Business risk refers to which of the following?
a. The potential variabililty in a firm's operating profit that results from the nature of the
firm's business endeavors.
b. The usage of newly issued common stock ln a frim's captial structure.
c. The risk that investors incur when they purchase common or preferred stock.
d. One firm doing business with another frim that is an an entirely different industry.
Which of the following should be added to a firm's NOPAT in the calculation of the
income portion for determining free cash flow?
a. Interest expense
c. Capital costs
d. Net working capital
Capital market instruments include:
a. negotiable certificates of deposit.
b. corporate equities
c. preferred stock
d. both B and C
e. all of the above.
Which of the following refers to the institutions and procedures that provide for
transactions in short-term debt instruments?
a. Capital market
b. Commercial banks
c. Money Market
d. Stock market
The break-even model enables the manager of the firm to:
a. calculate the minimum price of common stock for certain situations.
b. set appropriate equilibrium thresholds.
c. determine the quantity of output that must be sold to cover all operating costs.
d. determine the optimal amount of debt financing to use.
The degree of operating leverage is defined as:
a. % change in EBIT/% change in variable cost
b. % change in EBIT/% change in sales
c. % change in sales/% change in EBIT
d. % change in EBIT/% change in contribution margin
Financial leverage measures the percentage change in _________to the percentage
change in ________.
a. EBIT; sales
b. sales;earnings per share
c. earnings per share;EBIT
d. sales; EBIT
Which of the following is inconsistent with an optimal capital structure policy?
a. Lower the blended cost of debt and equity.
b. Maximize a firm's common stock price.
c. Minimize the cost of capital.
d. Maximize EPS.
According to the residual theory of dividends, dividends are considered a residual
a. Investment financing needs have been met.
b. preferred stock is issued.
c. EPS is allocated.
d. retained earnings are financed.
The only definite result from a stock dividend or a stock split is:
a. an increase in the P/E ratio.
b. an increase in the common stock's market value.
c. an increase in the number of shares outstanding.
d. cannot be determined from the above.
Use the following information to answser the following question: Quick Corp. makes
its purchases under terms of 2/10 net 30. If Quick Corp. forgoes the discount and pays for
its purchases according to the terms of its trade credit, what is Quick's effective cost of
using this source of credit?
Which of the following statements is the least consistent with modern cash
a. If a company keeps too much cash on hand, a corporate raider could use the excess
cash as part of the financing of a hostile take-over.
b. Keep more cssh than is needed increases the company's ability to weather a short-term
c. The more cash a company keeps, the less creative its management appears to stock
d. The more cash a company keeps, the better off it is at all times.