Which of the following stateme

Which of the following statements is most correct? (Hint: Work Problem 4-16 before answering 4-17, and consider the solution setup for 4-16, as you think about 4-17.)

a. The higher a firm’s tax rate, the lower its BEP ratio, other things held constant.
b. The higher the interest rate on a firm’s debt, the lower its BEP ratio, other things held constant.
c. The higher a firm’s debt ratio, the lower its BEP ratio, other things held constant
d. If a firm’s expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, adding assets and financing them with debt will raise the firm’s expected return on common equity (ROE)
e. Statement d is false, but statements a, b, and care true

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Which of the following stateme

Which of the following statements about the going concern assumption is not true?

A.

it can justify the use of historical costs when measuring non-current assets.

B.

it supports the systematic allocation of depreciation over an asset’s useful life

C.

it is used when an entity goes into liquidation.

D.

it supports the use of assets such as Prepaid Expenses.

According to the Conceptual Framework, existing and potential investors, lenders and other creditors of a reporting entity need information in general purpose financial reports to make assessments about:

I.

expected returns from the entity in the form of dividends, principal and interest payments or market price increases.

II.

the amount, timing and uncertainty of future net cash inflows of the entity.

III.

management’s stewardship of the entity’s economic resources.

IV.

the corporate social responsibility performance of the entity.

A.

I. and II. only.

B.

I. only

C.

I., II., III. and IV

D.

I., II. and III. only

The equity of Suresh Ltd on 30 June 2019 was as follows:

Share capital (issued at $4, fully paid)

Asset revaluation surplus

$

200 000

700 000

Suresh Ltd decided to offer all the shares to their management as options, at an issue price of $0.65 per option. Each option allows the holder to subscribe for one ordinary share at an exercise price of $2.80 per share on or before 1 July 2020. All the options were purchased by management. By 1 July 2020, 80% of the options issued were exercised and shares were issued. The remaining options lapsed.

Which of the following is a correct entry?

A.

cash

$ 112,500.00

share options

$ 112,500.00

B.

cash

$ 42,500.00

share options

$ 42,500.00

C.

cash

$ 112,000.00

share options

$ 112,000.00

D.

cash

$ 32,500.00

share options

$ 32,500.00

On 1 January 2015, Russi Ltd constructed an electricity plant. The cost of the building and associated technology was $1,000,000. The license to operate and architects’ fees amounted to $500,000. The dismantling cost was expected to be $800,000 at the end of plant’s 10-year useful life. The discount rate was 10%.

The residual value is expected to be $8,435. The plant is expected to generate benefits evenly throughout the years. At the end of 2018, it sells the plant for $1,000,000 cash.

What is the amount of loss on sale?

A.

$88, 435

B.

$90, 000

C.

$98, 435

D.

$95, 000

On 1 January 2015, Russi Ltd constructed an electricity plant. The cost of the building and associated technology was $1,000,000. The license to operate and architects’ fees amounted to $500,000. The dismantling cost was expected to be $800,000 at the end of plant’s 10-year useful life. The discount rate was 10%.

The residual value is expected to be $8,435. The plant is expected to generate benefits evenly throughout the years. At the end of 2018, it sells the plant for $1,000,000 cash.

What is the carrying amount of the plant at the end of 2018?

A.

$1, 088, 434

B.

$1, 079, 434

C.

$1, 079, 435

D.

$2, 099, 435

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Which of the following stateme

Which of the following statements is CORRECT?

a. The yield on a 2-year corporate bond should always exceed the yield on a 2-year Treasury bond.
b. The following represents a “possibly reasonable” formula for the maturity risk premium on bonds: MRP = -0.1%(t), where t is the years to maturity.
c. The yield on a 3-year Treasury bond cannot exceed the yield on a 10-year Treasury bond.
d. The yield on a 3-year corporate bond should always exceed the yield on a 2-year corporate bond.
e. The yield on a 10-year AAA-rated corporate bond should always exceed the yield on a 5-year AAA-rated corporate bond.

Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?

a. If an investment pays 10% interest, compounded quarterly, its effective annual rate will be greater than 10%.
b. The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.
c. Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit.
d. A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.
e. A bank loan’s nominal interest rate will always be equal to or greater than its effective annual rate.

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Which of the following stateme

Which of the following statements is true? Give all correct answers.
a.
Effective annual rate > annual percentage rate
b. Effective annual
rate = annual percentage rate
c. Effective annual rate < annual
percentage rate
3. When you increase the number of payments per period,
why does the total cash payments times the number of payments in the
period not equal the original single payment for the period? (In other
words, why does twelve times a monthly payment on a loan with a positive
interest rate not equal the required annual payment on the same loan
amount with the same inter- est rate?)
4. Explain why the real interest
rate is the reward for saving.
5. What does the term risk-free interest
mean, and why do we usually use the U.S. Treasury bill yield as the
risk-free rate?
6. Why does a mortgage typically have a lower interest
rate than a car loan?
7.on average, which factor do you think contributes
more to the nomin free rate, inflation or the real rate?

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Which of the following stateme

Which of the following statements about ‘The Good, The Bad and the Ugly’ and ‘Financial Leverage’ sections are TRUE:

The rent v buy debate is essentially a comparison between the wealth created from renting your entire life and also regularly saving and investing versus the alternative of borrowing to buy a home and living in that home for most of your life.
The rent v buy debate indicates that buying a home is more likely to create more wealth than renting for your entire life.

Neither of the statements are true (both are false)

Only statement 1 is true

Only statement 2 is true

Both statements are true (neither are false)

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Which of the following stateme

Which of the following statements about interest rates are TRUE:

Interest rates on interest only loans are normally higher than principal and interest loans. Interest rates on residential investments loans (for investment properties) are also usually higher than for loans for owner-occupied homes.
If variable interest rates are expected to increase in the future, choosing a variable interest rate on a new home loan will likely reduce your interest expenses compared to choosing a fixed interest rate on a new home loan.

Neither of the statements are true (both are false)

Only statement 1 is true

Only statement 2 is true

Both statements are true (neither are false)

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Which of the following stateme

Which of the following statements best describes the relation between interest rates offered on comparable fixed-rate and adjustable rate mortgage (ARM) loans?

Multiple Choice

a. ARM interest rates are typically greater than those on fixed-rate mortgages since interest rate risk is borne by both borrower and lender in an ARM.

b. ARM interest rates are typically less than those on fixed-rate mortgages since interest rate risk is borne by both borrower and lender in an ARM.

c. ARM interest rates are typically greater than those on fixed-rate mortgages since interest rate risk is borne solely by the lender in an ARM.

d. ARM interest rates are typically less than those on fixed-rate mortgages since interest rate risk is borne solely by the borrower in an ARM.

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Which of the following stateme

Which of the following statements are false?

I. A corporation faces two principal financial decisions. First, decide which investments to make. Second, decide how will the earnings be distributed to the stockholders as dividends.

II. Net working capital (NWC) is the difference between a company’s current assets and current liabilities.

III. Real assets such as machinery and buildings are considered tangible assets, while financial assets and securities such as treasury bonds are considered intangible assets.

IV. The R&D department of Unilever is considering introducing a new type of dry shampoo to the market. In order to produce this new product, the corporation needs to invest $25 million in new machinery. This investment is considered as Capital Budgeting, also known as CAPEX (capital expenditure).

V. A dividend is a distribution of profits by a corporation to its stakeholders. Dividends are always distributed as cash dividends in most firms because stock dividends are limited only to financial entities.

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Which of the following stateme

Which of the following statements is? FALSE?

Generally? speaking, if the? asset’s tax depreciation deductions are more rapid than its lease? payments, a true tax lease is advantageous if the lessor is in a higher tax bracket than the lessee.
B.
For a lease to be attractive to both the lessee and the? lessor, the gains must come from some underlying economic benefits that the leasing arrangement provides.
C.
A tax gain occurs if the lease shifts the more valuable deductions to the party with the higher tax rate.
D.
With a true tax? lease, the lessor replaces depreciation and interest tax deductions with a deduction for the lease payments

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Which of the following stateme

Which of the following statements correctly describes the relationship between a long-term bond’s market value, its coupon rate and the relevant yield to maturity?

a. None of the other statements are correct

b. A government bond with a fixed coupon rate may be valued below its’ face value even though the promised cash flows are effectively riskless.

c. More than one of the other statements are correct

d. When bonds are initially issued, the coupon rate is generally set equal to the required yield to maturity so that the company can issue the bonds at their face value.

e. If at any point in the bond’s life its coupon rate is less than the market determined yield to maturity, its market value at that time will be less than the face value of the bond.

2. Which of the following statements correctly describes aspects of simple interest as discussed in lectures?

a. A loan that has been created that pays simple interest, will involve interest payments that are calculated on the basis of both the principal amount borrowed as well as any interest that has accumulated to date.

b. With simple interest, the future value of any cash flow is simply its current value discounted back at a rate of r% per period for n periods.

c. By convention, simple interest is the main method used for the pricing of long-term bonds.

d. More than one of the other statements are correct

e. None of the other statements are correct

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Which of the following stateme

Which of the following statements about the issuing of bills of exchange is NOT correct?

Bills of exchange are sold at a discount to face value

A bank may accept a bill of exchange

The drawer is the party that issues the bill of exchange

The discounter is the party that borrows the funds

Which of the following statements is true for business risk?

Business risk is affected by the nature of the operations and the industry the company operates in

Interest rate risk is a category of business risk

Business risk refers to factors that impact on the value of the company’s assets

None of the given answers are correct

Restrictions in loan contracts that prevent the borrower from undertaking certain actions (such as restricting borrowing additional funds from other banks) are known as:

Positive covenants

Negative covenants

Forward rate agreements

Financial ratios

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Which of the following stateme

Which of the following statements concerning control chart limits is NOT true?

a.

the larger the value of z, the more narrow the control limits are and the less sensitive the chart is to changes in the production process

b.

the larger the value of z, the more narrow the control limits are and the more sensitive the chart is to changes in the production process

c.

the smaller the value of z, the wider the control limits are and the less sensitive the chart is to changes in the production process

d.

the smaller the value of z, the more narrow the control limits are and the more sensitive the chart is to changes in the production process

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Which of the following stateme

Which of the following statements regarding hedge funds is false?
Operate in a relatively unregulated environment
Provide more flexibility in their investment strategies
Commonly use leverage and derivatives
Aim to replicate the composition and performance of a specific market index
An investor whose superannuation is invested in a higher proportion of low-risk assets such as fixed-interest and cash, is likely to be invested in which type of superannuation fund?
Managed growth fund
Growth fund
Self-managed super fund
Capital stable fund
Which of the following is NOT an example of an OBS transaction for banks?
Issuing negotiable certificates of deposit in the money markets
Standby letter of credit
Open positions in derivatives markets
Funds promised to future borrowers, but not yet drawn down

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Which of the following stateme

Which of the following statements is incorrect?

A.Investment companies do not charge a fee called the annual expense ratio to shareholders to pay for operating costs and management fee because it holds unmanaged funds with zero operating costs.

B.Unlike mutual funds, hedge funds traditionally do not disclose information to their investors about their investing activities.

C.All the answers are correct except one.

D.Because Exchange-Traded Fund (ETF) portfolios are typically unmanaged, they have much lower annual expense ratios than actively managed mutual funds.

E.Average annual total return used by mutual funds is a hypothetical return if achieved annually, produces the same cumulative total return if performance had been constant over the entire period.


What is “closed” in a closed-end investment company?

A.Group of answer choices

B.The sales of shares in the company are open only to the officers, “closed” to all others.

C.The sales of shares in the company are “closed” after the initial public offering.

D.The company invests in some appropriate investments, then “closes” operation.

