III and IV
I, III and IV
All of the above
















2.
(TCO 1) Market values reflect which of the following: (Points : 4)

The amount someone is willing to pay today for an asset.
The value of the asset based on generally-accepted accounting principles.
The asset’s historical cost.
A and B only
None of the above
















3.
(TCO 1) Use the following tax table to answer this question:



































Taxable IncomeTax Rate
$0-$50,00015%
$50,001-75,00025
$75,001-100,00034
$100,001-335,00039
$335,001-10,000,00034


McKenzie, Inc. earned $144,320 in taxable income for the year. What is the company’s approximate average tax rate? (Points : 4)

27%
29%
31%
33%
35%
















4.
(TCO 3) Regional Bank offers you an APR of 19 percent compounded semiannually, and Local Bank offers you an EAR of 20.10 percent for a new automobile loan. You should choose ______________ because its _______ is lower. (Points : 4)

Regional Bank, APR
Local Bank, EAR
Regional Bank, EAR
Local Bank, APR
















5.
(TCO 3) You deposited $8,000 in your bank account today. Which of the following will increase 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)

a decrease in the interest rate
increasing the initial amount of your deposit
decreasing the frequency of the interest payments
extending the length of the investment period
















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)

$12,468.07
$12,502.14
$14,597.62
$17,044.32
$17,129.01
















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)

$91.05
$284.13
$556.50
$682.87
$731.60
















8.
(TCO 3) Which type of loan is comparable to the present value of a future lump sum? (Points : 4)

effective annual rate
amortized
interest-only
annual percentage
pure discount
















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 16 percent? Assume annual payments. (Points : 4)

$1315
$1300
$756
$1000
















10.
(TCO 6) The market where new securities are offered is called the _____ market. (Points : 4)

primary
main
secondary
principal
dealer
















11.
(TCO 7) Which one of the following statements concerning financial leverage is correct? (Points : 4)

The benefits of leverage are unaffected by the amount of a firm's earnings.
The use of leverage will always increase a firm's earnings per share.
The shareholders of a firm are exposed to greater risk anytime a firm uses financial leverage.
Earnings per share are unaffected by changes in a firm's debt-equity ratio.
Financial leverage is beneficial to a firm only when the firm has minimal earnings.
















12.
(TCO 3) SmithKline Company's bonds are currently selling for $1,157.75 per $1000 par-value bond. The bonds have a 10 percent coupon rate and will mature in 10 years. What is the approximate yield to maturity? (Points : 4)

6.96%
7.69%
11.0%
12.1%
















13.
(TCO 8) Which of the following is true regarding bonds? (Points : 4)

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
















14.
(TCO 8) Two years ago, Maple Enterprises issued six percent, 20-year bonds and Temple Corp issued six percent, 10-year bonds. Since their time of issue, interest rates have increased. Which of the following statements is true of each firm's bond prices in the market, assuming they have equal risk? (Points : 4)

Maple's decreased more than Temple's
Temple's decreased more than Maple's
Maple's increased more than Temple's
They are both priced the same



















15.
(TCO 6) Star Industries has one bond issue outstanding. An indenture provision prohibits the firm from redeeming the bonds during the first two years. This provision is referred to as a _____ provision. (Points : 4)

deferred call
market
liquidity
debenture








(TCO 8) Weak form market efficiency states that the value of a security is based on: (Points : 4)

all public and private information.
historical information only.
all publicly available information.
all publicly available information, plus any data that can be gathered from insider trading.
random information with no clear distinction as to the source of that information.
















