B. MULTIPLE CHOICE QUESTIONS

For each question, enter the letter of the best response on the blank preceding the question.

______ 17. On a time line,

1. negative values represent cash out flows.
2. positive values represent cash inflows.
3. "Time 0" (the present time) appears at the left-most end of the

time line.

1. A and B.
2. A and B and C.

______ 18. The future value technique uses _______________ to calculate

the future value of an investment's cash flows.

1. discounting
2. compounding
3. exponential smoothing
4. weighted averages

______ 19. The discount rate used to calculate the present value of a cash flow expected

at some point in the future is also known as the

1. opportunity cost.
2. required return.
3. cost of capital.
4. beta.
5. A and B and C and D.
6. A and B and C.

______ 20. An "ordinary annuity" has cash flows that occur at

A the end of each time period.

B. the beginning of each time period.

C. the middle of each time period.

______ 21. With a(n) _________________, the periodic annuity or cash flow stream

continues forever.

1. ordinary annuity
2. annuity due
3. perpetuity

______ 22. A loan amortization schedule lists the ________________ and

______________ component values for each loan payment.

1. annuity; perpetuity
2. principal; interest
3. Sales; Net Income
4. liability; equity

______ 23. A _____________ is a long-term debt instrument that pays the holder

a specified amount of periodic interest over a specified time.

1. common stock share
2. bond
3. preferred stock share
4. proxy statement

______ 24. Each of the following is a restrictive covenant that may be applicable to a

corporate bondEXCEPT

1. a restriction on the amount of "Net Sales" that the firm can generate.
2. minimum liquidity levels.
3. fixed asset restrictions.
4. limitations on cash dividends.

______ 25. A mortgage bond is typically secured by the issuing firm's

1. Inventory.
2. Accounts Receivable.
3. Accounts Payable.
4. Fixed Assets, such as real estate or building(s).

______ 26. Most bonds have each of the following characteristicsEXCEPT

1. they pay interest semi-annually at a stated coupon interest rate.
2. they have an initial maturity of 10 to 30 years.
3. they require annual dividend payments to the bondholders.
4. they have a par value of $1,000 that must be repaid to the

bondholder at maturity.

______ 27. Common stockholders expect to be compensated with

1. adequate dividend payments.
2. adequate interest payments.
3. capital gains when the stock is sold.
4. A and B and C.
5. A and C.

______ 28. The common stock of a corporation can be

1. privately owned by an individual.
2. closely owned by a small group of investors.
3. publicly owned by a broad group of investors.
4. A and B and C.

______ 29. A ________________________ right allows common stockholders to

maintain their proportionate ownership in a corporation when new

shares are issued.

1. pre-emptive right
2. ownership interest
3. proxy statement
4. restrictive covenant

______ 30. __________________ are the number of common stock shares that a

corporation's charter allows it to issue.

1. Outstanding shares
2. Authorized shares
3. Treasury shares
4. Reserve shares

______ 31. Preferred stocks are often referred to as ________________

securities, as they have characteristics of both common socks and

bonds.

1. reflexive
2. diluted
3. hybrid
4. alternate

______ 32. Operating breakeven analysisis used to

1. determine the level of operations necessary to cover all operating costs.
2. evaluate the level of profitability associated with various levels of sales.
3. determine the number of common stock shares to issue.
4. A and B and C.
5. A and B.