can you help with questions 41-80? I have attached the document again for reference.

1. The form of organization for a business is not an important issue, as this decision has very little effect on the income and wealth of the firm's owners. a. True b. False ANSWER: _______ 2. A proxy is a document giving one party the authority to act for another party, including the power to vote shares of common stock. Proxies can be important tools relating to control of firms. a. True b. False ANSWER: _______ 3. Risk-averse investors require higher rates of return on investments whose returns are highly uncertain, and most investors are risk averse. a. True b. False ANSWER: _______ 4. If a firm raises capital by selling new bonds, it is called the "issuing firm," and the coupon rate is generally set equal to the required rate on bonds of equal risk. a. True b. False ANSWER: _______ 5. An option is a contract that gives its holder the right to buy or sell an asset at a predetermined price within a specified period of time. a. True b. False ANSWER: _______ 6. "Capital" is sometimes defined as funds supplied to a firm by investors. a. True b. False ANSWER: _______ 7. Starting to invest early for retirement increases the benefits of compound interest. a. True b. False ANSWER: _______ 8 Ratio analysis involves analyzing financial statements in order to appraise a firm's financial position and strength. a. True b. False ANSWER: _______ 9. Estimating project cash flows is generally the most important, but also the most difficult, step in the capital budgeting process. Methodology, such as the use of NPV versus IRR, is important, but less so than obtaining a reasonably accurate estimate of projects' cash flows. a. True b. False ANSWER: _______ 10. The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of stockholders' equity. a. True b. False ANSWER: _______ 11. A firm should never accept a project if its acceptance would lead to an increase in the firm's cost of capital (its WACC). a. True b. False ANSWER: _______ 12. Some of the cash flows shown on a time line can be in the form of annuity payments but none can be uneven amounts. a. True b. False ANSWER: _______ 13. When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the degree of correlation between the new stock and stocks already in the portfolio, the less the additional stock will reduce the portfolio's risk. a. True b. False ANSWER: _______ 14. If debt is to be used to finance a project, then when cash flows for a project are estimated, interest payments should be included in the analysis. a. True b. False ANSWER: _______ 15. Assuming that their NPVs based on the firm's cost of capital are equal, the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. a. True b. False ANSWER: _______ 16. There are three primary disadvantages of a regular partnership: (1) unlimited liability, (2) limited life of the organization, and (3) difficulty of transferring ownership. These combine to make it difficult for partnerships to attract large amounts of capital and thus to grow to a very large size. a. True b. False ANSWER: _______ Tr ue 17. If a firm's stockholders are given the preemptive right, this means that stockholders have the right to call for a meeting to vote to replace the management. Without the preemptive right, dissident stockholders would have to seek a change in management through a proxy fight. a. True b. False ANSWER: _______ 18. The before-tax cost of debt, which is lower than the after-tax cost, is used as the component cost of debt for purposes of developing the firm's WACC. a. True b. False ANSWER: _______ 19. The strike price is the price that must be paid for a share of common stock when it is bought by exercising a warrant. a. True b. False ANSWER: _______ 20. One problem with ratio analysis is that relationships can be manipulated. For example, if our current ratio is greater than 1.5, then borrowing on a short-term basis and using the funds to build up our cash account would cause the current ratio to increase. a. True b. False ANSWER: _______ 21.A bond that is callable has a chance of being retired earlier than its stated term to maturity. Therefore, if the yield curve is upward sloping, an outstanding callable bond should have a lower yield to maturity than an otherwise identical noncallable bond. a. True b. False ANSWER: _______ 22. On its 2014 balance sheet, Barngrover Books showed $510 million of retained earnings, and exactly that same amount was shown the following year in 2015. Assuming that no earnings restatements were issued, which of the following statements is CORRECT? a. Dividends could have been paid in 2015, but they would have had to equal the earnings for the year. b. If the company lost money in 2015, they must have paid dividends. c. The company must have had zero net income in 2015. d. The company must have paid out half of its earnings as dividends. e. The company must have paid no dividends in 2015. ANSWER: _______ 23. Disregarding risk, if money has time value, it is impossible for the future value of a given sum to exceed its present value. a. True b. False ANSWER: _______ 24. Market risk refers to the tendency of a stock to move with the general stock market. A stock with above-average market risk will tend to be more volatile than an average stock, and its beta will be greater than 1.0. a. True b. False ANSWER: _______ 25. The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business. a. True b. False ANSWER: _______ 26. Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? a. Shipping and installation costs. b. Cannibalization effects. c. Opportunity costs. d. Sunk costs that have been expensed for tax purposes. e. Changes in net working capital. ANSWER: _______ 27. The internal rate of return is that discount rate that equates the present value of the cash outflows (or costs) with the present value of the cash inflows. a. True b. False ANSWER: _______ 28. Classified stock differentiates various classes of common stock, and using it is one way companies can meet special needs such as when owners of a start-up firm need additional equity capital but don't want to relinquish voting control. a. True b. False ANSWER: _______ 29. You are considering 2 bonds that will be issued tomorrow. Both are rated triple B (BBB, the lowest investment-grade rating), both mature in 20 years, both have a 10% coupon, neither can be called except for sinking fund purposes, and both are offered to you at their $1,000 par values. However, Bond SF has a sinking fund while Bond NSF does not. Under the sinking fund, the company must call and pay off 5% of the bonds at par each year. The yield curve at the time is upward sloping. The bond's prices, being equal, are probably not in equilibrium, as Bond SF, which has the sinking fund, would generally be expected to have a higher yield than Bond NSF. a. True b. False ANSWER: _______ 30. If a firm's marginal tax rate is increased, this would, other things held constant, lower the cost of debt used to calculate its WACC. a. True b. False ANSWER: _______ 31. If a stock's price is above the strike price of a call option written on the stock, then the exercise value is equal to the stock price minus the strike price. If the stock price is below the strike price, the exercise value of the call option is zero. a. True b. False ANSWER: _______ 32. Which of the following statements is CORRECT? a. "Window dressing" is any action that improves a firm's fundamental, longrun position and thus increases its intrinsic value. b. Borrowing by using short-term notes payable and then using the proceeds to retire long-term debt is an example of "window dressing." Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is another example of "window dressing." c. Borrowing on a long-term basis and using the proceeds to retire short-term debt would improve the current ratio and thus could be considered to be an example of "window dressing." d. Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is an example of "window dressing." e. Using some of the firm's cash to reduce long-term debt is an example of "window dressing." ANSWER: _______ 33. Which of the following statements is CORRECT? a. One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt. b. Sole proprietorships are subject to more regulations than corporations. c. In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner. d. Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones. e. Corporations of all types are subject to the corporate income tax. ANSWER: _______ 34. A project's IRR is independent of the firm's cost of capital. In other words, a project's IRR doesn't change with a change in the firm's cost of capital. a. True b. False ANSWER: _______ 35. Companies generate income from their "regular" operations and from other sources like interest earned on the securities they hold, which is called non-operating income. Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%. How much was Lindley's operating income, or EBIT? a. $3,462 b. $3,644 c. $3,836 d. $4,038 e. $4,250 ANSWER: _______ 36. Kellner Motor Co.'s stock has a required rate of return of 11.50%, and it sells for $25.00 per share. Kellner's dividend is expected to grow at a constant rate of 7.00%. What was the last dividend, D0? a. $0.95 b. $1.05 c. $1.16 d. $1.27 e. $1.40 ANSWER: _______ 37. The Lincoln Company sold a $1,000 par value, noncallable bond several years ago that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company's tax rate is 40%. What is the component cost of debt for use in the WACC calculation? a. 4.28% b. 4.46% c. 4.65% d. 4.83% e. 5.03% ANSWER: _______ 38. As the price of a stock rises above the strike price, the value investors are willing to pay for a call option increases because both (1) the immediate capital gain that can be realized by exercising the option and (2) the likely exercise value of the option when it expires have both increased. a. True b. False ANSWER: _______ 39. Which of the following statements is CORRECT? a. A sunk cost is any cost that was expended in the past but can be recovered if the firm decides not to go forward with the project. b. A sunk cost is a cost that was incurred and expensed in the past and cannot be recovered if the firm decides not to go forward with the project. c. Sunk costs were formerly hard to deal with but now that the NPV method is widely used, it is possible to simply include sunk costs in the cash flows and then calculate the PV of the project. d. A good example of a sunk cost is a situation where Home Depot opens a new store, and that leads to a decline in sales of one of the firm's existing stores. e. A sunk cost is any cost that must be expended in order to complete a project and bring it into operation. ANSWER: _______ 40. Suppose Sally Smith plans to invest $1,000. She can earn an effective annual rate of 5% on Security A, while Security B has an effective annual rate of 12%. After 11 years, the compounded value of Security B should be more than twice the compounded value of Security A. (Ignore risk, and assume that compounding occurs annually.) a. True ANSWER: _______ 41. On the balance sheet, total assets must always