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FIN 534 – Homework Chapter 14

Business / Economics

4/21/12

Price: $7.00
Posted by: argument
Date Posted: 4/21/12 5:31 PM

1. Which of the following statements about dividend policies is CORRECT?

a. Modigliani and Miller argue that investors prefer dividends to capital gains because dividends are more certain than capital gains. They call this the ―bird-in-the hand‖ effect.

b. One reason that companies tend to avoid stock repurchases is that dividend payments are taxed at a lower rate than gains on stock repurchases.

c. One advantage of dividend reinvestment plans is that they allow shareholders to avoid paying taxes on the dividends that they choose to reinvest.

d. One key advantage of a residual dividend policy is that it enables a company to follow a stable dividend policy.

e. The clientele effect suggests that companies should follow a stable dividend policy.

2. Which of the following statements is CORRECT?

a. One disadvantage of dividend reinvestment plans is that they increase transactions costs for investors who want to increase their ownership in the company.

b. One advantage of dividend reinvestment plans is that they enable investors to postpone paying taxes on the dividends credited to their account.

c. Stock repurchases can be used by a firm that wants to increase its debt ratio.

d. Stock repurchases make sense if a company expects to have a lot of profitable new projects to fund over the next few years, provided investors are aware of these investment opportunities.

e. One advantage of an open market dividend reinvestment plan is that it provides new equity capital and increases the shares outstanding.

3. Which of the following statements is CORRECT?

a. When firms are deciding on the size of stock splits—say whether to declare a 2-for-1 split or a 3-for-1 split, it is best to declare the smaller one, in this case the 2-for-1 split, because then the after-split price will be higher than if the 3-for-1 split had been used.

b. Back before the SEC was created in the 1930s, companies would declare reverse splits in order to boost their stock prices. However, this was determined to be a deceptive practice, and it is illegal today.

c. Stock splits create more administrative problems for investors than stock dividends, especially determining the tax basis of their shares when they decide to sell them, so today stock dividends are used far more often than stock splits.

d. When a company declares a stock split, the price of the stock typically declines—by about 50% after a 2-for-1 split—and this necessarily reduces the total market value of the equity.

e. If a firm's stock price is quite high relative to most stocks—say $500 per share—then it can declare a stock split of say 10-for-1 so as to bring the price down to something close to $50.

4. Which of the following statements is CORRECT?

a. If a firm follows the residual dividend policy, then a sudden increase in the number of profitable projects is likely to reduce the firm's dividend payout.

b. The clientele effect can explain why so many firms change their dividend policies so often.

c. One advantage of adopting the residual dividend policy is that this policy makes it easier for corporations to develop a specific and well-identified dividend clientele.

d. New-stock dividend reinvestment plans are similar to stock dividends because they both increase the number of shares outstanding but don't change the firm's total amount of book equity.

e. Investors who receive stock dividends must pay taxes on the value of the new shares in the year the stock dividends are received.

5. DeAngelo Corp.'s projected net income is $150.0 million, its target capital structure is 25% debt and 75% equity, and its target payout ratio is 65%. DeAngelo has more positive NPV projects than it can finance without issuing new stock, but its board of directors had decreed that it cannot issue any new shares in the foreseeable future. The CFO now wants to determine how the maximum capital budget would be affected by changes in capital structure policy and/or the target dividend payout policy. Versus the current policy, how much larger could the capital budget be if (1) the target debt ratio were raised to 75%, other things held constant, (2) the target payout ratio were lowered to 20%, other things held constant, and (3) the debt ratio and payout were both changed by the indicated amounts.

Increase in Capital Budget

Increase Debt Lower Payout Do Both to 75% to 20%___________________

a. $114.0 $73.3 $333.9

b. $120.0 $77.2 $351.5

c. $126.4 $81.2 $370.0

d. $133.0 $85.5 $389.5

e. $140.0 $90.0 $410.0

FIN 534 – Homework Chapter 15

Business / Economics

4/21/12

Price: $6.00
Posted by: argument
Date Posted: 4/21/12 5:35 PM

1. Which of the following statements best describes the optimal capital structure?

a. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's earnings per share (EPS).

b. The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company's stock price.

c. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company's cost of equity.

d. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company's cost of debt.

e. The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company's cost of preferred stock.

2. Which of the following statements is CORRECT?

a. A firm can use retained earnings without paying a flotation cost. Therefore, while the cost of retained earnings is not zero, its cost is generally lower than the after-tax cost of debt.

b. The capital structure that minimizes a firm's weighted average cost of capital is also the capital structure that maximizes its stock price.

c. The capital structure that minimizes the firm's weighted average cost of capital is also the capital structure that maximizes its earnings per share.

d. If a firm finds that the cost of debt is less than the cost of equity, increasing its debt ratio must reduce its WACC.

e. Other things held constant, if corporate tax rates declined, then the Modigliani-Miller tax-adjusted tradeoff theory would suggest that firms should increase their use of debt.

3. Which of the following statements is CORRECT?

a. In general, a firm with low operating leverage also has a small proportion of its total costs in the form of fixed costs.

b. There is no reason to think that changes in the personal tax rate would affect firms' capital structure decisions.

c. A firm with high business risk is more likely to increase its use of financial leverage than a firm with low business risk, assuming all else equal.

d. If a firm's after-tax cost of equity exceeds its after-tax cost of debt, it can always reduce its WACC by increasing its use of debt.

e. Suppose a firm has less than its optimal amount of debt. Increasing its use of debt to the point where it is at its optimal capital structure will decrease the costs of both debt and equity financing.

4. Companies HD and LD have identical amounts of assets, operating income (EBIT), tax rates, and business risk. Company HD, however, has a much higher debt ratio than LD. Company HD's basic earning power ratio (BEP) exceeds its cost of debt (rd). Which of the following statements is CORRECT?

a. Company HD has a higher return on assets (ROA) than Company LD.

b. Company HD has a higher times interest earned (TIE) ratio than Company LD.

c. Company HD has a higher return on equity (ROE) than Company LD, and its risk, as measured by the standard deviation of ROE, is also higher than LD's.

d. The two companies have the same ROE.

e. Company HD's ROE would be higher if it had no debt.

5. Which of the following statements is CORRECT?

a. Generally, debt-to-total-assets ratios do not vary much among different industries, although they do vary among firms within a given industry.

b. Electric utilities generally have very high common equity ratios because their revenues are more volatile than those of firms in most other industries.

c. Drug companies (prescription, not illegal!) generally have high debt-to-equity ratios because their earnings are very stable and, thus, they can cover the high interest costs associated with high debt levels.

d. Wide variations in capital structures exist both between industries and among individual firms within given industries. These differences are caused by differing business risks and also managerial attitudes.

e. Since most stocks sell at or very close to their book values, book value capital structures are almost always adequate for use in estimating firms' costs of capital.

FIN 534 – Homework Chapter 16

Business / Economics

4/21/12

Price: $7.50
Posted by: argument
Date Posted: 4/21/12 5:39 PM

1. Swim Suits Unlimited is in a highly seasonal business, and the following summary balance sheet data show its assets and liabilities at peak and off-peak seasons (in thousands of dollars):

Peak Off-Peak

Cash $ 50 $ 30

Marketable securities 0 20

Accounts receivable 40 20

Inventories 100 50

Net fixed assets 500 500

Total assets $690 $620

Payables and accruals $ 30 $ 10

Short-term bank debt 50 0

Long-term debt 300 300

Common equity 310 310

Total claims $690 $620

From this data we may conclude that

a. Swim Suits' current asset financing policy calls for exactly matching asset and liability maturities.

b. Swim Suits' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.

c. Swim Suits follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.

d. Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.

e. Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.

2. Which of the following statements is CORRECT?

a. A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually. Such a firm will be able to keep its accounts receivable at the current level, since the 10% cash sales can be used to finance the 10% growth rate.

b. In managing a firm's accounts receivable, it is possible to increase credit sales per day yet still keep accounts receivable fairly steady, provided the firm can shorten the length of its collection period (its DSO) sufficiently.

c. Because of the costs of granting credit, it is not possible for credit sales to be more profitable than cash sales.

d. Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.

e. Other things held constant, if a firm can shorten its DSO, this will lead to a higher current ratio.

3. Halka Company is a no-growth firm. Its sales fluctuate seasonally, causing total assets to vary from $320,000 to $410,000, but fixed assets remain constant at $260,000. If the firm follows a maturity matching (or moderate) working capital financing policy, what is the most likely total of long-term debt plus equity capital?

a. $260,642

b. $274,360

c. $288,800

d. $304,000

e. $320,000

4. Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle?

Average inventory = $75,000

Annual sales = $600,000

Annual cost of goods sold = $360,000

Average accounts receivable = $160,000

Average accounts payable = $25,000

a. 120.6 days

b. 126.9 days

c. 133.6 days

d. 140.6 days

e. 148.0 days

5. Affleck Inc.'s business is booming, and it needs to raise more capital. The company purchases supplies on terms of 1/10 net 20, and it currently takes the discount. One way of getting the needed funds would be to forgo the discount, and the firm's owner believes she could delay payment to 40 days without adverse effects. What would be the effective annual percentage cost of funds raised by this action? (Assume a 365-day year.)

a. 10.59%

b. 11.15%

c. 11.74%

d. 12.36%

e. 13.01%

FIN 534 – Homework Chapter 17

Business / Economics

4/21/12

Price: $7.50
Posted by: argument
Date Posted: 4/21/12 5:41 PM

1. In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT?

a. The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market.

b. The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market.

c. The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market.

d. The spot rate equals the 90-day forward rate.

e. The spot rate equals the 180-day forward rate.

2. If the spot rate of the Israeli shekel is 5.51 shekels per dollar and the 180-day forward rate is 5.97 shekels per dollar, then the forward rate for the Israeli shekel is selling at a ________________ to the spot rate.

a. premium of 8%

b. premium of 18%

c. discount of 18%

d. discount of 8%

e. premium of 16%

3. Stover Corporation, a U.S. based importer, makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.638 francs, how much will the U.S. firm have saved or lost in U.S. dollars by hedging its exchange rate exposure?

a. -$396

b. -$243

c. $0

d. $243

e. $638

4. A product sells for $750 in the United States. The exchange rate is $1 to 1.65 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland?

a. 123.75 Swiss francs

b. 454.55 Swiss francs

c. 750.00 Swiss francs

d. 1,237.50 Swiss francs

e. 1,650.00 Swiss francs

5. Chen Transport, a U.S. based company, is considering expanding its operations into a foreign country. The required investment at Time = 0 is $10 million. The firm forecasts total cash inflows of $4 million per year for 2 years, $6 million for the next 2 years, and then a possible terminal value of $8 million. In addition, due to political risk factors, Chen believes that there is a 50% chance that the gross terminal value will be only $2 million and a 50% chance that it will be $8 million. However, the government of the host country will block 20% of all cash flows. Thus, cash flows that can be repatriated are 80% of those projected. Chen's cost of capital is 15%, but it adds one percentage point to all foreign projects to account for exchange rate risk. Under these conditions, what is the project's NPV?

a. $1.01 million

b. $2.77 million

c. $3.09 million

d. $5.96 million

e. $7.39 million

MGT 350 Final Exam

Business / Economics

4/21/12

Price: $27.00
Posted by: argument
Date Posted: 4/21/12 6:51 PM

1) Bill Simmons is the manager of a small restaurant and must decide how much money he owes his suppliers. The best way for Bill to approach this as a critical thinker is to

A. collect and analyze the evidence

B. identify opportunities and obstacles

C. understand different perspectives on the issue

D. weigh the consequences of this decision

2) Critical thinking is very important in making decisions that impact an organization's growth and survival. Which of the following traits of a critical thinker is essential in this process?

A. Intellectual integrity

B. Intellectual empathy

C. Intellectual perseverance

D. Intellectual courage

3) When faced with a decision opportunity, a critical thinker must sort through a variety of readily apparent symptoms in order to focus on important considerations that may be hidden. Based on the decision steps model, when framing a problem a helpful step is to

A. Determine root causes

B. Measure the decision

C. Frame alternatives

D. Evaluate effects of the problem

4) In the stages of development of critical thinking, which of the following types of thinking entails exploring the foundation of our thinking and discover how we have come to think and believe we do?

A. Beginning thinker

B. Practical thinker

C. Advanced thinker

D. Master thinker

5) One way for a leader to develop alternative perspectives for decision making is to:

A. increase the use of the logical thinking style

B. increase the homogeneity of his or her team

C. assign the role of devil's advocate for meetings

D. apply past decision successes to current decision opportunities

6) The outcome of the process of framing the problem includes:

A. a list of potential alternative courses of action

B. a list of criteria, goals, and objectives for a decision

C. a timeline for decision implementation

D. an assessment of resources needed to execute a decision

7) A form of critical thinking is fair-minded, persuasive thinking. When engaging in problem formulation and identification with a group, the fair minded persuader would:

A. communicate only that information which supports the desired decision

B. avoid all affective appeals

C. emphasizes affective appeals over data and reason

D. acknowledges the difficulty that his or her position creates for the audience

8) Of the decision styles listed below, which one should be used for a non-urgent, yet critical and unusual problem affecting multiple stakeholders?

A. Autocratic

B. Participative

C. Democratic

D. Programmed decision making

9) Urgent crisis conditions might call for a decision making style that is

A. democratic

B. consensus

C. autocratic

D. collaborative

10) A manager may properly choose to ignore a problem

A. when the costs of doing nothing are less than the cost of addressing the problem

B. because of a bias against change

C. when the problem is surfaced through a positive trigger point

D. when a Pareto chart has properly clarified the causes of a problem

11) ____________ is based on the concept that 80% of a project's goal can be achieved by doing 20% of the work or that 80% of the problems are due to 20% of causes.

A. Plus/Minus Implications (PMI)

B. Force Field Analysis

C. Criteria Matrix

D. Pareto Analysis

12) For urgent decisions, which approach may be the most efficient and effective use of the manager's time when there are other critical competing priorities?

A. Satisficing

B. Optimizing

C. Experimenting

D. Brainstorming and multivoting with a team

13) Upon review of the customer comment cards dropped in the box in his convenience store, Bob sees that 61% of the customers filling out a card have expressed dissatisfaction with waiting times. Bob decides to add an additional cashier during the day. Bob is using the ______ thinking style in order to make this decision.

A. deductive logical

B. creative

C. metaphorical

D. inductive logical

14) In nearly all decision-making models, which of the following is an essential step in the decision-making process?

A. Identify alternatives

B. Analyzing negative feedback

C. Appraising the problem

D. Making trade-offs

15) You have been assigned to a project team to develop a marketing plan a new product being launched by your company. Which of the following should the project team do first?

A. Identify the obstacles presented by competitors.

B. Define the project team's goal.

C. Consult with the rest of the employees involved in the new product development.

D. Deliberate about the project team's commitment.

16) Jan has been selected to implement her company's decision to expand her company's manufacturing operation into a new location. Six months into this project, the building has been completed, and machinery installed. However, Jan has been unable to secure enough applicants with the technical skills needed to operate this computerized facility. Jan's implementation plan was most deficient in its consideration of

A. timeline

B. technological constraints

C. organizational mission

D. resource

17) In response to declining profits, a company decides that it needs to become world class, but is having difficulty developing an implementation plan around the goal of "becoming world class." Rather than implement this decision, the company would be well advised to return to the ______ step of decision making.

A. develop criteria, goals, and objectives

B. frame alternatives

C. determine measurements

D. evaluate the decision

18) Which factor would be most critical in decision implementation?

