Financial Management
71. All of the following are true regarding capital rationing except:
- it places on artificial constraint on funds that many be invested
- it may result out of a fear of growth
- it may result out of a hesitation to use external sources of funds
- it will help the overall profitability of the firms
Correct answer: (D)
it will help the overall profitability of the firms
72. The expected value may be defined as:
- a weighted average of outcomes times their probability
- the arithmetic average of the outcomes
- the median value of the possible outcomes
- a measure of dispersion or variability
Correct answer: (A)
a weighted average of outcomes times their probability
73. The key to simulation analysis has been:
- statistical analysis
- the development of the computer
- risk adjusted interest rates
- the ability to classify investments as to their risk class
Correct answer: (B)
the development of the computer
74. Markets comprised of securities with maturities of one year or less are generally referred to as:
- money markets
- capital markets
- stock markets
- bond markets
Correct answer: (A)
money markets
75. A major disadvantage of preferred stock is:
- common stock dividends have a higher order of precedence
- dividends are not tax-deductible
- there is no secondary market for preferred stock
- the preferred dividend may vary greatly year to year
Correct answer: (B)
dividends are not tax-deductible
76. Organized securities markets exhibit all of the following characteristics except:
- listings on national and regional exchanges are mutually exclusive
- each exchange has a central location where buying and selling occurs
- brokers represent the actual buyers and sellers
- securities are listed and traded with the approval of the board of governors
Correct answer: (A)
listings on national and regional exchanges are mutually exclusive
77. All of the following influence the price of a stock for the firm going public by way of an IPO except:
- the previous share price
- an in-depth company analysis
- the P/E ratio for similar firms in the industry
- anticipated public demand
Correct answer: (A)
the previous share price
78. Going public offers the firm many of the advantages listed below with the exception of:
- security markets may be tapped for a greater amount of funds
- the prestige of a public security may help in bank negotiations
- marketable securities may be used for acquisitions
- there is less pressure for short-term profits
Correct answer: (D)
there is less pressure for short-term profits
79. With a secured claim:
- specific assets are pledged in the event of default
- a debenture exists
- the lower the value of the initial security
- pledged assets are often sold off and the proceeds distributed
Correct answer: (A)
specific assets are pledged in the event of default
80. Which of the following is a benefit of debt to the firm:
- interest and principal obligations are contractually set
- interest payments are tax deductible
- indenture agreements provide the firm with no restrictions
- used beyond a certain point, debt will decrease the cost of capital
Correct answer: (B)
interest payments are tax deductible
Thursday, December 2, 2021