Additional+practice+questions

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Ch. 14. Which one of the following is NOT an implication of market efficiency for corporate finance? Group of answer choices Managers can reap many benefits by paying attention to market prices Firms cannot successfully time issues of debt and equity Managers cannot profitably speculate in foreign currencies and other instruments Firms can successfully time issues of debt and equity Managers cannot fool the market through creative accounting

Finance Political stability is a major factor of which one of the following? business risk inflation risk country risk exchange rate risk    2. Regarding short selling: which one of the following statements is incorrect? Dividends on any stock sold short must be covered by the short seller. There is no time limit on a short sale. Short sales are permitted only on falling prices or a downtick. Short sellers must put up margin as if they had gone long.

Question 16 (: Which of the following statements is TRUE about the Modigliani and Miller Theory regarding dividend policy ? Shareholders are indifferent between receiving a capital gain on their shares or dividend income Companies should invest in all available positive NPV projects before paying out a dividend Investors in a perfect market may see the cutting of dividends as a bad sign Some investors liquidity requirements mean that they will respond badly to a cut in dividends.

31. A primary financial market is one that: A. offers financial assets with the highest expected return B. offers the greatest number of financial assets C. offers financial assets with the highest historical return D. involves the sale of financial assets for the first time 32. Purchasing shares on the Saudi Stock Exchange is an example of: A. a primary market transaction B. companies raising finance from another financial intermediary C. a secondary market transaction D. companies raising new finance

Case Study #3: Chapter 6 Business Analysis -  A business can be valued by capitalizing its earnings stream (see example 6.15).  How might you use the same idea to value securities, especially the stock of large publicly held companies? Is there a way to calculate a value that could be compared to the stock’s market price that would tell an investor whether it’s a good buy? (If the market price is lower than the calculated value, the stock is a bargain.)  What financial figures associated with shares of stock might be used in the calculation. Consider the per share figures and ratios discussed in chapter 3 including EPS, dividends, book value per share, etc.  Does one measure make more sense than the others? What factors would make a stock worth more or less than your calculated value?

Question 6 The clientele argument in dividend theory implies that: O The stock of low-payout firms will be held by investors seeking capital gains. The dividend payout should be set equal to the industry average. Investors are indifferent between dividends and capital gains. Firms should pay out dividends only after accepting all capital budgeting projects with positive NPVs.

6 P10.4 Unlevering the Equity Cost of Capital-Low Leverage & High Leverage Companies: Below, we show the information for two potential comparable companies. Calculate the unlevered cost of capital based on the following assumptions. Neither company expects its free cash flows to grow. Income tax rate for interest (TINT). Value of debt Value of preferred stock. Value of equity Maturity of debt (years) Debt cost of capital. Preferred stock cost of capital. Equity cost of capital. Low Leverage Company High Leverage Company 35.0% $ 4,000 $ 1,000 $15,000 45.0% $45,000 $ 0 Perpetual $ 5,000 Perpetual 5.0% 8.0% 6.0% 11.8% 28.0% a. b. C. Assume that interest is tax deductible and that the discount rate for all interest tax shields is the unlevered cost of capital. Assume that interest is tax deductible and that the discount rate for all interest tax shields is the cost of debt. Assume that interest is tax deductible but that the company refinances its debt at the end of each year (annual…

which one is correct please confirm? QUESTION 26 One reason why small business concerns have very low dividend payout ratios is that the firm ____.   a. needs funds for taxes   b. needs the funds to finance growth   c. is usually low on cash   d. prefers stock offerings

p12 According to the pecking order theory, managers are less likely to use which of the following sources of financing? Retained earnings New preferred stock New common stock New debt

2.122The financing choice is vital to every firm, as the optimal capital structurebetween debt and equity impacts the value of the firm as well as its share price.However, financial managers are often unclear on the benefits of financialleverage.Required:Explain, with the use of an example, how financial leverage benefits the returns ofthe business.

Q41 Which one of the following is not an assumption of the Walter’s relevance theory model? a. Earnings and Dividends are do not change while determining the value b. The firm finances through external sources c. The firm has infinite life d. The firm’s rate of return and its cost of capital are constant