The capital impairment restrictions are established to ________. A) reduce dividends equal to or below the current earnings level B) constrain the firm to paying dividends which do not require additional borrowing C) provide sufficient safety to equity holders D) provide a sufficient equity base to protect creditors’ claims ANSWER D
With regard to dividend payments, which of the following is included in the contractual constraints imposed by loan agreements? A) limiting the payment to suppliers B) limiting the percentage of earnings that can be paid out in dividends C) sustaining a constant dividend payout ratio D) making fixed payment to equityholders ANSWER B
Which of the following is NOT a weakness of the payback method of capital budgeting? A) There is no EXPLICIT time value of money calculation. B) There is no attempt to distinguish between cash flows in the earlier years and cash flows in the later years. C) It does not given any consideration to cash […]
To create a common-size income statement for a firm one would typically divide each time on the income statement by: A) total assets. B) total equity. C) net sales. D) net income. ANSWER C
Which of the following questions is more likely to be asked by the firm’s potential investors as opposed to the firm’s managers or financial lenders? A) How should we finance firm improvements and investments? B) Should we continue to lend money to this firm? C) Should we buy equity in this firm? D) What are […]
If two firms have the same yield to maturity on their publicly traded debt then the firm with the ________ will have a ________ after-tax cost of debt. A) lower tax rate; higher B) higher tax rate; higher C) shorter maturity of debt; higher D) longer maturity of debt; lower ANSWER A
To create a common-size balance sheet for a firm one would typically divide each item on the balance sheet by: A) total assets. B) total equity. C) net sales. D) total liabilities. ANSWER A
Legal capital refers to ________. A) a legal constraint imposed by lenders of a firm to maintain a certain level of debt to equity ratio and capital B) capital impairment restrictions are generally established to provide a sufficient equity base to protect creditors’ claims C) the capital which is typically measured by the retained earnings […]
The ________ method provides the number of years required for a project to repay its initial investment. A) modified internal rate of return B) internal rate of return C) net present value D) payback ANSWER D
Which of the following is considered in designing a dividend policy that is favorable to wealthy owners? A) the tax status of the firm’s owners B) the political risk of the firm C) the liability of the firm’s owners D) the reinvestment risk of the firm ANSWER A
