57. Which of the following could be considered a form of perpetuity? a. the college tuition payments that students make for four years. b. a 20-year corporate bond c. a university scholarship endowment that promises to pay out $10,000 per year for an indefinite time period d. a contract from the winning lottery ticket to receive cash flows for the next 30 years

59. Zero coupon bonds have which of the following features? a. annual interest payments b. semi-annual interest payments c. no interest payments d. any of the above may apply

60. The ________ is used to determine the annual or semi-annual interest cash flow for a bond whereas the ________ is the rate used to determine the price of the bond. a. coupon rate; yield to maturity b. yield to maturity; coupon rate c. yield to maturity; discount rate d. current yield; yield to maturity

61. Most bonds issued in the United States have ________ coupon payments and ________ face values. a. annual; $1,000 b. annual; $500 c. semi-annual; $1,000 d. semi-annual; $500

62. After a bond issue if the yield to maturity increases a conventional bond will see the price ______. a. increase b. decrease c. stay the same d. there is not enough information to answer this question

63. Firms attempt to price bonds so that at issue they sell for the ______. a. face value b. coupon value c. firm value d. the same price as shares of preferred stock

64. The maturity of an issue of preferred stock is ______. a. the same as the longest maturity bond issued by the firm b. variable between 15 and 30 years c. indefinite, just as the maturity of common shares d. renewable every five years

65. Suppose a preferred share pays perpetual QUARTERLY dividends of $0.25 and has a per annum dividend yield of 6 percent. What is the fair value of this preferred share? a. $14.67 b. $15.33 c. $16.00 d. $16.67

67. The ________ method of capital budgeting finds the present value of cash inflows and subtracts the initial cash outflow. a. payback b. net present value c. internal rate of return d. modified internal rate of return

68. The decision rule for net present value declares that a project is acceptable if ______. a. it pays back within a specified time period. b. the rate of return is greater than the firm's cost of capital. c. the present value of the cash inflows exceeds the initial cash outflow. d. all of the statements above are true

69. A firm's cost of capital may also be known as ______. a. the cost of financing b. the internal rate of return c. modified internal rate of return d. the prime rate

70. The IRR method of capital budgeting tells us what particular discount rate will result in a ________ NPV project. a. positive b. negative c. zero d. none of the above

71. The decision rule for the profitability index is that any project with ________ is an acceptable project. a. a ratio less than one b. a ratio greater than one c. a ratio greater than zero d. a ratio less than zero

72. Typically, the rate of return on ________ exceeds the rate of return on ________. a. long-term bonds; short-term bonds b. government bonds; similar maturity corporate bonds c. short-term bonds; long-term bonds d. marketable securities; common stock

73. With ________ bonds a firm can choose to pay back the investor at a pre-specified date prior to the maturity date, usually at a pre-specified price above the face value, representing a premium to the bondholder. a. callable b. convertible c. variable rate d. premium

74. ________ place some restrictions on the firm in such a way as to improve the odds that the bondholders will be repaid. a. Bond ratings b. Bond covenants c. Bond rating agencies d. Bond exchanges

75. Which of the following have payments that are tax deductible for the corporation? a. bond interest payments b. preferred dividends c. common dividends d. retained earnings

76. If a firm does not have publicly traded debt and therefore does not have a yield to maturity as an estimate for its cost of debt, a common practice is to estimate the cost of debt by adding a premium to the rate on: a. the cost of accounts payable. b. equity. c. long-term government bonds. d. collateralized debt obligations.

77. The market risk premium represents the expected difference between ______. a. the return on AAA bonds and Treasury bonds b. the prime rate and the 3-month Treasury bill rate c. the return on the stock market and the return on preferred shares d. the return on the stock market investment and the risk-free return

78. All else equal, investors "like" ________ and "dislike" ________. a. risk; return b. return; risk c. standard deviation; risk d. diversification; return

79. What is the WACC for Bacon Signs Inc, if the after-tax cost of long-term debt is 6.3% and the before tax cost of equity is 10.4%? a. 8.02% b. 8.91% c. 9.58% d. Without a corporate tax rate, we cannot answer this question as written.