A. Contingency plan

B. Communication

C. Ethical considerations

D. Resources to implement decision

19) Freda is analyzing the prospects for a new gambling casino that her company is considering. In the course of her analysis, Freda has identified potential stakeholder resistance to this venture, in that she has discovered that the area is very densely populated with houses of worship. She has also discovered a potential source of support for this venture, in that the local government has established tax credits for new businesses in an effort to stimulate employment. Freda is, in all likelihood, developing a

A. resource allocation survey

B. Force Field Analysis

C. financial proforma income statement

D. ROI analysis

20) When implementing a decision, a company must ensure that its actions remain consistent with its

A. current resource allocations

B. organizational mission

C. past practices and procedures

D. employee's preferences

21) Which decision making tool would be used in identifying possible causes for a problem?

A. Brainstorming

B. Multivoting

C. Fishbone diagram

D. Ranking

22) Markus worked last summer as a receptionist in a lawyer's office. During a discussion with you, he commented that he was asked to tell callers that the lawyer was in court when in fact the lawyer was playing golf! He eventually quit the job because he believes that under no circumstance is it permissible to tell a lie. Markus appears to be following the ethical system referred to as a

A. rule or deontological ethics

B. Practical deliberation

C. Virtue ethics

D. utilitarianism

23) A company applying a ______ view of ethics would probably find fewer impediments to decisions involving cross cultural factors than one applying a ______ view.

A. universalist, relativist

B. relativist, universalist

C. deontological, rule based

D. virtue, utilitarian

24) In a global economy, which of the following must a manager consider in ensuring the ethicality of his or her decision?

A. Cross-cultural issues

B. Conflicting legal issues

C. Justification for outsourcing

D. Profitability

25) A tool that is helpful in monitoring, evaluating, and changing a decision as needed during implementation is the

A. stakeholder summary analysis

B. Plan, do, check, act (PDCA) cycle

C. contingency plan effectiveness audit

D. financial effectiveness audit

26) A measurement that identifies the degree to which goals and objectives are attained is a measure of:

A. organizational effectiveness

B. organizational precision

C. organizational efficiency

D. organizational stability

27) In order to apply continuous improvement in decision making, a company should take the time to record not only the results of its decisions, but also the

A. impact to external stakeholders

B. financial results

C. customer satisfaction data

D. process through which the decision was made

28) A company has decided to fund a summer basketball league for young people in the community. The decision will result in increased expenditures with no increase in revenues or profits. In evaluating this decision outcome, the officers of the company must weigh both its ______ responsibility and its ______ responsibility, two components of corporate social responsibility.

A. economic, legal

B. economic, philanthropic

C. economic, fiduciary

D. legal, ethical

29) As noted in our texts, a key measurement of our decisions is: "Are they ethical?" In order to achieve a superior level of ethical behavior in its decision making processes, leaders should instill a(n) ______ in those charged with making decisions.

A. compliance based approach to ethical considerations

B. integrity based approach to ethical considerations

C. legal approach to ethical considerations

D. utilitarian approach to ethical considerations

30) When evaluating the decision processes in an organization, leaders should consider doing which of the following?

A. Make a list of those affected by the decision, and determine if those interests are represented in the process under consideration.

B. Make sure to focus on results of the decision rather than the process.

C. Ensure that the process is consistent for all significant decisions.

D. Ensure that all of a company's stakeholders provide input all of a company's decisions.

LDR 531 Final Exam

Business / Economics

4/22/12

Price: $27.00
Posted by: argument
Date Posted: 4/22/12 8:29 AM

LDR 531 Final Exam

1) Which of the following is best defined as a consciously coordinated social unit, composed of two or more people, which functions on a relatively continuous basis to achieve a common goal or set of goals?

a. party

b. unit

c. team

d. community

e. organization

2) Over the past 2 decades, business schools have added required courses on organizational design to many of their curricula. Why have they done this?

a. Managers no longer need technical skills in subjects such as economics and accounting to succeed.

b. There is an increased emphasis in controlling employee behavior in the workplace.

c. Managers need to understand human behavior if they are to be effective.

d. These skills enable managers to effectively lead human resources departments.

e. A manager with good people skills can help create a pleasant workplace.

3) Robert Katz identified three essential skills that managers must have to reach their goals. What are these skills?

a. technical, decisional and interpersonal

b. technical, human, and conceptual

c. interpersonal, informational and decisional

d. conceptual, communication and networking

e. human, informational and communication

4) __________ is a field of study that investigates the effect that individuals, groups, and structures have on behavior within organizations for the purpose of applying such knowledge toward improving an organization's effectiveness.

Organizational developmentHuman Resources Managementc. Organizational behaviorPeople managementCorporate strategy

5) What do the fundamental consistencies underlying the behavior of all individuals enable researchers to do?

a. observe human behavior

b. systematize human behavior

c. research human behavior

d. predict human behavior

e. detect human behavior

6) Which of the following is a generic term that covers a broad range of feelings that people experience?

a. Affect emotionsmoodsemotional laborcognition

7) What term is used for intense feelings that are directed at someone or something?

affectcognitionmoodsthoughtse. emotions

8) If personality characteristics were completely dictated by __________, they would be fixed at

birth and no amount of experience could alter them.

job satisfactionb. heredityenvironmentsituationsreligion

9) Which of the following are classifications on the Myers-Briggs Type Indicator?

a. extroverted/introverted

b. sensing/intuitive

c. perceiving/judging

d. independent/dependent

e. thinking/feeling

10) Maria is dissatisfied with the way that her manager treats her. She has quit her job and found a new position with another firm. How has she expressed her dissatisfaction?

a. exit

b. voice

c. loyalty

d. neglect

e. social voice

11) You quietly continue to do your work when you know things will not improve. This is what type of response to dissatisfaction?

a. exit

b. voice

c. loyalty

d. neglect

e. social voice

12) A group

a. generates positive synergy through coordinated effort

b. generates greater outputs with no increase in inputs

c. is two or more individuals interacting and interdependent

d. engages in collective work that requires joint effort

13) __________ results in a level of performance that is greater than the sum of the individual input.

a. Synergy

b. Enthusiasm

c. Energy

d. Initiative

e. Inversion

14) What happens in the second stage of Tuckman's five stage model of group development?

a. Close relationships are developed.

b. The group demonstrates cohesiveness.

c. Intragroup conflict often occurs.

d. Groups disband.

15) Zach is devout and very active in his church. He is also a very dedicated employee. His manager offers him a promotion, but the new role will require him to work Sundays. Zach would like the promotion, but realizes that it would force him to miss some church activities. It is likely that Zach is experiencing which of the following:

a. role conflict

b. role expectation

c. role perception

d. psychological conflict

16) Which role focuses on bringing about order and consistency by drawing up formal plans?

leadershipb. managementtask structureinitiating structurenone of the above

17) Which statement regarding leadership is true?

All leaders are managers.Formal rights enable managers to lead effectively.All managers are leaders.All leaders are hierarchically superior to followers.e. Nonsanctioned leadership is as important as or more important than formal influence.

18) What are three situational criteria identified in the Fiedler model?

a. job requirements, position power, and leadership ability

b. charisma, influence, and leader-member relations

c. leader-member relations, task structure, and position power

d. task structure, leadership ability, and group conflict

e. emotional intelligence, group orientation, and employee status

19) The reconceptualization of the contingency model by Garcia and Fiedler is called _____ theory.

a. situational

b. cognitive resource

c. evaluative

d. leadership recognition

e. cognitive dissonance

20) Which path-goal leadership style leads to greater satisfaction when tasks are ambiguous or stressful?

a. directivesupportiveparticipativemixedreactive

21) According the Path-Goal Theory, what leader is friendly and shows concern for the needs of followers?

the achievement-oriented leaderthe directive leaderthe laissez-faire leaderthe participative leadere. the supportive leader

22) Phrases such as "more cultural diversity," "many new entrants with inadequate skills," and "increase in professionals" are all examples of what force for change?

a. technology

b. world politics

c. nature of the work force

d. social trends

23) What is a goal of planned change?

a. to change the forces of change

b. to alter the agents of change

c. to change employees' responsibilities

d. to improve the ability to adapt to the environment

e. to alter the employees' environment

24) Using covert influence to overcome resistance to change is called what?

a. negotiation

b. cooptation

c. education

d. coercion

e. manipulation

25) If individuals resisting change are included in making change decisions in an attempt to gain their support, what is this approach is called?

a. cooptation

b. exploitation

c. manipulation

d. coercion

e. education

26) Which of the following is a characteristic of organizational control?

a. Formality orientation

b. Decision orientation

c. Team orientation

d. Managerial orientation

27) What term describes the key characteristic of organizational control that addresses the degree to which employees are expected to exhibit precision?

a. accuracy orientation

b. accountability

c. attention to detail

d. stability

e. reactivity

28) Power is

a. a means for leaders to achieve goals

b. defined by leaders' hopes and aspirations

c. a goal in and of itself

d. not an influence on leaders' goals

29) Leaders achieve goals, and power is

a. defined by leaders' hopes and aspirations

b. usually used by poor leaders

c. a means of achieving goals

d. a goal in and of itself

e. a strong influence on leaders' goals

30) The most important aspect of power is probably that it _____.

a. is needed to get things done in an organization

b. is a function of dependency

c. tends to corrupt people

d. is counterproductive

e. involves control

LDR 531 Final Exam (2)

Business / Economics

4/22/12

Price: $30.00
Posted by: argument
Date Posted: 4/22/12 5:40 PM

LDR 531 Final Exam (2)

1. What are the three primary determinants of behavior on which organizational behavior focuses?

A. profit structure, organizational complexity, job satisfaction

B. individuals, profit structure, and job satisfaction

C. individuals, groups, and job satisfaction

D. groups, structure, and profit structure

E. individuals, groups, and structure

2. Which behavioral science discipline is most focused on understanding individual behavior?

A. sociology

B. social psychology

C. psychology

D. anthropology

E. organizational behavior

3. When the team he supports wins the World Cup, Detleb feels a surge of joy, which turns into a feeling of satisfaction that lasts for days. What is one of the reasons that the feeling of satisfaction might be categorized as a mood and not an emotion?

A. It has a lengthy duration

B. It is not the result of something that Detleb himself has done.

C. It is brought about by a specific event.

D. It is a positive feeling.

E. It is a very strong feeling.

4. Which of the following statements about personality is correct?

A. Personality is an aggregate whole.

B. Personality is the primary source of emotions in most people.

C. Personality is a part of a person.

D. Personality is for the most part comprised of traits that cannot be measured.

E. Personality is always stable

5. What does the Myers-Briggs Type Indicator classification of E or I stand for?

A. Extroverted or introverted

B. Sane or reflective

C. Emotional or introverted

D. Emotional or intuitive

E. Extroverted or intuitive

6. Which of the following is not generally true?

A. Satisfaction is the major determinant of a worker's OCB

B. Enterprises with a greater percentage of satisfied workers are more effective than those with a smaller percentage of satisfied workers.

C. Productive workers are satisfied workers.

D. Satisfaction comes down to fairness of outcomes, treatments, or procedures.

E. Satisfied workers are productive workers.

7. ________ results in a level of performance that is greater than the sum of the individual input.

A. Energy

B. Inversion

C. Enthusiasm

D. Initiative

E. Synergy

8. Which of the following helps explain the current popularity of teams?

A. Teams promote socialization.

B. Teams are easier to manage.

C. Teams are less expensive.

D. Teams are a way to better utilize employee talents.

E. Teams are very efficient.

9. What sort of group is defined by the organization's structure?

A. Interest

B. Informal

C. Friendship

D. Task

E. Formal

10. What will happen if group cohesiveness is high and performance norms are low?

A. Productivity will be low.

B. Internal conflict will be high.

C. Productivity will be high

D. Internal conflict will be low

E. It will have little effect on internal conflict or productivity.

11. Which of the following was the major finding of Zimbardo's simulated prison experiment?

A. An individual's emotions and the behavioral responses to those emotions are congruent.

B. Status differences between groups will always result in conflict between those groups.

C. Individuals can rapidly assimilate new roles very different from their inherent personalities.

D. Group cohesiveness is so important that individuals will restrain their natural impulses to remain part of the group.

E. When given the opportunity, people will tend to act in an oppressive manner to those around them.

12. Which theory differentiates leaders from nonleaders by focusing on personal qualities and characteristics?

A. Contingency theory

B. Fiedler's perspective

C. LPC

D. Characteristic theory

E. Trait theory

13. Which of the following statements regarding leadership is true?

A. All leaders are hierarchically superior to followers.

B. All leaders are managers.

C. All managers are leaders.

D. Formal rights enable managers to lead effectively.

E. Nonsanctioned leadership is as important as or more important than formal influence

14. Leadership is best defined as __________.

A. coordinating and staffing the organization and handling day-to-day problems

B. the ability to influence a group in goal achievement

C. implementing the vision and strategy provided by management

D. keeping order and consistency in the midst of change

E. not a relevant variable in modern organizations

15. Which model represents the theory that effective group performance depends on the proper match between a leader's style and the degree to which the situation gives control to the leader?

A. Leader-Member Exchange Model

B. Fiedler's Contingency Model

C. Hersey and Blanchard's Situational Leadership Model

D. Vroom and Yetton's Leader-Participation Model

E. None of the above

16. Three situational criteria identified in the Fiedler model are __________

A. task structure, leadership ability, and group conflict

B. job requirements, position power, and leadership ability

C. leader-member relations, task structure, and position power

D. charisma, influence, and leader-member relations

E. emotional intelligence, group orientation, and employee status

17. The leadership behaviors identified by the path-goal theory are __________.

A. directive, participative, supportive, and laissez-faire

B. supportive, employee-oriented, laissez-faire, and participative

C. participative, achievement-oriented, directive, and supportive

D. achievement-oriented, supportive, humanistic, and directive

E. affective, cognitive, and behavioral

18. According to Hersey and Blanchard, readiness encompasses the __________.

A. degree of confidence, trust, and respect members have in their leader

B. amount of influence a leader has over variables such as hiring, firing, and salaries

C. level of morale and satisfaction of the employees

D. ability and willingness of the followers to accomplish a task

E. all of the above

19. Which path-goal leadership style leads to greater satisfaction when tasks are ambiguous or stressful?

A. Mixed

B. Participative

C. Reactive

D. Supportive

E. Directive

20. Which of the following is not a primary force for change in organizations?

A. Social trends

B. Decreasing skill sets

C. The nature of the workforce

D. Economic shocks

E. Technology

21. An example of change in competition is __________.

A. increased interest in urban living

B. Iraq–U.S. war

C. a decrease in interest rates

D. collapse of Enron Corporation

E. growth of e-commerce

22. The application of direct threats or force on resisters is called __________.

A. coercion

B. manipulation

C. destruction

D. cooptation

E. exploitation

23. Which tactic to overcome resistance to change is a relatively easy way to gain the support of adversaries, but may backfire if the targets become aware of the tactic?

A. Coercion

B. Manipulation

C. Cooperation

D. Conciliation

E. Negotiation

24. Who developed a three-step model for change that included unfreezing, movement, and refreezing?

A. Lawrence Summers

B. Douglas Surber

C. Kurt Lewin

D. David McClelland

E. John Kotter

25. The basis by which jobs are grouped together is termed __________.

A. centralization

B. specialization

C. departmentalization

D. bureaucracy

E. social clustering

26. In the late 1940s, most manufacturing jobs in industrialized countries were being done with high _________.

A. structuralization

B. work specialization

C. generalized structure

D. decentralization

E. departmentalization

27. For much of the first half of the 20th century, managers viewed work specialization as __________.

A. difficult to implement without automation technology

B. an unending source of increased productivity

C. an effective solution to over-centralization

D. a frustrating cause of reduced product output

E. a means to encourage employee satisfaction

28. Which of the following is not a characteristic of organizational culture?

A. Team orientation

B. Formality orientation

C. Outcome orientation

D. Innovation

E. Attention to detail

29. __________ is a shared system of meaning held by the organization's members that distinguishes the organization from other organizations.