equal total liabilities and equity. a. True b. False ANSWER: _______ 42. Managers should under no conditions take actions that increase their firm's risk relative to the market, regardless of how much those actions would increase the firm's expected rate of return. a. True b. False ANSWER: _______ 43. Nicholas Industries can issue a 20-year bond with a 6% annual coupon. This bond is not convertible, is not callable, and has no sinking fund. Alternatively, Nicholas could issue a 20-year bond that is convertible into common equity, may be called, and has a sinking fund. Which of the following most accurately describes the coupon rate that Nicholas would have to pay on the convertible, callable bond? a. It could be less than, equal to, or greater than 6%. b. Greater than 6%. c. Exactly equal to 8%. d. Less than 6%. e. Exactly equal to 6%. ANSWER: _______ 44. Although a full liquidity analysis requires the use of a cash budget, the current and quick ratios provide fast and easy-to-use measures of a firm's liquidity position. a. True b. False ANSWER: _______ 45. Firms A and B have the same current ratio, 0.75, the same amount of sales and cost of goods sold, and the same amount of current liabilities. However, Firm A has a higher inventory turnover ratio than B. Therefore, we can conclude that A's quick ratio must be smaller than B's. a. True b. False ANSWER: _______ 46. One advantage of the payback method for evaluating potential investments is that it provides information about a project's liquidity and risk. a. True b. False ANSWER: _______ 47. Collins Inc. is investigating whether to develop a new product. In evaluating whether to go ahead with the project, which of the following items should NOT be explicitly considered when cash flows are estimated? a. The project will utilize some equipment the company currently owns but is not now using. A used equipment dealer has offered to buy the equipment. b. The company has spent and expensed for tax purposes $3 million on research related to the new detergent. These funds cannot be recovered, but the research may benefit other projects that might be proposed in the future. c. The new product will cut into sales of some of the firm's other products. d. If the project is accepted, the company must invest $2 million in working capital. However, all of these funds will be recovered at the end of the project's life. e. The company will produce the new product in a vacant building that was used to produce another product until last year. The building could be sold, leased to another company, or used in the future to produce another of the firm's products. ANSWER: _______ 48. The present value of a future sum decreases as either the discount rate or the number of periods per year increases, other things held constant. a. True b. False ANSWER: _______ 49. The cost of preferred stock to a firm must be adjusted to an after-tax figure because 70% of dividends received by a corporation may be excluded from the receiving corporation's taxable income. a. True b. False ANSWER: _______ 50. An option that gives the holder the right to sell a stock at a specified price at some future time is a. a put option. b. an out-of-the-money option. c. a naked option. d. a covered option. e. a call option. ANSWER: _______ 51. When evaluating mutually exclusive projects, the modified IRR (MIRR) always leads to the same capital budgeting decisions as the NPV method, regardless of the relative lives or sizes of the projects being evaluated. a. True b. False ANSWER: _______ 52. If the IRR of normal Project X is greater than the IRR of mutually exclusive (and also normal) Project Y, we can conclude that the firm should always select X rather than Y if X has NPV > 0. a. True b. False ANSWER: _______ 53. Cheers Inc. operates as a partnership. Now the partners have decided to convert the business into a regular corporation. Which of the following statements is CORRECT? a. Assuming Cheers is profitable, less of its income will be subject to federal income taxes. b. Cheers will now be subject to fewer regulations. c. Cheers' shareholders (the ex-partners) will now be exposed to less liability. d. Cheers' investors will be exposed to less liability, but they will find it more difficult to transfer their ownership. e. Cheers will find it more difficult to raise additional capital. ANSWER: _______ 54. A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and is not expected to default. The bond should sell at a premium if interest rates are below 10% and at a discount if interest rates are greater than 10%. a. True b. False ANSWER: _______ 55. Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT? a. All common stocks, regardless of class, must have the same voting rights. b. All firms have several classes of common stock. c. All common stock, regardless of class, must pay the same dividend. d. Some class or classes of common stock are entitled to more votes per share than other classes. e. All common stocks fall into one of three classes: A, B, and C. ANSWER: _______ 56. The balance sheet is a financial statement that measures the flow of funds into and out of various accounts over time, while the income statement measures the firm's financial position at a point in time. a. True b. False ANSWER: _______ 57. The primary advantage to using accelerated rather than straight-line depreciation is that with accelerated depreciation the total amount of depreciation that can be taken, assuming the asset is used for its full tax life, is greater. a. True b. False ANSWER: _______ 58. If a stock's expected return as seen by the marginal investor exceeds this investor's required return, then the investor will buy the stock until its price has risen enough to bring the expected return down to equal the required return. a. True b. False ANSWER: _______ 59. Which of the following factors would be most likely to lead to an increase in interest rates in the economy? a. Households reduce their consumption and increase their savings. b. The Federal Reserve decides to try to stimulate the economy. c. There is a decrease in expected inflation. d. The economy falls into a recession. e. Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs. ANSWER: _______ 60. If we are given a periodic interest rate, say a monthly rate, we can find the nominal annual rate by multiplying the periodic rate by the number of periods per year. a. True b. False ANSWER: _______ 61. The cost of perpetual preferred stock is found as the preferred's annual dividend divided by the market price of the preferred stock. No adjustment is needed for taxes because preferred dividends, unlike interest on debt, is not deductible by the issuing firm. a. True b. False ANSWER: _______ 62. "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities. a. True b. False ANSWER: _______ 63. Considered alone, which of the following would increase a company's current ratio? a. An increase in accounts payable. b. An increase in net fixed assets. c. An increase in accrued liabilities. d. An increase in notes payable. e. An increase in accounts receivable. ANSWER: _______ 64. The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond. a. True b. False ANSWER: _______ 65. Under normal conditions, which of the following would be most likely to increase the coupon rate required to enable a bond to be issued at par? a. Adding a call provision. b. The rating agencies change the bond's rating from Baa to Aaa. c. Making the bond a first mortgage bond rather than a debenture. d. Adding a sinking fund. e. Adding additional restrictive covenants that limit management's actions. ANSWER: _______ 66. The current cash flow from existing assets is highly relevant to the investor. However, since the value of the firm depends primarily upon its growth opportunities, profit projections from those opportunities are the only relevant future flows with which investors are concerned. a. True b. False ANSWER: _______ 67. The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its assets. a. True b. False ANSWER: _______ 68. If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction. a. True b. False ANSWER: _______ 69. The firm's cost of external equity raised by issuing new stock is the same as the required rate of return on the firm's outstanding common stock. a. True b. False ANSWER: _______ 70. Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? a. Shipping and installation costs. b. Cannibalization effects. c. Opportunity costs. d. Sunk costs that have been expensed for tax purposes. e. Changes in net working capital. ANSWER: _______ 71. Which of the following statements is most correct, holding other things constant, for XYZ Corporation's traded call options? a. The higher the strike price on XYZ's options, the higher the option's price will be. b. Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months. c. If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase. d. If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend. e. The price of these call options is likely to rise if XYZ's stock price rises. ANSWER: _______ 72. An increase in the firm's cost of capital will decrease projects' NPVs, which could change the accept/reject decision for any potential project. However, such a change would have no impact on projects' IRRs. Therefore, the accept/reject decision under the IRR method is independent of the cost of capital. a. True b. False ANSWER: _______ 73. Which of the following statements is CORRECT? a. b. c. If a bond's yield to maturity exceeds its coupon rate, the bond will sell at par. All else equal, if a bond's yield to maturity increases, its price will fall. If a bond's yield to maturity exceeds its coupon rate, the bond will sell at a premium over par. d. All else equal, if a bond's yield to maturity increases, its current yield will fall. e. A zero coupon bond's current yield is equal to its yield to maturity. ANSWER: _______ 74. Under the CAPM, the required rate of return on a firm's common stock is determined only by the firm's market risk. If its market risk is known, and if that risk is expected to remain constant, then analysts have all the information they need to calculate the firm's required rate of return. a. True b. False ANSWER: _______ 75. Danielle's Sushi Shop last year had (1) a negative net cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet. Which of the following factors could explain this situation? a. The company had a sharp increase in its depreciation and amortization expenses. b. The company had a sharp increase in its inventories. c. The company had a sharp increase in its accrued liabilities. d. The company sold a new issue of common stock. e. The company made a large capital investment early in the year. ANSWER: _______ 76. You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment? a. The discount rate increases. b. The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for 10 years rather than 5 years, hence that each payment is for $10,000 rather than for $20,000. c. The discount rate decreases. d. The riskiness of the investment's cash flows increases. e. The total amount of cash flows remains the same, but more of the cash flows