Creative Centers Inc. has an EBIT of $200,000, $30,000 in depreciation, $450,000 in outstanding debt, a forward-looking EV/EBITDA multiple of 7.50, and an estimated cost of capital of 10%. Use the EV/EBITDA approach to value the firm. A) $837,500 B) $950,000 C) $1,100,000 D) $1,275,000 ANSWER D Explanation: D) EV = Multiple * […]
The incontestability clause typically indicates that the insurance company will not challenge the validity of statements made in the insurance contract A) after a specified period of time, if the incorrect statements were either honest mistakes or unintentional omissions. B) after a specified period of time, regardless of why the misstatements or omissions were made. […]
The American Express Card is an example of a bank credit card. Indicate whether the statement is true or false ANSWER FALSE
Which of the following is NOT a positive attribute of the price-earnings multiple valuation model? A) It is easy to use. B) It implicitly assumes that comparable firms are already fairly pried in the market place. C) It is forward-looking. D) It is based on relative market measures rather than book measures. ANSWER […]
From the saver’s point of view, the best method of computing interest is the day of deposit day of withdrawal method. Indicate whether the statement is true or false ANSWER TRUE
An open-end fund differs from a closed-end fund in that the open-end fund does not limit the kinds of securities it buys. Indicate whether the statement is true or false ANSWER FALSE
Credited years of service A) must equal the calendar years of employment. B) can exceed the calendar years of employment. C) will include only those years in which the hours worked exceed a minimum in the plan description. D) will include only those in which job-related performance was satisfactory. ANSWER C
How does opportunity cost affect an investor’s required rate of return? What will be an ideal response? ANSWER An investor’s required rate of return can be defined as the minimum rate of return necessary to attract an investor to purchase or hold a security. This definition considers the investor’s opportunity cost of funds […]
The “adjusted balance method” is more favorable to consumers than the “previous balance method.” Indicate whether the statement is true or false ANSWER FALSE
Skye Industries Inc. bonds currently have 14 years remaining to maturity. What is the yield to maturity of the firm’s semi-annual bonds if they carry a face value of $1,000, an annual coupon rate of 8% and have a current price of $885.16? A) 8.00% B) 8.75% C) 9.50% D) 10.25% ANSWER C […]