A. Formalization

B. Corporate image

C. Socialization

D. Institutionalization

E. Organizational culture

30. Leaders achieve goals, and power is __________.

A. a goal in and of itself

B. a strong influence on leaders' goals

C. a means of achieving goals

D. defined by leaders' hopes and aspirations

E. usually used by poor leaders

31. The most important aspect of power is probably that it __________.

A. is counterproductive

B. involves control

C. tends to corrupt people

D. is needed to get things done in an organization

E. is a function of dependency

MKT 571 Final Exam

Business / Economics

4/26/12

Price: $25.00
Posted by: argument
Date Posted: 4/26/12 1:57 AM

1) Which of the following is most closely associated with a proactive marketing orientation?

A. It involves delivering superior value.

B. It is about understanding and meeting customers' expressed needs.

C. It represents the "make and sell" philosophy.

D. The marketer focuses on the customers' latent or hidden needs.

2) Marketing __________ is the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value.

A. internally

B. management

C. segmentation

D. integration

3) Business buyers ______________.

A. are geographically as diverse as consumers

B. tend to be geographically concentrated with over half of them in seven states

C. are largely concentrated in the southwestern United States

D. use geographical dispersion to keep shipping costs low

4) Toyota, the maker of the Scion brand, is using what kind of brand strategy with Scion products?

A. Separate family names

B. Blanket family names

C. Individual names

D. Corporate names

5) BMW, the maker of the Mini Cooper brand, is using what kind of brand strategy with its Mini products?

A. Individual names

B. Blanket family names

C. Separate family names

D. Corporate names

6) Brands can play a number of specific roles within a company's brand portfolio. For example, a __________ is positioned with respect to competitors' brands so that more important and profitable brands retain their desired positioning.

A. cash cow

B. low-end, entry level brand

C. high-end, prestige brand

D. flanker

7) When Apple introduced its popular iPod Nano model, it dropped its Mini iPod at the same time. The Mini was, at the time, the most popular MP3 player in the marketplace. This is an example of __________.

A. brand extension

B. preemptive cannibalization

C. a brand shake-out

D. product maturity

8) A ___________ is when a parent brand is used on a new product targeting a new market segment within a category currently served by the parent.

A. joint-venture co-brand

B. same company co-brand

C. category extension

D. line extension

9) ___________ are formal statements of expected product performance by the manufacturer.

A. Open pricing statements

B. Promotional statements

C. Warranties

D. General guarantees

10) Mazda's Miata convertible originally drew the most interest from women between the ages of 35 and 55. In order to interest more potential customers in the roadster, Mazda beefed up the model with heavier shocks and a faster engine, and then emphasized performance in its advertising. This is an example of creating a new product by ____________.

A. repositioning

B. the development of a new product line

C. market diversification strategy

D. product development strategy

11) When SAP software added a Windows-style "back" button to its industrial invoice management software, the new product ___________.

A. used a new product line

B. added to an existing product line

C. improved upon an existing product

D. used a marketing diversification strategy

12) In 2003, Toyota introduced its Scion brand with the aim of bringing younger buyers into the "family." This was a classic example of _________________.

A. line featuring

B. line cannibalization

C. line padding

D. line stretching

13) Painting and consulting are considered industrial goods because ______________.

A. they are specialty goods

B. they are considered "component materials"

C. most firms do not seek them directly

D. they facilitate developing and managing the finished product

14) Marketers plan their market offerings at five levels. What is the correct order of the levels, going from most fundamental to the level with the most benefits?

A. Basic-expected-augmented-core-potential

B. Expected-potential-basic-augmented-core

C. Core-basic-expected-augmented-potential

D. Potential-augmented-expected-core-basic

15) Characteristics a buyer can evaluate before purchase are called _______________.

A. search qualities

B. experience qualities

C. credence qualities

D. differentiation qualities

16) For $15 a day, Chlena will go to your home and feed, water, and play with your pet while you are on vacation. The service Chlena provides is an example of a _____________.

A. tangible good with accompanying service

B. hybrid

C. pure service

D. major service with accompanying minor goods and services

17) Mr. Tse and his family took a vacation to Washington, D.C. While there, they bought souvenirs; t-shirts and hats to take home to family and friends who didn't have the opportunity to go. The experience of the Tse family is an example of which offering?

A. A tangible good with accompanying services

B. A hybrid

C. A pure service

D. A major service with accompanying minor goods and services

18) Best Buy will often try to sell the buyer of a high-end television monitor an extended warranty. This is an example of _______________.

A. pure tangible good

B. tangible good with accompanying services

C. hybrid

D. pure service

19) The introduction of a new product to the market using market-penetration pricing is most likely to be successful when _____________.

A. the unit costs of producing a small volume of the product are high

B. there must be no existing demand for the product

C. the market is highly price sensitive

D. the high price communicates nothing to potential buyers

20) A __________ pricing objective is suitable for a company that has overcapacity, intense competition, and changing customer needs.

A. maximum current profit

B. survival

C. maximum current revenue

D. maximum sales growth

21) Scotty is in the process of opening Suburban Legends SK8S to sell boards, wheels, trucks, clothing, videos, and skateboarding related collectibles. The first thing Scotty should do when setting the store's prices is to ____________.

A. estimate costs

B. determine the target market

C. select a pricing method

D. select a pricing objective

22) A common mistake in pricing is ____________________.

A. revising prices too often

B. considering price and price competition as a key problem in marketing

C. ignoring costs when setting prices

D. setting prices independently of the rest of the market mix

23) When customers buy on the basis of a reference price or because the price conveys a particular quality image to them, they are being influenced by ____________.

A. value pricing

B. the psychology of pricing

C. the going rates of competitors

D. value augmented by perception

24) Which of the following areas will a marketing manager standardize or adapt when taking a new product global?

A. Marketing concept

B. Marketing mix

C. Product strategy

D. Promotion strategy

25) Which of the following best describes integrated marketing communication (IMC)?

A. Organizations present a consistent message.

B. Organizations present an effective communication plan.

C. Organizations present a plan that focuses on the customer.

D. Organizations present an effective advertising message.

26) Which of the following best describes the role of social responsibility in marketing?

A. Standards that guide marketing decisions and actions

B. Improving environment and products

C. Obligation to improve positive effects on society

D. Obligation to improve positive effects and reduce negative effects on society

27) Public policy makers have developed a substantial body of laws and regulations to govern advertising. For these reasons, an important step in developing an advertising campaign is _____________.

A. asking network censors what to cut out of the communication

B. the creative development of the message

C. the social responsibility review

D. preparing a copy strategy statement

28) Within the last couple years several cosmetics manufacturers have introduced non-clumping mascara. Revlon was one of these manufacturers. Revlon should use ________ advertising to increase selective demand for its non-clumping mascara.

A. descriptive

B. persuasive

C. reminder

D. informative

29) Hospitals are engaged in intense competition to fill maternity beds. What type of advertising would hospitals most likely use to advertise their new amenities like hot tubs in every room, filet mignon or lobster on the menu, and afternoon teas for the new mothers and their families?

A. descriptive

B. persuasive

C. reminder

D. informative

30) _____________ is the key ingredient in marketing campaigns and consists of a diverse collection of short-term incentive tools designed to influence trial, purchase, and interests of consumers and wholesalers.

A. Advertising

B. Public relations

C. Sales promotion

D. Personal selling

LDR 531 Final Exam

Business / Economics

4/26/12

Price: $25.00
Posted by: argument
Date Posted: 4/26/12 1:59 AM

1) Which of the following is best defined as a consciously coordinated social unit, composed of two or more people, which functions on a relatively continuous basis to achieve a common goal or set of goals?

a. party

b. unit

c. team

d. community

e. organization

2) Over the past 2 decades, business schools have added required courses on organizational design to many of their curricula. Why have they done this?

a. Managers no longer need technical skills in subjects such as economics and accounting to succeed.

b. There is an increased emphasis in controlling employee behavior in the workplace.

c. Managers need to understand human behavior if they are to be effective.

d. These skills enable managers to effectively lead human resources departments.

e. A manager with good people skills can help create a pleasant workplace.

3) Robert Katz identified three essential skills that managers must have to reach their goals. What are these skills?

a. technical, decisional and interpersonal

b. technical, human, and conceptual

c. interpersonal, informational and decisional

d. conceptual, communication and networking

e. human, informational and communication

4) __________ is a field of study that investigates the effect that individuals, groups, and structures have on behavior within organizations for the purpose of applying such knowledge toward improving an organization's effectiveness.

Organizational developmentHuman Resources Managementc. Organizational behaviorPeople managementCorporate strategy

5) What do the fundamental consistencies underlying the behavior of all individuals enable researchers to do?

a. observe human behavior

b. systematize human behavior

c. research human behavior

d. predict human behavior

e. detect human behavior

6) Which of the following is a generic term that covers a broad range of feelings that people experience?

a. Affect emotionsmoodsemotional laborcognition

7) What term is used for intense feelings that are directed at someone or something?

affectcognitionmoodsthoughtse. emotions

8) If personality characteristics were completely dictated by __________, they would be fixed at

birth and no amount of experience could alter them.

job satisfactionb. heredityenvironmentsituationsreligion

9) Which of the following are classifications on the Myers-Briggs Type Indicator?

a. extroverted/introverted

b. sensing/intuitive

c. perceiving/judging

d. independent/dependent

e. thinking/feeling

10) Maria is dissatisfied with the way that her manager treats her. She has quit her job and found a new position with another firm. How has she expressed her dissatisfaction?

a. exit

b. voice

c. loyalty

d. neglect

e. social voice

11) You quietly continue to do your work when you know things will not improve. This is what type of response to dissatisfaction?

a. exit

b. voice

c. loyalty

d. neglect

e. social voice

12) A group

a. generates positive synergy through coordinated effort

b. generates greater outputs with no increase in inputs

c. is two or more individuals interacting and interdependent

d. engages in collective work that requires joint effort

13) __________ results in a level of performance that is greater than the sum of the individual input.

a. Synergy

b. Enthusiasm

c. Energy

d. Initiative

e. Inversion

14) What happens in the second stage of Tuckman's five stage model of group development?

a. Close relationships are developed.

b. The group demonstrates cohesiveness.

c. Intragroup conflict often occurs.

d. Groups disband.

15) Zach is devout and very active in his church. He is also a very dedicated employee. His manager offers him a promotion, but the new role will require him to work Sundays. Zach would like the promotion, but realizes that it would force him to miss some church activities. It is likely that Zach is experiencing which of the following:

a. role conflict

b. role expectation

c. role perception

d. psychological conflict

16) Which role focuses on bringing about order and consistency by drawing up formal plans?

leadershipb. managementtask structureinitiating structurenone of the above

17) Which statement regarding leadership is true?

All leaders are managers.Formal rights enable managers to lead effectively.All managers are leaders.All leaders are hierarchically superior to followers.e. Nonsanctioned leadership is as important as or more important than formal influence.

18) What are three situational criteria identified in the Fiedler model?

a. job requirements, position power, and leadership ability

b. charisma, influence, and leader-member relations

c. leader-member relations, task structure, and position power

d. task structure, leadership ability, and group conflict

e. emotional intelligence, group orientation, and employee status

19) The reconceptualization of the contingency model by Garcia and Fiedler is called _____ theory.

a. situational

b. cognitive resource

c. evaluative

d. leadership recognition

e. cognitive dissonance

20) Which path-goal leadership style leads to greater satisfaction when tasks are ambiguous or stressful?

a. directivesupportiveparticipativemixedreactive

21) According the Path-Goal Theory, what leader is friendly and shows concern for the needs of followers?

the achievement-oriented leaderthe directive leaderthe laissez-faire leaderthe participative leadere. the supportive leader

22) Phrases such as "more cultural diversity," "many new entrants with inadequate skills," and "increase in professionals" are all examples of what force for change?

a. technology

b. world politics

c. nature of the work force

d. social trends

23) What is a goal of planned change?

a. to change the forces of change

b. to alter the agents of change

c. to change employees' responsibilities

d. to improve the ability to adapt to the environment

e. to alter the employees' environment

24) Using covert influence to overcome resistance to change is called what?

a. negotiation

b. cooptation

c. education

d. coercion

e. manipulation

25) If individuals resisting change are included in making change decisions in an attempt to gain their support, what is this approach is called?

a. cooptation

b. exploitation

c. manipulation

d. coercion

e. education

26) Which of the following is a characteristic of organizational control?

a. Formality orientation

b. Decision orientation

c. Team orientation

d. Managerial orientation

27) What term describes the key characteristic of organizational control that addresses the degree to which employees are expected to exhibit precision?

a. accuracy orientation

b. accountability

c. attention to detail

d. stability

e. reactivity

28) Power is

a. a means for leaders to achieve goals

b. defined by leaders' hopes and aspirations

c. a goal in and of itself

d. not an influence on leaders' goals

29) Leaders achieve goals, and power is

a. defined by leaders' hopes and aspirations

b. usually used by poor leaders

c. a means of achieving goals

d. a goal in and of itself

e. a strong influence on leaders' goals

30) The most important aspect of power is probably that it _____.

a. is needed to get things done in an organization

b. is a function of dependency

c. tends to corrupt people

d. is counterproductive

e. involves control

LDR 531 Final Exam (2)

Business / Economics

4/26/12

Price: $27.00
Posted by: argument
Date Posted: 4/26/12 2:00 AM

1. What are the three primary determinants of behavior on which organizational behavior focuses?

A. profit structure, organizational complexity, job satisfaction

B. individuals, profit structure, and job satisfaction

C. individuals, groups, and job satisfaction

D. groups, structure, and profit structure

E. individuals, groups, and structure

2. Which behavioral science discipline is most focused on understanding individual behavior?

A. sociology

B. social psychology

C. psychology

D. anthropology

E. organizational behavior

3. When the team he supports wins the World Cup, Detleb feels a surge of joy, which turns into a feeling of satisfaction that lasts for days. What is one of the reasons that the feeling of satisfaction might be categorized as a mood and not an emotion?

A. It has a lengthy duration

B. It is not the result of something that Detleb himself has done.

C. It is brought about by a specific event.

D. It is a positive feeling.

E. It is a very strong feeling.

4. Which of the following statements about personality is correct?

A. Personality is an aggregate whole.

B. Personality is the primary source of emotions in most people.

C. Personality is a part of a person.

D. Personality is for the most part comprised of traits that cannot be measured.

E. Personality is always stable

5. What does the Myers-Briggs Type Indicator classification of E or I stand for?

A. Extroverted or introverted

B. Sane or reflective

C. Emotional or introverted

D. Emotional or intuitive

E. Extroverted or intuitive

6. Which of the following is not generally true?

A. Satisfaction is the major determinant of a worker's OCB

B. Enterprises with a greater percentage of satisfied workers are more effective than those with a smaller percentage of satisfied workers.

C. Productive workers are satisfied workers.

D. Satisfaction comes down to fairness of outcomes, treatments, or procedures.

E. Satisfied workers are productive workers.

7. ________ results in a level of performance that is greater than the sum of the individual input.