2.
(TCO 5) Royal Petroleum Co. can buy a piece of equipment that can be financed with debt at a cost of 9 percent (after-tax) and common equity at a cost of 16 percent. Assume debt and common equity each represent 50 percent of the firm's capital structure. What is the weighted average cost of capital? (Points : 4)

between 4.5% and 8%
more than 13%
between 12 and 13%
between 13 and 14%
none of the above
















3.
(TCO 5, 6 and 7) An issue of common stock's most recent dividend is $3.75. Its growth rate is eight percent. What is its price if the market's rate of return is 16 percent? (Points : 4)

$25.01
$46.88
$50.63
none of these
















4.
(TCO 5, 6 and 7) Which of the following is true regarding the cost of debt? (Points : 4)

It is the same as cost of equity.
It is the interest rate that the firm pays on current/existing borrowing.
An appropriate method to compute the cost of debt is using the YTM of current bonds outstanding.
All of the above are true.
















5.
(TCO 5) Retained earnings has a cost associated with it because: (Points : 4)

new funds must be raised.
there is an opportunity cost associated with stockholder funds.
Ke> g
flotation costs increase the cost of funding.
















6.
(TCO 4) A project has the following cash flows. What is the internal rate of return?


















Year0123
Cash flow-$520,000$112,900$367,200$204,600

(Points : 4)

less than 10%
approximately 14%
more than 16%
more than 18% but less than 20%
















7.
(TCO 5, 6 and 7) Which one of the following is a correct statement? (Points : 4)

Current tax laws favor debt financing.
A decrease in the dividend growth rate increases the cost of equity.
An increase in the systematic risk of a firm will decrease the firm's cost of capital.
A decrease in a firm's debt-equity ratio will usually decrease the firm's cost of capital.
The cost of preferred stock decreases when the tax rate increases.
















8.
(TCO 5, 6 and 7) The preferred stock of Blue Sky Air pays an annual dividend of $7.25 a share and sells for $54 a share. The tax rate is 35 percent. What is the firm's cost of preferred stock? (Points : 4)

8.56 percent
9.32 percent
11.85 percent
13.43 percent
14.47 percent
















9.
(TCO 2) Which one of the following occurs if a firm files for Chapter 7 bankruptcy, but does not generally occur if the firm files for Chapter 11 bankruptcy? (Points : 4)

a petition is filed in federal court
administrative fees are incurred
a list of creditors is compiled
pre-bankruptcy shareholders tend to lose part, if not all, of their investment in the firm
a trustee-in-bankruptcy is elected by the creditors
















10.
(TCO 5) Which of the following statements is true regarding the cost of capital? (Points : 4)

The cost of capital should not consider any flotation costs.
All other being equal, it is preferable to use book value weights than market value weights.
The WACC is the most appropriate discount rate for all projects.
Depends primarily on the use of the funds, not the source.
















11.
(TCO 2) Which of the following increases the cash account? (Points : 4)

Goods are sold on credit
An interest payment on a notes payable is made
A payment due is received from a client
Raw materials are purchased and paid for with credit
















12.
(TCO 2) Which of the following statements is true? (Points : 4)

Firms should avoid offering credit at all cost.
An increase in a firm's average collection period generally indicates that an increased number of customers are taking advantage of the cash discount.
The costs of the credit application process and the costs expended in the collection process are carrying costs of granting credit.
Character, refers to the ability of a firm to meet its credit obligations out its operating cash flows.
The optimal credit policy, is the policy that produces the largest amount of sales for a firm.
















13.
(TCO 2) All else constant, a decrease in the accounts receivable period will: (Points : 4)

lengthen the accounts payable period.
shorten the inventory period.
lengthen the operating cycle.
shorten the cash cycle.
shorten the accounts payable period.
















14.
(TCO 2) The Yellow Box has the following estimated quarterly sales for next year. The accounts receivable period is 45 days. What is the expected accounts receivable balance at the end of the third quarter? Assume each month has 30 days.



















Q1Q2Q3Q4
Sales$1,200$1,400$1,800$1,700

(Points : 4)

$600
$750
$900
$1,050
$1,200
















15.
(TCO 1) Which of the following statements is true regarding the goal of financial management? (Points : 4)

The goal of maximizing the value per share of existing stock is relevant to all organizations.
The ultimate goal of financial management is maximizing earnings and profits.
For a company considering international operations, the goal will be the same but the company will have to consider the local, social, economical, and political environment in the decision-making process.
None of the above are true statements.

