Question 11 The balance sheet is the financial statement most often referred to when analyzing credit risk a True b False 4 points Question 12 To avoid potential conflicts of interest, bond rating agencies are prohibited from providing consulting services to the companies whose bonds they rate a True b False 4 points Question 13 A company can recognize the income from its pension plan as operating income a True b False 4 points Question 14 When one company acquires another, it can do so by purchasing either the sellers assets or its equity a True b False 4 points Question 15 The fair market value of a company from the perspective of minority investors may vary from the fair market value of a company from investors seeking control a True b False 4 points Question 16 Sensitivity analysis addresses what if questions and provides information about a range of outcomes It also changes one of the assumptions on which the forecast is based and identifies the impact on the forecast a True b False 4 points Question 17 A cash budget a Is used only by companies that operate on the cash basis of accounting b Are often prepared on a weekly basis to manage short term cash c Does not take into account credit sales, since credit sales do not result in an immediate realization of cash d Are quite useful to companies that have strong seasonal sales, but are used primarily to make sure cash is available during the lag time 4 points Question 18 A company looking at an investment decision may be considering a New equipment b New facilities c A new marketing program d Any of the above e Only A B from the above 4 points Question 19 In an efficient market a Investors will consistently earn above the market average rate of return with a low level of risk and no private information b And with the proper analysis, a company can improve the terms on which it sells securities by selecting the optimal time to sell c The proper analysis of public information is helpful in forecasting future prices d And in the absence of private information, the best forecast of future price is the current price 4 points Question 20 Pension plans a Reflect monies that are already set aside, and thus do not impact current operations b Have a required minimum funding level thus few pension plans are under funded c Are fully guaranteed by the Pension Benefit Guarantee Corporation (PBGC), so even if the company goes bankrupt, the retirees will get the amount promised them d Reflect what can be a significant obligation for a company, and thus may have detailed information in the financial statements 4 points Question 21 The fair market value of a companys assets a Is the value of all of a company's assets if it were to be liquidated b Is the same as its going concern value c Is usually the higher of its liquidation value and its going concern value d Is usually the lower of its liquidation value and its going concern value 4 points Question 22 A company wants to raise $100 million on a new stock issue According to their investment banker, a sale of new stock will require 8 under pricing and a 7 spread Assuming the companys stock price does not change from its current price of $100 per share, how many shares must the company sell and at what price a 2 25 million shares b 1 69 million shares c 1 90 million shares d 3 0 million shares 4 points Question 23 A company is evaluating two investment opportunities Investment A is below the market line and Investment B is above the market line Investment A has a higher expected return than Investment B Which is the better investment a They are both equal b Investment A c Investment B d Neither is a good investment 4 points Question 24 When creditors expect inflation, the interest rate they charge rises to compensate for the expected decline in the purchasing power of the loan principal a True b False 4 points Question 25 An assets total risk equals its systematic risk, which cannot be eliminated through diversification, plus its problematic risk, which can be eliminated a True b False

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Question 11 The balance sheet is the financial statement most often referred to when analyzing credit risk. a. True. b. False. 4 points Question 12

Question 11

The balance sheet is the financial statement most often referred to when analyzing credit risk.

	a.	True.
	b.	False.

4 points

Question 12

To avoid potential conflicts of interest, bond rating agencies are prohibited from providing consulting services to the companies whose bonds they rate.

	a.	True.
	b.	False.

4 points

Question 13

A company can recognize the income from its pension plan as operating income.

	a.	True.
	b.	False.

4 points

Question 14

When one company acquires another, it can do so by purchasing either the sellers assets or its equity.

	a.	True.
	b.	False.

4 points

Question 15

The fair market value of a company from the perspective of minority investors may vary from the fair market value of a company from investors seeking control.

	a.	True.
	b.	False.

4 points

Question 16

Sensitivity analysis addresses what-if questions and provides information about a range of outcomes. It also changes one of the assumptions on which the forecast is based and identifies the impact on the forecast.

	a.	True.
	b.	False.

4 points

Question 17

A cash budget:

	a.	Is used only by companies that operate on the cash basis of accounting.
	b.	Are often prepared on a weekly basis to manage short-term cash.
	c.	Does not take into account credit sales, since credit sales do not result in an immediate realization of cash.
	d.	Are quite useful to companies. that have strong seasonal sales, but are used primarily to make sure cash is available during the lag time

4 points

Question 18

A company looking at an investment decision may be considering:

	a.	New equipment.
	b.	New facilities.
	c.	A new marketing program.
	d.	Any of the above.
	e.	Only A & B from the above.

4 points

Question 19

In an efficient market:

	a.	Investors will consistently earn above the market-average rate of return with a low level of risk and no private information.
	b.	And with the proper analysis, a company can improve the terms on which it sells securities by selecting the optimal time to sell.
	c.	The proper analysis of public information is helpful in forecasting future prices.
	d.	And in the absence of private information, the best forecast of future price is the current price.

4 points

Question 20

Pension plans:

	a.	Reflect monies that are already set aside, and thus do not impact current operations.
	b.	Have a required minimum funding level; thus few pension plans are under-funded.
	c.	Are fully guaranteed by the Pension Benefit Guarantee Corporation (PBGC), so even if the company goes bankrupt, the retirees will get the amount promised them.
	d.	Reflect what can be a significant obligation for a company, and thus may have detailed information in the financial statements.

4 points

Question 21

The fair market value of a companys assets:

	a.	Is the value of all of a company's assets if it were to be liquidated.
	b.	Is the same as its going-concern value.
	c.	Is usually the higher of its liquidation value and its going concern value.
	d.	Is usually the lower of its liquidation value and its going concern value.

4 points

Question 22

A company wants to raise $100 million on a new stock issue. According to their investment banker, a sale of new stock will require 8% under pricing and a 7% spread. Assuming the companys stock price does not change from its current price of $100 per share, how many shares must the company sell and at what price?

	a.	2.25 million shares.
	b.	1.69 million shares.
	c.	1.90 million shares.
	d.	3.0 million shares.

4 points

Question 23

A company is evaluating two investment opportunities. Investment A is below the market line and Investment B is above the market line. Investment A has a higher expected return than Investment B. Which is the better investment?

	a.	They are both equal.
	b.	Investment A.
	c.	Investment B.
	d.	Neither is a good investment.

4 points

Question 24

When creditors expect inflation, the interest rate they charge rises to compensate for the expected decline in the purchasing power of the loan principal.

	a.	True.
	b.	False.

4 points

Question 25

An assets total risk equals its systematic risk, which cannot be eliminated through diversification, plus its problematic risk, which can be eliminated.