A. Energy

B. Inversion

C. Enthusiasm

D. Initiative

E. Synergy

8. Which of the following helps explain the current popularity of teams?

A. Teams promote socialization.

B. Teams are easier to manage.

C. Teams are less expensive.

D. Teams are a way to better utilize employee talents.

E. Teams are very efficient.

9. What sort of group is defined by the organization's structure?

A. Interest

B. Informal

C. Friendship

D. Task

E. Formal

10. What will happen if group cohesiveness is high and performance norms are low?

A. Productivity will be low.

B. Internal conflict will be high.

C. Productivity will be high

D. Internal conflict will be low

E. It will have little effect on internal conflict or productivity.

11. Which of the following was the major finding of Zimbardo's simulated prison experiment?

A. An individual's emotions and the behavioral responses to those emotions are congruent.

B. Status differences between groups will always result in conflict between those groups.

C. Individuals can rapidly assimilate new roles very different from their inherent personalities.

D. Group cohesiveness is so important that individuals will restrain their natural impulses to remain part of the group.

E. When given the opportunity, people will tend to act in an oppressive manner to those around them.

12. Which theory differentiates leaders from nonleaders by focusing on personal qualities and characteristics?

A. Contingency theory

B. Fiedler's perspective

C. LPC

D. Characteristic theory

E. Trait theory

13. Which of the following statements regarding leadership is true?

A. All leaders are hierarchically superior to followers.

B. All leaders are managers.

C. All managers are leaders.

D. Formal rights enable managers to lead effectively.

E. Nonsanctioned leadership is as important as or more important than formal influence

14. Leadership is best defined as __________.

A. coordinating and staffing the organization and handling day-to-day problems

B. the ability to influence a group in goal achievement

C. implementing the vision and strategy provided by management

D. keeping order and consistency in the midst of change

E. not a relevant variable in modern organizations

15. Which model represents the theory that effective group performance depends on the proper match between a leader's style and the degree to which the situation gives control to the leader?

A. Leader-Member Exchange Model

B. Fiedler's Contingency Model

C. Hersey and Blanchard's Situational Leadership Model

D. Vroom and Yetton's Leader-Participation Model

E. None of the above

16. Three situational criteria identified in the Fiedler model are __________

A. task structure, leadership ability, and group conflict

B. job requirements, position power, and leadership ability

C. leader-member relations, task structure, and position power

D. charisma, influence, and leader-member relations

E. emotional intelligence, group orientation, and employee status

17. The leadership behaviors identified by the path-goal theory are __________.

A. directive, participative, supportive, and laissez-faire

B. supportive, employee-oriented, laissez-faire, and participative

C. participative, achievement-oriented, directive, and supportive

D. achievement-oriented, supportive, humanistic, and directive

E. affective, cognitive, and behavioral

18. According to Hersey and Blanchard, readiness encompasses the __________.

A. degree of confidence, trust, and respect members have in their leader

B. amount of influence a leader has over variables such as hiring, firing, and salaries

C. level of morale and satisfaction of the employees

D. ability and willingness of the followers to accomplish a task

E. all of the above

19. Which path-goal leadership style leads to greater satisfaction when tasks are ambiguous or stressful?

A. Mixed

B. Participative

C. Reactive

D. Supportive

E. Directive

20. Which of the following is not a primary force for change in organizations?

A. Social trends

B. Decreasing skill sets

C. The nature of the workforce

D. Economic shocks

E. Technology

21. An example of change in competition is __________.

A. increased interest in urban living

B. Iraq–U.S. war

C. a decrease in interest rates

D. collapse of Enron Corporation

E. growth of e-commerce

22. The application of direct threats or force on resisters is called __________.

A. coercion

B. manipulation

C. destruction

D. cooptation

E. exploitation

23. Which tactic to overcome resistance to change is a relatively easy way to gain the support of adversaries, but may backfire if the targets become aware of the tactic?

A. Coercion

B. Manipulation

C. Cooperation

D. Conciliation

E. Negotiation

24. Who developed a three-step model for change that included unfreezing, movement, and refreezing?

A. Lawrence Summers

B. Douglas Surber

C. Kurt Lewin

D. David McClelland

E. John Kotter

25. The basis by which jobs are grouped together is termed __________.

A. centralization

B. specialization

C. departmentalization

D. bureaucracy

E. social clustering

26. In the late 1940s, most manufacturing jobs in industrialized countries were being done with high _________.

A. structuralization

B. work specialization

C. generalized structure

D. decentralization

E. departmentalization

27. For much of the first half of the 20th century, managers viewed work specialization as __________.

A. difficult to implement without automation technology

B. an unending source of increased productivity

C. an effective solution to over-centralization

D. a frustrating cause of reduced product output

E. a means to encourage employee satisfaction

28. Which of the following is not a characteristic of organizational culture?

A. Team orientation

B. Formality orientation

C. Outcome orientation

D. Innovation

E. Attention to detail

29. __________ is a shared system of meaning held by the organization's members that distinguishes the organization from other organizations.

A. Formalization

B. Corporate image

C. Socialization

D. Institutionalization

E. Organizational culture

30. Leaders achieve goals, and power is __________.

A. a goal in and of itself

B. a strong influence on leaders' goals

C. a means of achieving goals

D. defined by leaders' hopes and aspirations

E. usually used by poor leaders

31. The most important aspect of power is probably that it __________.

A. is counterproductive

B. involves control

C. tends to corrupt people

D. is needed to get things done in an organization

E. is a function of dependency

FIN 370 Final Exam

Business / Economics

4/26/12

Price: $25.00
Posted by: argument
Date Posted: 4/26/12 5:21 PM

1) The goal of the firm should be

A. maximization of profits

B. maximization of shareholder wealth

C. maximization of consumer satisfaction

D. maximization of sales

2) An example of a primary market transaction is

A. a new issue of common stock by AT&T

B. a sale of some outstanding common stock of AT&T

C. AT&T repurchasing its own stock from a stockholder

D. one stockholder selling shares of common stock to another individual

3) According to the agency problem, _________ represent the principals of a corporation.

A. shareholders

B. managers

C. employees

D. suppliers

4) Which of the following is a principle of basic financial management?

A. Risk/return tradeoff

B. Derivatives

C. Stock warrants

D. Profit is king

5) Another name for the acid test ratio is the

A. current ratio

B. quick ratio

C. inventory turnover ratio

D. average collection period

6) The accounting rate of return on stockholders' investments is measured by

A. return on assets

B. return on equity

C. operating income return on investment

D. realized rate of inflation

7) If you are an investor, which of the following would you prefer?

A. Earnings on funds invested compound annually

B. Earnings on funds invested compound daily

C. Earnings on funds invested would compound monthly

D. Earnings on funds invested would compound quarterly

8) The primary purpose of a cash budget is to

A. determine the level of investment in current and fixed assets

B. determine accounts payable

C. provide a detailed plan of future cash flows

D. determine the estimated income tax for the year

9) Which of the following is a non-cash expense?

A. Depreciation expenses

B. Interest expense

C. Packaging costs

D. Administrative salaries

10) The break-even model enables the manager of a 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

11) A zero-coupon bond

A. pays no interest

B. pays interest at a rate less than the market rate

C. is a junk bond

D. is sold at a deep discount at less than the par value

12) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of 5 years?

A. $3,525.62

B. $5,008.76

C. $3,408.88

D. $2,465.78

13) At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?

A. 6%

B. 5%

C. 7%

D. 8%

14) The present value of a single future sum

A. increases as the number of discount periods increase

B. is generally larger than the future sum

C. depends upon the number of discount periods

D. increases as the discount rate increases

15) Which of the following is considered to be a spontaneous source of financing?

A. Operating leases

B. Accounts receivable

C. Inventory

D. Accounts payable

16) Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%.

Initial outlay = $450

Cash flows:

Year 1 = $325

Year 2 = $65

Year 3 = $100

A. 3.43 years

B. 3.17 years

C. 2.88 years

D. 2.6 years

17) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________.

A. less than zero, greater than the required return

B. greater than zero, greater than one

C. greater than one, greater than zero

D. greater than zero, less than one

18) Which of the following is considered to be a deficiency of the IRR?

A. It fails to properly rank capital projects.

B. It could produce more than one rate of return.

C. It fails to utilize the time value of money.

D. It is not useful in accounting for risk in capital budgeting.

19) The firm should accept independent projects if

A. the payback is less than the IRR

B. the profitability index is greater than 1.0

C. the IRR is positive

D. the NPV is greater than the discounted payback

20) The most expensive source of capital is

A. preferred stock

B. new common stock

C. debt

D. retained earnings

21) The cost associated with each additional dollar of financing for investment projects is

A. the incremental return

B. the marginal cost of capital

C. risk-free rate

D. beta

22) The XYZ Company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required rate of return on debt is 9%, and the required rate of return on equity is 14%. If the company is in the 40% tax bracket, what is the marginal cost of capital?

A. 14.0%

B. 9.0%

C. 10.6%

D. 11.5%

23) Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt–10%; preferred stock–11%; and common stock–18%. Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?

A. 18.0%

B. 13.0%

C. 10.0%

D. 14.2%

24) Lever Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if its current capital structure is too conservative. Lever Brothers' present EBIT is $3 million, and profits available to common shareholders are $1,560,000, with 342,857 shares of common stock outstanding. If the firm were to instead have a debt ratio of 60%, additional interest expense would cause profits available to stockholders to decline to $1,440,000, but only 228,571 common shares would be outstanding. What is the difference in EPS at a debt ratio of 60% versus 40%?

A. $1.75

B. $2.00

C. $3.25

D. $4.50

25) Zybeck Corp. projects operating income of $4 million next year. The firm's income tax rate is 40%. Zybeck presently has 750,000 shares of common stock which have a market value of $10 per share, no preferred stock, and no debt. The firm is considering two alternatives to finance a new product: (a) the issuance of $6 million of 10% bonds, or (b) the issuance of 60,000 new shares of common stock. If Zybeck issues common stock this year, what will be the projected EPS next year?

A. $4.94

B. $2.96

C. $5.33

D. $3.20

26) _________ risk is generally considered only a paper gain or loss.

A. Transaction

B. Translation

C. Economic

D. Financial

27) Capital markets in foreign countries

A. offer lower returns than those obtainable in the domestic capital markets

B. provide international diversification

C. in general are becoming less integrated due to the widespread availability of interest rate and currency swaps

D. have been getting smaller in the past decade

28) Buying and selling in more than one market to make a riskless profit is called

A. profit maximization

B. arbitrage

C. international trading

D. an efficient market

29) What keeps foreign exchange quotes in two different countries in line with each other?

A. Cross rates

B. Forward rates

C. Arbitrage

D. Spot rates

30) One reason for international investment is to reduce

A. portfolio risk

B. price-earnings (P/E) ratios

C. advantages in a foreign country

D. exchange rate risk

FIN 370 Final Exam

Business / Economics

4/26/12

Price: $27.00
Posted by: argument
Date Posted: 4/26/12 7:00 PM

1) The goal of the firm should be

A. maximization of profits

B. maximization of shareholder wealth

C. maximization of consumer satisfaction

D. maximization of sales

2) An example of a primary market transaction is

A. a new issue of common stock by AT&T

B. a sale of some outstanding common stock of AT&T

C. AT&T repurchasing its own stock from a stockholder

D. one stockholder selling shares of common stock to another individual

3) According to the agency problem, _________ represent the principals of a corporation.

A. shareholders

B. managers

C. employees

D. suppliers

4) Which of the following is a principle of basic financial management?

A. Risk/return tradeoff

B. Derivatives

C. Stock warrants

D. Profit is king

5) Another name for the acid test ratio is the

A. current ratio

B. quick ratio

C. inventory turnover ratio

D. average collection period

6) The accounting rate of return on stockholders' investments is measured by

A. return on assets

B. return on equity

C. operating income return on investment

D. realized rate of inflation

7) If you are an investor, which of the following would you prefer?

A. Earnings on funds invested compound annually

B. Earnings on funds invested compound daily

C. Earnings on funds invested would compound monthly

D. Earnings on funds invested would compound quarterly

8) The primary purpose of a cash budget is to

A. determine the level of investment in current and fixed assets

B. determine accounts payable

C. provide a detailed plan of future cash flows

D. determine the estimated income tax for the year

9) Which of the following is a non-cash expense?

A. Depreciation expenses

B. Interest expense

C. Packaging costs

D. Administrative salaries

10) The break-even model enables the manager of a 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

11) A zero-coupon bond

A. pays no interest

B. pays interest at a rate less than the market rate

C. is a junk bond

D. is sold at a deep discount at less than the par value

12) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of 5 years?

A. $3,525.62

B. $5,008.76

C. $3,408.88

D. $2,465.78

13) At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?

A. 6%

B. 5%

C. 7%

D. 8%

14) The present value of a single future sum

A. increases as the number of discount periods increase

B. is generally larger than the future sum

C. depends upon the number of discount periods

D. increases as the discount rate increases

15) Which of the following is considered to be a spontaneous source of financing?

A. Operating leases

B. Accounts receivable

C. Inventory

D. Accounts payable

16) Compute the payback period for a project with the following cash flows, if the company's discount rate is 12%.

Initial outlay = $450

Cash flows:

Year 1 = $325

Year 2 = $65

Year 3 = $100

A. 3.43 years

B. 3.17 years

C. 2.88 years

D. 2.6 years

17) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________.

A. less than zero, greater than the required return

B. greater than zero, greater than one

C. greater than one, greater than zero

D. greater than zero, less than one

18) Which of the following is considered to be a deficiency of the IRR?

A. It fails to properly rank capital projects.

B. It could produce more than one rate of return.

C. It fails to utilize the time value of money.

D. It is not useful in accounting for risk in capital budgeting.

19) The firm should accept independent projects if

A. the payback is less than the IRR

B. the profitability index is greater than 1.0

C. the IRR is positive

D. the NPV is greater than the discounted payback

20) The most expensive source of capital is

A. preferred stock

B. new common stock

C. debt

D. retained earnings

21) The cost associated with each additional dollar of financing for investment projects is

A. the incremental return

B. the marginal cost of capital

C. risk-free rate

D. beta

22) The XYZ Company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required rate of return on debt is 9%, and the required rate of return on equity is 14%. If the company is in the 40% tax bracket, what is the marginal cost of capital?

A. 14.0%

B. 9.0%

C. 10.6%

D. 11.5%

23) Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt–10%; preferred stock–11%; and common stock–18%. Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?

A. 18.0%

B. 13.0%

C. 10.0%

D. 14.2%

24) Lever Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if its current capital structure is too conservative. Lever Brothers' present EBIT is $3 million, and profits available to common shareholders are $1,560,000, with 342,857 shares of common stock outstanding. If the firm were to instead have a debt ratio of 60%, additional interest expense would cause profits available to stockholders to decline to $1,440,000, but only 228,571 common shares would be outstanding. What is the difference in EPS at a debt ratio of 60% versus 40%?

A. $1.75

B. $2.00

C. $3.25

D. $4.50

25) Zybeck Corp. projects operating income of $4 million next year. The firm's income tax rate is 40%. Zybeck presently has 750,000 shares of common stock which have a market value of $10 per share, no preferred stock, and no debt. The firm is considering two alternatives to finance a new product: (a) the issuance of $6 million of 10% bonds, or (b) the issuance of 60,000 new shares of common stock. If Zybeck issues common stock this year, what will be the projected EPS next year?

A. $4.94

B. $2.96

C. $5.33

D. $3.20

26) _________ risk is generally considered only a paper gain or loss.

