Conceptual Q's Finance

A firm is considering two projects. Project X consists of creating an outdoor eating area on the unused portion of the restaurant's property. Project Y would instead use that outdoor space for creating a drive-thru service window. When trying to decide which project to accept, the firm should rely most heavily on which one of the following analytical methods?

-Accounting rate of return

-Net present value

-Internal rate of return

-Payback

Net Present Value

If a firm accepts Project X it cannot also accept Project Y because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:

-economically scaled.

-operationally distinct.

-independent.

-mutually exclusive.

mutually exclusive.

Net present value:

is the easiest method of evaluation for nonfinancial managers.

is the best method of analyzing mutually exclusive projects.

cannot be applied when comparing mutually exclusive projects.

is less useful than the internal rate of return when comparing different-sized projects.

is the best method of analyzing mutually exclusive projects.

Public offerings of debt and equity must be registered with the:

Federal Reserve Board.

Federal Reserve.

NYSE Registration Office.

Securities and Exchange Commission.

Securities and Exchange Commission.

Firm X and Firm Y both have price-earnings ratios of 14.8. However, Firm X has a higher PEG ratio than Firm Y. It must be true that Firm X _________ than Firm Y.

has a higher market-to-book ratio

is increasing its earnings at a slower rate

has a higher earnings growth rate

has a higher market value per share

is increasing its earnings at a slower rate

The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

-increase the dividend amount every other year.

-pay a constant dividend for the first two quarters of each year and then increase the dividend the last two quarters of each year.

-pay an increasing dividend for a period of time and then cease paying dividends altogether.

-grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.

grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.

The items in an indenture that limit actions of the issuer in order to protect a bondholder's interests are referred to as the: 

bylaws. 

legal bounds. 

trustee relationships. 

protective covenants. 

protective covenants. 

Assume the bond market requires a return of 7.4 percent on a firm’s 15-year bonds. The 7.4 percent is referred to as the:

call rate. 

coupon rate. 

yield to maturity. 

current yield. 

yield to maturity. 

A bond is quoted at a price of $1,026. This price is referred to as the: 

call price. 

dirty price. 

clean price. 

face value. 

clean price. 

An investor owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the: 

dirty price. 

face value. 

coupon. 

yield

face value.

In actual practice, managers most frequently use which two types of investment criteria?

Net present value and payback

Internal rate of return and net present value

Average accounting return and internal rate of return

Internal rate of return and payback

Internal rate of return and net present value

Which one of the following descriptions is the best example of two mutually exclusive projects?

Waiting until a machine finishes sewing Product X before being able to sew Product Y

Promoting two products during the same television commercial

Producing both compostable wooden forks and spoons on the same assembly line

Using an empty warehouse to store both raw materials and finished goods

Waiting until a machine finishes sewing Product X before being able to sew Product Y

An agent who arranges a transaction between a buyer and a seller of equity securities is called a:

principal.

dealer.

floor trader.

broker.

broker

Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond’s interest or principal payments as expected? The __________ premium. 

inflation 

interest rate risk 

default risk 

taxability 

default risk 

The yields on a corporate bond differ from those on a comparable Treasury security primarily because of: 

credit risk. 

default and interest rate risks. 

default, inflation, and interest rate risks. 

interest rate risk and taxes. 

credit risk. 

Which of the following are advantages of the payback method of project analysis?

Considers time value of money; liquidity bias

Liquidity bias; ease of use

Ease of use; subjective cutoff point

Ignores time value of money; ease of use

Liquidity bias; ease of use

You purchased a 10-year bond at par value when it was originally issued. It has an annual coupon of 7.5 percent and matures five years from now. Coupons are paid semiannually. Which one of the following statements applies to this bond if the relevant market interest rate is now 6 percent? 

You will realize a capital gain on the bond if you sell it today. 

The current yield to maturity is greater than 7.5 percent. 

The next interest payment will be $75. 

The current yield is 7.5 percent. 

You will realize a capital gain on the bond if you sell it today.