E.none of the answers is correct.

F.The market value of the company is “close” to the net asset value.


Relative to mutual funds, ETFs offer a tax advantage because:

A.capital gains are exempt from taxes.

B.capital gains taxes are assessed only if ETF shares are sold.

C.dividend income and capital gains are exempt from taxes.

D.dividend income is exempt from taxes.

E.none of the answers is correct.

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Which of the following stateme

Which of the following statements is correct?

The ask quote is the rate at which the dealer will sell foreign currency.
The most widely quoted Eurocurrency interest rate is the London Interbank Offer Rate, or LIBOR, which is the long-term premium rate that major insurance firms in London charge to policyholders.
The spot rate is the exchange rate that you would pay for future delivery of a currency.
All the answers are correct.
If the exchange rate is the price in dollars for a foreign currency, it is often called the European or indirect quote
Question 15
Which of the following statements is correct?
Given that the spot rate is $1.5136/€ and the 90-day forward quote is $1.4974/€, we can say that the U.S. dollar is expected to depreciate against the Euro in the future.
If a firm is located in a country with a relatively unstable political environment, management will require a lower rate of return on capital projects.
The spot rate is the exchange rate that you would pay for future delivery of a currency.
All the answers are correct.
If a firm is located in a country with a relatively unstable political environment, management will require a higher rate of return on capital projects.

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Which of the following stateme

Which of the following statements is incorrect?


The forward rate is what you agree to pay for the currency in the future by signing a contract today to buy the currency on a date in the future.

The spot rate is the cost of buying a foreign currency today “on the spot.”

If the exchange rate is the price in foreign currency for a dollar, the quote is called an American or direct quote.

Given that the spot rate is $1.5136/€ and the 90-day forward quote is $1.4974/€, we can say that the U.S. dollar is expected to appreciate against the Euro in the future.

All the answers are correct except one.

Question 12

Which of the following statements is correct?

With the international capital budgeting, the decision to accept international projects with a negative NPV increases the value of the firm and is consistent with the fundamental goal of financial management, which is to maximize the sales.

According to a British buyer, the lower the dollar price of pounds, the greater the number of pounds that must be given up to obtain dollars to buy foreign goods.

The forward rate is what you agree to pay for the currency today by signing a contract today to buy the currency on a date today or in two business days.

All the answers are correct. Country risk has no effect on a firm’s cash flows

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Which of the following stateme

Which of the following statements regarding the agency problem is most true? Pick the answers that fit the best

A) An agency problem exists when a conflict arises when people are entrusted to look after the interest of others and may use the authority or power to their own benefit

B) Agency cost directly observable in the stock market

C) A corporate expenditure benefits shareholders but harms the management is considered an agency cost

D) An agency problem does not exist when there is a conflict of interest between the bondholders and the stockholders

E) An agency problem exists when there is a conflict of interest between 2 agents

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Which of the following stateme

Which of the following statements about the impact of a company’s competitive efforts in a 0 region on its regional market share and number of branded pairs sold is false o Companies whose delivery times are in a region are shorter than the all-company average O The bigger is a company’s model-based competitive advantage in a region, the bigger the O A company’s sales/market share outcomes in a region’s Wholesale Segment are positively O A company’s expenditures for brand advertising in each geographic region is judged to be O A company’s pairs sold and market share outcomes in a region are negatively impacted have a competitive disadvantage in attracting footwear retailers to stock their brand positive impact on its pairs sold and market share in that region impacted when its number of retail outlets is above the regional average and are negatively impacted when its number of retail outlets is below the regional average C O competitively strong when its annual brand advertising expenditures exceed the all-company regional average. C 3 2 when its brand reputation is below the regional average, and this negative impact becomes 0 0 progressively larger as the size of the percentage below the regional average increases Copying, redistributing, or website posting is expressly prohibited and constitutes copyright vwolation 2 Copyright O 2019 by Glo-Bus Software, Inc. Next> Previous 2019 b Privacy F

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Which of the following stateme

Which of the following statements is/are correct?

a. in an efficient market, all stocks offer equal expected risk adjusted rates of returns

b. in an efficient market, all stocks offer equal expected rates of return

c.in an efficient market, some of the stocks outperform others

d. two of the answers are correct

-According to behavioral finance, if you are unable to find successful trading schemes, this

a. is not necessary a proof of market efficiency

b. is a proof of market efficiency

c. two of the answers are correct

d. is a proof of market inefficiency

-investors show risk-seeking attitude to the left of the origin point, then their utility function is

a. concave b.convex c. none of the answers are correct d. conventional

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Which of the following stateme

Which of the following statements accurately describe equity carve-outs?

It can eventually lead to a spin-off.
b. More than one of the other statements are correct.
c. The parent company does not receive cash from the shares sold in the new entity
d. The parent company maintains a significant ownership in the new entity
e. None of the other statements are correct.
Which of the following statements accurately describe the imputation tax system?
a. It is designed to prevent double taxation.
b. It is a common taxation system throughout the world.
c. None of the other statements are correct.
d. It incentivizes forms to keep retain franking credits for future use.
e. More than one of the other statements are correct.

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Which of the following stateme

Which of the following statements accurately describe option positions?

a. Selling the right to buy an underlying asset is referred to as a long put
b. Buying the right to sell an underlying asset is referred to as a short call.
c. Buying the right to buy an underlying asset is referred to as a long call.
d. None of the other statements are correct.
e. More than one of the other statements are correct.
Pinder Ltd is an electronics, home, and whitegoods retailer. It recently completed a takeover of Value Co which sells home entertainment systems, small and large kitchen appliances including washing machines, refrigerators etc. This takeover can be best classified as a
a. Horizontal takeover
b. Hostile takeover
c. Conglomerate takeover
d. None of the others
e. Vertical takeover

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Which of the following stateme

Which of the following statements accurately describe spin-offs?

a. More than one of the other statements are correct.
b. None of the other statements are correct.
c. In a spin-off, the parent firm keeps significant ownership of the spun-off form,
d. A spin-off is the simplest way to make a firm more focused,
e. In a spin off the shares of the spun-off firm are distributed to existing shareholders.
Which of the following statements accurately describe dividend policy?
a. Managers are usually willing to increase dividends even if the increase in earnings is likely to be unsustainable.
b. Increasing dividends usually signal that managers believe the firm has poor cash flow prospects in the future
c. High dividend payout policy can increase the potential conflict between managers and shareholders.
d. More than one of the other statements are correct.
e. None of the other statements are correct.

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Which of the following stateme

Which of the following statements accurately describe risk management?

a. Risk management should not matter in perfect capital markets.
b. None of the other statements are correct.
c. Managers will not reduce the firm’s risk to reduce their own career risk.
d. More than one of the other statements are correct.
e. Removing the poor outcomes without affecting positive outcomes will decrease expected returns
Which of the following statements accurately describe takeovers?
a. More than one of the other statements are correct.
b. Takeover activities usually occur in waves.
c. None of the other statements are correct.
d. One disadvantage of cash offers is that it can makes the offer more likely to be rejected by the target firm’s shareholders.
e. Takeovers that result in market monopolies can be subject to approval be government regulators.

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Which of the following stateme

Which of the following statements is CORRECT?

1) When a corporation uses the overall corporation cost of capital, there is a risk of accepting risky projects that otherwise should be rejected and rejecting less risky projects that otherwise should be accepted.
2) In the presence of risk of financial distress and bankruptcy, the cost of debt is generally higher than the cost of equity capital.
3) With the debt capital being riskier than equity capital, the after-tax cost of debt should necessarily be greater than the WACC.
4) Because no flotation costs are required to obtain capital as retained earnings, the cost of retained earnings is generally lower than the after-tax cost of debt.

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Which of the following stateme

Which of the following statements about crafting a strategy to be competitively successful in the markets for action cameras and drones IS true? Copyright @ by Glo-Bus Software. Ine. Copying, distributing or 3rd party website posting isexpressly prohibited and constitutes copyright violation.

O GLO-BUS has a built-in bias that favors the company that operates most cost-efficiently.
O The most powerful strategy and competitive approach a company can employ is always one of pursuing a competitive advantage keyed to producing action camers and UAV with higher P/Q ratings than any other rival company.
O So long as a company is profitable, there is no compelling need for its managers to make changes or adjustments in the company’s strategy and competitive actions/efforts simply to respond to the shifting strategies and competitive efforts of rival companies that are actively striving to improve their overall performance.

O Whether a company is operating cost efficiently is not especially important in devising a successful and profitable strategy, so long as its sales/market shares of cameras /drones in the 4 geographic regions are above the industry averages.
O In GLO-BUS, there are multiple strategic approaches and sets of competitive efforts/action that, if properly designed and well-executed, are capable of producing competitive success in the global market for cameras/drones, provided they are not overpowered or thwarted by even more potent strategic approaches and competitive actions/efforts that are well-executed by rival companies.

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Which of the following stateme

Which of the following statements is FALSE? ….

O A. In perfect capital markets, an open market share repurchase has no effect on the stock price, and the stock price is the same as the ex-dividend price if a dividend were paid instead.
OB. In perfect capital markets, holding fixed the investment policy of a firm, the firm’s choice of dividend policy is irrelevant and does not affect the initial share price.
OC. In perfect capital markets, investors are indifferent between the firm distributing funds via dividends or share repurchases. By reinvesting dividends or selling shares, they can replicate either payout method on their own.
OD. In a perfect capital market, when a dividend is paid, the share price drops by the amount of the dividend when the stock begins to trade ex – dividend.

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Which of the following stateme

Which of the following statements about bonds is NOT correct?

A. The total return on a bond during a given year is based only on the coupon interest payments received.

B. For a given firm, its debentures are likely to have a higher yield to maturity than its mortgage bonds.

C. All else equal, a bond that has a coupon rate of 8% will sell at a discount if the required return for bonds of similar risk is 10%.

D. The price of a discount bond will increase over time, assuming that the bond’s yield to maturity remains constant.

27. You are analyzing the value of an investment by calculating the present value of its expected cash flows. Which of the following would cause the investment to look better, i.e. have a higher PV?

A. The discount rate falls.

B. The riskiness of the project’s cash flows increases.

C. The discount rate rises.

D. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same.

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Which of the following stateme

Which of the following statements is most accurate?

a. A “repositioning strategy is often utilized in the growth stage of the product life cycle.
b. As a result of limited competition, industry profits are likely to be highest in the introduction stage of the product life cycle.
C. “Informing customers” is the primary marketing communication objective in the maturity stage of the product life cycle.
d. “Cannibalization” describes a situation whereby the introduction of a new product has a negative impact on the sales of similar products offered by competitors.
e. Quality is tied to how customers think a product will perform, not necessarily to some technological level of perfection

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Which of the following stateme

Which of the following statements is correct?

Preferred dividends paid are tax deductible.

Special dividend payments are tax deductible.

Common dividends paid are tax deductible.

None of the statements above is correct.

Yields on longer-term bonds usually are greater than on shorter-term bonds, so the market risk premium of a bond is more affected by interest rate risk than by reinvestment rate risk.

True.

False.

The general structure of corporate governance is common stock represents a firm’s ownership that implies the control of the firm. Stockholders elect directors and directors hire, fire, and compensate top executives (i.e. CEO).

True

False.

Under what forms of Efficient Market Hypothesis, investors cannot profit via inside information?

Weak-form Efficient Market Hypothesis

Semi-strong form Efficient Market Hypothesis

Strong-form Efficient Market Hypothesis

None of the above is correct.

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Which of the following stateme

Which of the following statements is (are) correct?

Select one:

A. A strong demand increase together with a weaker supply decrease would necessarily result in a higher price and an increase in equilibrium quantity.