A. Transaction

B. Translation

C. Economic

D. Financial

27) Capital markets in foreign countries

A. offer lower returns than those obtainable in the domestic capital markets

B. provide international diversification

C. in general are becoming less integrated due to the widespread availability of interest rate and currency swaps

D. have been getting smaller in the past decade

28) Buying and selling in more than one market to make a riskless profit is called

A. profit maximization

B. arbitrage

C. international trading

D. an efficient market

29) What keeps foreign exchange quotes in two different countries in line with each other?

A. Cross rates

B. Forward rates

C. Arbitrage

D. Spot rates

30) One reason for international investment is to reduce

A. portfolio risk

B. price-earnings (P/E) ratios

C. advantages in a foreign country

D. exchange rate risk

RES 341 Final Exam

Business / Economics

4/28/12

Price: $25.00
Posted by: argument
Date Posted: 4/28/12 6:06 PM

1) Unstructured interviews are best used for

A. measuring worker productivity

B. solving manufacturing defect problems

C. assessing management effectiveness

D. asking individualized questions with no specific order

2) A recent study of breast cancer revealed that 13% of the women in the sample used antibiotics more than 500 days in their lifetime. Further, 79% of these "heavy antibiotics users" developed breast cancer. According to the American Cancer Society, one in twelve women will develop breast cancer at some time in her life. Of the numbers mentioned, which are parameters?

A. 13% and 79%

B. 13% and one in twelve

C. 79% and 500 days

D. 79% and one in twelve

3) Basic business research methods would be used to

A. identify factors that affect worker absenteeism

B. evaluate a retail store's inventory tracking system

C. assess consumer acceptance of a redesigned computer keyboard

D. determine the effect of a 10% price increase on the sale of school supplies

4) The collection and summarization of the socioeconomic and physical characteristics of the employees of a particular firm is an example of

A. inferential statistics

B. descriptive statistics

C. a parameter

D. an estimation

5) Which of the following is an example of statistical inference?

A. Counting the number of patients who file malpractice suits after being discharged from hospitals in New York

B. Calculating the mean number of fruit trees damaged by Mediterranean fruit flies in California last year

C. Calculating the mean age of patients discharged from hospitals in New York in 1997

D. Calculating the amount of fly spray needed for your orchard next season

6) A logically conjectured statement that describes the relationship between two or more variables and is formulated for empirical testing is a

A. hypothesis

B. theory

C. construct

D. thesis statement

7) The variable that causes a measurable effect or change on the dependent variable is

A independent

B. dependent

C. intervening

D. moderating

8) Survey questionnaires may be effectively used for research to determine

A. defect rates in automobile parts coming off a production line

B. the effect of price changes on sales volume

C. the attitudes of prospective voters

D. how temperature and humidity affect concrete cure time

9) A company is designing a survey to obtain information on the reliability of a product it sells. To obtain the most valid research information, who should the company send this type of survey to?

A. A random sample of its customers

B. Vendors

C. Customers who have bought the product

D. Employees

10) The following practice is considered ethical when conducting business research:

A. Disclosing some, but not all, financial interests that may affect research

B. Allowing participants to withdraw from a business research project whenever they ask to do so

C. Keeping minimal records of research activities and research design

D. Revealing only a small part of the purpose of the business research project

11) If a population distribution is skewed to the right, then given a random sample from that population, one would expect that the

A. median is greater than the mean

B. mode is equal to the mean

C. median is less than the mean

D. median is equal to the mean

12)

Textbook Price Number of Textbooks

$25 to $35 2

$35 to $45 16

$45 to $55 5

$55 to $65 7

$65 to $75 20

Estimate the standard deviation of the price of a textbook.

A. 14.03

B. 33.85

C. 196.78

D. 729.00

13)

Textbook Price Number of Textbooks

$25 to $34.99 2

$35 to $44.99 16

$45 to $54.99 5

$55 to $64.99 7

$65 to $74.99 20

Estimate the mean price of a textbook.

A. $554.00

B. $11.08

C. $60.00

D. $55.40

14) A supermarket has determined that daily demand for eggs has a bell-shaped distribution, with a mean of 55 cartons and a standard deviation of six cartons. If the supermarket begins each morning with a stock of 61 cartons of eggs, approximately what percentage of days will there be a surplus of eggs?

A. 16%

B. 18%

C. 68%

D. 84%

15) Which of these measurement scales has a rank order associated with its use?

A. Ratio

B. Ordinal

C. Nominal

D. Likert

16) Identify the scale that has no meaningful zero.

A. Nominal

B. Ordinal

C. Interval

D. Ratio

17) __________ is a measure of the chance that an uncertain event will occur.

A. Random experiment

B. Sample space

C. Probability

D. A complement

18) The Information Commons in the main library has 150 personal computers. The probability that any of them will require repair on a given day is 0.02. To find the probability that 25 of the computers will require repair, one would use what type of probability distribution?

A. Binomial

B. Poisson

C. Normal

D. Hypergeometric

19) A multiple-choice test has 20 questions. There are four choices for each question. A student comes to class with four different colored balls of identical shape and size in her pocket. She has decided to draw one ball from her pocket per question and allow the color of the ball to select the answer for each question. What type of probability distribution can be used to figure out her chance of getting 10 questions right?

A. Hypergeometric

B. Poisson

C. Normal

D. Binomial

20) Which of the following cannot generate a Poisson distribution?

A. The number of people at a movie theatre on Friday evening

B. The number of customers arriving at an automatic teller machine (ATM) in a minute

C. The number of defects in a new automobile

D. The number of goals in the World Cup soccer game

21) Which of the following is a characteristic of every binomial distribution?

A. Each outcome is dependent on the previous outcome.

B. The probability of success increases from trial to trial.

C. Each outcome is mutually exclusive.

D. The outcome of the trial depends on the number of trials.

22) The average qualifying speed for a championship NASCAR® race is 145.65 mph and the standard deviation is 9.45 mph. Only drivers who obtain z-scores greater than 1.2 will qualify for the race. If the speeds are normally distributed, what minimum speed must be clocked to compete for the trophy?

A. 146.9 mph

B. 155.2 mph

C. 157.0 mph

D. 174.8 mph

23) Trudy Jones recently completed her certification examination and learned that her z-score was -2.5. The examining board also informed her that a failure to pass would equal all scores that were one or more standard deviations below the mean and that those with scores higher than two standard deviations above the mean would receive a special commendation award. Trudy can conclude that she

A. failed the exam

B. needs more data to determine if she passed the exam

C. passed the exam and will receive a special commendation award

D. passed the exam, but no commendation award is forthcoming

24) The use of the student's distribution requires which of the following assumptions?

A. The sample size is greater than 30.

B. The population variance is known.

C. The population is normal.

D. The sample is drawn from a positively skewed distribution.

25) The standard error of the sample mean is equal to 5 when n=25. If the sample size increases by a factor of four, how will the standard error change?

A. It will be double.

B. It will be cut in half.

C. It will be cut to 1/4 of 5.

D. It will quadruple.

26) For a sample size of 1, the sampling distribution of the mean will be normally distributed

A. regardless of the shape of the population

B. only if the shape of the population is positively skewed

C. only if the population values are larger than 30

D. only if the population is normally distributed

27) A 95% confidence interval for the population mean indicates that

A. with an infinite number of samples, there's a 5% chance that the population mean will be outside the interval

B. more sampling is required to increase the confidence interval to 100%

C. the sampling process is biased

D. 95% of the observations from any sample will fall within the interval

28) A random sample of 16 ATM transactions at the First National Bank of Flintrock revealed a mean transaction time of 2.8 minutes with a standard deviation of 1.2 minutes. The width, in minutes, of the 95% confidence interval for the true mean transaction time is

A. ± 0.639

B. ± 0.588

C. ± 0.300

D. ± 2.131

29) All other things being equal, which is narrower, a 95% confidence interval with n=100 or a 99% confidence interval with n=30?

A. The 95% confidence interval

B. The 99% confidence interval

C. The same width

D. Need the margin of error to tell

30) When the only sources of variation in a production process are caused by chance, the process is said to be

A. out of balance but under control

B. out of control but in balance

C. under control

D. out of control

BUS 415 Final Exam

Business / Economics

5/2/12

Price: $27.00
Posted by: argument
Date Posted: 5/2/12 6:14 PM

1) The form of alternative dispute resolution wherein the parties hire someone to review the evidence and make a decision that is binding upon the parties is called

A. negotiation

B. settlement conference

C. conciliation

D. arbitration

2) The Federal Trade Commission is an example of

A. a federal agency created by the federal government

B. a corporation subsidized by the federal government

C. a branch of the U.S. Supreme Court

D. a temporary commission created by executive order that has become permanent

3) A corporation is considered a citizen of what state?

A. The state where the majority of the employees live

B. It is not a citizen because it is a business

C. The state where it filed its Articles of Incorporation

D. The state where the president of the corporation lives

4) The Federal False Claims Act is also known as

A. the Sarbanes-Oxley Act

B. the Whistleblower Statute

C. the Statute of Frauds

D. the Statute of Limitations

5) Utilitarianism is a moral theory, which states

A. ethics requires a decision-maker to take actions which result in the greatest good to society

B. ethics requires following the Golden Rule (do unto others as you would have them do unto you)

C. ethics requires actions which use the most efficient tools

D. ethics requires acting according to the Bible or some outside source

6) Which of the following statements is true?

A. If something is legal, it is always ethical

B. Practices that are legal in the United States are legal everywhere in the world

C. Practices that are ethical in the United States are considered ethical everywhere else in the world

D. A course of action can be legal but not ethical

7) If a defendant files a motion for summary judgment in a civil case, what is the defendant saying?

A. That the plaintiff's claims are false

B. That the court has no jurisdiction to decide the case

C. That the case is ready to go to the jury

D. That even if what the plaintiff says is true, there is no basis for judgment against the defendant

8) A defendant fails to answer a civil lawsuit, what is likely to happen?

A. A court will contact the defendant and ask him to answer the lawsuit

B. The court will grant a default judgment against the defendant

C. The case will be appealed before the court makes a ruling

D. The court will order that the defendant go to jail until he or she agrees to answer

9) The legal authority of a court to make orders that are binding upon the parties is called

A. in rem jurisdiction

B. personal jurisdiction

C. quasi in rem jurisdiction

D. enumerated jurisdiction

10) Harry Hoosier, an Indiana resident, drives his family to Florida for spring vacation. When he is at a red light, Freddie Floridian, a Florida resident, is unable to stop in time and his vehicle impacts Harry's car from the rear. No one is hurt and Harry's vehicle suffers approximately $10,000 in damages. Which is correct?

A. Harry can sue Freddie in federal court in Florida but not in Indiana

B. Harry can sue Freddie in state court in Florida or Indiana

C. Harry can sue Freddie in state court but not federal court in Florida but not in Indiana

D. Harry can sue Freddie in state court but not federal court in Florida or Indiana

11) Monica owed Bob $500 for a business investment, which was more than a year overdue. Bob got drunk at a party and told everyone that Monica had owed him $500 for over a year. Can Monica recover from Bob for defamation?

A. Yes, because Bob abused his conditional privilege.

B. No, because Bob was telling the truth.

C. Yes, because Bob communicated the statement to third persons.

D. No, because Bob had been drinking.

12) What is the definition of a tort?

A. Any violation of an ethical duty

B. Any crime or misdemeanor

C. Any action done in violation of a prior agreement, which allows the victim to recover damages

D. Any civil wrong that allows the injured person to recover damages

13) Pete and Vicky make the following agreement: Pete promises he will go into a store, buy something for $5, and pay for it with a $100 bill on which he has written "Happy Birthday Vicky!" Vicky promises that after Pete collects his change and leaves the store, she will go into the same store, buy something that costs $5, and pay with a $10 bill. When the clerk attempts to give her change for $10, Vicky will claim that the $100 bill that is in the cash register was money she just received for her birthday, and will demand change from a $100 bill. Then Pete and Vicky will split the extra money they think Vicky will receive in change. Is this a valid contract?

A. This is a valid contract. There was a promise in exchange for a promise, and both parties got what they wanted.

B. This is a void contract, because the parties agreed to commit fraud.

C. This is a voidable contract because Vicky can change her mind.

D. This is not an enforceable contract because the agreement is not in writing.

14) An easement can be defined as

A. a limited right to use another person's land for a specified purpose

B. a relaxation of the borderlines between two parcels of land

C. a life estate in the property of another

D. an option to purchase the land of another

15) Huey, Dewey, and Louie own a building as tenants in common. Huey lives in the building. Without consulting the other two owners, Dewey deeds his interest in the building to Joe. What will be the outcome of this situation?

A. Huey, Louie, and now Joe will own the property as tenants in common.

B. Huey and Louie will still own the property as tenants in common, but Joe will have a reversionary interest.

C. The transfer of the interest to Joe will be ineffective because the other two did not consent.

D. Joe will make Huey pay rent.

16) Which of the following best describes the benefits of a limited liability company (LLC)?

A. LLC managers are not personally liable for debts, obligations, and liabilities of the LLC.

B. LLCs have limited duration.

C. Documents do not have to be filed with the state to create an LLC.

D. LLCs are automatically taxed like corporations.

17) Which of the following is true when a general partnership is converted to an LLC?

A. The property must be sold to a third party who then immediately sells it to the LLC.

B. The conversion can be made retroactive for up to 2 years.

C. The profit and loss sharing terms must remain the same as they were in the partnership.

D. The general partners will retain unlimited personal liability for obligations incurred while the business was a partnership.

18) In the Northeast Ethanol, LLC case, the court pierced the defendant's corporate veil after determining that

A. the plaintiffs could not find financing to build the ethanol plant

B. the defendant's shareholder used the corporation to perpetrate fraud

C. the ethanol plant was an unwise investment, against the best interest of the parties

D. the plaintiff's corporate directors were engaging in ultra vires activities

19) Which comment best describes the alter-ego doctrine in corporate law?

A. A corporation automatically becomes the alter ego of its shareholders

B. The president is the sole decision maker of a corporation

C. The board of directors is the alter ego of a corporation

D. Protection from personal shareholder liability can be forfeited if corporate formalities are not observed

20) If a corporation is properly incorporated in one state and wants authority to do business in second state, the corporation typically must

A. re-incorporate in the second state

B. do nothing because being incorporated in one state automatically entitles the corporation to do business in all states

C. register with the Interstate Commerce Commission as an alien corporation

D. obtain a certificate of authority from the second state

21) The DEF Corporation is incorporated in Texas. It wishes to do business in Oklahoma. Before DEF can legally do businesses in Oklahoma, which of the following must it do?

A. Nothing; DEF automatically has constitutional rights to do business in Oklahoma.

B. DEF must incorporate in Oklahoma.

C. DEF must qualify (register) to do business in Oklahoma.

D. DEF must domicile itself in Oklahoma.

22) What types of business can be converted to an LLC?

A. General partnerships only

B. General partnerships and limited partnerships only

C. Corporations and limited partnerships only

D. Corporations, general partnerships, and limited partnerships

23) Which of the following best describes the status of the employment at-will doctrine in the United States today? bus 415 final exam

A. It applies in most states to most employment relationships, but there are many exceptions that limit its application.

B. It applies more today than in the last century, and the quantity of corporate layoffs is evidence of this.

C. It today applies only to the employer, although in the past it applied to both the employee and employer.

D. It still applies today, but only to employees who are expressly told that they are an at-will employee when they are hired.

24) Which of the following rejected applicants may have a valid claim for discriminatory hiring practices?

