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108 terms

Finance 311 Final

STUDY
PLAY
the owner has unlimited personal liability
a major disadvantage of a sole proprietorship is the fact that
amount of cash flows, timing of cash flows and risk taken to generate cash flows
the three facotrs that determine the market value of a company's share of stock are
weak-form market efficieny
the fact that no investor can expect to earn excess returns based on an investment strategy using only historical stock price of historical return information is an example of
bondholders and stockholders
protective covenants in a company's bond indentures are used in agency relationships involving __&__
retained earnings
the accounting of that portion of a firm's assets that were finance from past earnings is represented by
deterministic, and probabilistic
computerized financial planning models may be classified as any of the following
"golden parachute" contracts
giving top management _________ is one method that ensures managers will act in the interest of shareholders in merger decisions
unnecessary
in an efficient capital market, corporate diversification is
provides a way to consider the risk of the returns being offered
the objective of maximizing shareholder wealth, as measured by the market value of the firm's stock..
identify potential cash flow problems in advance
cash budgeting can be employed effectively by management to
low profit margin and high asset turnover
a fresh fruit wholesaler would normally be expected to have
cash flows should be measured on an incremental basis
which of the following is a basic principle when estimating a project's cash flows??
reduces, reduces
Depreciation ______ reported profits and it ____ taxes paid by a firm.
the loss may be used to offset operating income
if a firm sells an asset for less that its book value..
purchase of a 90-day treasury bill
which of the following would not be classified as a capital expenditure for decision-making purposes?
cash dividend payments and capital gains
the returns investors receive from holding common stocks may be in two forms. they are:
security market line
this is defined as provides a picture of the risk-return tradeoff required by diversified investors considering various risky assets
the firm's future earnings
the market value of common stock is primarily based on
the amount of interest paid is reduced each year
when a loan is amortized over a fiver year term,
the security has below-average systematic risk
a beta value of .5 for a security indicates..
systematic risk
the most relevant risk that must be considered for any widely traded individual security is its ________
systematic risk
that portion of the variability of an individual security's return caused by factors affecting the market as a whole
unsystematic risk
risk that is unique to the firm, and can be eliminated
total asset turnover ratio
indicates how effectively a firm uses its total resources to generate sales and is a summary measure influenced by each of the asset management ratios
fixed-asset turnover ratio
indicates the extent to which a firm is using existing PPE to generate sales
debt ratio
measures the proportion of a firm's total assets that is financed with creditors' funds
debt to equity ratio
relates the amount of a firm's debt financing to the amount of equity financing
return on equity ratio
measures the rate of return that the firm earns on stocholders' equity
gross profit margin
measure the relative profitability of a firm's sales after the cost of sales has been deducted, revelaing how effectively the firm's management is making decisions regarding pricing and the control of production costs
net profit margin
measure how profitable a company's sales are after all expenses
expected value
the ___ is a statistical measure of the mean or average value of the possible outcomes
larger, riskier
the ___the standard deviation, the ___the investment
standard deviation
when comparing two equal sized investments, the ____ is an appropriate measure of total risk
true
t/f? the higher the correlation of return between the two stocks the higher the portfolio risk
foreign competition with an industry's products
which of the following is not an example of a source of systematic risk?
shift it up and to left
All other things being equal, what is the major impact that an increase in the expected inflation rate would be expected to have on the security market line?
less positively, greater
The ____ correlated the returns from two securities are, the ____ will be the portfolio effects of risk reduction.
changes in inflation
All of the following factors have their primary impact on unsystematic risk except
multiple risk factors
Arbitrage pricing theory is a model that relates expected returns on securities
capital asset pricing model
In the ____, the expected return on a security is equal to the risk-free rate plus a single risk premium that is equal to the product of the expected rate of return on the market portfolio less the risk-free rate times the sensitivity of the security's returns to the market return.
less
The security returns from multinational companies tend to have ____ systematic risk than domestic companies.
averse
Investors generally are considered to be risk ____ because they expect to be compensated for assuming risk.
maturity
The term structure of interest rates is the pattern of interest rate yields for debt securities that are similar in all respects except for differences in
the length of time to maturity
The term structure of interest rates is the pattern of interest rate yields for securities that differ only in
expectations theory
According to the ____, long-term interest rates are a function of expected short-term interest rates.
marketability risk
____ refers to the ability of an investor to buy and sell a company's securities quickly and without a significant loss of value.
liquidity premium
The ____ theory of the yield curve holds that required returns on long-term securities tend to be greater the longer the time to maturity.
borrowing money
On the capital market line (CML), any risk-return combination beyond the Market Portfolio (m) is obtained by ____.
default risk
That portion of the risk premium that is based on the ability of the borrower to repay principal and interest is the:
its par value is changed
From an accounting standpoint, when a stock is split
the number of shares are decreased
In a reverse stock split
perpetuities
Many preferred stocks are treated as ____ in determining their values.
