I have my final here with 32 questions I have answered them all and just want to make sure I am correct here is link along with in text

1. Business risk refers to

1 Use of accelerated depreciation

2The risk inherent in the nature of the business

3The sources of the firm?s finances.

a 1 and 2

b 1 and 3

c 2 and 3

d Only 2

2!

3 Preferred stock and bonds are similar because

a The both have voting power

B interest and dividend payment are legal

c Either interest nor dividends are tax deductible

d Both are a source of financial leverage.

4. studies of rates of return on large stocks suggest

a The average return is about 7.4 percent annually

b Over a period of years, the rate is approximately 10 percent

c Equity investors rarely sustain loses

d Dividends account for over half the return

Convertible bonds have a call feature to?a. protect stockholders from early conversions ?b. protect bondholders from conversions by stockholders?c. force stockholders to convert?d. force bondholders to convert

Why are Municipal Bonds exempt from Federal Tax? What could happen if they were not?

7 Under present federal income tax law, the interest income you receive from investing in municipal bonds is free from federal income taxes.* In most states, interest income received from securities issued by governmental units within the state is also exempt from state and local taxes. In addition, interest income from bonds issued by U.S. territories and possessions is exempt from federal, state and local income taxes in all 50 states.

One of the best ways to appreciate the tax-exempt advantage of a municipal security is to compare it to a comparable taxable investment.

For example,assume we have $30,000 to invest and we are considering two investment alternatives: a tax-exempt municipal bond yielding 5.0%, and a taxable corporate bond yielding 7.0%. Which investment will prove most advantageous in terms of after-tax income?

If we invest our money in the municipal bond, we?d earn $1,500 in interest (a 5.0% yield) and not pay any federal income taxes. The taxable bond investment, however, would provide us only $1,407 in income after federal income taxes had been deducted (a 4.7% yield).

8 if a company defaults on its bonds,

a Subordinated debt is redeemed before senior debt

b Equipment trust certificates have an inferior position to income bonds

c Interest continues to accrue but may not be paid

d Debentures have a superior position to other bonds

9 A investor may anticipate that a bond will be called if interest rates have risen. T/F

f

10An index fund

a Seeks to match the market

b Seeks to outperform the market

c Is illustrative of a no load fund

d Is illustrative of a closed end fund.

11)if an investment requires the firm to carry more current assets, that increases the investments net present value.

True or False

12The portfolios of balanced funds

a Exclude American stocks

b Reduce systematic and purchasing power risks

c Are well diversified

d Generate the highest returns

13The dividend-growth model may be applied only if it is assumed that the growth in dividends will be constant

true or false

14If a firms fixed costs rise relative to varible costs, __ and __.

select one:

a. operating leverage; risk increase

b. operating leverage; financial leverage increase

c. financial leverage; risk increase

d. operating leverage increases, financial risk decreases

15Advantage of the corporate form of business include

a. limited liablilty for stockholders

b. avoidance of state taxation

c. limited life

d. deductibility of dividends

16 Preferred stock increases common stockholders return

a. more than an equal dollar amount of debt

b. less than an equal dollar amount of debt

c. more than an equal dollar amount or retained earnings

d. less then an equal dollar amount or retained earnings

The cost of preferred stock is greater than the cost of debt primarily as the result of the difference in tax treatment of dividends and interest.

True or False.

1.The payback method fails to consider

1 The timing of the cash inflow of an investment

2The cost of an investment

3The return on alternative investment

1&3

25 The dividend paid by a preferred stock is usually

a Tax deductible

b Variable

c Paid in stock

d Fixed

An upward shift in the fixed cost curve of a downward shift in the total revenue curve will increase the break even level of output.

True or False

Corporate federal income tax rates

a Decrease as income increase

b Are the same for all level of corporate income

c Phase out the benefit of lower tax bracket as corporate income

d Reach a high of 50 percent for earnings over 18,300,000

The net present value will be larger if

a. the cost of capital is higher

b. there is no salvage value

c. the cost of the investment is lower

d. the firm uses straight-line depreciation.

When risk analysis is introduced into the dividend growth model, the required rate of return considers

a The firms growth rate

b The firms dividend

c The firms beta coefficient

d The firms past dividends

As the price of common stock rises

a. the value of convertible bonds and convertible preferred stock declines

b. the value of convertible bonds falls but convertible stock rises.

c. the value of convertible bonds rises but convertible preferred stock falls.

d. the convertible bonds and convertible preferred stock rises,

One measure of the safety of a preferred stock?s dividend is the ratio of dividends to earnings before interest and taxes.

False

If a firm needs additional equity financing through the retention of earnings, it may be advantageous to incorporate.

True

The shares of closed end investment companies generally sell for a premium and rarely sell for a discount from their net asset value.

False

As the price of stock rises, the probability a convertible bond will be called declines.

