A publicly traded firm just announced that its issuing debt to finance a new project. Which of the following scenarios is most likely TRUE in a market with asymmetric information? A) The firm’s future prospects look good and they are sending a costly signal that indicates they will be able to meet higher debt obligations. […]
Mark must buy four new tires for his car. He is considering buying tires that are $25 a piece more than his regular brand, because the higher priced tires are supposed to increase his miles per gallon by 20%. If the tires are good for 48,000 miles and Mark drives an average of 1,000 miles […]
When sizing up the operations of the firm, it is important to examine all of these EXCEPT: A) the current labor environment. B) the skill level of the firm’s work force. C) the capacity of the firm’s plant or facilities. D) None of the above. ANSWER D
Core Concepts Inc,. has experienced stock returns of 8.4%, 6.3%, and 14.2% over the last three years. Over this time period, what has been the firm’s arithmetic average annual rate of return? A) 9.58% B) 9.63% C) 9.88% D) 9.92% ANSWER B Explanation: B) (8.4 + 6.3 + 14.2)/3 = 9.63%
Rank the order of returns from highest to lowest for the following classes of U.S. securities for the time period 1926 – 2011. A) large stocks, small stocks, 30-year Treasury bonds, and 90-day T-bills B) small stocks, large stocks, 30-year Treasury bonds, and 90-day T-bills C) 30-year Treasury bonds, large stocks, small stocks, 90-day T-bills […]
A firm has fixed operating costs of $25,000, a per unit sales price of $5, and a variable cost per unit of $3. What is its operating breakeven point if it targets net operating income of $10,000? A) 12,500 units B) 15,000 units C) 17,500 units D) 25,000 units ANSWER C
XYZ Corporation borrowed $100,000 for six months from the bank. The rate is prime plus 2 percent. The prime rate was 8.5 percent at the beginning of the loan and changed to 9 percent after two months. This was the only change. How much interest must XYZ corporation pay? A) $2,476 B) $5,417 C) $18,212 […]
Your author identifies the ________ model of capital structure as one that describes the order in which firms typically raise capital. A) step B) internal-external C) queuing D) pecking-order ANSWER D
A firm has a line of credit and borrows $25,000 at 9 percent interest for 180 days or half a year. What is the effective rate of interest on this loan if the interest is paid in advance? A) 4.7 percent B) 9.4 percent C) 9.9 percent D) 10.3 percent ANSWER C
Because banker’s acceptances are typically through foreign banks they are generally considered to be of high risk. Indicate whether the statement is true or false ANSWER FALSE