A. A public health service did not hire a registered nurse because his shaking hands prevented him from administering injections.

B. A Catholic school did not hire a teacher because he was not Catholic.

C. A trucking company did not hire a truck driver because she was pregnant.

D. A university did not hire a 22-year-old woman to be a director of faculty because she was too young.

25) Which of the following people is protected from employment discrimination on the basis of age?

A. A 90-year-old person who wants a job as an airline pilot

B. A 50-year-old person who wants a job as an accountant

C. A 30-year-old person who wants a job as a waitress

D. A 10-year-old person who wants a job as a bartender

26) Marie works as a receptionist for a plumbing company. She works from 9 a.m. to 6 p.m. Monday through Friday. BUS415 Final Exam She earns $12 per hour, and is told how to do her job and what she should be working on at any particular time. Her boss does not withhold any taxes from her paycheck. Which of the following is true?

A. Marie would be treated as an employee because she is paid for the work that she does.

B. Marie would be treated as an employee because of the control exercised by the plumbing company over her work.

C. Marie would be treated as an independent contractor because she is paid hourly.

D. Marie would be treated as an independent contractor because the employer doesn't take any taxes out of her check.

27) Company employee handbooks have been found in some cases to amount to a(n) ______________ exception to the employment at will doctrine.

A. apparent

B. tort

C. public policy

D. implied contract

28) Which of the following is a correct statement of the requirements for a Bona Fide Occupational Qualification (BFOQ)?

A. The occupational qualification is job-related and cost-effective.

B. The occupational qualification is job-related and nondiscriminatory.

C. The occupational qualification is job-related and is a business necessity.

D. The occupational qualification is rationally based and evenly applied.

29) What federal legal protection is there with respect to trade secrets?

A. Trade secrets are protected under the federal patent laws.

B. Trade secrets are protected under the federal copyright laws.

C. Trade secrets are protected under the Trade Secret Protection Act of 1952.

D. Trade secrets are protected under the Economic Espionage Act of 1996.

30) Which of the following is true about misappropriation of trade secrets?

A. Although it is not necessary that the trade secret be patented, the secret must be such that it could be patented.

B. Trade secrets are always protected regardless of the actions of the trade secret owner.

C. The plaintiff can recover damages from theft of a trade secret only if the defendant acquired the trade secret through unlawful means.

D. Injunctions are generally not available to protect trade secrets.

Definition Scavenger Hunt

Business / Economics

5/3/12

Price: $5.00
Posted by: rkrepp
Date Posted: 5/3/12 7:38 AM

CheckPoint: Definition Scavenger Hunt

 

Define each of the following basic accounting terms in your own words by finding sources on the Internet.

 

Provide the URL that supports the definition you have created for each item. 

Assignment: Personal Balance Statement

Business / Economics

5/3/12

Price: $5.00
Posted by: rkrepp
Date Posted: 5/3/12 7:40 AM

Assignment: Personal Balance Statement

• Resources: Appendixes B & C • Due Date: Day 7 [Individual] forum • Read the background information provided in Appendix B. • Complete the personal balance statement template provided in Appendix C based on your understanding of the information in Appendix B. • Post your Appendix C as a Microsoft® Excel attachment. 

Assignment: Personal Balance Statement

 

Resources: Appendixes B & C

 

Due Date: Day 7 [Individual] forum

 

Read the background information provided in Appendix B.

 

Complete the personal balance statement template provided in Appendix C based on your understanding of the information in Appendix B.

 

Post your Appendix C as a Microsoft® Excel attachment. 

Accrual Method

Business / Economics

5/3/12

Price: $5.00
Posted by: rkrepp
Date Posted: 5/3/12 7:43 AM

CheckPoint: Accrual Method

 

Nonprofit organizations are required to produce financial statements based on the accrual method of accounting. How is this different from the cash basis of accounting? Why is accrual accounting important? In an accrual system, does revenue equal cash? What is the importance of the statement of cash flow in the financial management of an organization? 

CheckPoint: Accrual Method

Business / Economics

5/3/12

Price: $5.00
Posted by: rkrepp
Date Posted: 5/3/12 7:49 AM

CheckPoint: Accrual Method

 

Nonprofit organizations are required to produce financial statements based on the accrual method of accounting. How is this different from the cash basis of accounting? Why is accrual accounting important? In an accrual system, does revenue equal cash? What is the importance of the statement of cash flow in the financial management of an organization? 

Cost Per Output/Cost Per Outcome

Business / Economics

5/3/12

Price: $5.00
Posted by: rkrepp
Date Posted: 5/3/12 7:54 AM

CheckPoint: Cost Per Output/Cost Per Outcome Response

 

Why are cost per output and cost per outcome calculations valuable to a human service agency? What might happen if a human service agency did not determine the cost per output/cost per outcome? 

ECO 365 Final Exam

Business / Economics

5/3/12

Price: $25.00
Posted by: argument
Date Posted: 5/3/12 8:13 AM

1) An economist who is studying the relationship between the money supply, interest rates, and the rate of inflation is engaged in

A. microeconomic research

B. macroeconomic research

C. theoretical research, because there is no data on these variables

D. empirical research, because there is no economic theory related to these variables

2) A basic difference between microeconomics and macroeconomics is that microeconomics

A. focuses on the choices of individual consumers, while macroeconomics considers the behavior of large businesses

B. focuses on financial reporting by individuals, while macroeconomics focuses on financial reporting by large firms

C. examines the choices made by individual participants in an economy, while macroeconomics considers the economy's overall performance

D. focuses on national markets, while macroeconomics concentrates on international markets

3) The distinction between supply and the quantity supplied is best made by saying that

A. the quantity supplied is represented graphically by a curve and supply as a point on that curve associated with a particular price

B. supply is represented graphically by a curve and the quantity supplied as a point on that curve associated with a particular price

C. the quantity supplied is in direct relation with prices, whereas supply is in inverse relation

D. the quantity supplied is in inverse relation with prices, whereas supply is in direct relation

4) After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside the Organization of Petroleum Exporting Countries (OPEC). OPEC, during this time, was unable to restrain output among members in its effort to lift oil prices. What best describes these events?

A. The rise in demand shifted the demand for oil to the right. OPEC actions shifted the demand for oil back to the left.

B. The rise in demand shifted the demand for oil to the right. As price rose, the supply of oil also rose.

C. The rise in demand shifted the demand for oil to the right. As price rose, the quantity of oil supplied rose.

D. The rise in demand reflects a movement down along the demand curve as supply shifted to the right when suppliers produced more oil.

5) Price elasticity of demand is the:

A. change in the quantity of a good demanded divided by the change in the price of that good

B. change in the price of a good divided by the change in the quantity of that good demanded

C. percentage change in price of that good divided by the percentage change in the quantity of that good demanded

D. percentage change in quantity demanded of a good divided by the percentage change in the price of that good

6) If average movie ticket prices rise by about 5 percent and attendance falls by about 2 percent, other things being equal, the elasticity of demand for movie tickets is about:

A. 0.0

B. 0.4

C. 0.6

D. 2.5

7) When labor is the variable input, the average product equals the

A. marginal product divided by the number of workers

B. marginal product multiplied by the number of workers

C. number of workers divided by the quantity of output

D. quantity of output divided by the number of workers

8) The increase in output obtained by hiring an additional worker is known as

A. the average product

B. the marginal product

C. the total product

D. value added

9) Which of the following is the best example of a long-run decision?

A. An automobile manufacturing company is considering whether or not to invest in robotic equipment to develop a more cost-effective production technique.

B. An automobile manufacturing company is considering whether or not to expand its existing workforce, while keeping the same factory and equipment.

C. A business consulting firm is considering whether or not to hire interns to assist with research and data processing.

D. A business consulting firm is considering whether or not to add new computers while maintaining the same number of employees.

10) Other things being equal, when average productivity falls,

A. average fixed cost must rise

B. marginal cost must rise

C. average total cost must rise

D. average variable cost must rise

11) According to economist Colin Camerer of the California Institute of Technology, many New York taxi drivers decide when to finish work by setting an income goal for themselves. If this is true, then on busy days when the effective hourly wage is higher, taxi drivers will

A. work the same number of hours as they will on slower days

B. work fewer hours than they will on slower days

C. work more hours than they will on slower days

D. not work any hours

12) A firm's demand for labor is derived from the

A. opportunity costs associated with labor and leisure

B. desires and needs of the entrepreneur

C. cost of labor inputs

D. demand for its output

13) Owen runs a delivery business and currently employs three drivers. He owns three vans that employees use to make deliveries, but he is considering hiring a fourth driver. If he hires a fourth driver, he can schedule breaks and lunch hours so all three vans are in constant use, allowing him to increase deliveries per day from 60 to 75. This will cost an additional $75 per day to hire the fourth driver. The marginal cost per delivery of increasing output beyond 60 deliveries per day

A. is $0 because Owen does not have to purchase another van

B. is $5

C. is $75

D. cannot be calculated without knowing Owen's total fixed costs

14) Expected economic profit per unit is equal to

A. expected price

B. expected average total cost

C. the difference between expected average price and expected average total cost

D. the difference between expected total revenue and expected total cost

15) If a firm in a perfectly competitive market experiences a technological breakthrough,

A. other firms would find out about it eventually

B. other firms would find out about it immediately

C. other firms would not find out about it

D. some firms would find out about it, but others would not

16) A significant difference between monopoly and perfect competition is that

A. free entry and exit is possible in a monopolized industry, but impossible in a competitive industry

B. competitive firms control market supply, but monopolies do not

C. the monopolist's demand curve is the industry demand curve, while the competitive firm's demand curve is perfectly elastic

D. profits are driven to zero in a monopolized industry, but may be positive in a competitive industry.

17) A monopoly firm is different from a competitive firm in that

A. there are many substitutes for a monopolist's product while there are no substitutes for a competitive firm's product

B. a monopolist's demand curve is perfectly inelastic while a competitive firm's demand curve is perfectly elastic

C. a monopolist can influence market price while a competitive firm cannot

D. a competitive firm has a U-shaped average cost curve while a monopolist does not

18) The difference between a perfectly competitive firm and a monopolistically competitive firm is that a monopolistically competitive firm faces a

A. horizontal demand curve and price equals marginal cost in equilibrium

B. horizontal demand curve and price exceeds marginal cost in equilibrium

C. downward-sloping demand curve and price equals marginal cost in equilibrium

D. downward-sloping demand curve and price exceeds marginal cost in equilibrium

19) As long as marginal cost is below marginal revenue, a perfectly competitive firm should

A. increase production

B. hold production constant

C. decrease production

D. reconsider past production decisions

20) Because a monopolistic competitor has some monopoly power, advertising to increase that monopoly power makes sense as long as the marginal

A. benefit of advertising is positive

B. cost of advertising is positive

C. benefit of advertising exceeds the marginal cost of advertising

D. cost of advertising exceeds the marginal benefit of advertising

21) In the Flint Hills area of Kansas, proposals to build wind turbines to generate electricity have pitted environmentalist against environmentalist. Members of the Kansas Sierra Club support the turbines as a way to reduce fossil fuel usage, while local chapters of the Nature Conservancy say they will befoul the landscape. The Sierra Club argues that wind turbines

A. are a source of negative externalities

B. reduce negative externalities elsewhere in the economy

C. create a free-rider problem

D. are a way of solving a free-rider problem

22) When negative externalities are present, market failure often occurs because

A the marginal external cost resulting from the activity is not reflected in the market price

B. the marginal external cost resulting from the activity is reflected in the market price

C. the existence of imports from foreign countries takes jobs and income away from U.S. citizen

D. consumers will consume the good at a level where their individual marginal benefits exceed the marginal costs borne by the firm producing the good

23) A merger between a textile mill and a clothing manufacturing company would be considered a

A. horizontal merger

B. vertical merger

C. conglomerate merger

D. diagonal merger

24) A merger between a baby food company and a life insurance company would be considered a

A. horizontal merger

B. vertical merger

C. conglomerate merger

D. diagonal merger

25) From the point of view of consumer and producer surplus, what problem may be created when a country subsidizes the cost of energy to consumers to help alleviate the burden of higher energy costs?

A. It hurts the poor and benefits the rich.

B. It leads to less fuel being used than the amount that maximizes consumer surplus.

C. It encourages the consumption of too much fuel at the expense of other goods.

D. It has no effect; consumers gain a surplus, but taxpayers lose the same amount because they must finance the subsidy.

26) Suppose people freely choose to spend 40 percent of their income on health care, but the government decides to tax 40 percent of a person's income to provide the same level of coverage as before. What can be said about deadweight loss in each case?

A. Taxing income results in deadweight loss, while purchasing health care on one's own does not result in deadweight loss.

B. Taxing income results in less deadweight loss, because government knows better what health care coverage is good for society.

C. There is no difference because the goods are purchased in the market in either case.

D. There is no difference because the total spending remains the same and the health care purchased remains the same.

27) The U.S. textile industry is relatively small because the US imports most of its clothing. A clear result of the importation of clothing is

A. there is less variety available than there would be without imports

B. the quality of clothing is lower than it would be without imports

C. the price of clothing is higher than it would be without imports

D. the price of clothing is lower than it would be without imports

28) Countries can expect to gain from international trade as long as they

A. keep production diversified

B. specialize according to their comparative advantage

C. produce only those goods for which they have a relatively high opportunity cost

D. use trade restrictions to reduce competition for domestic producers

29) Which of the following is an example of the law of one price?

A. Exchange rates tend to have equivalent values. For example, one Italian lire equals one U.S. dollar.

B. Because people have essentially the same basic needs wherever they live, they tend to buy the same bundle of goods.

C. Because wages are so much lower in China, eventually all U.S. jobs will be outsourced to China, leaving the US to import all goods at one price.

D. Because their countries have similar institutions, the price paid for a computer in Germany and the United States are about the same when converted into the same currency.

30) The fact that U.S. managers' salaries are substantially greater than those of comparable managers in Japan may be related to

A. an increase in the demand for CEOs

B. an increase in the supply of CEOs

C. the comparatively greater competitive markets in Japan

D. the greater number of public goods provided in the United States

FIN 534 Quiz 1 Week 1

Business / Economics

5/4/12

Price: $12.00
Posted by: argument
Date Posted: 5/4/12 4:39 PM

Question 1
You recently sold 100 shares of your new company, XYZ Corporation, to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following statements best describes this transaction?

1) This is an example of an exchange of physical assets.
2) This is an example of a primary market transaction.
3) This is an example of a direct transfer of capital.
4) This is an example of a money market transaction.
5) This is an example of a derivatives market transaction.

Question 2
Which of the following statements is CORRECT?

1) While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties
2) A liquid security is a security whose value is derived from the price of some other "underlying" asset
3) Money market mutual funds usually invest most of their money in a well-diversified portfolio of liquid common stocks.
4) Money markets are markets for long-term debt and common stocks.
5) The NYSE operates as an auction market, whereas the Nasdaq is a dealer market

Question 3
Which of the following statements is CORRECT?

1) The NYSE does not exist as a physical location; rather it represents a loose collection of
dealers who trade stock electronically.
2) An example of a primary market transaction would be your uncle transferring 100 shares of
Wal-Mart stock to you as a birthday gift.
3) Capital market instruments include both long-term debt and common stocks.
4) If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in
Los Angeles, this would be a primary market transaction.
5) While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

Question 4
Which of the following statements is CORRECT?