False

All debentures are bonds but not all bonds are debentures

true

The internal rate of return will be higher if

a. the cost of capital is lower

b. the cost of capital is higher

^^^c. the cost of the investment is lower

d. the cost of the investment is higher

debt financing is more risky for firms than preferred stock financing

B. interest payments are legal obligations

Interest is exempt form of federal income taxation on

D state florida bonds

1. Business risk refers to 1 Use of accelerated depreciation 2The risk inherent in the nature of the business 3The sources of the firms finances. a 1 and 2 b 1 and 3 c 2 and 3 d Only 2 2! 3 Preferred stock and bonds are similar because a The both have voting power B interest and dividend payment are legal c Either interest nor dividends are tax deductible d Both are a source of financial leverage. 4. studies of rates of return on large stocks suggest a The average return is about 7.4 percent annually b Over a period of years, the rate is approximately 10 percent c Equity investors rarely sustain loses d Dividends account for over half the return Convertible bonds have a call feature to_a. protect stockholders from early conversions _b. protect bondholders from conversions by stockholders_c. force stockholders to convert_d. force bondholders to convert Why are Municipal Bonds exempt from Federal Tax? What could happen if they were not? 7 Under present federal income tax law, the interest income you receive from investing in municipal bonds is free from federal income taxes.* In most states, interest income received from securities issued by governmental units within the state is also exempt from state and local taxes. In addition, interest income from bonds issued by U.S. territories and possessions is exempt from federal, state and local income taxes in all 50 states. One of the best ways to appreciate the taxexempt advantage of a municipal security is to compare it to a comparable taxable investment. For example,assume we have $30,000 to invest and we are considering two investment alternatives: a taxexempt municipal bond yielding 5.0%, and a taxable corporate bond yielding 7.0%. Which investment will prove most advantageous in terms of aftertax income? If we invest our money in the municipal bond, we'd earn $1,500 in interest (a 5.0% yield) and not pay any federal income taxes. The taxable bond investment, however, would provide us only $1,407 in income after federal income taxes had been deducted (a 4.7% yield). 8 if a company defaults on its bonds, a Subordinated debt is redeemed before senior debt b Equipment trust certificates have an inferior position to income bonds c Interest continues to accrue but may not be paid d Debentures have a superior position to other bonds 9 A investor may anticipate that a bond will be called if interest rates have risen. T/F f 10An index fund a Seeks to match the market b Seeks to outperform the market c Is illustrative of a no load fund d Is illustrative of a closed end fund. 11)if an investment requires the firm to carry more current assets, that increases the investments net present value. True or False 12The portfolios of balanced funds a Exclude American stocks b Reduce systematic and purchasing power risks c Are well diversified d Generate the highest returns 13The dividendgrowth model may be applied only if it is assumed that the growth in dividends will be constant true or false 14If a firms fixed costs rise relative to varible costs, __ and __. select one: a. operating leverage; risk increase b. operating leverage; financial leverage increase c. financial leverage; risk increase d. operating leverage increases, financial risk decreases 15Advantage of the corporate form of business include a. limited liablilty for stockholders b. avoidance of state taxation c. limited life d. deductibility of dividends 16 Preferred stock increases common stockholders return a. more than an equal dollar amount of debt b. less than an equal dollar amount of debt c. more than an equal dollar amount or retained earnings d. less then an equal dollar amount or retained earnings The cost of preferred stock is greater than the cost of debt primarily as the result of the difference in tax treatment of dividends and interest. True or False. 1.The payback method fails to consider 1 The timing of the cash inflow of an investment 2The cost of an investment 3The return on alternative investment 1&3 25 The dividend paid by a preferred stock is usually a Tax deductible b Variable c Paid in stock d Fixed An upward shift in the fixed cost curve of a downward shift in the total revenue curve will increase the break even level of output. True or False Corporate federal income tax rates a Decrease as income increase b Are the same for all level of corporate income c Phase out the benefit of lower tax bracket as corporate income d Reach a high of 50 percent for earnings over 18,300,000 The net present value will be larger if a. the cost of capital is higher b. there is no salvage value c. the cost of the investment is lower d. the firm uses straightline depreciation. When risk analysis is introduced into the dividend growth model, the required rate of return considers a The firms growth rate b The firms dividend c The firms beta coefficient d The firms past dividends As the price of common stock rises a. the value of convertible bonds and convertible preferred stock declines b. the value of convertible bonds falls but convertible stock rises. c. the value of convertible bonds rises but convertible preferred stock falls. d. the convertible bonds and convertible preferred stock rises, One measure of the safety of a preferred stocks dividend is the ratio of dividends to earnings before interest and taxes. False If a firm needs additional equity financing through the retention of earnings, it may be advantageous to incorporate. True The shares of closed end investment companies generally sell for a premium and rarely sell for a discount from their net asset value. False As the price of stock rises, the probability a convertible bond will be called declines. False All debentures are bonds but not all bonds are debentures true The internal rate of return will be higher if a. the cost of capital is lower b. the cost of capital is higher ^^^c. the cost of the investment is lower d. the cost of the investment is higher debt financing is more risky for firms than preferred stock financing B. interes t payments are legal obligation s Interest is exempt form of federal income taxation on D state florida bonds