are received in the later years and less are received in the earlier years. ANSWER: _______ 77. Braddock Construction Co.'s stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share? a. The price of the call option will increase by more than $2. b. The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%. c. The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%. d. The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10%. e. The price of the call option will increase by $2. ANSWER: _______ 78. If the tax laws were changed so that $0.50 out of every $1.00 of interest paid by a corporation was allowed as a tax-deductible expense, this would probably encourage companies to use more debt financing than they presently do, other things held constant. a. True b. False ANSWER: _______ 79. Arshadi Corp.'s sales last year were $52,000, and its total assets were $22,000. What was its total assets turnover ratio (TATO)? a. 2.03 b. 2.13 c. 2.25 d. 2.36 e. 2.48 ANSWER: _______ 80. The lower the firm's tax rate, the lower will be its after-tax cost of debt and also its WACC, other things held constant. a. True b. False ANSWER: _______ 81. Projected free cash flows should be discounted at the firm's weighted average cost of capital to find the value of its operations. a. True b. False ANSWER: _______ 82. You recently sold 200 shares of Apple stock to your brother. The transfer was made through a broker, and the trade occurred on the NYSE. This is an example of: a. A futures market transaction. b. A primary market transaction. c. A secondary market transaction. d. A money market transaction. e. An over-the-counter market transaction. ANSWER: _______ 83. Which of the following statements is CORRECT? a. On an expected yield basis, the expected capital gains yield will always be positive because an investor would not purchase a bond with an expected capital loss. b. On an expected yield basis, the expected current yield will always be positive because an investor would not purchase a bond that is not expected to pay any cash coupon interest. c. If a coupon bond is selling at par, its current yield equals its yield to maturity. d. The current yield on Bond A exceeds the current yield on Bond B; therefore, Bond A must have a higher yield to maturity than Bond B. e. If a bond is selling at a discount, the yield to call is a better measure of return than the yield to maturity. ANSWER: _______ 84. Its retained earnings is the actual cash that the firm has generated through operations less the cash that has been paid out to stockholders as dividends. Retained earnings are kept in cash or near cash accounts and, thus, these cash accounts, when added together, will always be equal to the firm's total retained earnings. a. True b. False ANSWER: _______ 85. The NPV method's assumption that cash inflows are reinvested at the cost of capital is generally more reasonable than the IRR's assumption that cash flows are reinvested at the IRR. This is an important reason why the NPV method is generally preferred over the IRR method. a. True b. False ANSWER: _______ 86. Which of the following statements is CORRECT? a. If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless. b. The required return on a firm's common stock is, in theory, determined solely by its market risk. If the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return. c. Portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio. d. A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock. e. A stock's beta is less relevant as a measure of risk to an investor with a welldiversified portfolio than to an investor who holds only that one stock. ANSWER: _______ 87. You expect to receive $5,000 in 25 years. How much is it worth today if the discount rate is 5.5%? a. $1,067.95 b. $1,124.16 c. $1,183.33 d. $1,245.61 e. $1,311.17 ANSWER: _______ 88. Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock, provided the strike prices for the put and call are the same. a. True b. False ANSWER: _______ 89. If a company's free cash flows are expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium. a. The company's stock's dividend yield is 5%. b. The value of operations is expected to decline in the future. c. The company's WACC must be equal to or less than 5%. d. The company's value of operations one year from now is expected to be 5% above the current price. e. The expected return on the company's stock is 5% a year. ANSWER: _______ 90. Which of the following statements is CORRECT? a. The percentage flotation cost associated with issuing new common equity is typically smaller than the flotation cost for new debt. b. The WACC as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets. c. There is an "opportunity cost" associated with using reinvested earnings, hence they are not "free." d. The WACC as used in capital budgeting would be simply the after-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year. e. The WACC as used in capital budgeting is an estimate of a company's before-tax cost of capital. ANSWER: _______ 91. With which of the following statements would most people in business agree? a. The short-run profits of a corporation will almost always increase if the firm takes actions the government has determined are in the nation's best interests. b. Government agencies and firms almost always agree with one another regarding the restrictions that should be placed on hiring and firing employees. Although people's moral characters are probably developed before they get into a business school, it is still useful for business schools to cover ethics, including