1) It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship
2) Corporate shareholders are exposed to unlimited liability.
3) Corporations generally face fewer regulations than sole proprietorships.
4) Corporate shareholders are exposed to unlimited liability, and this factor may be compounded by the tax disadvantages of incorporation.
5) There is a tax disadvantage to incorporation, and there is no way any corporation can escape this disadvantage, even if it is very small
Question 5
Which of the following statements is CORRECT?

1) One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners
2) There is no good reason to expect a firm's stockholders and bondholders to react differently to the types of new asset investments a firm makes
3) Bondholders are generally more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns
4) Stockholders are generally more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns
5) Relative to sole proprietorships, corporations generally face fewer regulations, and this makes it easier for corporations to raise capital

Question 6
Suppose the U.S. Treasury announces plans to issue $50 billion of new bonds. Assuming the announcement was not expected, what effect, other things held constant, would that have on bond prices and interest rates?

1) Prices and interest rates would both rise.
2) Prices would rise and interest rates would decline.
3) Prices and interest rates would both decline.
4) There would be no changes in either prices or interest rates.
5) Prices would decline and interest rates would rise.

Question 7
Which of the following statements is CORRECT?

1) Corporations are at a disadvantage relative to partnerships because they have to file more reports to state and federal agencies, including the Securities and Exchange Administration, even if they are not publicly owned
2) In a regular partnership, liability for the firm's debts is limited to the amount a particular partner has invested in the business
3) A fast-growth company would be more likely to set up as a partnership for its business organization than would a slow-growth company
4) Partnerships have difficulty attracting capital in part because of their unlimited liability, the lack of impermanence of the organization, and difficulty in transferring ownership
5) A major disadvantage of a partnership relative to a corporation as a form of business organization is the high cost and practical difficulty of its formation

Question 8
Which of the following statements is CORRECT?

1) In a regular partnership, liability for other partners' misdeeds is limited to the amount of a particular partner's investment in the business
2) Partnerships have more difficulty attracting large amounts of capital than corporations because of such factors as unlimited liability, the need to reorganize when a partner dies, and the illiquidity (difficulty buying and selling) of partnership interests
3) A slow-growth company, with little need for new capital, would be more likely to organize as a corporation than would a faster growing company
4) In a limited partnership, the limited partners have voting control, while the general partner has operating control over the business. Also, the limited partners are individually responsible, on a pro rata basis, for the firm's debts in the event of bankruptcy.
5) A major disadvantage of all partnerships relative to all corporations is the fact that federal income taxes must be paid by the partners rather than by the firm itself

Question 9
Which of the following statements is CORRECT?

1) If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction.
2) If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction.
3) The NYSE is an example of an over-the-counter market.
4) Only institutions, and not individuals, can engage in derivative market transactions.
5) As they are generally defined, money market transactions involve debt securities with maturities of less than one year

Question 10
Which of the following factors would be most likely to lead to an increase in interest rates in the economy?

1) Households reduce their consumption and increase their savings
2) The Federal Reserve decides to try to stimulate the economy.
3) There is a decrease in expected inflation
4) The economy falls into a recession
5) Most businesses decide to modernize and expand their manufacturing capacity, and to install new equipment to reduce labor costs

Question 11
Which of the following statements is CORRECT?

1) Hedge funds are legal in Europe and Asia, but they are not permitted to operate in the United States
2) Hedge funds have more in common with commercial banks than with any other type of financial institution
3) Hedge funds have more in common with investment banks than with any other type of financial institution
4) Hedge funds are legal in the United States, but they are not permitted to operate in Europe or Asia
5) The justification for the "light" regulation of hedge funds is that only "sophisticated" investors with high net worths and high incomes are permitted to invest in these funds, and such investors supposedly can do the necessary "due diligence" on their own rather than have it done by the SEC or some other regulator

Question 12
Which of the following statements is CORRECT?

1) The New York Stock Exchange is an auction market with a physical location
2) Capital market transactions involve only the purchase and sale of equity securities, i.e., common stocks
3) If an investor sells shares of stock through a broker, then this would be a primary market transaction.
4) Consumer automobile loans are evidenced by legal documents called "promissory notes," and these individual notes are traded in the money market
5) Consumer automobile loans are evidenced by legal documents called "promissory notes," and these individual notes are traded in the money market

Question 13
Which of the following statements is CORRECT?

1) The corporate bylaws are a standard set of rules established by the state of incorporation. These rules are identical for all corporations in the state, and their purpose is to ensure that the firm's managers run the firm in accordance with state laws
2) The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to ensure that the firm's managers run the firm in accordance with state laws. Procedures for electing corporate directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the number of directors are included in the corporate charter.
3) Companies must establish a home office, or domicile, in a particular state, and that state must be the one in which most of their business (sales, manufacturing, and so forth) is conducted
4) Attorney fees are generally involved when a company develops its charter and bylaws, but since these documents are voluntary, a new corporation can avoid these costs by deciding not to have either a charter or bylaws
5) The corporate charter is concerned with things like what business the company will engage in, whereas the bylaws are concerned with things like procedures for electing the board of directors

Question 14
Which of the following statements is CORRECT?

1) If expected inflation increases, interest rates are likely to increase
2) If individuals in general increase the percentage of their income that they save, interest rates are likely to increase
3) If companies have fewer good investment opportunities, interest rates are likely to increase
4) Interest rates on all debt securities tend to rise during recessions because recessions increase the possibility of bankruptcy, hence the riskiness of all debt securities
5) Interest rates on long-term bonds are more volatile than rates on short-term debt securities like T-bills

Question 15
The primary operating goal of a publicly-owned firm interested in serving its stockholders should be to ____

1) maximize its expected total corporate income
2) maximize its expected EPS
3) minimize the chances of losses
4) maximize the stock price per share over the long run, which is the stock's intrinsic value
5) maximize the stock price on a specific target date

FIN 534 quiz 2 week 3

Business / Economics

5/4/12

Price: $12.00
Posted by: argument
Date Posted: 5/4/12 4:41 PM

 Question 1

Which of the following statements is CORRECT?

a. Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies’ debt ratios to be lower than they would be if interest and dividends were both deductible.

b. Interest paid to an individual is counted as income for tax purposes and taxed at the individual’s regular tax rate, which in 2008 could go up to 35%, but dividends received were taxed at a maximum rate of 15%.

c. The maximum federal tax rate on corporate income in 2008 was 50%.

d. Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings.  The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock.  Both of these costs are deductible from income when calculating income for tax purposes.

d. The maximum federal tax rate on personal income in 2008 was 50%.

 

 

Question 2

Which of the following statements is CORRECT?

 

The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of retained earnings.
The balance sheet gives us a picture of the firm’s financial position at a point in time.
The income statement gives us a picture of the firm’s financial position at a point in time.
The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.
The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year.

 

Question 3

For managerial purposes, i.e., making decisions regarding the firm's operations, the standard financial statements as prepared by accountants under Generally Accepted Accounting Principles (GAAP) are often modified and used to create alternative data and metrics that provide a somewhat different picture of a firm's operations. Related to these modifications, which of the following statements is CORRECT?

 

The standard statements make adjustments to reflect the effects of inflation on asset values, and these adjustments are normally carried into any adjustment that managers make to the standard statements.

The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period.  However, for valuation purposes we need to discount cash flows, not accounting income.  Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions’ performance, not that of the entire firm, information that focuses on the divisions is needed.  These factors have led to the development of information that is focused on cash flows and the operations of individual units.

The standard statements provide useful information on the firm’s individual operating units, but management needs more information on the firm’s overall operations than the standard statements provide.

The standard statements focus on cash flows, but managers are less concerned with cash flows than with accounting income as defined by GAAP.

The best feature of standard statements is that, if they are prepared under GAAP, the data are always consistent from firm to firm.  Thus, under GAAP, there is no room for accountants to “adjust” the results to make earnings look better.

 

 

Question 4

On its 2010 balance sheet, Barngrover Books showed $510 million of retained earnings, and exactly that same amount was shown the following year.  Assuming that no earnings restatements were issued, which of the following statements is CORRECT?

 

a. If the company lost money in 2010, they must have paid dividends.

b. The company must have had zero net income in 2010.

c. The company must have paid out half of its earnings as dividends.

d. The company must have paid no dividends in 2010.

e. Dividends could have been paid in 2010, but they would have had to equal the earnings for the year.

 

 

Question 5

Other things held constant, which of the following actions would increase the amount of cash on a company’s balance sheet?                         

           

The company repurchases common stock.

The company pays a dividend.

The company issues new common stock.

The company gives customers more time to pay their bills.

The company purchases a new piece of equipment.

 

 

Question 6

The CFO of Shalit Industries plans to have the company issue $300 million of new common stock and use the proceeds to pay off some of its outstanding bonds.  Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. Which of the following would occur?                                 

The company’s taxable income would fall.

The company’s interest expense would remain constant.

The company would have less common equity than before.

The company’s net income would increase.

The company would have to pay less taxes.                         

 

 

Question 7

Which of the following factors could explain why Dellva Energy had a negative net cash flow last year, even though the cash on its balance sheet increased?                                

 a. The company sold a new issue of bonds.

b. The company made a large investment in new plant and equipment.

c. The company paid a large dividend.

d. The company had high amortization expenses.

e. The company repurchased 20% of its common stock.     

Question 8

Which of the following statements is CORRECT?                          

           

Since depreciation is a source of funds, the more depreciation a company has, the larger its retained earnings will be, other things held constant.

A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments.

Common equity includes common stock and retained earnings, less accumulated depreciation.

The retained earnings account as shown on the balance sheet shows the amount of cash that is available for paying dividends.

If a firm reports a loss on its income statement, then the retained earnings account as shown on the balance sheet will be negative.                            

 

 

Question 9

Below is the common equity section (in millions) of Teweles Technology’s last two year-end balance sheets:

                                               2009                2008   

Common stock                       $2,000             $1,000

Retained earnings                  2,000              2,340

Total common equity             $4,000             $3,340

 

 Teweles has never paid a dividend to its common stockholders.  Which of the following statements is CORRECT?

                                                                      

a. The company’s net income in 2009 was higher than in 2008.

b. Teweles issued common stock in 2009.

c. The market price of Teweles' stock doubled in 2009.

d. Teweles had positive net income in both 2008 and 2009, but the company’s net income in 2009 was lower than it was in 2008.

e. The company has more equity than debt on its balance sheet.

                         

 

 Question 10  

Assume that Congress recently passed a provision that will enable Bev's Beverages Inc. (BBI) to double its depreciation expense for the upcoming year but will have no effect on its sales revenue or tax rate. Prior to the new provision, BBI’s net income after taxes was forecasted to be $4 million. Which of the following best describes the impact of the new provision on BBI’s financial statements versus the statements without the provision?  Assume that the company uses the same depreciation method for tax and stockholder reporting purposes.

                       

The provision will reduce the company’s net cash flow.

The provision will increase the company’s tax payments.

Net fixed assets on the balance sheet will increase.

The provision will increase the company’s net income.

Net fixed assets on the balance sheet will decrease.                       

 

 

Question 11     

A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change?                                

                                     

a. The firm’s operating income (EBIT) would increase.

b. The firm’s taxable income would increase.

c. The firm’s net cash flow would increase.

d. The firm’s tax payments would increase.

e. The firm’s reported net income would increase.

 

 

Question 12

Which of the following statements is CORRECT?  

 

The income of certain small corporations that qualify under the Tax Code is completely exempt from corporate income taxes.  Thus, the federal government receives no tax revenue from these businesses.

All businesses, regardless of their legal form of organization, are taxed under the Business Tax Provisions of the Internal Revenue Code.

Small businesses that qualify under the Tax Code can elect not to pay corporate taxes, but then their owners must report their pro rata shares of the firm’s income as personal income and pay taxes on that income.

Congress recently changed the tax laws to make dividend income received by individuals exempt from income taxes. Prior to the enactment of that law, corporate income was subject to double taxation, where the firm was first taxed on the income and stockholders were taxed again on the income when it was paid to them as dividends.

All corporations other than non-profit corporations are subject to corporate income taxes, which are 15% for the lowest amounts of income and 35% for the highest amounts of income.

 

 

Question 13

Which of the following statements is CORRECT?

 

a. One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital.

b. If a firm reports positive net income, its EVA must also be positive.

c. One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free.

d. One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital.

e. Actions that increase reported net income will always increase net cash flow.

 

 

Question 14

Which of the following statements is CORRECT?

 

The more depreciation a firm reports, the higher its tax bill, other things held constant.

People sometimes talk about the firm’s net cash flow, which is shown as the lowest entry on the income statement, hence it is often called "the bottom line.”

Depreciation reduces a firm’s cash balance, so an increase in depreciation would normally lead to a reduction in the firm’s net cash flow.

Net cash flow (NCF) is often defined as follows:

Net Cash Flow = Net Income + Depreciation and Amortization Charges.

Depreciation and amortization are not cash charges, so neither of them has an effect on a firm’s reported profits.

 

 

Question 15

Which of the following items is NOT included in current assets?

 

Accounts receivable.

Inventory.

Bonds.

Cash.

Short-term, highly liquid, marketable securities.

 

 

Question 16

A firm’s new president wants to strengthen the company’s financial position.  Which of the following actions would make it financially stronger?

 

a. Increase accounts receivable while holding sales constant.

b. Increase EBIT while holding sales constant.

c. Increase accounts payable while holding sales constant.

d. Increase notes payable while holding sales constant.

e. Increase inventories while holding sales constant.

 

 

Question 17

Which of the following statements is CORRECT?

 

a. Borrowing by using short-term notes payable and then using the proceeds to retire long-term debt is an example of “window dressing.” Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is another example of “window dressing.”

b. Borrowing on a long-term basis and using the proceeds to retire short-term debt would improve the current ratio and thus could be considered to be an example of “window dressing.”

c. Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is an example of “window dressing.”

d. Using some of the firm’s cash to reduce long-term debt is an example of “window dressing.”

e. “Window dressing” is any action that improves a firm’s fundamental, long-run position and thus increases its intrinsic value.

 to be an example of “window dressing.”

 

Question 18

Which of the following statements is CORRECT?

 

a. If a firm has the highest price/earnings ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.

b. If a firm has the highest market/book ratio of any firm in its industry, then, other things held constant, this suggests that the board of directors should fire the president.

c. Other things held constant, the higher a firm’s expected future growth rate, the lower its P/E ratio is likely to be.

d. The higher the market/book ratio, then, other things held constant, the higher one would expect to find the Market Value Added (MVA).

e. If a firm has a history of high Economic Value Added (EVA) numbers each year, and if investors expect this situation to continue, then its market/book ratio and MVA are both likely to be below average.

 

 

Question 19

Which of the following statements is CORRECT?

 

a. If a security analyst saw that a firm’s days’ sales outstanding (DSO) was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength.

b. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days’ sales outstanding (DSO) will increase.

c. There is no relationship between the days’ sales outstanding (DSO) and the average collection period (ACP).  These ratios measure entirely different things.

d. A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.

e. If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days’ sales outstanding will decline.

 

 

Question 20

Taggart Technologies is considering issuing new common stock and using the proceeds to reduce its outstanding debt.  The stock issue would have no effect on total assets, the interest rate Taggart pays, EBIT, or the tax rate.  Which of the following is likely to occur if the company goes ahead with the stock issue?

 

 a. The ROA will decline.

b. Taxable income will decrease.

c. The tax bill will increase.

d. Net income will decrease.

e. The times interest earned ratio will decrease.                     

                                     

 

Question 21

Casey Communications recently issued new common stock and used the proceeds to pay off some of its short-term notes payable.  This action had no effect on the company’s total assets or operating income.  Which of the following effects would occur as a result of this action?

