hat does the residual dividend model mean for investors?
•
They should expect dividend distributions that are equal to net income.
•
They should expect a level of uncertainty regarding their dividends.
•
They
...
hat does the residual dividend model mean for investors?
•
They should expect dividend distributions that are equal to net income.
•
They should expect a level of uncertainty regarding their dividends.
•
They should expect to consistently receive the same dividend.
•
They should expect to always receive very small dividends.
2
Place the following steps for developing a credit policy in the correct order of process:
• A: The company decides that it wants to minimize opportunity costs by having as much cash on hand as possible.
• B: The company decides that it will send out two notices of late payments to customers before pursuing other collection methods.
• C: The company decides that its payment terms will be Net 15.
•
C, B, A
•
A, B, C
•
C, A, B
•
A, C, B
3
In the United States, the role of corporate governance is to maximize __________.
•
shareholder value and stakeholder value
•
market value and shareholder value
•
fundamental value and shareholder value
•
market value and stakeholder value
4
A company is considering a new plan for its capital structure.
Which of the following is true if, under the new plan, the company's weighted average cost of capital exceeds the expected return?
•
The company's cost of capital is still at a comfortable level.
•
The company's value will increase.
•
The company is over-leveraged.
•
The company's proposed capital structure may put it at risk for bankruptcy.
5
You invest $3,000 in a stock that has a 10% chance of a 2% return, a 70% chance of a 6% return and a 20% chance of a 15% return.
What is your expected return after one year?
•
5.6%
•
7.4%
•
6.0%
•
8.8%
6
Select the statement that is true of preferred stock.
•
Preferred stock is generally thought to be more risky than common stock.
•
Owners of preferred stock have a stronger claim to a company's assets than owners of common stock.
•
Preferred stock is not considered equity.
•
Owners of preferred stock have more voting rights than owners of common stock.
7
You deposit $7,000 in a bank account that earns 2% compound interest annually.
What is the value of your $7,000 in four years?
•
$7,577
•
$7,560
•
$6,423
•
$6,440
8
Lee purchased stock with an initial share price of $32, and sold it when the share price was $50. While he owned the stock, he earned $2 in dividends.
What was his total percentage return on the investment?
•
36.00%
•
62.50%
•
40.00%
•
56.25%
9
Preparing a cash flow forecast helps a company to avoid __________.
•
higher financing costs
•
opportunity costs
•
net losses
•
liquidity
10
Which of the following accurately describes a normal yield curve?
•
A positively sloping curve that indicates the expectation that inflation will fall in the future.
•
A negatively sloping curve that indicates the expectation that the economy will contract in the future.
•
A negatively sloping curve that indicates confidence in rising inflation in the future.
•
A positively sloping curve that indicates confidence in sustained economic growth in the future.
11
A corporation that makes shares of stock available for the public to purchase is an example of an __________.
•
issuer
•
investor
•
intermediary
•
investment trust
12
Which of the following is a tenet of semi-strong-form efficiency?
•
Historical data can be used to generate excess returns in the present day.
•
Some forms of fundamental analysis can provide investors excess returns.
•
Individual investors can "beat" the market if enough information is made public.
•
Share prices respond immediately to new information that is made public.
13
Internet platforms have allowed for the greatest increase of what recent trend in finance?
•
Microfinancing
•
Peer-to-peer lending
•
Algorithmic trading
•
Impact investing
14
Preemptive rights allow stockholders to acquire __________ before the general public.
•
preexisting shares
•
dividends
•
new stock
•
company assets
15
In calculating the yield of an investment, what is EAR equivalent to?
•
APR
•
IRR
•
APY
•
NPV
16
A social media start-up wants to raise funds to support growth by offering shares to a select group of investors.
What type of market transaction should they pursue?
•
IPO
•
Secondary market offering
•
Private placement
•
Share buyback
17
Select the true statement about the concept of agency cost.
•
An agency cost is one that is incurred when an agent's actions deviate from the principal's interests.
•
An agency cost is a cost to an organization that is inversely related to the organization's assumption of risk.
•
An agency cost is a variable cost to an organization that has yet to be approved by the principal.
•
An agency cost is one that is incurred when bondholders raise the interest rate on a bond.
18
Which of the following is an example of a market risk for a company that manufactures automobiles?
•
A competitor that offers a similar line of cars with comparable quality at lower prices
•
Damage to completed cars being transported to a buyer
•
Being suddenly unable to source a critical component of the automobile
•
A failure in the company's accounts receivable process
19
What is a question that should be asked about accounts payable when forecasting?
•
How will our cash inflows be affected?
•
What is the cash conversion cycle?
•
How much product on hand is too much?
•
How quickly can we replenish goods?
20
What is the benefit to a company from a securities underwriter?
•
They study the market and advise companies on where to set their IPO share price.
•
They generate demand for a company's securities by giving them a strong credit rating.
•
They help companies to receive a premium on the sale of their securities.
•
They help companies to reduce the risk associated with an IPO.
21
Which of the following investors would likely prefer a cash dividend over a stock dividend?
•
Vladamir chooses stocks strategically in order to maximize his capital gains.
•
Zakir wants to be able to purchase more shares so that he owns a larger stake in the company.
•
Karen prefers knowing that the company she invested in has adequate liquidity.
•
Paul doesn't mind taking on some additional risk if it means a larger reward down the road.
22
A security that falls above the security market line has __________.
•
a low expected return and a high price
•
a high expected return and a low price
•
a low expected return and a low price
•
a high expected return and a high price
23
Which of the following is true of ethics and its application to the business environment?
•
The ethical norms and values of a business can have a powerful influence on its employees.
•
Personal values have no place in business, where decisions should be made according to organizational values and norms.
•
Conflicts rarely occur between an individual's ethics and a business organization's ethics.
•
Employers prefer to hire individuals whose ethics conflict with that of the business organization.
24
One reason that ROE calculations are broken down into three components in the DuPont equation is that __________.
•
it highlights exceptional financial planning
•
it hides problem areas from analysts
•
it shows management where ROE improvements can be made
•
the numbers are more difficult to falsify
25
Determine whether the following description is true of a capital lease, an operating lease, neither or both.
"A commercial financing agreement wherein a company may purchase the leased asset at a discount when the lease ends"
•
Capital lease
•
Operating lease
•
Both
•
Neither
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