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FINA 3000 Concepts

True/False & Concept questions

The weights used in the WACC equation are the balance sheet values of debt and equity False
An established firm would more likely be in an income fund than a growth fund True
A firm's bonds rating is upgraded. This would result in an increase in the WACC for the firm False
Preferred stock has no maturity date like common equity True
Preferred stock holders get voting rights for the firm board of directors. False
Full service brokers typically charge 1% for their services True
For low unit sales, a production method with low fixed costs would likely be favorite over a method with high fixed costs True
Charles Schwab is an example of a limited service broker True
Managerial expense is related to how many trades a portfolio manager makes during the year True
Fidelity's Healthcare Mutual Fund is an example of an income fund False
All else equal, a firm with higher fixed costs will have a higher degree of operating leverage than a firm with lower fixed costs True
What type of firm would have the highest beta Cyclical, high fixed cost, mainly debt financed
What type of mutual fund provides the least amount of diversification Sector fund
Beta represents the systematic risk of a stock compared to the systematic risk of the market portfolio True
All else equal, the greater the Beta, the greater the required return True
A bond with a credit rating of BB is considered junk grade True
The largest weakness of CAPM is finding a truly risk free investment False
A debenture bond carries greater risk than a mortgage bond True
The largest weakness of the infinite stock pricing model is that we assume a future selling price for the stock False
The beta for a company like Kellogg's cereal might be expected to be greater than 1 False
When we build a portfolio, the key determining factor in the portfolio risk is the variances of the individual securities False
Municipal bonds carry risk because the projects they fund are often poor investments False
You cannot achieve diversification in a portfolio unless the two stocks have a correlation less than 0.50 False
If a bond credit rating gets upgraded, we expect to see the bond price decline False
There is less liquidity risk in corporate bonds than government bonds False
Two projects are considered contingent if: The acceptance of one project is dependent on the acceptance of the other
Accepting a zero NPV project has a negative impact on shareholder wealth False
The NPV assumes that all cash flows are reinvested at the firm's discount rate True
What is a free cash flow? Free cash flow is the cash available to all investors in the firm before any payments to investors are made
All else equal, an increase in accounts payable from one year to the next will decrease the firm's OCF False
If a firm expects that _________, then it expects to have claimed too _______ in depreciation expenses by the end of the project and it expects to pay taxes on the gain to the government at project termination. MV>BV; much
The term that applies to a new product hurting sales of existing products is called Cannibalization
Net working capital is a measure of a firm's liquidity
Common stockholders are owners of the firm
As the rate of interest increases, the PV of a lump sum decreases True
The amount of interest paid in an amortized loan is greatest in the first year True
A larger P/E ratio signifies greater value in your investment True
A lease is typically classified as an annuity due True
The current ratio is always equal or greater than the quick ratio True
Bondholders have voting rights. THey just do not get as many votes as shareholders False
There is no liability in owning a share of stock False
Created by: 589078382



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