earnings capacity
The most important factor to be considered in the valuation of a closely held firm is
on the basis of balance sheet figures
A common stock's book value is calculated
disposition of excess warrants
Which one of the following is not a reason a firm may decide to repurchase its own stock.
higher, decline
If the general level of interest rates in the economy moves up, then investors will require a ____ rate of return on securities, and, in general, stock prices should ____, ceteris paribus.
dividend rights
The rights of stockholders to share equally on a per share basis in any distributions of corporate earnings is known as ____.
capital gains yield and dividend yield
In the constant growth dividend valuation model, the required rate of return on a common stock is equal to the sum of the ____.
underwriting spread
The difference between the selling price to the public of a new issue and the net the issuing firm actually receives is known as the
quarterly
Common stock dividends normally are paid
original issue deep discount bonds
Zero coupon bonds are an example of
marginnal investor's required rate of return
When the market for an asset is in equilibrium, the expected rate of return on the asset is equal to the:
LOWER, HIGHER
The ____ the investor's required rate of return on a bond, the ____ will be the value of the bond to the investor.
required rate of return
The value of a perpetual bond is equal to the annual interest payment divided by the:
more
The value of a 15-year bond will change ____ for a given change in the required rate of return than the value of a 5 year bond.
debentures
All of the following types of bonds are secured except
pay no explicit interest
treasury bills..
greater the effective interest rate
The more frequent the compounding the
equal to or greater than
The effective rate of interest will always be ____ the nominal rate.
optimization
Which of the following is a financial model that attempts to maximize or minimize the value of a criterion function (e.g., profits, costs)?
determination of estimated receipts
The first step in cash budget preparation is the
budget simulator
Which of the following is an example of a deterministic model?
discriminant analysis
____ is the statistical technique that helps the analyst classify observations (firms) into two or more predetermined groups based on certain characteristics of the observation.
strategic
In considering financial planning, the type of planning that focuses more on the overall direction of the business and the industry is:
return on total assets
The best accounting-based measure of a firm's profitability is
times interest earned
Which ratio is frequently used in conjunction with the analysis of a bond's quality?
increase its equity multiplier
If a firm wishes to retain the same return on equity when its net profit margin and total asset turnover has declined, it must
fixed charge coverage
The ____ ratio is a more severe measure of a firm's ability to meet fixed financial obligations than is the times interest earned ratio
low, high
Stocks with ____ dividend yield often indicate ____ expected future growth.
capital
____ markets deal in long-term securities having maturities greater than one year.
money
____ markets deal in short-term securities having maturities of one year or less.
primary
In the ____ market, the firm receives the proceeds from the sale of its securities.
thrift institution
A savings and loan association is an example of which type of financial intermediary?
issuing their own debt securities
Finance companies obtain a significant amount of their funds by
hey quickly reflect information relevant to determining stock value
The U.S. financial markets are said to be highly informationally efficient. This means
low transaction costs
The barriers to the free flow of capital among the major world capital markets include all of the following except:
market value
Shareholder wealth is measured by the ____ of the shareholders' common stock holdings.
separation of ownership and control
The primary reason for the divergence between the shareholder wealth maximization goal and the actual goals pursued by management has been attributed to
financial management association
The ____ has a goal of serving as a bridge between academic study of finance and the application of financial principles by financial managers.
cash flow
Accounting-based measures of performance include all the following except
total shareholder wealth
____ equals the number of shares outstanding times the market price per share.
value
The net present value of an investment made by a firm represents the contribution of that investment to the ____ of the firm.
assets and future earnings of the firm
Corporate securities represent claims against the____
common stock
____ is (are) referred to as a residual form of ownership in a corporation.
back 2, forward 20
A corporation's net operating loss may be carried ____ years and ____ years to offset taxable income in those years.
deductible only against capital gains
Capital losses are
opportunity cost
The value of resources used in an investment project should be measured in terms of their
sunk cost
In estimating the net investment, an outlay that has already been made is known as a (n) ____.
reduces, reduces
Depreciation ____ reported profits and it ____ taxes paid by a firm.
greater, lower
The ____ the amount of depreciation charged in a period, the ____ will be the firm's taxable income.
simplified capital budgeting model
The set of investment projects arranged in descending order according to their expected rates of return is known as the ____.
contingent
A(n) ____ project is one whose acceptance is dependent on the adoption of one or more other projects.
capital rationing
Capital expenditure projects may be classified in all the following types except:
independent
When two or more normal ____ projects are under consideration, the profitability index, the net present value, and the internal rate of return methods will yield identical accept/reject signals.
firm's value is the sum of the value of all the projects undertaken
The "value additivity principle" means that the
abandonment
Generally, the existence of a(n) ____ option reduces the downside risk of a project and should be considered in project analysis.
risk free rate
The discount rate used in calculating the certainty equivalent net present value is the
mostly beneficial for large projects
Simulation techniques are