Which one of these statements related to growing annuities and perpetuities is correct?
answer
The present value of a growing perpetuity will decrease if the discount rate is increased.
question
Which one of the following statements correctly states a relationship?
answer
Time and present value are inversely related, all else held constant.
question
Which one of the following compounding periods will yield the smallest present value given a stated future value and annual percentage rate?
answer
continuous
question
The entire repayment of which one of the following loans is computed simply by computing a single future value?
answer
pure discount loan
question
How is the principal amount of an interest-only loan repaid?
answer
The principal is repaid in a lump sum at the end of the loan period.
question
An amortized loan:
answer
may have equal or increasing amounts applied to the principal from each loan payment.
question
You need $25,000 today and have decided to take out a loan at 7 percent for five years. Which one of the following loans would be the least expensive? Assume all loans require monthly payments and that interest is compounded on a monthly basis.
answer
Amortized loan with equal principal payments
question
Which one of the following statements is correct for a firm that uses debt in its capital structure?
answer
The WACC should decrease as the firm's debt-equity ratio increases.
question
The weighted average cost of capital for a firm may be dependent upon the firm's:
I. rate of growth.
II. debt-equity ratio.
III. preferred dividend payment.
IV. retention ratio.
answer
I, II, III, and IV
question
The aftertax cost of debt:
answer
Has a greater effect on a firm's cost of capital when the debt-equity ratio increases.
question
The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations?
I. firms that have a 100 percent retention ratio
II. firms that pay a constant dividend
III. firms that pay an increasing
dividend
IV. firms that pay a decreasing dividend
answer
I, II, and III only
question
A perpetuity differs from an annuity because:
answer
perpetuity payments never cease.
question
Which one of the following statements concerning the annual percentage rate is correct?
answer
The annual percentage rate equals the effective annual rate when the rate on an account is designated as simple interest.
question
Which one of the following statements concerning interest rates is correct?
answer
An effective annual rate is the rate that applies if interest were charged annually.
question
A _____ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively.
answer
common-size statement
question
An increase in total assets:
answer
must be offset by an equal increase in liabilities and shareholders' equity.
question
Earnings per share is equal to:
answer
A. net income divided by the total number of shares outstanding.
question
Cash flow to stockholders must be positive when:
answer
both the cash flow to assets and the cash flow to creditors are negative.
question
The cash flow of the firm must be equal to:
answer
cash flow to stockholders plus cash flow to debtholders.
question
Net capital spending is equal to:
answer
the net change in fixed assets.
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