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
Which of the following classes of U.S. securities have NOT averaged an annual rate of return that exceeds the average annual rate of inflation? (Data from 1926 – 2011) A) small company stocks B) large company stocks C) 90-day Treasury bills D) All of these classes of securities have averaged higher average annual rates of […]
The preferred approach to breakeven analysis for a multiproduct firm is the ________. A) breakeven point expressed in units B) breakeven point expressed in dollars C) cash breakeven point D) overall breakeven point ANSWER B
Firms must make regular payments to ________ but are under no contractual obligation to pay dividends to ________. A) common stockholders; preferred stockholders. B) preferred stockholders; bondholders. C) bondholders; common stockholders. D) common stockholders, bondholders. ANSWER C
We can interpret the optimal level of debt as the firm’s ________, or the highest amount the firm can borrow before the value of the firm begins to decline. A) equity capacity B) equity multiplier C) debt capacity D) interest tax shield ANSWER C