B. A weak demand decrease together with a stronger supply increase would necessarily result in a lower price and an increase in equilibrium quantity.

C. A weak demand increase together with a stronger supply increase would necessarily result in a lower price and an increase in equilibrium quantity.

D. All of the above

E. A and B, only

Values of quantity supplied and quantity demanded for specific prices in a particular market are listed. The quantity demanded at the price of $28 is 1,000 units. At the price of $26, the quantity demanded is 1,300 units and at the price of $24 the quantity demanded is 1,600 units. The quantity supplied at the price of $28 is 1,500 units. At the price of $26, the quantity supplied is 1,300 units and at the price of $24 the quantity supplied is 1,100 units. (Hint: you may find it helpful to draw the graph). Which of the following statements is (are) correct?

(x) If the actual market price was $24, then a shortage of 500 units would exist and the price would rise to $26, but not to $28.

(y) If the actual market price was $28, then a surplus of 500 units would exist and price would fall to $26, but not to $24

(z) If the actual price was either $28 or $24, then the market would not be in equilibrium and less than 1,300 units would be sold.

Select one:

A. (x), (y) and (z)

B. (x) and (y) only

C. (x) and (z) only

D. (y) and (z) only

E. (z) only

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Which of the following stateme

Which of the following statements are true about derivatives?

  1. Derivatives are securities whose payoff is linked to another security; the payoff is never assured with certainty.
  2. A swap is a derivative instrument between counterparties that only exchanges a series of cash flows for specific time period at specific intervals; nationals are never swapped.
  3. Nationals are standardized and tradable derivatives.
  4. All derivatives have potential outcomes which may be unfavorable to one of the parties.
  5. One of the counterparties will always have off-balance-sheet liability risk.
    1. Only I. is true.
    2. Only II, III, IV and V are true.
    3. II and V are false; all others are true
    4. Only II and III are false, all the others are true
    5. None

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Which of the following stateme

Which of the following statements is FALSE?
a.The bankruptcy code is designed to provide an orderly process for settling a firm’s debts.
b.Whether paid by the firm or its creditors, the indirect costs of bankruptcy reduce the value of the assets that the firm’s investors will ultimately receive.
c.Because the assets of the firm might be more valuable if kept together, creditors seizing assets in a piecemeal fashion might destroy much of the remaining value of the firm.
d.To ensure that their rights and interests are respected, and to assist in valuing their claims in a proposed reorganisation, creditors are not allowed to seek separate legal representation and professional advice.

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Which of the following stateme

Which of the following statements is NOT CORRECT?

O Inflation, recession, and high interest rates are economic events that are best characterized as being among the factors that are responsible for market or beta risk.
O The beta of a diversified portfolio of stocks is almost always less ? stable over time than the beta of a single security.
O The Y-axis intercept of the security market line represents the required rate of return of a portfolio with a beta of zero which is the risk-free rate.
O The higher the correlation between the stocks in a portfolio, the higher the risk inherent in the portfolio.

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Which of the following stateme

Which of the following statements about loan features or additional charges and fees is correct?
a.a prepayment penalty has no effect on the effective interest rate if the loan is not paid off early
b.a loan origination fee has no effect on the effective interest rate if the loan is held to term or maturity
c.loan origination fees and prepayment penalties usually increase the effective return to the bank above the quoted fixed rate on a conventional, amortizing loan
d.both a and c
e.both b and c
PART B:
The goal of a bank manager should be to:
a.maximize shareholder wealth
b.maximize current earnings
c.minimize costs
d.minimize risk
e.maximize return on average equity

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Which of the following stateme

Which of the following statement is correct?
One would never lose money
by investing in zero-coupon bonds, because
zero-coupons are pure
discount bonds. Zero-coupon bond pays no coupon.
None of the available
options
The higher the YTM, the higher the bond price would be
For bond
with coupon payments. yield-to-maturity (YTM) is the interest rate that
equates the present value of the face value to the price today,
Which of the following statement is correct?
None of the available
options
The total return of a security is to compensate the total risk
of this security.
Unsystematic risk is compensated, while systematic
risk is not
Total Risk is measured by the variance of the stock return
Investing in individual stocks can be as good as investing in a
portfolio of stocks in terms of reward-to-risk ratio.

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Which of the following stateme

Which of the following statement(s) is/are true?

I. At year start, the spot rate was $1.50 = £1 and at year end, the spot rate is $1.45 = £1. This means the pound has appreciated.

II. If you want to hedge but worry about the counter party risk, then you should use the forward market rather than the future market.

III. Compare to the spot market, the forward market has less counterparty risk.

a) I only

b) II only

c) III only

d) I, II, and III

e) None of the above answers

How many the following statements are true regarding the Interest Rate Parity (IRP)?

I. If IRP holds then you can still make an arbitrage profit.

II. When IRP does not hold, assume no transaction costs, there are opportunities for covered interest arbitrage.

III. Relative to Purchasing Power Parity (PPP), IRP are violated (evidence against it) less often. IV. IRP involves law of one price while PPP involves investing between countries.

a) 0

b) 1

c) 2

d) 3

e) 4

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Which of the following stateme

Which of the following statement(s) is/are false?

I. Selling a call option is the same as buying a put option.

II. Prior to maturity, an American option will always cost more than a similar European option.

III. If an option is out of the money, then the holders should exercise it to capitalize the gains.

a) I only

b) II only

c) III only

d) I and III only

e) None of the above choices

3) Which of the following statement(s) is/are false?

I. For a bearer bond, possession is evidence of ownership.

II. A registered bond has higher YTM compare to a similar bearer bond.

III. The vast majority of new international bond offerings make floating coupon payments.

a) I only

b) II only

c) III only

d) I, II & III

e) None of the above choices

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Which of the following stateme

Which of the following statements is correct? Revenue and expense accounts a) are really owners’ equity accounts. b) are really paid-in-capital accounts. c) have no impact on the balance sheet. d) are really asset and liability accounts.

An accrued expense can best be described as an amount a) paid and matched with revenues. b) paid but not yet matched with revenues. c) not paid and not yet matched with revenues. d) not paid but matched with revenues.

A deferred expense can best be described as an amount a) paid and matched with revenues. b) paid but not yet matched with revenues. c) not paid but matched with revenues. d) not paid and not yet matched with revenues.

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Which of the following stateme

Which of the following statements is most correct?

1) Some years ago leasing was called “off balance sheet financing” because the leased asset and the corresponding lease obligation did not appear directly on the balance sheet. Today, though, that situation has changed materially because all leases must be capitalized and reported on the balance sheet, along with the value of the leased asset.
2) In a lease-versus-purchase analysis, cash flows should generally be discounted at the weighted average cost of capital (WACC).
3) In a synthetic lease an SPE borrows funds, guaranteed by the lessee, to purchase an asset, which it then leases to the lessee.
4) Each of the above statements is true.
5) Each of the above statements is false.

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Which of the following stateme

Which of the following statements is TRUE? a. You should be more uncertain about the return on large company stocks than you would about the return on small company stocks because small company stocks have less risk. b. Ceteris paribus, an increase in inflation rate will lead to a upward parallel shift of the security market line. Oe. The tighter the probability distribution of returns, the higher the risk. od Coefficient of variation is a measure of portfolio risk. A financial planner is examining the portfolios held by several of her clients. Which of he following portfolios is likely to have the smallest standard deviation? O a. A portfolio with 20 randomly selected stocks from U.S. and international markets. b. A portfolio with 10 randomly selected U.S. stocks. Oc. A portfolio with 10 randomly selected international stocks. d. A portfolio with a single US stock. Which of the following statements is TRUE?

oA. WACC represents the maximum return a company can earn to satisfy its investors.

Ob. Among the factors that affect the weighted average cost of capital (WACC), market conditions such as interest rates and tax rates are the ones that firms cannot control.

Oc a Accounts payable is a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting

Od Companies should use composite WACC as the hurdle rate for each of its projects with different risk levels to accept/reject decisions.

Moby Corporation has a target capital structure of 50% common stock, 5% preferred stock, and 45% debt. Its cost of equity is 8%, the cost of preferred stock is 6%, and the pretax cost of debt is 4%. The tax rate is 35%. What is the company’s WACC?

O a. 9.41% Ob. 2.37% O c. 10.30% O d. 5.47%

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Which of the following stateme

Which of the following statements is TRUE?

a. The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to recoup its initial cost.

b. A longer payback period is preferred over a shorter payback period.

c. The regular payback period takes the time value of money into account, while the discounted payback period does not

d. The payback method is biased toward long-term projects.

Which of the following statements is TRUE?

a. The NPV increases as the cost of capital increases.

b. The IRR is the discount rate that makes the NPV greater than zero.

C. IRR is a reliable measure for non-conventional cash flows and mutually exclusive projects.

d. The vertical intercept on the NPV Profile graph can be found by taking the sum of all of the project’s undiscounted cash flows.

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Which of the following stateme

Which of the following statements about Interest Expense (IntExp) is NOT correct?

a.IntExp is calculated as the value of debt (D) multiplied by the cost of debt (????)
b. Higher IntExp has the effect of reducing Net Income but increasing Cash Flow from Assets.
c.IntExp is treated as zero in the unlevered Cash Flow from Assets, or Operating Free Cash Flow formula.
d.If IntExp and the associated tax shield are treated as zero in the firm cash flows, they must be discounted using the WACC before tax to calculate the levered value of the firm including tax shields.e.If IntExp is zero, the value of the unlevered firm is equal to the value of unlevered equity.

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Which of the following stateme

Which of the following statements are true?

A: Swaps are standardized exchange-traded instruments.

B: The present value of floating rate payments in a swap, at initiation, is always 1.

C: If you are paying a fixed interest rate and receiving a stock’s return in a swap, and the stock’s return is negative, you have to pay more than the interest payment to the other party.

D: Basis spread is the rate differential added to the lower of two floating rates in a swap.

E: If you are a borrower with a variable interest loan and you are worried about rising interest rates, entering into a plain vanilla swap in which you are paying fixed and receiving floating creates a hedge.

F: The value of a swap at initiation is 1.

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Which of the following stateme

Which of the following statements is correct? Group of answer choices Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies’ debt ratios to be lower than they would be if interest and dividends were both deductible. Interest paid by a corporation is a tax deduction for the paying corporation, but dividends paid are not deductible. This treatment, other things held constant, tends to encourage the use of debt financing by corporations. If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, this would probably encourage companies to use more debt financing than they presently do, other things held constant. There are no tax advantages for corporations that issue bonds and make coupon payments. The fact that 70% of the interest income received by a corporation is excluded from its taxable income encourages firms to use more debt financing than they would in the absence of this tax law provision.

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Which of the following stateme

Which of the following statements is false?

