1. The payback method is best defined as:

A. the time period required for NPV to equal zero

B. the time it takes to receive cash flows sufficient to cover initial investment

C. the time period required for present value of cash flows to equal to investment

D. all of the above

2. A problem associated with the payback method is:

A. it uses the time value of money concept

B. it includes cash flows after payback period

C. it doesnt include cash flows after the payback period

D. there are no shortcomings with the payback method

3. For Company ABC, the RRR on projects are 8%. Project A has a return of 10%, Project B has a return of 12%. If only Project B was chosen, the projects are known as:

A. independent projects B. dependent projects

C. correlated projects D. mutually exclusive projects

4. For Company ABC, the RRR on projects are 8%. Project A has a return of 10%, Project B has a return of 12%. If both projects were chosen, the projects are known as:

A. independent projects B. dependent projects

C. correlated projects D. mutually exclusive projects

5. When undertaking a project, NPV represents:

A. the dollar change on firms value B. the actual percentage rate of return

C. how long it takes project to pay itself D. all of the above

6. When undertaking a project, IRR represents:

A. the dollar change on firms value B. the actual percentage rate of return

C. how long it takes project to pay itself D. all of the above

7. A legal document which gives the provision of a bond issue is known as:

A. a debenture B. an indenture C. a covenant D. a term-loan agreement

8. A firm might call an outstanding bond and reissue new ones:

A. when interest rates rise B. when it needs to raise additional capital

C. when interest rates remain unchanged D. when interest rates fall

9. Which of the following is an example of a secured bond?

A. debenture B. subordinated debenture C. mortgage D. refund

10. Which of the following is an example of an unsecured bond?

A. first-mortgage B. second-mortgage C. senior debenture D. refund

11. If dividends are missed, they must be paid at a later date before dividends can be paid to common stockholders, best describes which type of preferred stock:

A. participating preferred B. callable preferred C. continuous preferred D. cumulative preferred

12. The chance for preferred stockholders to share the benefits of rising earnings with common stockholders, best describes which type of preferred stock:

A. participating preferred B. callable preferred C. continuous preferred D. cumulative preferred

13. The Board of Directors of a publicly traded company is elected by the:

A. common stockholders B. bondholders C. CEO D. workers

14. Which type of bond would pay the least amount of interest rate?

A. B+ B. AAA C. A D. BBB

15. Which type of bond would pay the most amount of interest rate?

A. B+ B. AAA C. A D. BBB

16. Company XYZ has convertible bonds with a conversion ratio of 20. The company stock is trading at $60 per share. An investor purchased a bond at par ($1,000), the investor should now:

A. keep the bond to make a profit of $60 B. sell the bond to make a profit of $60 per share

C. sell the bond to make a profit of $10 per share D. sell the bond to avoid a loss of $10 per share

All of the following factors may affect dividend policy except:

A. restrictions on dividend policy by bond indenture B. the transfer agent who clears the stock trade

C. stockholders preference D. need for funds

28. The following would be the result of a company executing a stock split:

A. company raises new money B. discourages stock trading activities C. shareholders wealth increase immediately D. the stock becomes more attractive

29. Which of the following bonds would pay the most interest?

A. subordinated debenture B. first mortgage C. senior debenture D. second mortgage

30. Which of the following bonds would pay the least interest?

A. subordinated debenture B. first mortgage C. senior debenture D. second mortgage

31. Which of the following has first claim on assets in case of bankruptcy?

A. sub-ordinated debenture B. second-mortgage C. senior debenture D. first-mortgage

32. Which is known as a hybrid security, consisting of both debt and equity characteristics.

A. sub-ordinated debenture B. bond C. preferred stock D. common stock

33. All are characteristics of common stock except.

A. receives interest payments B. equity claim C. has voting rights D. can receives dividends

34. Security that allows the holder the option to buy shares of common stock at a certain price for a stated period of time is known as a:

A. cumulative preferred stock B. preemptive right C. warrant D. non-cumulative preferred stock