Answer:
Question: The “apparent,” but not necessarily the “true,” financial position of a company whose sales are seasonal can change dramatically during a given year, depending on the time of year when the financial statements are constructed.
Answer Options:
a. True
b. False
Answer: a. True
Question: The return on invested capital measures the total return that a company has provided for its investors.
Answer Options:
a. True
b. False
Answer: a. True
Question: A decline in a firm’s inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position, i.e., that it is becoming more liquid. a. True b. False
Answer: False
Question: An upward-sloping yield curve is often call a “normal” yield curve, while a downward-sloping yield curve is called “abnormal.”
Answer Options:
a. True
b. False
Answer: a
Question: If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline. a. True b. False
Answer:
Question: In general, it’s better to have a low inventory turnover ratio than a high one, as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock. a. True b. False
Answer: False
Question: Assume that inflation is expected to decline steadily in the future, but that the real risk-free rate, r*, will remain constant. Which of the following statements is CORRECT, other things held constant?
Answer Options:
a. If the pure expectations theory holds, the Treasury yield curve must be downward sloping.
b. If the pure expectations theory holds, the corporate yield curve must be downward sloping.
c. If there is a positive maturity risk premium, the Treasury yield curve must be upward sloping.
d. If inflation is expected to decline, there can be no maturity risk premium.
e. The expectations theory cannot hold if inflation is decreasing.
Answer: a
Question: If a firm’s ROE is equal to 9% and its ROA is equal to 6%. The firm finances only with short-term debt, long-term debt, and common equity, so assets equal total invested capital. The firm’s total debt to total capital ratio must be 50%.
Answer Options:
a. True
b. False
Answer: b. False
Question: Other things held constant, the more debt a firm uses, the lower its operating margin will be.
Answer Options:
a. True
b. False
Answer: b. False
Question: If investors’ aversion to risk rose, causing the slope of the SML to increase, this would have a greater impact on the required rate of return on equity, rs, than on the interest rate on long-term debt, rd, for most firms. Other things held constant. a. True b. False
Answer: a. True
Question: Which of the following statements is CORRECT?
Answer Options:
a. If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.
b. If you have a series of cash flows, and CF0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.
c. To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the FV of the negative CFs. It is impossible to find the value of I without a computer or financial calculator.
d. If you solve for I and get a negative number, then you must have made a mistake.
e. If CF0 is positive and all the other CFs are negative, then you cannot solve for I.
Answer: e
Question: Although a full liquidity analysis requires the use of a cash budget, the current and quick ratios provide fast and easy-to-use estimates of a firm’s liquidity position. a. True b. False Answer Options for Question 560 a. True b. False
Answer: True
Question: If the Treasury yield curve were downward sloping, the yield to maturity on a 10-year Treasury coupon bond would be higher than that on a 1-year T-bill.
Answer Options:
a. True
b. False
Answer: b
Question: If on January 3, 2015, a company declares a dividend of $1.50 per share, payable on January 31, 2015, to holders of record on January 17, then the price of the stock should drop by approximately $1.50 on January 15, which is the ex-dividend date.
Answer Options:
a. True
b. False
Answer: a. True
Question: Because the maturity risk premium is normally positive, the yield curve must have an upward slope. If you measure the yield curve and find a downward slope, you must have done something wrong.
Answer Options:
a. True
b. False
Answer: b
Question: Debt management ratios show the extent to which a firm’s managers are attempting to magnify returns on owners’ capital through the use of financial leverage.
Answer Options:
a. True
b. False
Answer: a. True
Question: If a firm uses the residual dividend model to set dividend policy, then dividends are determined as a residual after providing for the equity required to fund the capital budget. Under this model, the higher the firm’s debt ratio, the lower its payout ratio will be, other things held constant.
Answer Options:
a. True
b. False
Answer: b. False
Question: All other things held constant, the present value of a given annual annuity increases as the number of periods per year increases. a. True b. False Correct Answer: b
Answer:
Question: Time lines can be constructed for annuities where the payments occur at either the beginning or the end of the periods. a. True b. False Correct Answer: a
Answer:
Question: The Federal Reserve tends to take actions to increase interest rates when the economy is very strong and to decrease rates when the economy is weak.
Answer Options:
a. True
b. False
Answer: a
Question: Which of the following statements is CORRECT?
Answer Options:
a. The yield on a 3-year Treasury bond cannot exceed the yield on a 10-year Treasury bond.
b. The yield on a 2-year corporate bond should always exceed the yield on a 2-year Treasury bond.
c. The yield on a 3-year corporate bond should always exceed the yield on a 2-year corporate bond.
d. The yield on a 10-year AAA-rated corporate bond should always exceed the yield on a 5-year AAA-rated corporate bond.
e. The following represents a “possibly reasonable” formula for the maturity risk premium on bonds: MRP = −0.1%(t), where t is the years to maturity.
Answer: b
Question: Significant variations in accounting methods among firms make meaningful ratio comparisons between firms more difficult than if all firms used the same or similar accounting methods.
Answer Options:
a. True
b. False
Answer: a. True
Question: The four most fundamental factors that affect the cost of money are (1) production opportunities, (2) time preferences for consumption, (3) risk, and (4) weather conditions.
Answer Options:
a. True
b. False
Answer: b