A. Each spouse in a marriage is taxed separately on his or her taxable income for a particular year of assessment if they are married out of community of property, unless married in community of property
B. A change in marital status during a year of assessment does not affect the tax situation of a natural person.
C. When a minor child or stepchild receives income in his own right, the income is subject to tax in his own hands, unless it’s a donation, settlement or other disposition.
D. None of the above
4. Which of the following statements is true?
A. Actual travel allowance received by the employee is fully taxable
B. Travelling between the taxpayer’s place of residence and his or her place of employment is regarded as business travel
C. Travel allowance is only taxable if the taxpayer keeps records of actual costs incurred
D. Amounts expensed for business purposes can only be claimed under travel allowance if the taxpayer keeps an accurate logbook.
5. Namene was granted the right to use the employer-owned motor vehicle with effect from 1 May 2019. The employer acquired the motor vehicle on 1 March 2016 at a retail market value of R101 200. The motor vehicle was not subject to any maintenance plan. What is the determined value of the motor vehicle for the 2020 year of assessment? Round off to the nearest rand
A. R101 200 B. R35 420 C. R62 150 D. R21 753
6. Zinhle works at SWR. Her employer provided her, her husband and their two daughters with free holiday accommodation in a Deluxe chalet at Dolomite Resort (SWR Resort) for 5 days. The normal accommodation rate for Deluxe chalets is R3 500 a day. What is the cash equivalent of the taxable income to Zinhle?
A.RO B. R17 500 C. R3 500 D. R31 500

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Which of the following stateme

Which of the following statements regarding IPO cost are TRUE?
I. Investment banks can charge the private firm a gross spread, about 7% of the fund raised, only if they agree to buy all the shares from the issuer
II. IPO underpricing describes a phenomenon that IPO stocks underperform the market over 1 to 3 years
III. The first-day price jump does not imply a cost if share price reverses back to the offering price level after one year
IV. The first-day price jump indicates that investment banks and the private firm are not 100% sure abo??t the market??s demand before the first day
A. I. and II. Only B. IV only
C. I. II and III only

D. II and IV only
E. None of above are correct

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Which of the following stateme

Which of the following statements is least likely?

Group of answer choices

All other things remaining the same, a company with a larger ratio of tangible assets to intangible assets will be able to use less financial leverage.

Management has more control over a company’s degree of financial leverage than its degree of operating leverage.

The degree of financial leverage is different at different levels of operating income.

Number of units sold = 450,000

Sales price per unit = $15

Variable cost per unit = $6

Degree of operating leverage = 1.30645

Degree of financial leverage = 1.08772

Operating fixed costs = $949,996

Financing fixed costs = $250,002

Beta Inc.’s operating breakeven number of units is closest to:

Group of answer choices

105,555 units

94,444 units

83,333 units

Beta Inc.’s breakeven number of units is closest to:

Group of answer choices

133,333 units

65,770 units

77,777 units

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Which of the following stateme

  1. Which of the following statements is true for buyout private equity funds

    a.

    It targets emerging industry sectors

    b.

    It usually issues debt to finance the buyout

    c.

    It has a lower success rate than venture capital

  1. Equity long-short strategy tends to have:

    a.

    low exposure to the market risk

    b.

    low transaction cost

    c.

    low portfolio turnover

  1. A fixed income portfolio manager anticipates the future interest rate to increase. To protect the value of his/her portfolio, the fund manager should:

    a.

    Decrease the duration of his/her portfolio

    b.

    Increase the duration of his/her portfolio

    c.

    The manager should not adjust the duration of his/her portfolio

  1. Which of the followings can result in lower portfolio risk?

    a.

    decrease the number of assets in the portfolio

    b.

    decrease the correlations between assets in the portfolio

    c.

    increase investments in high beta assets

According to the modern portfolio theory, portfolios on the efficient frontiers are:

  1. a.

    portfolios with the highest risk

    b.

    portfolios with the highest returns

    c.

    portfolios with optimal risk and return tradeoff

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Which of the following stateme

  1. Which of the following statements about risk is NOT correct? Generally, greater

    a.

    spending needs allow an investor to take greater risk

    b.

    existing wealth allows for greater risk-taking

    c.

    insurance coverage allows for greater risk-taking

  1. Last year, a portfolio manager earned a return of 4%. The portfolio’s beta was 1.5. For the same period, the market return was 10%, and the average risk-free rate was 3%. Jensen’s alpha for this portfolio is closest to:

    a.

    2.4%

    b.

    -5.2%

    c.

    -9.5%

Which of the following is NOT a characteristic for value companies

  1. a.

    They tend to pay high dividends

    b.

    They tend to lower earnings growth rates

    c.

    They tend to have high price-to-earnings ratios

  1. The major components of a typical investment policy statement (IPS) do NOT include:

    Investment manager’s compensation

    Investment objectives, constraints and guidelines

    Portfolio review process

  1. Over the long run, the primary source of investment return and risk can most likely be attributed to:

    a.

    Asset allocation

    b.

    Market timing

    c.

    Security selection

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Which of the following stateme

Which of the following statement is correct?

Relative to the price of a long term bond, the price of a short-term bond is more sensitive to the change in interest rate.
Interest rate risk of a short-term bond is higher than the interest rate risk of a long-term bond.
Interest rate risk of a short-term bond is higher than the interest rate risk of a long-term bond.
It is possible that the price of a Zero-coupon is larger that its face value.
Bond price would be lower if the default risk of the bond issuer increases.

2. A particular asset has a beta of 1.2 and an expected return of 15%. The expected return on the market portfolio is 13% and the risk-free asset is 5%. Which of the following statements are correct?

I. This asset line on the security market line.
II. This asset line above the security maket line.
III. This asset line below the security maket line.
IV. This asset is underpriced.
I only
II only
III and IV
II and IV
None

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Which of the following stateme

Which of the following statements is true?

I) When calculating Enterprise Value for Relative Valuation purposes we subtract all Cash holdings as stated in the balance sheet. However, theoretically speaking, it would make sense subtract “Excess cash” only, that is, the cash holdings that are not strictly necessary to support the operation of the business.

II) Private equity companies are not expected to be as successful managing money in the future as they were in the past because, with more private equity money chasing a finite number of deals, it is now harder to purchase private businesses on the cheap compared to the 1990s and early 2000s.

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Which of the following stateme

Which of the following statements is true regarding the key driver of ESG policy decisions?

O The key driver of ESG policy decisions has been demand from wider society to integrate the effects and impact of resource depletion into the investment decision process.
b) The key driver of ESG policy decisions has been demand from wider society to integrate the effects and impact of poor corporate governance into the investment decision process .
c) The key driver of ESG policy decisions has been demand from wider society to integrate the effects and impact of ESG externalities into the investment decision process.
d) The key driver of ESG policy decisions has been demand from wider society to integrate the effects and impact of social injustice into the investment decision process.

15) Within an integrated ESG assessment, which of the following statements is correct in relation to materiality assessment?
O Investors that primarily see ESG analysis and ESG integration as a way to enhance investment processes, are likely to focus on ESG issues they consider financially immaterial.
b) Materiality is measured in terms of likelihood and magnitude of impact on a company’s financial performance
c)There is evidence that non material factors may have an impact on financials, valuations and company business models.
d) The materiality assessment is typically undertaken in the valuation stage,

18) When engaging with a company on a purely voting issue, what would be the usual starting point?

O The Chair
O The Company Secretary

O The CEO
O The Board

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Which of the following stateme

Which of the following statements best describes how a change in a firm’s stock price would affect a stock’s capital gains yield? The capital gains yield on a stock that the investor already owns has an Inverse relationship with the firm’s expected future stock price. The capital gains yield on a stock that the investor already owns has a direct relationship with the firm’s expected future stock price Walter Utilities is a dividend paying company and is expected to pay an anual dividend of $2.45 at the end of the year. Its dividend is expected to grow at a constant rate of 9.50% per year. If Walter’s stock currently trades for $19.00 per share, what is the expected rate of return? 1,669.47% 1,085.39% 961.78% 22.39%

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Which of the following stateme

Which of the following statements is true about the expected return and risk of a portfolio of investments? There could be more than one correct answer. Generally speaking the riskier the investment the higher the expected return has to be to attract investors. The expected return and standard deviation of the portfolio are simply the averages of the individual investment returns and standard deviations. If there is a potential investment or portfolio of investments that has a low expected return you can be sure that it is not risky The expected return of the portfolio is the average of the individual investment returns but the standard deviation of the portfolio is more complicated and also depends on how the individual asset returns are correlated Which of the following statements is true about the expected return and risk of a portfolio of investments? There could be more than one correct answer. Generally speaking the riskier the investment the higher the expected return has to be to attract investors. The expected return and standard deviation of the portfolio are simply the averages of the individual investment returns and standard deviations. If there is a potential investment or portfolio of investments that has a low expected return you can be sure that it is not risky The expected return of the portfolio is the average of the individual investment returns but the standard deviation of the portfolio is more complicated and also depends on how the individual asset returns are correlated You believe that next year there is a 30% probability of a recession and 70% probability that the economy will be normal. If your stock will yield -15% in a recession and 25% in a normal year, what is the standard deviation of the stock? Answer in percentage form and round to two decimal places (ie. X.YY).

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Which of the following stateme

Which of the following statements is TRUE?

One advantage of the DPB over the PB method is that DPB discounts cash flows, whereas the PB is based on undiscounted cash flows.
Since cash flows under the IRR and MIRR are both discounted at the same rate, these two methods always rank mutually exclusive projects in the same order.
One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project’s full life, whereas MIRR does not
One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the reinvestment rate, whereas IRR assumes that cash flows are reinvested at the WACC,

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Which of the following stateme

Which of the following statements is true about the Yield to Maturity?

O a. It is the rate used to calculate the coupon payment

O b. It is the return that results from dividing the annual coupon by the price of the bond

O c. It is the actual return that bondholders receive for their bond investment

O d. The yield to maturity is the same as the APR

O e.Bond face value multiplied by the yield to maturity is equal to the coupon payment

Which of one of the following statements is true

a. If everything remains the same, an increase in the discount rate, higher the deposits

Ob. If everything remains the same, an increase in the discount rate lowers the present value

Oc. If everything remains the same, an increase in the discount rate lowers the number of periods

O d. If everything remains the same, an increase in the interest rate raises the present value

Oe. If everything remains the same, an increase in the discount rate lowers the future value

If the issuer has the right to repurchase the bond earlier, the bond feature is called

a.

Cumulative

b.

Retractable

c.

Bond discount with premium payment

d.

Callable

e.

Collateral

Which of the following is not true about the Dividend Growth Model formula?

a.

In order to calculate the price of the stock, you need to have the growth rate

b.

In order to calculate the price of the stock, the growth rate should be higher than the return

c.

The dividend growth model approach is not used to calculate the preferred stock price

d.

The dividend growth model approach is not always accurate

e.

The DGM is required to have the last dividend paid

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Which of the following stateme

Which of the following statements is FALSE?

Group of answer choices The security market line (SML) says that there is a linear relationship between a stock’s expected return and its total risk. Stocks in the same industry tend to have more highly correlated returns than stocks in different industries. The reduction in risk (benefit of diversification) in a portfolio depends on the degree to which the stocks are correlated. Stocks have both diversifiable risk and undiversifiable risk, but only undiversifiable risk is rewarded with risk premium. When we form an equally weighted portfolio of stocks and keep increasing the number of stocks in the portfolio, the volatility of the portfolio also decreases.

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Which of the following stateme

Which of the following statements is correct?

Multiple Choice
The spot rate is the rate on the date of the transaction and the relevant forward tate is the exchange rate used at the end of the reporting period
The average rate is the exchange rate used for all transactions on transaction date
The historical rate is the exchange rate on the date of the transaction and the closing rate is the exchange rate at the end of the ceporting period
The historical rate is the exchange rate on the date of the transaction and the closing rate is the rate on which any hedge transactions mature

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Which of the following stateme

Which of the following statements about a routine inquiry that seeks only one piece of information is true?

A) The message can move to a goodwill ending immediately after you ask your question.
B) It is inappropriate for the sender to add any extra explanation related to the query.
C) The length of the message must be kept to a minimum by excluding closing remarks.
D) For such a message, it is advisable for the writer to use the indirect approach.
E) The message requires that the writer use the we-viewpoint in addressing the reader.
Which of the following is the most appropriate beginning for a typical routine inquiry message?
A) a friendly question such as “How are you doing?”
B) a buffer designed to set up persuasive efforts
C) a persuasive opening using the indirect approach
D) an off-subject, friendly introduction
E) a brief statement to orient the reader

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Which of the following stateme

Which of the following statements is FALSE?

