When a firm needs to raise money via a bond issue, one of the quickest ways is through a ________. This activity involves the purchase of a large block of securities by a large institutional investor such as a pension fund, an endowment fund, or an insurance company. A) private placement. B) public placement. C) […]
The empirical evidence from various and historical U.S. financial asset classes reported by the author DOES NOT support the financial axiom that to achieve greater return an investor must take greater risk. Indicate whether the statement is true or false ANSWER FALSE
Exchange rate risk can often be hedged by using currency forward, futures, or options markets. Indicate whether the statement is true or false ANSWER TRUE
Assume perfect capital markets except that taxes DO exist. Why does the value of the interest tax shield accrue entirely to the shareholders and none of the value goes to the bondholders? What will be an ideal response? ANSWER The value of the firm increases by the value of the interest tax shield […]
The size and current growth stage of the firm must also be considered as a part of the marketing analysis. Indicate whether the statement is true or false ANSWER TRUE
A firm is evaluating the best means to have a positive impact on potential buyers; which one of the four P’s is the firm addressing? A) Product B) Price C) Place D) Promotion ANSWER D
When a firm has fixed operating costs, operating leverage is present. In that case, an increase in sales results in a more-than-proportional increase in EBIT, and a decrease in sales results in a more-than-proportional decrease in EBIT. Indicate whether the statement is true or false ANSWER TRUE
The interest paid by the issuer of commercial paper is determined by the size of the discount and the length of time to maturity. Indicate whether the statement is true or false ANSWER TRUE
Which of the following is NOT commonly cited as a reason why management needs to understand capital markets? A) Issuing securities to acquire capital is an ongoing process. B) Active markets have developed for the trading of securities, management needs to understand how these markets impact the firm’s constantly changing shareholder base. C) Capital markets […]
Longneck Brewery Inc. has net income of $3.00 per share and a dividend payout ratio of 35%. How large is the firm’s per share dividend payment? A) $1.05 B) $1.95 C) $1.50 D) $0.35 ANSWER A Explanation: A) Div = EPS*DPO ratio = $3 * 0.35 = $1.05.