All else constant, which of the following statements is correct?

Points: 1

1. An increase in the market value of the common stock will increase the market-to-book ratio.

2. The market-to-book ratio is of most interest to the creditors of a firm.

3. A decrease in the price of the stock on the stock exchange will increase the market-to-book ratio.

4. The market-to-book ratio provides the selling price of a firms inventory.

The agency problem is illustrated by which one of the following?

Points: 1

1. The firm creates a management bonus program whereby managers are rewarded when sales increase.

2. Management expands its operations overseas which is favourably received by the financial markets.

3. An employee offers a suggestion which will save the firm money and reduce the stress of his job.

4. Management accepts a merger which was desired by the shareholders.

Which of the following statements is correct, all else constant?

Points: 1

1. Future values are always equal to present values when both r and t are positive.

2. Future values are always larger than present values when both r and t are positive.

3. If the rate at which you can invest is 2 percent, the future value of $1 received today, is less than $1.

4. If the rate at which you can invest is 10 percent, the value today of $1 to be received in the future, is more than $1.

Which one of the following statements is correct, all else constant?

Points: 1

1. The present value of a sum increases as the interest rate increases.

2. The present value of a sum increases as the period of time decreases.

3. The future value of a sum is not affected by the interest rate.

4. The future value of a sum increases as the period of time decreases.

All else constant, an increase in interest expenses will cause a(an):

Points: 1

1. Increase in the cash coverage ratio.

2. Increase in the long term debt ratio.

3. Decrease in net working capital.

4. Decrease in the times interest earned ratio.

Which of the following statements is correct?

Points: 1

1. A decrease in the exercise price will increase the value of a put.

2. A decrease in the exercise price will increase the value of a call.

3. A decrease in the underlying stock price will increase the value of a call option.

4. A decrease in the underlying stock price will decrease the value of a put option.

Which of the following statements is correct?

Points: 1

1. All else equal, the market value of a bond decreases when the market interest rate decreases.

2. A bond will be worth less than its par value if its coupon rate is less than the market rate.

3. Any regular coupon bond of any maturity will sell for its face value if the coupon rate is less than the market rate of interest.

4. All else equal, the market value of a corporate bond is always inversely related to its coupon rate.

Which of the following statements is correct?

Points: 1

1. Capital structure decisions refer to the mix of the firms debt and equity.

2. In capital budgeting decisions, the financial manager tries to identify investment opportunities that dont cost too much.

3. Working capital management includes decisions concerning the firms long term liabilities.

4. The timing of cash flows is not relevant for capital budgeting decisions.

Which of the following is a primary advantage of a sole proprietorship?

I. Limited liability.

II. Less regulation.

III. Ease of ownership transfer.

IV. Ease of company formation.

Points: 1

1. I and II only.

2. I and III only.

3. II and III only.

4. II and IV only.

All else held constant, earnings per share will decrease if:

Points: 1

1. The number of shares outstanding increases.

2. Equity decreases.

3. Wages paid to employees decreases.

4. The tax rate decreases.

Which one of the following statements is correct?

Points: 1

1. Retained earnings is classified as a long term asset.

2. Current liabilities can be converted into cash within twelve months.

3. A patent is an example of an intangible liability.

4. Assets equal liabilities plus shareholders equity.

Which one of the following statements is correct?

Points: 1

1. When the internal rate of return is less than the required rate, the project should be rejected.

2. A payback period less than the IRR indicates that a project should be accepted.

3. A profitability index that is less than 1.0 indicates that a project should be accepted.

4. A negative net present value indicates that a project should be accepted.

The dividend growth model:

Points: 1

1. Considers both the dividend yield and the coupon yield.

2. Can be used to value all common stocks.

3. Considers both the capital gains yield and the required dividend return.

4. Is dependent on an investors required rate of return.

A call can never be worth more than:

Points: 1

1. The strike price.

2. The exercise price.

3. Zero.

4. The stock price.

Which one of the following statements is correct?

Points: 1

1. Net working capital equals zero when current assets equal net fixed assets.

2. Net working capital is negative when current liabilities exceed cash.

3. Net working capital includes accounts from the statement of financial position.

4. Net working capital is positive when current assets are smaller than current liabilities.