Information asymmetry is chief among violations of which of the assumptions of an ideal capital market? a. Capital Markets are frictionless b. Homogeneous expectations c. Atomistic competition d. The firm has a fixed investment program e. Once chosen, the firm’s financing is fixed ANSWER B
Date: September 19th, 2020
The ________ method is economically sound and properly ranks projects across various sizes, time horizons, and levels of risk, without exception for all independent projects. A) NPV B) Discounted Payback Period C) Profitability Index D) Modified IRR ANSWER Answer: A
Date: September 19th, 2020
Business risk is the risk to a firm of being unable to cover operating costs. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
The primary source of secured short-term loans to businesses are ________. A) commercial banks and commercial finance companies B) lines of credit and revolving lines of credit C) commercial paper dealers and investment bankers D) life insurance companies and government securities brokers ANSWER A
Date: September 19th, 2020
Transaction costs and personal taxes may affect investors’ ability to undertake arbitrage. Also, a firm’s earnings are taxed, and interest payments are deductible while dividends are not. These are examples of the violation of which of the assumptions of an ideal capital market? a. Capital Markets are frictionless b. Homogeneous expectations c. Atomistic competition d. […]
Date: September 19th, 2020
Project A has an NPV of $20,000 and a PI of 1.2. Project B has an NPV of $10,000 and a PI of 1.3. Both projects have equal lives. Which project should be preferred if we are NOT concerned with capital rationing (that is, we are NOT concerned with being short of funds)? A) We […]
Date: September 19th, 2020
The present value of the benefits and costs needed to calculate Profitability Index (PI) is the same information one finds when computing the NPV. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Pledges of accounts receivable are made on ________ basis, respectively. A) a nonrecourse and a notification B) a nonnotification and a notification C) a notification and a recourse D) a notification and a nonrecourse ANSWER B
Date: September 19th, 2020
In general, low times interest earned ratio and fixed-payment coverage ratio are associated with a high degree of financial leverage. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Variation in personal tax rates and transaction costs across both investors and securities may differentially affect the values of corporate securities. Also a firm faces substantial transaction costs in issuing securities, which may inhibit its ability to undertake otherwise profitable capital investments. These are examples of the violation of which of the assumptions of an […]
Date: September 19th, 2020
