Reference no: EM132501706

Principles of Finance

Question 1: Of the following, which is NOT one of the four main areas of finance?

1. International finance
2. Corporate finance
3. Investments
4. All are considered main areas of finance.

Question 2: ________ is a major disadvantage of the corporate form of business.

1. Double taxation
2. Unlimited liability
3. Lack of ability to raise capital
4. Transfer of ownership

Question 3: Everything else equal, an industry with more leverage will have a:

1. higher return on assets.
2. higher return on equity.
3. lower return on equity.
4. Both A & B

Question 4: If you can earn 5.25% per year on your investments, how long will it take to double your money?

1. 6.31 years
2. 19.05 years
3. 13.55 years
4. There is not enough information to answer this question.

Question 5: Travis bought a share of stock for $31.50 that paid a dividend of $.85 and sold six months later for $27.65. What was his dollar profit or loss and holding period return?

1. -$3.00, -9.52%
2. -$3.85, -12.22%
3. -$.85, -2.70%
4. -$3.85, -9.52%

Question 6: If you were required to estimate the average return for one category of securities for the coming year, history tells us that you should have the greatest degree of confidence estimating which of the following?

1. Long-term government bonds
2. 3-month U.S. Treasury bills
3. Small-company stocks
4. Large-company stocks

Question 7: Which of the following are not considered a part of the firm's capital structure?

1. Long-term debt
2. Retained earnings
3. Inventory
4. Preferred stock

Question 8: Which of the following choices lists the least to most aggressive actions in the pursuit of overdue debt?

1. 1) a collection agency, 2) court action, 3) a letter requesting overdue payment
2. 1) court action, 2) a collection agency, 3) a letter requesting overdue payment
3. 1) a letter requesting overdue payment, 2) court action, 3) a collection agency
4. 1) a letter requesting overdue payment, 2) a collection agency, 3) court action

Question 9: John is in a high income-tax bracket and wishes to minimize current taxes payable. He also has a sizeable current income and prefers high growth rates to significant annual cash flow from his equity investments. Which of the following dividend polices would John most likely prefer if we assume that the dividend policy has no impact on the value of the firm and that the capital gains tax rate is lower than the ordinary tax rate?

1. High-dividend-payout policy
2. No-dividend-payout policy
3. Low-dividend-payout policy
4. John would be indifferent to all of the dividend policies.

Question 10: Which of the following would NOT be considered a cost of debt financing?

1. The required return on a bank loan
2. The required return on preferred stock
3. The yield-to-maturity of a bond issue
4. The required return on money borrowed from a venture capitalist