3 7) Free cash flow is defined as 7) er the firm has made investments in assets necessary to sustain the ongoing B) cash flows C) cash flows available for payments to st D) cash flows operations of the firm. after the firm has made payments necessary to that would be tax-free to the recipients. made payments to all others with claims against it. available for payments to stockholders and debt holders of a firm vendors. available for payments to stockholders of a firm after the firm has 8) Which statement is true? A) Liquid assets generate profits for the firm. B) The lower the liquidity ratios, the less liquidity risk a firm has. C) The less liquid assets a firm holds, the less likely it is that the firm will experience financial distress D) Extremely high levels of liquidity guard against liquidity crises, but at the cost of lower returns on assets. 9) Common-size financial statements A) provide quantitative clues about the direction that the firm is moving. B) are obtained by dividing all income statement accounts by net sales and all balance sheet accounts by total assets C) allow for an easy comparison of balance sheets and income statements across firms in the industry D) All of these choices are correct hich company has the most risk from an investor's standpoint? Firm A has a PE of 10) Q times and Firm B has a PE of 16 times. Assume both firms operate in the same ustry. Firm A has fewer shares outstanding than Firm B A) Firm A because it has fewer shares outstanding. B) Firm A because it has the higher PE ratio. O) Firm B because it has more shares outstanding. D) Firm B because it has a lower PE ratio. 1) I1) Which of the following statements is true about return on equity (ROE)? A) The value of the firm's ROE is affected by the amount of financial leverage or debt that the firm uses. B) The value of the firm's ROE is affected by net income. C) It measures the return on common stockholders'investment in the assets of the firm. D) All of these choices are correct. A) a 6 percent rate with annual compounding B) a 6 percent rate with quarterly compounding e) a 6 percent rate with monthly compounding generate the highest effective annual rate (EAR)? D) a 6.08 percent rate with annual compounding 19) Which of the following will increase the present value of an annuity? A) The final payment diminishes B) The number of periods the annuity is received decreases. C) The discount rate decreases. D) The discount rate increases. 20) 20) Which of the following statements is true? A) Interest payments paid to municipal bondholders are not taxed at the federal level, or by the state for which the bond is issued. B) Interest payments paid to corporate bondholders are not taxed at the federal level. C) Interest payments paid to corporate bondholders are not taxed at the state level. D) Interest payments paid to U.S. Treasury bondholders are not taxed at the federal level. 21) Junk bonds are those bonds with a credit rating of 2) A) BBB and lower C) BB and lower. B) B and lower. D) None o these choices are correct. 22) Sally is choosing between two bonds both of which mature in 15 years and have the 22) same level of risk. Bond A is a municipal bond that yields 7.20 percent. Bond B is a corporate bond that yields 10.00 percent. If Sally is in the 28 percent tax bracket, which bond should she select and why? A) Sally will be indifferent between Bond A and B since the taxable equivalent B) Sally should select Bond B because the taxable equivalent yield of Bond A is C) Sally should select Bond A because its taxable equivalent yield is greater than D) Sally should select Bond A because its interest income is not taxable. yield of Bond A equals the yield of Bond B. less than the yield of Bond B. the yield of Bond B. 23) Which of the following statements is correct? 23) A) Zero-coupon bonds do not have interest rate risk. B) Long-term bonds have more reinvestment rate risk than short-term bonds. C) Long-term bonds have more interest rate risk than short-term bonds. D) Short-term bonds with high coupons have high interest rate risk