giving students an idea about the adverse consequences of unethical behavior to themselves, their firms, and the nation. d. Developing a formal set of rules defining ethical and unethical behavior is not useful for a large corporation. Such rules generally can't be applied in many specific instances, so it is better to deal with ethical issues on a case-by-case basis. e. Because of the courage it takes to blow the whistle, "whistle blowers" are generally promoted more rapidly than other employees. ANSWER: _______ c. 92. If you randomly select stocks and add them to your portfolio, which of the following statements best describes what you should expect? a. Adding more such stocks will increase the portfolio's expected rate of return. b. Adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk. c. Adding more such stocks will have no effect on the portfolio's risk. d. Adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk. e. Adding more such stocks will reduce the portfolio's unsystematic, or diversifiable, risk. ANSWER: _______ 93. The times-interest-earned ratio is one, but not the only, indication of a firm's ability to meet its long-term and short-term debt obligations. a. True b. False ANSWER: _______ 94. Perry Inc.'s bonds currently sell for $1,150. They have a 6-year maturity, an annual coupon of $85, and a par value of $1,000. What is their current yield? a. 7.39% b. 7.76% c. 8.15% d. 8.56% e. 8.98% ANSWER: _______ 95. Its retained earnings is the actual cash that the firm has generated through operations less the cash that has been paid out to stockholders as dividends. Retained earnings are kept in cash or near cash accounts and, thus, these cash accounts, when added together, will always be equal to the firm's total retained earnings. a. True b. False ANSWER: _______ 96. Estimating project cash flows is generally the most important, but also the most difficult, step in the capital budgeting process. Methodology, such as the use of NPV versus IRR, is important, but less so than obtaining a reasonably accurate estimate of projects' cash flows. a. True b. Fals e ANSWER: _______ 97. The major advantage of a regular partnership or a corporation as a form of business organization is the fact that both offer their owners limited liability, whereas proprietorships do not. a. True b. False ANSWER: _______ 98. One key value of limited liability is that it lowers owners' risks and thereby enhances a firm's value. a. True b. False ANSWER: _______ 99. The facts that a proprietorship, as a business, pays no corporate income tax, and that it is easily and inexpensively formed, are two key advantages to that form of business. a. True b. False ANSWER: _______ 100. Jane Doe, who has substantial personal wealth and income, is considering the possibility of starting a new business in the chemical waste management field. She will be the sole owner, and she has enough funds to finance the operation. The business will have a relatively high degree of risk, and it is expected that the firm will incur losses for the first few years. However, the prospects for growth and positive future income look good, and Jane plans to have the firm pay out all of its income as dividends to her once it is well established. Which of the legal forms of business organization would probably best suit her needs? a. Proprietorship, because of ease of entry. b. S corporation, to gain some tax advantages and also to obtain limited liability. c. Partnership, but only if she needs additional capital. d. Regular corporation, because of the limited liability. e. In this situation, the various forms of organization seem equally desirable. ANSWER: _______ EXTRA CREDIT 1. The prevailing interest rate and tax rate impact the weighted average cost of capital. If after the election in November the Treasury raises interest rates 2.5% and the administration raises corporate income tax rate from 35% to 40%, will the decision regarding a capital project be changed due to the post-election charges? Please show calculations to support your decision. (4 points) _______________________________________________________________________________ _______________________________________________________________________________ ________________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ 2. What is practical capacity? How does practical capacity impact the financial decision to invest in a project? (2 Points) _______________________________________________________________________________ _______________________________________________________________________________ ________________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ 3. If a company tends to have an aversion to risk, what would its internal rate of return requirement be in comparison to a company that was not adverse to risk? What would you expect the debt to equity ratio be for a company that has risk aversion? Explain how you reached your answer.(2 Points) _______________________________________________________________________________ _______________________________________________________________________________ ________________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ 4. How does the efficient market explain the pricing of call and put options? (2 Points) _______________________________________________________________________________ _______________________________________________________________________________ ________________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ _______________________________________________________________________________ ________ 5