Principles Of Finance

Of the following, which is NOT one of the four main areas of finance?

International finance

Corporate finance

Investments

All are considered main areas of finance.

__ is a major disadvantage of the corporate form of business.

Double taxation

Unlimited liability

Lack of ability to raise capital

Transfer of ownership

Everything else equal, an industry with more leverage will have a:

higher return on assets.

higher return on equity.

lower return on equity.

Both A & B

If you can earn 5.25% per year on your investments, how long will it take to double your money?

6.31 years

19.05 years

13.55 years

There is not enough information to answer this question.

Travis bought a share of stock for $31.50 that paid a dividend of $.85 and sold six months later for $27.65. What was his dollar profit or loss and holding period return?

-$3.00, -9.52%

-$3.85, -12.22%

-$.85, -2.70%

-$3.85, -9.52%

If you were required to estimate the average return for one category of securities for the coming year, history tells us that you should have the greatest degree of confidence estimating which of the following?

Long-term government bonds

3-month U.S. Treasury bills

Small-company stocks

Large-company stocks

Which of the following are not considered a part of the firm’s capital structure?

Long-term debt

Retained earnings

Inventory

Preferred stock

Which of the following choices lists the least to most aggressive actions in the pursuit of overdue debt?

1) a collection agency, 2) court action, 3) a letter requesting overdue payment

1) court action, 2) a collection agency, 3) a letter requesting overdue payment

1) a letter requesting overdue payment, 2) court action, 3) a collection agency

1) a letter requesting overdue payment, 2) a collection agency, 3) court action

John is in a high income-tax bracket and wishes to minimize current taxes payable. He also has a sizeable current income and prefers high growth rates to significant annual cash flow from his equity investments. Which of the following dividend polices would John most likely prefer if we assume that the dividend policy has no impact on the value of the firm and that the capital gains tax rate is lower than the ordinary tax rate?

High-dividend-payout policy

No-dividend-payout policy

Low-dividend-payout policy

John would be indifferent to all of the dividend policies.

Which of the following would NOT be considered a cost of debt financing?

The required return on a bank loan

The required return on preferred stock

The yield-to-maturity of a bond issue

The required return on money borrowed from a venture capitalist

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