A. If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate
B. In general, the difference between the cost of capital and the internal rate of return (IRR) is the maximum amount of estimation error in the cost of capital estimate that can exist without altering the original decision
C. The internal rate of return (IRR) can provide information on how sensitive your analysis is to errors in the estimate of your cost of capital.
D. If the cost of capital estimate is more than the internal rate of return (IRR), the net present value (NPV) will be positive.

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Which of the following stateme

Which of the following statements accurately describes characteristics of a leveraged buyout as discussed in lectures?

Group of answer choices

(a) Leveraged buyouts are the acquisitions of mature companies by private equity firms, with the aim of improving their performance and then exiting the investment at a higher value.

(b) Targets of leveraged buyout activity tend to be companies with volatile cash flows – as the probability of realizing large positive returns is greater.

(c) The first stage of a leveraged buyout generally involves the private equity firm acquiring an unlisted company and immediately listing it on the stock exchange.

(d) More than one of the above.

(e) None of the above.

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Which of the following stateme

Which of the following statements is correct regarding the case study “Warren E. Buffett”?

I. Buffett argues that performance should be measured by gain in accounting profit.

II. Buffett argues that investing behavior should not be driven by technical analysis, emotion and hunch to time the market.

III. To estimate the value of PacifiCorp (Berkshire’s acquisition target), the multiple valuation method should be used because PacifiCorp does not pay annual dividends and because the information on comparable regulated energy firms is available.

options

O A. I only

OB. II only

OC. Ill only

OD. II and III only

OE. None of the choice combinations in A, B,.C and D are correct.

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Which of the following stateme

Which of the following statements is correct regarding the cost of capital estimation? I. A beta based on comparable firms is often used when the firm has just been through restructuring such as having acquired an unrelated business or spun off a division. II. Analysts often use the yield on 10-year T-STRIPS as a proxy for the market risk premium because these bonds are liquid and because their current yields reflect the markets expectations of the future. III. If the firm’s debt is private and unrated, analysts have to estimate a synthetic rating or yield from comparable firms, use ratio analyses, or examine recent borrowing history to estimate the cost of debt.
0 A. I only O B. II and III only O C. I and III only O D. I, II and Ill O E. None of the choice combinations in A, B, C and D are correct

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Which of the following stateme

Which of the following statements is correct regarding the capital budgeting practice?

1. If the project has cash flows that change directions more than once over time (i.e. outflow, inflow, outflow….), there may be more than one possible value for internal rate of return (IRR). In this situation, we should rely on the net present value (NPV) rule.

II. When NPV is negative, IRR is not always. smaller than the required rate of return (the discount rate).

III. Incremental cash flows will occur only if the project is accepted and should not be included in a capital budgeting analysis.

options

A. I and II only

B. I and III only

C. Ill only

D. I, II, and III

E. None of the choice combinations in A, B, C and D are correct

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Which of the following stateme

Which of the following statements about risk aversion is not correct?

a. risk aversion is the tendency of a person to prefer less risk instead of more risk when when faced a risky decision

b. risk aversion is a more appropriate strategy for pure risks than for speculative risks

c. risk aversion is commonly identified as a reason that consumers buy insurance

d. decisions models based on risk aversion are commonly viewed as examples of objective risk, not subjective risk

AA company has 16 employees and wants to calculate a confidence interval for the cost of health insurance per employee. AA cannot assume the cost is normally distributed. AA estimates that the mean cost per employee is $10,00. The standard deviation per employee is $2,000. Based on Chebyshef’s inequality, AA estimates that the confidence interval is $6,000 to $14,00. What is the level of confidence associated with the confidence interval?

a. 25 percent

b. 75 percent

c. 89 percent

d. none of the above

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which of the following stateme

which of the following statement is correct
a) onme disvantage of operatinfg as a corporation rather than as a partnership is that corporate shareholders are exposed to partners
b) relative to proprietorship corporations generally face fewer regulations and they also find it easier to raise capital
c ) Stockholders should generally be happier than bondholders to have managers nivest in risky projects with high potential with lower expected returns
d) stockholders in general would be better off it manager never disclosed favorable eventsand therefore caused the price of below its intrinsic value
e) there is no good reason to expect a firm’s stockholders and bondholders to react different to the types of assets in which

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Which of the following stateme

Which of the following statements refers to a situation that is likely associated with an agency cost? I. To avoid extra work and due diligence, a manager foregoes an investment opportunity that would have added to the market value of the firm owner’s equity. II. A firm offers a compensation options to its managers whereby they can either receive a base salary of $75,000 per year OR a base salary of $60,000 per year PLUS a performance bonus of up to $30,000 extra, which is dependent on the firm hitting key performance metrics for its shareholders during the year. III. A firm hires outside auditors to verify the accuracy of the company financial statements. A. Statement I only. B. Statements I & II. C. Statements I & III. D. Statements II & III. E. Statements I, II, & III.

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Which of the following stateme

  • Which of the following statements is NOT CORRECT?
  • O The Y-axis intercept of the security market line represents the required rate of return of a portfolio with a beta of zero which is the risk- free rate.
  • O Inflation, recession, and high interest rates are economic events that are best characterized as being among the factors that are responsible for market or beta risk.
  • The beta of a diversified portfolio of stocks is almost always less stable over time than the beta of a single security.
  • O The higher the correlation between the stocks in a portfolio, the higher the risk inherent in the portfolio

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Which of the following stateme

Which of the following statements about sinking fund is true?

A company would prefer to use sinking fund to call bond if bond sells at a discount.

Sinking funds are designed to protect bondholders, so it never hurts the bondholders in any situations.

A company would use sinking fund for open market purchase of bond if the interest rate is much higher than its coupon rate.

A company would prefer to use sinking fund to call bond if bond sells at a discount.

A company would use sinking fund for open market purchase of bond if the interest rate is much lower than its coupon rate.

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Which of the following stateme

Which of the following statements is FALSE?

Group of answer choices

An MNC’s access to the international capital markets may allow it to obtain funds at a lower cost than that paid by domestic firms.

A reduced cost of capital increases the firm’s value not only through increased investments in new projects but also through revaluation of the cash flows from existing projects.

ADR is quoted and traded in USD on a U.S. securities market.

If a firm’s cash inflows come from sources all over the world, those cash inflows may be more stable because the firm’s total sales will not be highly influenced by a single economy.

Firms can create value for their shareholders by issuing securities in foreign as well as domestic markets when international financial markets are not fully integrated.

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Which of the following stateme

Which of the following statements is FALSE?

Group of answer choices

While a cross-border listing can signal better protection of shareholders’ interests and a greater commitment to transparency, this transparency has a cost in management time and comes with greater risk of shareholder lawsuits and regulatory scrutiny.

European firms represent the largest contingent of foreign listings on U.S. exchanges

Foreign listing allows a firm’s stock to become part of the global portfolio.

A non-U.S. firm’s willingness to comply with U.S. disclosure requirements and securities regulations signals its quality and provides better protection of shareholders’ interests.

American Depository Receipt (ADR) is a negotiable U.S. certificate representing ownership of shares in a non-U.S. corporation.

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Which of the following stateme

Which of the following statements are true?

Select one:

a. If a firm sells on 2/10, net 30 terms and its DSO is 30 days, then it could not possibly have any past due accounts.

b. An aging schedule is used to determine what portion of customers pay cash and what portion buy on credit.

c. If a firm has a high percentage of AR that are due in more than 30 days, this is a sure sign that the firm’s credit and collections policies need to be reviewed and improved.

d. All of the above are true e. All of the above are false

2) Using the following information, calculate the firm’s required rate of return:

  • the risk-free rate is 4.25%
  • the required rate of return on the market 8.75%.
  • the Beta coefficient is 1.53

Select one:

a. 11.14%

b. 17.64%

c. 6.50%

d. 13.39%

e. 9.14%

3) A firm recently reported $112,500 in revenue, $55,000 of operating costs other than depreciation, and $12,500 of depreciation. The company had no amortization charges, it had $35,000 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was its net cash flow?

Select one:

a. $32,850

b. $34,580

3) How can management speed up the collections of cash inflows?

Select one:

a. Decentralized collection centers may speed up the collection of accounts receivable by reducing mailing time.

b. Wire transfer of funds is used to transfer from collection points to a centralized banking location.

c. Lock-box systems can be used to collect customers’ payments.

d. Streamlining in-house processes can help to eliminate wasted time in getting checks deposited.

e. All of the above can be used to speed up the cash inflows

4) Other things held constant, which of the following actions would DECREASE the amount of cash on a company’s balance sheet?

Select one:

A.The company sells an old piece of equipment.

B.The company declares and pays a dividend.

C. The company obtains additional long-term debt

D. The company gives customers less time to pay their bills.

5) Which of the following statements is CORRECT?

Select one:

a.The financial manager’s proper goal should be to attempt to maximize the firm’s expected cash flows, since that will add the most to the individual shareholders’ wealth.

b.The financial manager should seek that combination of assets, liabilities, and capital that will generate the largest expected projected after-tax income over the coming year.

c.The financial manager’s proper goal should be to minimize the riskiness inherent in a firm’s earnings per share (EPS).

d.The most important goal for the financial manager should be to attempt to maximize the firm’s total profits and as a result create more to the individual shareholders’ wealth.

e. The primary goal of the financial manager is to increase firm value, thereby creating wealth for shareholders. Shareholders are likely to measure this by monitoring share price.

6) From the READING “The Business of Business”… Companies like Google, Facebook and Amazon:

Select one:

a. Rely on short term decision for short term results

b. Act impulsively to please fund managers

c.Persuade investors to sacrifice short term gains for long term returns

d.Are slaves to share price

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Which of the following stateme

Which of the following statement is FALSE?

>Managers understand the impact of FX changes on assets and liabilities better than the impact of FX movements on operating cash flows because changes to assets and liabilities are more easily and readily measurable than factors that can impact operating cash flows over a long period of time.

>Unexpected exchange rate changes can alter the operating cash flow of a domestic firm.

>Firms may be able to create value for their shareholders by issuing securities in foreign as well as domestic markets when international financial markets are not fully integrated.

>An exporter can successfully hedge its account receivables by buying FX forward.

>Larger firms are more likely to hedge currency exchange rate risk than smaller firms.

Which of the following may be a motivation for firms to undertake hedging?

>Investors face inherent information asymmetry about the firm’s operation including its foreign exchange exposure. Therefore, the firm’s management is in the best position to hedge.

>Firms can use hedging to increase the volatility of cash flows. Financial market rewards riskier firms with higher returns.

>Firms do not create value for investors by hedging because foreign exchange markets are perfectly efficient.

>Firms incurs higher hedging costs than investors.

>Management has limited knowledge about the firm’s foreign exchange exposure and hence investors, rather than the firms, should hedge foreign exchange risks.

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Which of the following stateme

Which of the following statement is FALSE?

>If you owe a foreign currency denominated debt, you can hedge with buying the foreign currency today and investing it in the foreign county.

>The choice between a forward market hedge and a money market hedge often comes down to fisher effect.

>Buying a currency option limits the downside risk while preserving the upside potential.

>The most direct and popular way of hedging transaction exposure is by currency forward contracts.

Which of the following statement is FALSE?

>The most direct and popular way of hedging transaction exposure is by currency future contracts.

>If you own a foreign currency denominated bond, you can hedge with a swap contract where pay the cash flows of the bond in exchange for dollars.

>If you owe a foreign currency denominated debt, you can hedge with buying the foreign currency today and investing it in the foreign county.

>The choice between a forward market hedge and a money market hedge often comes down to interest rate parity.

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Which of the following stateme

Which of the following statements make the best argument for why firms should NOT hedge exchange rate risks?

>Exchange rate risk is irrelevant because many multinational companies are similarly affected by exchange rate movements.

