Which of the following is NOT one of M&M’s perfect capital market assumptions? A) No taxes B) Individuals can borrow or lend at the same rate C) Every party has equal access to information D) Bankruptcy costs are reasonably low ANSWER D
Date: September 19th, 2020
Which of the following interest rates would be inappropriate for use as a base rate for a variable rate bond? A) The prime rate B) LIBOR C) A rate determined by the bond issuer’s board of directors. D) The 10-year Treasury bond rate. ANSWER C
Date: September 19th, 2020
Typically, the rate of return on ________ exceeds the rate of return on ________. A) long-term bonds; short-term bonds. B) government bonds; similar maturity corporate bonds. C) short-term bonds; long-term bonds. D) marketable securities; common stock. ANSWER A
Date: September 19th, 2020
What are the three shapes of the yield curve that tend to be associated with different stages of the business cycle? How would you categorize the current business cycle? Explain your answer. What will be an ideal response? ANSWER Periods of expansion are associated with upward-sloping yield curves, because inflation and interest rates […]
Date: September 19th, 2020
Lines of credit are non-guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Since the sales price per unit generally decreases with volume and the cost per unit generally increases with volume, the true breakeven point may be different from those obtained using linear revenue and cost functions as assumed in the breakeven analysis. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Lines of credit are guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
One of the limitations of breakeven analysis is its short-term time horizon. A large outlay in the current financial period could significantly raise the firm’s breakeven point, while the benefits may occur over a period of years. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
In M&M Proposition II the cost of equity changes with changes in the amount of debt financing. Which of the following is the correct formula for Proposition II? A) Ke = Ku + (Ku – Kd) / ( ) B) Ke = Ku + (Ku – Kd) ( ) C) Ke = Ku + (Ku […]
Date: September 19th, 2020
The ultimate goal of sizing up the industry is to: A) identify the industry life cycle. B) identify the key success factors that are necessary for the firm to successfully compete in the industry. C) monitor the nature and intensity of the competition. D) All of the above. ANSWER C
Date: September 19th, 2020
