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 View answer Correct answer: (D)
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 View answer Correct answer: (A)
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 View answer Correct answer: (B)
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 View answer Correct answer: (A)
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 View answer Correct answer: (B)
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 View answer Correct answer: (A)
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 View answer Correct answer: (A)
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 View answer Correct answer: (D)
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 View answer Correct answer: (A)
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 View answer Correct answer: (B)