Resolved Question:

lesson 1
1. Which of the following would result in a decrease in cash flow
and a use of cash?
A. A decrease in notes payable
B. An increase in long-term debt
C. A decrease in inventory
D. A decrease in common stock
2. In the United States, for the 2007 tax year, federal corporate
income tax rates never exceeded an average rate of
A. 15%. C. 39%.
B. 35%. D. 34%.
3. A firm has assets of $60,000 and owners’ equity of $33,000.
Which of the following is the correct balance of the firm’s
A. $33,000 C. $93,000
B. $27,000 D. $60,000
4. Which of the following would result in an increase in cash flow and a source of cash?
A. A decrease in notes payable
B. A decrease in long-term debt
C. An increase in inventory
D. An increase in common stock
5. A firm has current assets of $10,000 and current liabilities of $7,000. Which of the
following is the correct net working capital for the firm?
A. $10,000 C. $3,000
B. $7,000 D. $13,000

lesson 2
1. What is the present value of $3,000, discounted at 8 percent
interest per period, for two periods? (Round your answer to
the nearest cent.)
A. $2,777.78 C. $3,499.20
B. $2,572.02 D. $3,240.00
2. The stated interest payment made on a bond is called the
A. yield to maturity. C. face value.
B. maturity. D. coupon.
3. An ordinary annuity of $500 per period, discounted at a rate
of 8 percent per period for 3 periods, has a present value of
$1,288.55. If this same annuity was an annuity due, what
would its present value be? (Round your answer to the
nearest cent.)
A. $1,288.55 C. $1,391.63
B. $1,500.00 D. $1,788.55
4. The relationship between real returns, nominal returns, and inflation is commonly
referred to as the
A. dirty price. C. Treasury yield curve.
B. Fisher effect. D. bid-ask spread.
5. On an investment of $2,000, you’ll earn 10 percent interest per year compounded
semiannually. What is the future value of this investment after one year?
A. $2,205 C. $2,420
B. $2,100 D. $4,500

leson 3
1. The amount of time required for an investment to generate
cash flows sufficient to recover its initial cost is called the
A. net present value.
B. average accounting return.
C. internal rate of return.
D. payback period.
2. To calculate a firm’s break-even point, you need to
A. divide fixed costs by variable costs.
B. add fixed costs to variable costs, and divide the total
by the unit contribution margin.
C. divide fixed costs by the unit contribution margin.
D. divide the unit contribution margin by variable costs.
3. The present value of an investment’s future cash flows
divided by its initial cost is called the
A. profitability index.
B. average accounting return.
C. net present value.
D. discounted payback
4. Assume that a firm has an average net income of $125,000 and an average book
value of $500,000. What is the firm’s average accounting return?
A. 25 percent C. 40 percent
B. 65 percent D. 12.5 percent
5. A cost that has already been incurred and that should therefore not be considered
in an investment decision is called a(n)
A. pro forma. C. erosion.
B. sunk cost. D. opportunity cost.

lesson 4
1. The slope of the security market line, which is the difference
between the expected return on a market portfolio and the
risk-free rate, is called the
A. market risk premium.
B. portfolio variance.
C. arithmetic average return.
D. cost of capital.
2. A stock with a beta coefficient (β) of 2.0 has
A. one-tenth of the risk of an average asset.
B. the same systemic risk as an average asset.
C. one-half the systemic risk of an average asset.
D. twice as much systemic risk as an average asset.
3. In a market, when all information of every kind is reflected
in stock prices, the market is said to be
A. weak form efficient.
B. geometrically efficient.
C. strong form efficient.
D. average return efficient.
4. Suppose that you purchased 200 shares of a stock at $46 per share (ignore all
commissions). Assume the stock paid a dividend of $1.20 per share for the year.
The stock price rose to $52.78 per share, and was then sold at that price. What
was the total amount of dividends received?
A. $120 C. $9,200
B. $240 D. $1,356
5. The term diversifiable risk is synonymous with which of the following?
A. Risk premium C. Systematic risk
B. Unsystematic risk D. Total risk

lesson 5
1. Which of the following is the minimum return a company
needs to earn to satisfy all its investors?
A. NPV C. BASF 2015
2. The equation RP = D/P0 is used to determine the
A. cost of a bond.
B. cost of preferred stock.
C. cost of common stock.
D. dividend resulting from one share of stock.
3. The cost of equity can be viewed as the combination of
A. the financial leverage and the cost of capital.
B. corporate taxes and shareholder claims.
C. business risk and financial risk.
D. the weighted average cost of capital and the capital
4. The return that lenders require on a firm’s new borrowing is known as the
A. financial leverage. C. warrant.
B. cost of debt. D. cost of equity.
5. The legal proceeding for liquidating or reorganizing a business is called
A. internal financing. C. flotation.
B. financial leveraging. D. bankruptcy.

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