2024 – 1 Flotation costs cause a corporation s cost of capital to be lower than

1) Flotation costs cause a corporation’s cost of capital to be lower than its investors’ required returns.

A) True B) False

 

2) Which of the following is NOT considered in the calculation of incremental cash flows?

A) tax saving due to increased depreciation expense

B) interest payments if new debt is issued

C) increased dividend payments if additional preferred stock is issued

D) B and C

 

3) A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio? A) liquidity B) leverage C) efficiency D) profitability

 

4) The discount rate used to value a bond is

A) the coupon interest rate

B) determined by the issuing company

C) fixed for the life of the bond

D) the market rate of interest

 

5) In general, the least expensive source of capital is:

A) preferred stock. B) new common stock. C) debt. D) retained earnings.

 

6) Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?

A) cash flows have a greater present value than accounting profits

B) cash flows reflect the timing of benefits and costs more accurately than accounting profits

C) cash flows are more stable than accounting profits

D) cash flows improve the tax position of a firm more than accounting profits

E) none of the above

 

7) A cash flow statement can be used to answer a variety of questions. Which of the following would this statement not be likely to answer?

A) Why was money borrowed?

B) Where did profits go?

C) What is the current level of inventory?

D) Were there any new investment activities? 

 

8) The present value of $1,000 to be received in 10 years is ________ if the discount rate is 7.3%.

A) $270 B) $494 C) $370 D) $433

 

9) Activities of the investment banker include

A) assuming the risk of selling a security issue.

B) selling new securities to the ultimate investors.

C) providing advice to firms issuing securities.

D) all of the above

 

 

10) Market risk refers to the tendency of a stock to move with the general stock market. A stock with above-average market risk will tend to be more volatile than an average stock and it will also have a beta which is greater than 1.0. A) True B) False