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Answered Same DayDec 20, 2021

Answer To: Which of the following is true regarding income bonds? (Points : 4) Are relatively uncommon Can be...

Robert answered on Dec 20 2021
125 Votes
(TCO 6) Which of the following is true regarding income bonds? (Points : 4)
Are relatively uncommon
Can be exchanged for a fixed number of shares at maturity only
Can be exchanged for a fixed number of shares before maturity
Allow the holder to require the issuer to buy the bond back
2. (TCO 6 and 7) Financial leverage deals with: (Points : 4)
the relationship of fixed and variable costs.
the percentage of debt in the capital structure.
the entire income statement.
the entire balance sheet.
3. (TCO 6) Company A has a bond outstanding with $90 annual interest payment, a market
price of $820, and a maturity date in five years. Assume the par value to be $1,000. What
is the bond's current yield? (Points : 4)
9%
14%
11%
Cannot be determined
None of the above
4. (TCO 2) Which of the following does not reduce collection float? (Points : 4)
consolidate all lockboxes into one lockbox, located near the home office.
consolidate all lockboxes into one lockbox, located far from the home office.
make sure all checks it receives are properly dated and signed.
utilize the benefits of the Check Clearing Act for the 21st Century.
5. (TCO 2) Storage and tracking costs, insurance and taxes, and losses due to theft are
examples of: (Points : 4)
Inventory depletion costs
Sunk costs
Carrying costs
Shortage costs
6. (TCO 1) Recent announcements of massive layoffs have increased stock prices for
certain companies. Critics argue that this reaction encourages companies to fire
employees. Do you agree or disagree? (Points : 10)
I disagree. Firing employees is not the solution if the aim is to increase the stock prices. Firing them
unnecessarily can be even dangerous to companies and the firms may face the danger of losing efficient and
performance oriented employees. This may even lead to the downfall of the company in the long-run.
Therefore, firing of employees should be resorted to only if the employees performance actually deserves
such an action.
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)
Sunk costs are the costs that are historical and incurred and cannot be recovered irrespective of the decision
to accept or reject a project. Hence, these costs do not form part of decision-making calculation purposes.
Examples: 1) Market research undertaken to know the potential scope of a product in a locality.
2) Advertisement expenses already incurred before the launch of a product.
Sunk costs should NOT be included as incremental cash flows. This is because these costs are purely
historical and have no impact on further course of action. In other words, whether the proposed project is
decided to be accepted or not, the sunk costs cannot be recovered at any costs. Therefore, these costs are
not relevant for decision making purposes and should not be included as incremental cash flows.


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)
Business risk is the risk involved in running a business operation. This may involve risks like sales risk,
input-cost risk etc. If a company’s demand for a product is volatile due to heavy competition, the company
is said to be facing a high business risk.
Financial risk exists when the company has a high level of debt content in the capital structure. The risk is
high then for the shareholders of the company. The higher the debt content, more control will be levied by
the creditors affecting the operations of the company. The preferential repayment of debt principal and the
interest on debt increases the risk of returns and the investment for the shareholders.
Generally, a company with a higher risk, be it business or financial, has a higher cost of capital because of
the higher returns expected by the investors for investing in such a risky company. Risk and return are
inversely related. Higher the risk, higher is the expected return and lower the risk, lower is the expected
return. In this case, the financial risk of both the companies also need to be considered before arriving at a
conclusion about which company’s cost of capital would be higher. We can conclude only after analyzing
both the business and financial risks of both the companies.


9. (TCO 2) What are the costs associated with extending (or not extending) a credit policy
to customers? (Points : 10)
Costs associated with extending credit:
a) Higher are the chances of bad debts
b) Delayed payments affecting liquidity of the selling firm
c) Implied interest lost on the amount invested in receivables which could have otherwise been used
for profitable ventures.
Costs associated...
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