>Exchange rate risk is irrelevant because stakeholders do not care about the financial distress risk that adverse effects of exchange rate movements may cause.

>Exchange rate risk is irrelevant for multinational companies (MNCs) because an MNC generates cash flows in numerous currencies. The exchange rate movements of many currencies can easily, exactly offset each other.

>Exchange rate risk is irrelevant because investors can hedge exchange rate risk on their own.

>Exchange rate risk is irrelevant because it is extremely difficult to hedge exchange risks profitably.

Economic exposure measures _____________________.

>the extent to which the value of the firm would be affected by unanticipated changes in exchange rate

>the exposure of an MNC’s contractual transactions to exchange rate movements.

>the effect of unanticipated changes in exchange rates on the dollar value of contractual obligations denominated in a foreign currency

>the effect of changes in exchange rates will have on the consolidated financial reports of an MNC

>the sensitivity of realized domestic currency values of the firm’s contractual cash flows denominated in foreign currencies to unexpected exchange rate changes

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Which of the following stateme

Which of the following statement is FALSE?

Direct intervention by central banks to smooth exchange rate movements are always successful.

The potential effectiveness of a central bank’s direct intervention is influenced by the amount of reserves it can use. The larger the FX reserves, the more effective the intervention is likely to be.

Direct government intervention typically does not have a permanent effect on exchange rate movements.

When central banks intervene in the foreign exchange market without adjusting for the change in the money supply, it is engaging in a nonsterilized intervention.

Direct intervention is more likely to be effective when it is coordinated by several central banks.

Which of the following represents indirect intervention?

Group of answer choices

intervention by other public institutions

imposition of foreign exchange regulations

aggressive use of interest rate policy

All of the actions represent indirect intervention

exercise of moral suasion that constrains foreign exchange activity

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Which of the following stateme

Which of the following statements regarding the three landmark court rulings by Delaware court in 1985 is true?

Smith v. Van Gorkom clarified the use of defensive tactics (poison pills) against takeover bids.
Unocal vs. Mesa Petroleum clarified the directors’ duty of care.
Revlon vs. MacAndrews & Forbes clarified that when the takeover of a corporation becomes the inevitable, the board of directors of that corporation has a duty to maximize creditor value.
Unocal test say that the burden of proof shifts to the target firm’s directors to show that they reasonably perceived a threat to the corporation, and their defensive responses were proportional to that threat

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Which of the following stateme

Which of the following statements is correct?

a. If a bond’s yield to maturity exceeds its annual coupon, then the bond will trade at a discount.

b. If a coupon bond is selling at a premium, its yield to maturity is equal to zero.

c. If a coupon bond is selling at par, its yield to maturity is equal to zero.

d. If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity.

e. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond.

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Which of the following stateme

Which of the following statements is CORRECT?

1. Sunk costs must be considered if the IRR method is used but not if the firm relies on the NPV method.

2.A good example of a sunk cost is a situation where a bank opens a new office, and that new office leads to a decline in deposits af te

3. A good example of a sunk cost is money that a banking corporation spent last year to investigate the site for a new office, then expe whether to go forward with the project,

4.If sunk costs are considered and reflected in a project’s cash flows, then the project’s calculated NPV will be higher than it otherwise would be.

5. An example of a sunk cost is the cost associated with restoring the site of a strip mine once the ore has been depleted

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Which of the following stateme

Which of the following statements is most correct?

Select one:

a. A perpetual bond is similar to a preferred stock because both enjoy positive capital gain yield.

b. A preferred stock is similar to a bond because it has a par value and a fixed dividend payment that will be paid after dividends are paid on the common stock.

c. Assume that Investor A and B agree on the expected value of dividend and on the dividend growth rate for company XXX. However, because investor A has a longer investment horizon than investor B, investor A will be willing to pay a higher price than investor B for the same company.

d. The preemptive right is less important to the stockholders of publicly owned company than to those of closely held firms.

e. A perpetual bond is similar to a no-growth common stock because both have definite lives.

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Which of the following stateme

Which of the following statements is FALSE?

Studies typically report that the average direct costs of bankruptcy are approximately 3% to 4% of the pre-bankruptcy market value of total assets

In a prepackaged bankruptcy (or “prepack”) a firm will first develop a reorganization plan with the agreement of its main creditors, and then file Chapter 7 to implement the plan and pressure any creditors who attempt to hold out for better terms.

A study of Chapter 7 liquidations of small businesses found that the average direct costs of bankruptcy were 12% of the value of the firm’s assets

The direct costs of bankruptcy are likely to be higher for firms with more complicated business operations and for firms with larger numbers of creditors, because it may be more difficult to reach agreement among many creditors regarding the final disposition of the firm’s assets.

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Which of the following stateme

Which of the following statements is FALSE?

A.

It is possible that overconfident CEOs pursue mergers that have low chance of creating value because they truly believe that their ability to manage is great enough to succeed.

B.

In M&A transactions, the considerations paid to target shareholders are limited to stock, cash, or a mix of the two.

C.

There are two primary mechanisms by which ownership and control of a public corporation can change: Either another corporation or group of individuals can acquire the target firm, or the target firm can merge with another firm.

D.

When a hostile takeover appears to be inevitable, a target company will sometimes look for another, friendlier company to acquire it.

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Which of the following stateme

Which of the following statements is FALSE?

A.

In M&A transactions, the considerations paid to target shareholders are limited to stock, cash, or a mix of the two.

B.

When a hostile takeover appears to be inevitable, a target company will sometimes look for another, friendlier company to acquire it.

C.

There are two primary mechanisms by which ownership and control of a public corporation can change: Either another corporation or group of individuals can acquire the target firm, or the target firm can merge with another firm.

D.

It is possible that overconfident CEOs pursue mergers that have low chance of creating value because they truly believe that their ability to manage is great enough to succeed.

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Which of the following stateme

Which of the following statements is FALSE?

A.

Due to the option to wait, an investment that currently has a negative NPV can have a positive value.

B.

Future growth options are not only important to firm value, but can also be important in the value of an individual project. By undertaking a project, a firm often gets the opportunity to invest in new projects that firms outside the industry cannot easily access.

C.

A real option is the right to make a particular business decision, such as a capital investment, after new information is learned.

D.

Due to the real option of delaying investment, it is always optimal for a company to wait before making an investment.

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Which of the following stateme

Which of the following statements is FALSE?

The reduction in risk (benefit of diversification) in a portfolio depends on the degree to which the stocks are correlated.

When we form an equally weighted portfolio of stocks and keep increasing the number of stocks in the portfolio, the volatility of the portfolio also decreases.

Stocks have both diversifiable risk and undiversifiable risk, but only undiversifiable risk is rewarded with risk premium.

Stocks in the same industry tend to have more highly correlated returns than stocks in different industries.

The security market line (SML) says that there is a linear relationship between a stock’s expected return and its total risk.

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Which of the following stateme

Which of the following statements about the ‘Sources and Uses of Tax’ section are TRUE:

Taxes are levied by all three levels of government in Australia: at federal, state and local levels. Income tax and corporate tax are levied by the federal government. Stamp duty (transfer duty) and land taxes are levied at a state level. Although the GST is collected by the federal government, it is redistributed to the states. Local councils collect rates on properties.
All three levels of government use taxation revenue to provide services to the community. The federal government provides social security, some health care and funds both defence and tertiary education (universities). The state government fund their state police forces, fire services, and primary and secondary education (schools). Local councils maintain local parks, local roads and waste disposal.

Neither of the statements are true (both are false)

Only statement 1 is true

Only statement 2 is true

Both statements are true (neither are false)

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Which of the following stateme

Which of the following statements are about the various sections of the lecture material on taxation of investments in Australia are TRUE:

If an investment is sold and has been held for more than 1 year, then only half of the gain is included in an individual’s assessable income and is taxed at their marginal rate of tax (plus Medicare Levy).
If an individual takes out an investment loan to buy an investment using a principal and interest loan, then their entire loan repayment will normally be an allowable deduction.

>Neither of the statements are true (both are false)

>Only statement 1 is true

>Only statement 2 is true

>Both statements are true (neither are false)

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Which of the following stateme

Which of the following statements about the efficient market hypothesis is not correct?

(a) If a stock market is weak form efficient, chartists cannot make abnormal returns.

(b) If a stock market is strong form efficient, only people with insider information can make abnormal returns.

(c) In a semi-strong form efficient market, fundamental analysis will not bring abnormal returns.

(d) If a stock market is semi-strong form efficient, all past and current publicly available information is reflected in share prices.

(e) If a stock market is weak form efficient, all historical information about a share is reflected in its current market price.

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Which of the following stateme

Which of the following statement is incorrect?

As interest rates fall, the prices of bonds increase.
The largest investors in corporate bonds are individual investors.
Most of the answers are correct except one.
The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments equal to the price of the bond.
Whenever a bond’s coupon rate is higher than the market rate of interest, the bond will sell at a premium.
Which of the following statement is incorrect?
Most of the answers are correct except one.
A call provision gives the firm issuing the bonds the option to purchase the bond from an investor at a predetermined price called as the call price.
Corporate bonds are long-term IoUs that represent claims against a firm’s assets.
Convertible bonds can be converted into shares of preferred stock at twice of the ratio at the discretion of the common stockholders,
Whenever a bond’s coupon rate is lower than the market rate of interest on similar bonds, the bond will sell at a discount, and such bonds are called discount bonds.

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Which of the following stateme

Which of the following statements is incorrect? Common-stock holders have limited liability. The constant-growth dividend model tells us that the current price of a share of stock is the next period dividend divided by the difference between the discount rate and the dividend growth rate. O Most of the answers are correct except one. When the security markets are efficient and the current market prices of securities reflect all available information relevant to the valuation of those securities, the security prices will be near or at their true (intrinsic) value. Whenever the required rate of return exceeds the dividend growth rate, the constant-growth model provides invalid solutions

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Which of the following stateme

Which of the following statements is true about the expected return and risk of a portfolio of investments? There could be more than one correct answer. Generally speaking, the riskier the investment the higher the expected return has to be to attract investors. The expected return and standard deviation of the portfolio are simply the averages of the individual investment returns and standard deviations. If there is a potential investment or portfolio of investments that has a low expected return you can be sure that it is not risky The expected return of the portfolio is the average of the individual investment returns but the standard deviation of the portfolio is more complicated and also depends on how the individual asset returns are correlated

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Which of the following stateme

Which of the following statements best describes revenue recognition in the income statement? Your answer:

a) Sales/revenues are recognized in the income statement when a contract is signed
b) Sales/revenues are recognized at the time goods / services are delivered and title has passed.
c) Sales/revenues are recognized in the income statement when a contract is signed
d) Sales/revenues are recognized when the customer pays
2. The purpose of depreciations is to:
Your answer:
a) Balance the balance sheet
b) Match the accounting or book value of an asset to the market value
c) Help a company minimize its tax expense
d) Spread the original cost of an asset over the period a company gets benefit from it
3. True or False, amortization reported on the cash flow statement may include amortization of financial items related to leases and bond discounts.
Your answer:
a) True
b) False
4. True or False, EBIT is a US GAAP defined measure.
Your answer:
a) True
b) False

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Which of the following stateme

Which of the following statements is FALSE? a.

Shareholders need to elect the directors of the company. Shareholders also need to approve many major actions taken by the board.
b. Managerial ownership can alleviate the conflicts of interest between managers and shareholders.
c. A resolution at the annual meeting can only be submitted by the largest shareholder.
d. If the pay-for-performance sensitivity in managerial compensation is larger, other things equal, managers bear a higher level of risk.
Question 9 Which of the following statements is FALSE?
a. As real options can be very valuable, it is common for real options to be traded in competitive markets.
b. It is easy to ignore or understate the importance of the option to abandon. In many applications, killing an economically unsuccessful venture can add more value than starting a new venture.
C. Due to the option to wait, an investment that currently has a negative NPV can have a positive value.
d. If there is a lower level of uncertainty regarding what the value of the investment will be in the future, the option to wait will be less valuable.

