Financial 4

An annuity is defined as a set of

Which of the following statements is true?

One can estimate the dividend growth rate for a stable firm as:

Important points to remember while estimating the cash flows of a project are: I) Only cash flow is relevant. II) Always estimate cash flows on an incremental basis. III) Be consistent in the treatment of inflation.

Beta is a measure of:

The accounting break‐even point occurs when:

An efficient portfolio: I) has only unique risk; II) provides the highest expected return for a given level of risk; III) provides the least risk for a given level of expected return; IV) has no risk at all

The graphical representation of the CAPM (capital asset pricing model) is called the:

A firm might categorize its projects into: I) cost improvements; II) expansion projects (existing business); III) new products; IV) speculative ventures

Which of the following statements most appropriately describes scenario analysis?

Economic rents are returns that:

Minimizing the weighted average cost of capital (WACC) is the same as maximizing the:

In order to find the present value of the tax shields provided by debt, the discount rate used is the:

The pecking order theory of capital structure predicts that:

An example of a real option is:

A Yankee bond is a bond

If a corporate security can be exchange for a fixed number of shares of stock, the security is said to be:

In a lease arrangement, the user of the asset is the:

Shareholders of a corporation may be, among others: I) individuals; II) pension funds; III) insurance companies

The concept of compound interest is best described as:

One can estimate the expected rate of return or the cost of equity capital as follows:

The following are measures used by firms when making capital budgeting decisions EXCEPT:

The following are some of the shortcomings of the IRR method except:

Costs incurred as a result of past, irrevocable decisions and irrelevant to future decisions are called:

The beta measure indicates:

If a firm uses a project‐specific cost of capital for evaluating all projects, which situation(s) will likely occur? I) The firm will accept poor low‐risk projects. II) The firm will reject good high‐risk projects. III) The firm will correctly accept projects with average risk.

Generally, for CAPM calculations, the value to use for the risk‐free interest rate is the:

All else equal, an increase in fixed costs: I) increases the break‐even point based on NPV; II) increases the accounting break‐even point; III) decreases the break‐even point based on NPV; IV) decreases the accounting break‐even point

Project analysis, beyond simply calculating NPV, includes the following procedures: I) sensitivity analysis; II) break‐even analysis; III) Monte Carlo simulation; IV) scenario analysis

An investor can create the effect of leverage on his/her account by: I) buying equity of an unlevered firm; II) investing in risk‐free debt like T‐bills; III) borrowing on his/her own account

If an individual wants to borrow with limited liability, he/she should:

Which of the following is NOT a potential result from financial distress?

When faced with financial distress, managers of firms acting on behalf of their shareholders' interests will tend to: I) favor high‐risk, high‐return projects even if they have negative NPV; II) refuse to invest in low‐risk, low‐return projects with positive NPVs; III) delay the onset of bankruptcy as long as they can

The pecking order theory of capital structure predicts that:

A put option gives the owner the right:

The value of a put option at expiration equals the:

All else equal, if the volatility (variance) of the underlying stock increases, then the:

The opportunity to defer investing to a later date may have value because: I) the cost of capital may increase in the near future; II) uncertainty may be increased in the future; III) the project has positive, short‐term cash flows; IV) market conditions may change and increase the NPV of the project

Which of the following are examples of applications of real options analysis? I) a strategic investment in the computer business; II) the valuation of an aircraft purchase option; III) the option to develop commercial real estate.

The bonds that are sold to local investors issued by a firm from another country are called: