Two companies have identical assets and operating activities. Which of the follow statements is true? A) The company with more debt will have lower operating income due to interest expense. B) Both companies have the same net income. C) The company with more debt will have higher operating income due to leverage. D) The company […]
The increase in owners’ equity for a given period is equal to A) net income minus dividends. B) sales minus dividends. C) positive net cash flow minus dividends. D) gross profit minus distributions to shareholders. ANSWER A
All of the following are benefits of organized stock exchanges EXCEPT A) increased stock price volatility. B) fair security prices. C) easier access to new capital for business expansion. D) continuous markets. ANSWER A
The expected return on a riskless asset is greater than zero due to A) an expected return for taxes. B) an expected return for opportunity costs. C) an expected return for delaying consumption. D) irrational investors who believe risk is always present. ANSWER C
A timeline identifies the timing and amount of a stream of cash flows, along with the interest rate it earns. Indicate whether the statement is true or false ANSWER TRUE
Which of the following is an example of both a capital market and a primary market transaction? A) Microsoft common stock owned by an individual investor is sold to another investor. B) Ford Motor Company sells a new issue of common stock to raise funds through a public offering. C) No transactions occur in both […]
A firm’s financing costs include A) interest expense B) depreciation expense. C) costs of goods sold. D) both A and B. ANSWER A
Timelines are used for simple time value of money problems, but cannot be used for more complex problems. Indicate whether the statement is true or false ANSWER FALSE
Joe, a risk-averse investor, is trying to choose between investment A and investment B. If investment A is riskier than investment B and Joe selects investment A anyway, then A) the expected return for investment A will be higher than the expected return for investment B. B) the actual return for investment A will be […]
All of the following securities are sold in money markets EXCEPT A) commercial paper. B) 3-month U.S. Treasury bills. C) 6-month certificates of deposit. D) common stock. ANSWER D