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Which of the following stateme

Which of the following statements are true about client- side ON’S . I Choose all that apply! . a . If an AFIFA address is assigned, then ONS is the problem 6 . Client – side ONS should be configured to point towards the DNS server that is authoritative for the domain that client wants to join [. Check out DNS settings using the NSLook up command d . Check out DNS settings using the DIG command & . The cache . dns file has the IP addressEs of the 13 root DNS SERVERS If a web site can be reached by IP address and not by host name , then ONS or the Hosts file would be the problem

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Which of the following stateme

Which of the following statements regarding a refund annuity is true?

– The monthly income provided by the policy varies as a function of the insurer’s actual investment experience
– .A specified monthly income is provided for a stated number of years without consideration of any life contingency.
-A specified monthly income is provided for a stated number of years without consideration of any life contingency.

If the annuitant dies, the designated beneficiary receives monthly payments until the total purchase price of the annuity is paid back.
-The insurance company guarantees the annuitant a stated amount of monthly income for life.
– The insurance company agrees to pay a guaranteed rate of interest on the insured’s money.

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Which of the following stateme

Which of the following statements about capital market efficiency is not correct?

(a) If a stock market is weak form efficient, chartists cannot make abnormal returns.

(b) If a stock market is strong form efficient, only people with insider information can make abnormal returns.

(c) In a semi-strong form efficient market, fundamental analysis will not bring abnormal returns.

(d) If a stock market is semi-strong form efficient, all past and current publicly available information is reflected in share prices.

(e) If a stock market is weak form efficient, all historical information about a share is reflected in its current market price.

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Which of the following stateme

Which of the following statements, if false, is most likely to create liability for fraud or misrepresentation? (What are the elements of fraud or misrepresentation)

Betty, age 16, buys a car and wrecks it one day later. She takes it back to the seller and demands all her money back. According to the traditional rule, is she entitled to get all her money back?

According to keeping a promise to abide by a contract is a moral duty even if that contract turns out to be detrimental to the obligated party.

Gil owns a large ranch in Texas. Frank drives his sport utility vehicle off a highway and across Gil’s property. Frank commits trespass only if he 10. Which of the following procedures included a plea?

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Which of the following stateme

Which of the following statements is CORRECT?

O a. If a project’s payback is positive, then the project should be accepted because it must have a positive NPV.
b. The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.
c. One drawback of the regular payback is that this method does not take account of cash flows beyond the payback period. d. One drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback
e. The shorter a project’s payback period, the less desirable the project is normally considered to be by this criterion.

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Which of the following stateme

Which of the following
statements is CORRECT?

a. An NPV profile graph is designed to give
decision makers an idea about how a project’s contribution to the firm’s value
varies with the cost of capital.

b. An NPV profile graph shows how a project’s
payback varies as the cost of capital changes.

C. The NPV profile
graph for a normal project will generally have a positive (upward) slope as the
life of the project increases.

d. An NPV profile
graph is designed to give decision makers an idea about how a project’s risk
varies with its life.

e. We cannot draw a project’s NPV profile
unless we know the appropriate cost of capital for use in evaluating the
project’s NPV. 0

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Which of the following stateme

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

a. If a project’s NPV is greater than zero, then its IRR must be less than the cost of capital. O
b. If a project’s NPV is greater than zero, then its IRR must be less than zero.
c. The NPVs of relatively risky projects should be found using relatively low costs of capital. O

d. The higher the cost of capital used to calculate the NPV, the lower the calculated NPV will be.

e. A project’s NPV is generally found by compounding the cash inflows at the cost of capital to find the terminal value (TV), then discounting the TV at the IRR to find its PV.

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Which of the following stateme

Which of the following statements about options is TRUE?

  1. THe option seller bears credit risk at the time when the option is sold because the option buyer may not pay the option premium.

  2. The call writer is in the short position and has the obligation to sell the underlying asset at the exercise price when the call owner wants to exercise the option.

  3. The put owner is in the short position because he has the right to sell the underlying asset at the exercise price.

  4. The put writer is in the long position because she has the obligation to buy the underlying asset at the exercise price when the put owner wants to exercise the option.

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Which of the following stateme

Which of the following statements is most CORRECT about convertible bonds?

A) The market price of convertible bond can never fall below the higher of its straight debt value or its conversion value.

B) The market price of convertible bond can fall below its straight debt value.

C) The market price of convertible bond can fall below its conversion value.

D) The conversion ratio is the dollar amount of a bond’s par value that is exchangeable for one share of stock.

E) The conversion price is the number of common shares that will be received for each bond or share of preferred stock that is converted.

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Which of the following stateme

Which of the following statements about reinsurance are correct?

  1. Reinsurance assures the policyholder that a valid claim will be paid even if the insurance company issuing the policy is itself financially unable to pay the claim.
  2. It is critically important that anyone licensed to sell insurance fully understand the nature of reinsurance treaties entered into by the insurance companies for which the agent holds a valid appointment.
  3. Under a facultative reinsurance arrangement, it is unnecessary for the primary insurance company to submit applicant information for approval; all policies issued by the primary carrier – and subject to the reinsurance contract – are automatically covered by the reinsurer according to the terms of agreement.
a

Statement 1 only

b

Statement 2 only

c

Statement 3 only

d

All Statements are CORRECT

e

All Statements are INCORRECT

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Which of the following stateme

Which of the following statements is CORRECT?

A) Since debt financing is cheaper than equity financing, raising a company’s debt ratio will always reduce its WACC.

B) Increasing a company’s debt ratio will typically reduce the costs of both debt, and equity. However, this action still may raise the company’s WACC.

C) Increasing a company’s debt ratio will typically increase the cost of debt, but decrease the cost of equity. This action may increase the company’s WACC up to a certain point.

D) Since a firm’s beta coefficient is not affected by its use of financial leverage, leverage does not affect the cost of equity.

E) None of the statements above is correct.

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Which of the following stateme

Which of the following statements is CORRECT? (1 Point)
O Preferred
dividends are not generally cumulative
O A big advantage of preferred
stock is that dividends on preferred stocks are tax deductible by the
issuing corporation
O Corporations cannot buy the preferred stocks of
other corporations
O The preferred stock of a given firm is generally less
risky to investors than the same firm’s common stock.
16. Which of the
following statements is CORRECT? (1 Point)
O One of the advantages to
financing with preferred stock is that 70% of the dividends paid out are
tax deductible to the issuer.
O Preferred stock is normally expected to
provide steadier, more reliable income to investors than the same firm’s
common stock, and, as a result, the expected after-tax yield on the
preferred is lower than the after-tax expected return on the common
stock
O The preemptive right is a provision in all corporate charters that
gives preferred stockholders the right to purchase (on a pro rata
basis) new issues of preferred stock.
O One of the disadvantages to a
corporation of owning preferred stock is that 70% of the dividends
received represent taxable income to the corporate recipient, whereas
interest income earned on bonds would be tax free. 3

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Which of the following stateme

  1. Which of the following statement(s) is/are true?
  1. Similar to a forward contract, you can enter an option contract without any up-front cost.
  2. If you want to hedge oil price 6 months later, then you should use the forward market rather than the spot market.
  3. If you want to hedge but worry about the counter party risk, then you should use the forward market rather than the future market.
  1. I only
  2. II only
  3. III only
  4. II and III only
  5. None of the above choices

2. There is an intimate relationship between a country’s BCA and how the country finances its domestic investment and pays for government expenditures. This relationship is given by BCA = X – M = (S – I) + (T – G). Given this, in order for a country to reduce a BCA deficit, which of the following must occur?

  1. For a given level of S and I, the government tax, T, must be reduced.
  2. For a given level of I and (T – G), S must be increased.
  3. For a given level of S and (T – G), I must fall.
    1. I only
    2. II only
    3. III only
    4. I & II only
    5. None of the above choices

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Which of the following stateme

Which of the following statements are false regarding future and forward contracts?As a seller of the future contract, you gain if the next-day (later) price decreases from the future agreed price.For forward contracts, there are daily settlements which reduce/eliminate counter party risks.Unlike options, parties in future and forward contracts are legally bounded to settle their positions, even if the positions are unprofitable.I onlyII onlyIII onlyI and II onlyNone of the above choiceThe current exchange rate is £1.00 = $1.50. Choose the correct balances in Bank A’s correspondent account(s) with Bank B if a currency trader employed at Bank A buys £60,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B.Bank A’s dollar-denominated liability account will rise by $90,000.Bank B’s pound-denominated asset account will rise by £60,000.Bank A’s pound-denominated asset account will fall by £60,000.I onlyII onlyIII onlyI and II onlyNone of the above choices

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Which of the following stateme

  1. Which of the following statement(s) is/are false IRP fails to hold?
  1. pressure from arbitrageurs should bring exchange rates and interest rates back into line.
  2. it may fail to hold due to transactions costs.
  3. it may be due to government-imposed capital controls.
  1. I only
  2. II only
  3. III only
  4. I, II & III
  5. None of the above choices

  1. An investor believes that the price of a stock, say IBM’s shares, will increase a lot after 60 days. If the investor is correct, which combination of the following investment strategies will show a profit in all the choices?
  1. buy the stock and hold it for 60 days
  2. buy a put option
  3. sell (write) a call option
  4. buy a call option
  5. sell (write) a put option
  1. II, III
  2. III, V
  3. I, II & III
  4. I, IV, & V
  5. III, IV, & V

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Which of the following stateme

Which of the following statements is CORRECT?

a. Using accelerated depreciation rather than straight line would normally have no effect on a project’s total projected cash flows but it would affect the timing of the cash flows and thus the NPV.
b. Under current laws and regulations, corporations must use straight-line depreciation for all assets whose lives are 5 years or longer
c. Corporations must use the same depreciation method (e.g., straight line or accelerated) for stockholder reporting and tax purposes.
d. Since depreciation is not a cash expense, it has no effect on cash flows and thus no effect on capital budgeting decisions.
e. Under accelerated depreciation, higher depreciation charges occur in the early years, and this reduces the early cash flows and thus lowers a project’s projected NPV.

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Which of the following stateme

Which of the following statements is false?

a. If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series

b. To increase you prevent consumption beyond your present income would normally require you either to pay some interest or else to incur an opportunity cost of foregone future investment income

c. Disregarding risk, if money has time value, it is impossible for the present value of a given sum to be greater than its future value

d. Disregarding risk, if the present value of a sum is equal to its future value, then either k=0 or t=0

e. Each of the above statements is true

NOTE – THE ANSWER IS NOT E

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Which of the following stateme

Which of the following statements represent a key difference between forward and futures contracts?

Group of answer choices

Forward contracts are “marked to market” on a daily basis, meaning that gains and losses are noted and money must be put up to cover losses.

Futures contracts are option contracts, while forward contracts are not option contracts.

Physical delivery of the underlying asset is taken with futures contracts, while the two parties of a forward contract simply settle with cash for the difference between the contracted price and the actual price on the expiration date.

Futures contracts are generally standardized instruments that are traded on exchanges, whereas forward contracts are generally tailor made, negotiated between two parties, and are not traded after they have been signed.

All of the statements above identify key differences between forward and futures contracts.

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Which of the following stateme

Which of the following statements is true regarding investments in bonds?

a.

