Corporate 2 Flashcards
(1) Spending money on R&D is … ?
(2) A bankloan is …. ?
Question 1Answer
a.
(1) A financing decision; (2) a financial asset
b.
(1) a financing decision; (2) a real asset
c.
(1) an investing decision; (2) a financial asset
d.
(1) an investing decision; (2) a real asset
(1) an investing decision; (2) a financial asset
Which statement is wrong
Question 2Answer
a.
“Debt due for repayment” is a current liability.
b.
“Goodwill” is a balance sheet item that increases and decreases as a function of the company’s popularity and reputation
c.
“Amortization” may be found on a firm’s Income Statement
d.
EBIT stands for Earnings Before Interest and Taxes. It is also known as “Operating Profit”.
“Goodwill” is a balance sheet item that increases and decreases as a function of the company’s popularity and reputation
(1) The yield on a corporate bond increases if interest rates go down.
(2) The yield on a corporate bond increases if if its credit rating improves.
Question 4Answer
a.
Both statements are correct
b.
Statement (1) is correct, statement (2) is false
c.
Statement (1) is false, statement (2) is correct
d.
Both statements are false
Both statements are false
If you want to bet that the overall stock market is heading up in 2023, it is more profitable to invest in:
Question 9Answer
a.
high beta stocks
b.
low beta stocks
c.
Stocks with large amounts of specific (diversifiable) risk
d.
stocks that plot below the security market line
high beta stocks
A company’s board of directors is primarily an agent of the company’s
Question 10Answer
a.
management.
b.
employees
c.
shareholders
d.
creditors
shareholders
The present value of the costs of financial distress increases as the debt ratio increases because the
Question 11Answer
a.
expected return on assets increases
b.
present value of the interest tax shield is greater
c.
equity tax shield is depleted
d.
probability of default is greater
probability of default is greater
Which of the following is NOT a function of financial markets?
Question 17Answer
a.
Allow individuals to diversify their risk.
b.
Provide opportunities to safe money, so as to spend it later.
c.
Allow individuals to purchase a range of goods online
d.
Provide funds to companies that wish to expand.
Allow individuals to purchase a range of goods online
Which one of these accounts represents internal funding?
Question 18Answer
a.
Common stock
b.
Additional Paid In Capital
c.
Retained earnings
d.
Preferred stock
Retained earnings
Issuing costs for equity are higher than those for debt for all of the following reasons except:
Question 19Answer
a.
Equity issues are more sensitive to asymmetric information
b.
underwriting stock is riskier than underwriting bonds
c.
equity issues involve significantly more time and effort to sell
d.
equity issues do not come with economies of scale.
equity issues do not come with economies of scale.
The term “capital structure” refers to:
Question 25Answer
a.
The length of time needed to repay debt
b.
The mix of long-term debt and equity financing
c.
The selection criteria of the firm’s capital budgeting projects
d.
The types of real assets that a firm acquires
The mix of long-term debt and equity financing
The basic idea of the CAPM is that a stock’s expected risk premium should be:
Question 26Answer
a.
greater than the expected market return
b.
proportionate to the stock’s beta.
c.
proportionate to the market return
d.
greater than the risk-free rate of return.
proportionate to the stock’s beta.
The semi-strong form of the efficient market hypothesis states that:
Question 27Answer
a.
the efficient market hypothesis is only half true.
b.
professional investors outperform non-professional (retail) investors, on average
c.
Stock prices do not follow a random walk
d.
Stock prices reflect all publicly available information
Stock prices reflect all publicly available information
The ratio of net present value to initial investment is known as the:
Question 28Answer
a.
NPV
b.
payback period
c.
IRR
d.
Profitability Index
Profitability Index
Which one of the following is correct concerning real interest rates?
Question 33Answer
a.
Real interest rates are constant over time.
b.
Real interest rates must be positive
c.
Real interest rates must be less than nominal interest rates
d.
Real interest rates, if positive, increase purchasing power over time
Real interest rates, if positive, increase purchasing power over time
In return for providing funds, venture capitalists generally require
Question 34Answer
a.
collateral equal in value to the funds provided
b.
A promissory note or a coupon-bond
c.
an equity position in the firm
d.
ownership of the entire firm
an equity position in the firm
Which of the following is inconsistent with a firm that sells for very near its book value?
Question 36Answer
a.
Low profitability
b.
Few, if any, intangible assets
c.
High future earning power
d.
Low, unstable dividend payments
High future earning power