80. For a project to be accepted, the ________ may be greater than or less than the firm's WACC, but the ________ must be greater than the hurdle rate. a. IRR; NPV b. hurdle rate; IRR c. MIRR; NPV d. NPV; IRR

81. The risk that can be eliminated through the practice of diversification is known as ________ risk. a. unsystematic b. systematic c. nondiversifiable d. speculative 82. A firm's risk level will fluctuate as its ________ changes. a. financial leverage b. debt-to-equity c. degree of financial leverage d. all of the above

83. Modigliani-Miller (M-M) Proposition II states ______. a. the cost of equity does not change when a firm takes on a greater proportion of debt b. the cost of equity increases when a firm takes on a greater proportion of debt c. the cost of debt increases when a firm takes on a greater proportion of equity d. the cost of equity decreases when a firm takes on a greater proportion of debt

87. If a firm were simply concerned with minimizing costs of incremental financing, then the straightforward choice would be ______. a. debt b. new equity c. retained earnings d. half debt and half equity financing

88. Financial managers should consider taking ________ financial risk when operating risk is high, but may consider taking ________ financial risk when operating risk is low. a. less; less b. less; more c. more; more d. more; less

89. Which of the following lessons from the Great Recession is NOT true? a. The financial crisis really drove home the point that capital structure DOES matter in that firms with too much debt suffered greatly. b. Firms that relied too much on short-term financing were severely affected by the global liquidity crisis. c. Capital markets are indeed almost perfect. d. All of the above are true.

90. If a viable firm is not growing but is expected to continue over time, then we would expect capital expenditures to be equal to ______. a. sales b. depreciation c. EBIT d. taxes payable

91. Legacy Industries Inc. has a historic P/E multiple of 15, a current EPS of $2.50 projected to grow by 4% in the coming year, and a forward looking P/E multiple of 18. With this information please estimate the current price of the firm's stock. a. $37.50 b. $46.80 c. $39.00 d. $48.20 92. All else equal, the forward-looking price-earnings multiple is ________ related to risk and ________ related to growth. a. indirectly; directly b. indirectly; indirectly c. directly; directly d. directly; indirectly

93. Target firms in a merger or acquisition process realize, on average ______. a. significantly positive per share price premiums b. significantly negative per share price reductions c. no significant change in price d. The return rate is unknown. This is an unanswered research question.

94. Generally, an economic SWOT analysis will move in this direction: a. the industry outlook to the broad economy to firm specific information and finally individual store sales. b. the broad economy to the industry outlook to firm specific information and finally individual store sales. c. the industry outlook to the broad economy to individual store sales and finally to firm specific information. d. the broad economy to the industry outlook to individual store sales and finally to firm specific information.

95. According to chapter 14, we can anticipate that any long-term growth in retail revenue will tend to occur _________ growth in the overall economy, and the Internet retail revenue is expected to grow _________ the overall economy. a. more rapidly than; less rapidly than b. less rapidly than; at the same rate as c. at a similar rate as; at a higher rate than d. more rapidly than; at a similar rate as

96. Financial theory suggests and empirical evidence supports the idea that firms have a"pecking order" by which they choose to raise funds to finance assets. From the first source of financing to the last this pecking order is ______. a. internally generated funds, debt, and new equity b. debt, internally generated funds, and equity c. equity, debt, and internally generated funds d. None of the above, there is no such preference

97. ________ is a period measure that attempts to capture a firm's ability to add value for shareholders, after accounting for the requirements of other stakeholders. a. Economic value added b. Discounted cash flow analysis c. Price-earnings measure d. all of the above

98. The ________ is cited by the author as a reason for using just one rate, a long-term yield, as the average cost of debt financing for a firm that has multiple issues of debt with varying maturities. a. efficient markets hypothesis b. market substitution theory c. biased expectation theory d. unbiased expectations theory

99. Which of the following is NOT a key component of the CAPM? a. beta b. diversifiable risk c. the risk-free rate d. the market risk premium

100. A firm with a beta of 2.0 should ______. a. be forced to stop trading until the market perceives less risk b. require twice the return on the market portfolio c. require twice the market risk premium d. require twice the risk-free rate of return