QUESTION 10

Taxes do not enter into the equation for the degree of cash flow of operating leverage because both fixed costs and pretax operating cash flows are measured on a pretax basis.

True

False

QUESTION 18

Which of the following statements is true?

		The longer the maturity of a security, the greater its interest rate risk.
		If investors believe inflation will be subsiding in the future, the prevailing yield will be upward sloping.
		The real rate of interest varies with the business cycle, with the lowest rates seen at the end of a period of business expansion and the highest at the bottom of a recession.
		The interest rate risk premium always adds a downward bias to the slope of the yield curve.

4 points

QUESTION 19

Downward-slopping yield curves are observed

		when the economy is growing.
		when the economy is stagnant.
		before the beginning of a recession.
		None of the above.

4 points

QUESTION 20

Which of the following statements is true about secondary markets?

In secondary markets, outstanding shares of stock are bought and sold among investors

Most secondary market transactions directly affect the capital of the firm that issues the securities

An active secondary market causes firms to sell their new debt or equity issues at a higher transaction cost of funds

All of the above statements are true

QUESTION 24

Which of the following statements is NOT true about constant-growth stocks?

Cash dividend remains constant over time

Mature companies with a history of stable growth show this pattern

Dividends grow at a constant rate from one period to the next forever

Far distant-dividends have a very small present value and add little to the stocks price

QUESTION 28

To accept a capital project when using NPV,

the project NPV should be less than zero.

the project NPV should be greater than zero.

Both a and b

None of the above

QUESTION 29

Which of the following statements about the payback method is true?

		The payback method is consistent with the goal of shareholder wealth maximization
		The payback method represents the number of years it takes a project to recover its initial investment plus a required rate of return.
		There is no economic rational that links the payback method to shareholder wealth maximization.
		None of the above statements are true.