Exam 2 Flashcards
A company has four open seats on its board of directors. There are seven candidates vying for these four positions. There will be a single election to determine the winners. As the owner of 100 shares of stock, you will receive one vote per share for each open seat. You decide to cast all 400 of your votes for a single candidate. What is this type of voting called?
cumulative
DLQ Inc. bonds mature in 12 years and have a coupon rate of 6 percent. If the market rate of interest increases, then the:
Market price of the bond will increase
The secondary market is best defined by which one of the following?
A market where outstanding shares of stock are resold
What are the distributions of either cash or stock to shareholders by a corporation called?
dividends
Which one of the following is the price at which a dealer will buy a bond?
bid price
f a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:
mutually exclusive
If a project has a net present value equal to zero, then:
The total of the cash inflows must equal the initial cost of the project.
Isaac has analyzed two mutually exclusive projects that have 3-year lives. Project A has an NPV of $81,406, a payback period of 2.48 years, and an AAR of 9.31 percent. Project B has an NPV of $82,909, a payback period of 2.57 years, and an AAR of 9.22 percent. The required return for Project A is 11.5 percent while it is 12 percent for Project B. Both projects have a required AAR of 9.25 percent. Isaac must make a recommendation and justify it in 15 words or less. What should his recommendation be?
Accept Project B and reject Project A based on the NPVs
Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.8 years and a net present value of $6,800. Project B has an expected payback period of 3.1 years with a net present value of $28,400. Which projects should be accepted based on the payback decision rule?
porject A only
When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:
accepted because profitability index is greater than 1
Which of the following statements related to the internal rate of return (IRR) is correct?
The IRR is equal to the required return when the net present value is equal to zero.
Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond’s interest or principal payments as expected?
default risk
You are considering a project with conventional cash flows, an IRR of 11.63 percent, a PI of 1.04, an NPV of $987, and a payback period of 2.98 years. Which one of the following statements is correct given this information?
The discount rate used to in computing the net present value was less than 11.63 percent