Treasury bonds should return more than corporate bonds of the same maturity

b.

longer maturities should return more than shorter maturities, in general

c.

shorter maturities should return more than longer maturities, in general

d.

lower-rated issues should return less than higher rated issues at maturity

Which of the following is NOT true regarding bond maturities?

a.

Short maturities serve to protect the investor when rates are rising.

b.

Long term interest rates are more volatile than short term interest rates

c.

Longer maturities have greater price fluctuations.

d.

Short maturities sacrifice price appreciation opportunities.

Which of the following is NOT a true statement?

a.

Duration is the weighted average of the timing of the bonds payments.

b.

The weights in the calculation of duration are the present value of each payment, divided by the value of the bond.

c.

Modified duration measures the sensitivity of the bonds price to interest rate changes.

d.

Duration measures the time until the principal is repaid.

For most long term bonds, when coupons are reinvested, what is the most important component of the bond total return?

a.

Coupon rate.

b.

Yield to Maturity

c.

Interest on principal.

d.

Interest on interest.

Which of the following statements concerning yield spreads is not true?

a.

Yield spreads may be positive or negative.

b.

Yield spreads are often calculated by changing the maturity of the different bonds.

c.

Yield spreads are influenced by the level of interest rates in the market.

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Which of the following stateme

Which of the following statements is CORRECT? Assume that all
projects being considered have normal cash flows and are equally
risky.

a. If a project&#39;s IRR is equal to its WACC, then, under all
reasonable conditions, the project&#39;s NPV must be negative.

b.) If a project&#39;s IRR is equal to its WACC, then under all
reasonable conditions, the project&#39;s IRR must be negative.

c.) If a project&#39;s IRR is equal to its WACC, then under all
reasonable conditions the project&#39;s NPV must be zero.

d.) There is no necessary relationship between a project&#39;s IRR,
its WACC, and its NPV.

e.) When evaluating mutually exclusive projects, those projects
with relatively long lives will tend to have relatively high NPVs
when the cost of capital is relatively high.

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Which of the following stateme

Which of the following statements is true of downsizing?
1. It is an
effective method to increase the management layers in an organization.
2. It is an effective strategy to adopt when a small business is
growing.
3. It reduces work tasks in order to make a firm more flexible.
4. It reduces the innovativeness of a firm. 5. It is a useful method to
gain employee trust and loyalty.
QUESTION 7 Which of the following is true about the role of small
businesses in the American economy?
1. They employ about 20 percent of
private workers.
2. They represent only 20 percent of U.S. exporters.
3.
They provide opportunities for women to succeed in business.
4. They
are always operated as subsidies of large companies.
5. There has been a
decline in the number of small businesses owned by minorities.

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Which of the following stateme

Which of the following statements is true?

(a) The decrease in prepaid expenses is deducted because the firm has recognized an expense in the current period for which cash was paid in an earlier period, on a net basis.

(b) An increase in income taxes payable is added because less has been paid for taxes than was recorded as income tax expense.

(c) An increase in accounts receivable is added because more sales revenue has been included in net income than has been collected in cash from customers.

(d) The decrease in accrued liabilities is added to net income because it reflects the payment of cash for expenses recorded in a prior period.

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Which of the following stateme

Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

a. The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.

b. The outstanding balance declines at a faster rate in the later years of the loan’s life.

c. Because the outstanding balance declines over time, the monthly payments will also decline over time.

d. Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.

e. The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.

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Which of the following stateme

Which of the following statements are true?

(a) American call options on stocks that pay no dividends are generally worth more than corresponding European call options
(b) American put options on stocks that pay no dividends are generally worth more than corresponding European put options
(c) Both of the above statements are true
(d) None of the above statements are true

Which of the following statements is true about option values?
(a) The price of a call option should always increase by $1 if the price of the underlying stock increases by $1
(b) The payoff to a call option at expiry always increases by $1 if the price of the underlying stock increases by $1
(c) Both of these statements are true
(d) Neither of these statements are true

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Which of the following stateme

Which of the following statements is false?

A) One way to see why you sometimes choose not to invest in a positive-NPV project is to think about the decision of when to invest as a choice between two mutually exclusive projects: (1) invest today or (2) wait.

B) You invest today only when the NPV of investing today exceeds the value of the option of waiting, which from option pricing theory we know to be always positive.

C) When you do not have the option to wait, it is optimal to invest in any positive-NPV project.

D) When you have the option of deciding when to invest, it is usually optimal to invest only when the NPV is positive but close to zero.

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Which of the following stateme

Which of the following statements is correct regarding valuation multiples?
I. A critical assumption in using multiples of comparable firms is that the firms in the group have similar interest expense patterns.
II. Multiple valuation can yield different estimates due to differences in value drivers, accounting policies, or time of estimation.
III. Multiple valuation is based on how the market currently values similar or comparable firms (the “income approach”).
IV. All things being equal, from the same EV/EBIT multiple, higher capital intensity results in a lower EV/EBITDA multiple.
A. I and II only
B. II and III only
C. II and IV only
D. I, II and IV only
E. None of the choice combinations given in A., B., C., and D. are correct.

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Which of the following stateme

Which of the following statements is correct regarding capital budgeting practice?
I. When NPV is positive, IRR is always greater than the required rate of return (the discount rate).
II. The Profitability Index rule is useful when choosing projects under capital constraint.
III. Because firms make decisions in a dynamic environment, they have options that should be considered in project valuation.
IV. Sunk cost, positive or negative side effects, and change in net working capital are examples of incremental cash flows that should be included for capital budgeting purpose.
A. I and II only
B. I and III only
C. II and III only
D. II, III and IV only
E. None of the choice combinations given in A., B., C., and D. are correct.

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Which of the following stateme

Which of the following statements is correct regarding case study “Warren E. Buffett”?
I. To estimate the value of PacifiCorp (Berkshire’s acquisition target), the dividend discount model should be used because PacifiCorp pays annual dividends and because the information used to forecast PacifiCorp’s cash flow is available.
II. Buffett argues that the true cost of an investment includes not only invested capital but also the economic benefits that the alternative could have generated.
III. Buffett argues that performance should be measured by gain in intrinsic value, not accounting profit.
IV. Buffett argues that investing behavior should be driven by technical analysis and self-discipline to capture short term profits from market movements.
A. I only
B. II only
C. IV only
D. II and III only
E. None of the choice combinations given in A., B., C., and D. are correct

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Which of the following stateme

Which of the following statements is correct regarding payout policy?
I. The Lintner (1956) model focuses on the target dividend payout ratio and the time it takes for increased dividends to prove stable.
II. When a firm pays a dividend, only shareholders on record on the distribution date receive the dividend.
III. In a world of no taxes, all else equal, the market value of a stock will tend to decrease by roughly the amount of the dividend on the ex-dividend date.
IV. The effects of share repurchases include a concentration of ownership and a protection against hostile takeovers.
A. I and II only
B. I and IV only
C. II and III only
D. I, III and IV only
E. None of the choice combinations given in A., B., C., and D. are correct.

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Which of the following stateme

Which of the following statements is correct regarding capital structure?
I. The pecking order theory of capital structure states that firms base their capital decision on issuance costs.
II. The situation in which equity holders have a disincentive to raise new capital to invest in projects that would make debt safer, even if these projects have a positive NPV, is often known as the debt overhang problem.
III. The optimal capital structure will tend to include more debt for firms with a higher probability of financial distress.
A. I only
B. II only
C. I and II only
D. I, II and III
E. None of the choice combinations given in A., B., C., and D. are correct.

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Which of the following stateme

Which of the following statements is correct about mergers and acquisitions?
I. The method of payment is a major signaling effect from management in M&As. It is a sign of strength when an acquisition is paid for with stock.
II. The market valuation theory of merger waves states that M&As correlate with stock market as managers use undervalued stock of their firms as currency to buy assets of overvalued firms.
III. M&As of additional business activities that are at the same level of the value chain in similar or different industries are called horizontal acquisitions.
IV. Agency problem exists in M&As when managers make acquisitions against shareholder interests.
A. I and II only
B. II and III only
C. II and IV only
D. III and IV only
E. None of the choice combinations given in A., B., C., and D. are correct.

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Which of the following stateme

Which of the following statements is correct about mergers and acquisitions?
I. Empirical evidence on deal announcement returns in the United States shows that target returns are lower if the bidder is private because private bidders generally pay more for the targets than public bidders.
II. Empirical evidence on deal announcement returns in the United States shows that acquirers generally gain when buying private targets.
III. The empirical evidence in Devos, Kadapakkam, and Krishnamurthy (2009) shows that synergy gains are, on average, almost 50% of the combined firm value.
IV. Antitakeover protections might give a company time to pursue long-term value creation without threat of takeover; or to enhance bargaining power to secure a higher bid.
A. I and II only
B. I and III only
C. II and III only
D. II and IV only
E. None of the choice combinations given in A., B., C., and D. are correct.

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Which of the following stateme

Which of the following statements is correct about equity offerings?
I. One consequence of a firm-commitment arrangement with an investment banker is that the issuer (e.g. the firm going public) bears the risk of the issue not being sold.
II. One of the roles of the investment banks underwriting the offer is that these investment banks provide a “seal of approval” for the offering.
III. IPO underpricing is the increase in stock value from the initial offering price to the first-day closing price.
IV. Empirical evidence suggests that upon announcement of a seasoned equity issue, current stock prices generally increase.
A. I and II only
B. II and IV only
C. II and III only
D. I, II, III and IV
E. None of the choice combinations given in A., B., C., and D. are correct.

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Which of the following stateme

Which of the following statements is correct regarding corporate governance?

I. Moral hazard is a situation where the principal and the agent have conflicting preferences and the agent’s behaviour can be perfectly observed.
II. Agency problem happens when shareholders take self-interested actions that are not in the interest of management.
III. The market for used cars is an example of adverse selection.
IV. Independent audit committee, non-executive directors, and equity-based compensation are examples of good corporate governance practice.
A. I and II only
B. I and IV only
C. III and IV only
D. I, III and IV
E. None of the choice combinations given in A., B., C., and D. are correct.

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Which of the following stateme

Which of the following statements is true?

a- if the beta of a security is 1.2 and the risk-free return is 3% and the expected return on the market portfolio is 10%, then the fair / required return on that security is 11.4%, following the capital asset priding model (CAPM)
b- if the anticipated return on a stock exceeds the required return, then it is a good investment.
c- all of the answers are correct
d- if by adding a security to your portfolio the risk of your portfolio will decrease and the expected return on your portfolio will increase, then that security is great to add.

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Which of the following stateme

Which of the following statements relating to foreign currency translation is false?

The current rate method is used when a foreign operation has its own functional currency and it is necessary to translate amounts from the functional currency to the reporting currency used in the parent entity’s consolidated financial statements.

The application of the current rate method gives rise to cumulative translation adjustments which are reported as part of other comprehensive income.

If a foreign entity has a recording currency that is different than its functional currency, it will be necessary to restate the enity’s financial statements from the recording currency to the applicable functional currency and this will give rise to restate gains and losses recognized in the income statement.

A foreign entity that operates in a country that has a high rate of inflation will have to translate its financial statements into the parent entity’s reporting currency using the current rate method.

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Which of the following stateme

Which of the following statements is most correct?

Question 6 options:

The opportunity cost principle implies that if the firm cannot invest retained earnings and earn at least rs, it should pay these funds to its stockholders and let them invest directly in other assets that do provide this return.

Preferred stock does not involve any adjustment for flotation cost since the dividend and price are fixed.

The cost of debt used in calculating the WACC is an average of the after-tax cost of new debt and of outstanding debt.

The cost of common stock, rs, is usually less than the cost of preferred stock.

Capital components are the types of capital used by firms to raise money. All capital comes from one of three components: long-term debt, preferred stock, and equity.

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