 

a. The company’s current ratio increased.

b. The company’s times interest earned ratio decreased.

c. The company’s basic earning power ratio increased.

d. The company’s equity multiplier increased.

e. The company’s debt ratio increased.

 

 

 

 

 

 

Question 22

Which of the following statements is CORRECT?

 

a. If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be the same.

b. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the same.

c. If Firms X and Y have the same earnings per share and market-to-book ratio, they must have the same price earnings ratio.

d. If Firm X’s P/E ratio exceeds that of Firm Y, then Y is likely to be less risky and also to be expected to grow at a faster rate.

e. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their market-to-book ratios must also be the same.

 

 

Question 23

Companies HD and LD have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power.  Both companies have positive net incomes.  Company HD has a higher debt ratio and, therefore, a higher interest expense.  Which of the following statements is CORRECT?

 

a. Company HD pays less in taxes.

b. Company HD has a lower equity multiplier.

c. Company HD has a higher ROA.

d. Company HD has a higher times interest earned (TIE) ratio.

e. Company HD has more net income.

 

 

Question 24

You observe that a firm’s ROE is above the industry average, but its profit margin and debt ratio are both below the industry average.  Which of the following statements is CORRECT?

 

a. Its total assets turnover must be above the industry average.

b. Its return on assets must equal the industry average.

c. Its TIE ratio must be below the industry average.

d. Its total assets turnover must be below the industry average.

e. Its total assets turnover must equal the industry average.

 

 

Question 25

Which of the following would indicate an improvement in a company’s financial position, holding other things constant?

 

a. The inventory and total assets turnover ratios both decline.

b. The debt ratio increases.

c. The profit margin declines.

d. The EBITDA coverage ratio declines.

e. The current and quick ratios both increase.

 

 

 

 

Question 26

A firm wants to strengthen its financial position.  Which of the following actions would increase its quick ratio?

 

a. Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2)lead to an increase in accounts receivable.

b. Issue new common stock and use the proceeds to increase inventories.

c. Speed up the collection of receivables and use the cash generated to increase inventories.

d. Use some of its cash to purchase additional inventories.

e. Issue new common stock and use the proceeds to acquire additional fixed assets.

 

 

Question 27

If a bank loan officer were considering a company’s request for a loan, which of the following statements would you consider to be CORRECT?

 

a. The lower the company’s EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm.

b. Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm.

c. Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.

d. The lower the company’s TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm.

e. Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm.

 

 

Question 28

Companies HD and LD are both profitable, and they have the same total assets (TA), Sales (S), return on assets (ROA), and profit margin (PM). However, Company HD has the higher debt ratio.  Which of the following statements is CORRECT?

 

a. Company HD has a lower total assets turnover than Company LD.

b. Company HD has a lower equity multiplier than Company LD.

c. Company HD has a higher fixed assets turnover than Company B.

d. Company HD has a higher ROE than Company LD.

e. Company HD has a lower operating income (EBIT) than Company LD.

 

 

Question 29

Which of the following statements is CORRECT?

 

a. Suppose a firm’s total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.  Under these conditions, the ROE will increase.

b. Suppose a firm’s total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10% and its debt increases from 40% of total assets to 60%.  Without additional information, we cannot tell what will happen to the ROE.

c. The modified Du Pont equation provides information about how operations affect the ROE, but the equation does not include the effects of debt on the ROE.

d. Other things held constant, an increase in the debt ratio will result in an increase in the profit margin on sales.

e. Suppose a firm’s total assets turnover ratio falls from 1.0 to 0.9, but at the same time its profit margin rises from 9% to 10%, and its debt increases from 40% of total assets to 60%.  Under these conditions, the ROE will decrease.

 

 

Question 30

Considered alone, which of the following would increase a company’s current ratio?

 

a. An increase in net fixed assets.

b. An increase in accrued liabilities.

c. An increase in notes payable.

d. An increase in accounts receivable.

e. An increase in accounts payable.

FIN 534 Quiz 3 Week 4

Business / Economics

5/4/12

Price: $18.00
Posted by: argument
Date Posted: 5/4/12 4:46 PM

1. Which of the following statements is CORRECT?

1) A time line is not meaningful unless all cash flows occur annually

2) Time lines are useful for visualizing complex problems prior to doing actual calculations

3) Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly

4) Time lines can only be constructed for annuities where the payments occur at the ends of the periods, i.e., for ordinary annuities

5) Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity

2. Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?

1) The monthly payments will decline over time.

2) A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment

3) The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity

4) The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%.

5) Exactly 10% of the first monthly payment represents interest

3. A Treasury bond promises to pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

1) The periodic interest rate is greater than 3%

2) The periodic rate is less than 3%

3) The present value would be greater if the lump sum were discounted back for more periods

4) The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually

5) The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity

4. You are analyzing the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment?

1) The cash flows are in the form of a deferred annuity, and they total to $100,000. You learn that the annuity lasts for only 5 rather than 10 years, hence that each payment is for $20,000 rather than for $10,000

2) The discount rate increases

3) The riskiness of the investment's cash flows decreases

4) The total amount of cash flows remains the same, but more of the cash flows are received in the earlier years and less are received in the later years

5) The discount rate decreases

5. You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

1) A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ.

2) The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD.

3) The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE.

4) The present value of ORD exceeds the present value of DUE, while the future value of DUE exceeds the future value of ORD.

5) If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant.

6. Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 10% is CORRECT?

1) The monthly payments will decline over time

2) A smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment

3) The total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity.

4) The amount representing interest in the first payment would be higher if the nominal interest rate were 7% rather than 10%

5) Exactly 10% of the first monthly payment represents interest

7. A $150,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?

1) The annual payments would be larger if the interest rate were lower.

2) If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan.

3) The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.

4) The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.

5) The proportion of interest versus principal repayment would be the same for each of the 7 payments.

8. Which of the following statements is CORRECT?

1) A time line is not meaningful unless all cash flows occur annually.

2) Time lines are not useful for visualizing complex problems prior to doing actual calculations.

3) Time lines cannot be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.

4) Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.

5) Time lines can be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

9. Which of the following investments would have the highest future value at the end of 10 years? Assume that the effective annual rate for all investments is the same and is greater than zero.

1) Investment A pays $250 at the beginning of every year for the next 10 years (a total of 10 payments).

2) Investment B pays $125 at the end of every 6-month period for the next 10 years (a total of 20 payments).

3) Investment C pays $125 at the beginning of every 6-month period for the next 10 years (a total of 20 payments).

4) Investment D pays $2,500 at the end of 10 years (just one payment).

5) Investment E pays $250 at the end of every year for the next 10 years (a total of 10 payments).

10. Which of the following statements is CORRECT?

The present value of a 3-year, $150 annuity due will exceed the present value of a 3-year, $150 ordinary annuity.

If a loan has a nominal annual rate of 8%, then the effective rate can never be greater than 8%.

If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different.

The proportion of the payment that goes toward interest on a fully amortized loan increases over time.

An investment that has a nominal rate of 6% with semiannual payments will have an effective rate that is smaller than 6%

11. Which of the following statements regarding a 15-year (180-month) $125,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

1) The remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.

2) Because the outstanding balance declines over time, the monthly payments will also decline over time.

3) Interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.

4) The proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.

5) The outstanding balance declines at a faster rate in the later years of the loan's life

12. Which of the following bank accounts has the highest effective annual return?

1) An account that pays 8% nominal interest with monthly compounding

2) An account that pays 8% nominal interest with annual compounding.

3) An account that pays 7% nominal interest with daily (365-day) compounding

4) An account that pays 7% nominal interest with monthly compounding

5) An account that pays 8% nominal interest with daily (365-day) compounding

13. A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRECT?

1) The periodic interest rate is greater than 3%.

2) The periodic rate is less than 3%.

3) The present value would be greater if the lump sum were discounted back for more periods.

4) The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually.

5) The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity.

14. Which of the following statements is CORRECT?

1) If you have a series of cash flows, each of which is positive, you can solve for I, where the solution value of I causes the PV of the cash flows to equal the cash flow at Time 0.

2) If you have a series of cash flows, and CF0 is negative but each of the following CFs is positive, you can solve for I, but only if the sum of the undiscounted cash flows exceeds the cost.

3) To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is, essentially, a trial-and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.

4) If you solve for I and get a negative number, then you must have made a mistake.

5) If CF0 is positive and all the other CFs are negative, then you cannot solve for I.

15. You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT?

1) The present value of ORD must exceed the present value of DUE, but the future value of ORD may be less than the future value of DUE.

2) The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD.

3) The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE.

4) The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD.

5) If the going rate of interest decreases from 10% to 0%, the difference between the present value of ORD and the present value of DUE would remain constant.

16. Amram Inc. can issue a 20-year bond with a 6% annual coupon. This bond is not convertible, is not callable, and has no sinking fund. Alternatively, Amram could issue a 20-year bond that is convertible into common equity, may be called, and has a sinking fund. Which of the following most accurately describes the coupon rate that Amram would have to pay on the convertible, callable bond?

1.

Exactly equal to 6%.

2.

It could be less than, equal to, or greater than 6%.

3.

Greater than 6%.

4.

Exactly equal to 8%.

5.

Less than 6%.

17. A Treasury bond has an 8% annual coupon and a 7.5% yield to maturity. Which of the following statements is CORRECT?

1 The bond has a current yield greater than 8 percent.

2 The bond sells at a price above par.

3. If the yield to maturity remains constant, the price of the bond is expected to fall over time.

4. Statements b and c are correct.

5 All of the statements above are correct.

18. Which of the following bonds has the greatest interest rate price risk?

1) A 10-year $100 annuity.

2) All 10-year bonds have the same price risk since they have the same maturity.

3) A 10-year, $1,000 face value, zero coupon bond.

4) A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.

5) A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments

19. Which of the following statements is CORRECT?

A time line is not meaningful unless all cash flows occur annually.

Time lines are not useful for visualizing complex problems prior to doing actual calculations.

Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly.

Time lines can only be constructed for annuities where the payments occur at the end of the periods, i.e., for ordinary annuities.

Time lines cannot be constructed where some of the payments constitute an annuity but others are unequal and thus are not part of the annuity.

20. Which of the following statements is CORRECT?

All else equal, senior debt generally has a lower yield to maturity than subordinated debt.

An indenture is a bond that is less risky than a mortgage bond.

The expected return on a corporate bond will generally exceed the bond's yield to maturity.

If a bond's coupon rate exceeds its yield to maturity, then its expected return to investors exceeds the yield to maturity.

Under our bankruptcy laws, any firm that is in financial distress will be forced to declare bankruptcy and then be liquidated.

21. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT?

1. The bond's yield to maturity is greater than its coupon rate.

2. If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850.

3. The bond's current yield is equal to its coupon rate.

4. The bond's current yield exceeds its yield to maturity.

5. The bond's coupon rate exceeds its current yield.

22. Which of the following statements is CORRECT?

1) Sinking fund provisions never require companies to retire their debt; they only establish "targets" for the company to reduce its debt over time.

2) A sinking fund provision makes a bond more risky to investors at the time of issuance.

3) Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if interest rates decline after the bond was issued.

4) Most sinking funds require the issuer to provide funds to a trustee, who holds the money so that it will be available to pay off bondholders when the bonds mature.

5) If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price.

23. Assume that all interest rates in the economy decline from 10% to 9%. Which of the following bonds would have the largest percentage increase in price?

1. A 10-year bond with a 10 percent coupon.

2. An 8-year bond with a 9 percent coupon.

3. A 10-year zero coupon bond.

4. A 1-year bond with a 15 percent coupon.

24. A 12-year bond has an annual coupon rate of 9%. The coupon rate will remain fixed until the bond matures. The bond has a yield to maturity of 7%. Which of the following statements is CORRECT?

1. The bond is currently selling at a price below its par value.

2. If market interest rates decline today, the price of the bond will also decline today.

3. If market interest rates remain unchanged, the bond's price one year from now will be lower than it is today.

4. All of the statements above are correct.

5. None of the statements above is correct.

25. A 10-year bond pays an annual coupon. The bond has a yield to maturity of 8 percent. The bond currently trades at a premium--its price is above the par value of $1,000. Which of the following statements is CORRECT?

1. If the yield to maturity remains at 8 percent, then the bond's price will decline over the next year.

2. The bond's current yield is less than 8 percent.

3. If the yield to maturity remains at 8 percent, then the bond's price will remain the same over the next year.

4. The bond's coupon rate is less than 8 percent.

5. If the yield to maturity increases, then the bond's price will increase.

26. Which of the following statements is CORRECT?

One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it until it matures or is sold.

Long-term bonds have less interest rate price risk but more reinvestment rate risk than short-term bonds.

If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less interest rate risk.

Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment rate risk.

Long-term bonds have less interest rate price risk and also less reinvestment rate risk than short-term bonds.

27. Which of the following statements is CORRECT?

A zero coupon bond's current yield is equal to its yield to maturity.

If a bond's yield to maturity exceeds its coupon rate, the bond will sell at par.

All else equal, if a bond's yield to maturity increases, its price will fall.

If a bond's yield to maturity exceeds its coupon rate, the bond will sell at a premium over par.

All else equal, if a bond's yield to maturity increases, its current yield will fall.

28. A 10-year bond with a 9% annual coupon has a yield to maturity of 8%. Which of the following statements is CORRECT?

1. If the yield to maturity remains constant, the bond's price one year from now will be higher than its current price.

2. The bond is selling below its par value.

3. The bond is selling at a discount.

4. If the yield to maturity remains constant, the bond's price one year from now will be lower than its current price.

5. The bond's current yield is greater than 9%.

29. A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is CORRECT?

a. The bond s expected capital gains yield is zero.

b. The bond s yield to maturity is above 9%.

c. The bond s current yield is above 9%.

d. If the bond s yield to maturity declines, the bond will sell at a discount.

e. The bond s current yield is less than its expected capital gains yield.

30. If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would probably observe an immediate increase in bond prices.

The total yield on a bond is derived from dividends plus changes in the price of the bond.

Bonds are riskier than common stocks and therefore have higher required returns.

Bonds issued by larger companies always have lower yields to maturity (less risk) than bonds issued by smaller companies.

The market value of a bond will always approach its par value as its maturity date approaches, provided the bond's required return remains constant.

FIN 534 quiz 4 Week 5

Business / Economics

5/4/12

Price: $17.00
Posted by: argument
Date Posted: 5/4/12 4:48 PM

1) Which of the following statements is CORRECT?

Answer

a)A two-stock portfolio will always have a lower standard deviation than a one-stock portfolio.

b)A portfolio that consists of 40 stocks that are not highly correlated with "the market" will probably be less risky than a portfolio of 40 stocks that are highly correlated with the market, assuming the stocks all have the same standard deviations.

c)A two-stock portfolio will always have a lower beta than a one-stock portfolio.

d)If portfolios are formed by randomly selecting stocks, a 10-stock portfolio will always have a lower beta than a one-stock portfolio.

e)A stock with an above-average standard deviation must also have an above-average beta.

2 points

Question 2

Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, betas of 1.6, and standard deviations of 30%. The returns of the two stocks are independent, so the correlation coefficient between them, rXY, is zero. Which of the following statements best describes the characteristics of your 2-stock portfolio?

Answer

a)Your portfolio has a standard deviation of 30%, and its expected return is 15%.

b)Your portfolio has a standard deviation less than 30%, and its beta is greater than 1.6.

c)Your portfolio has a beta equal to 1.6, andits expected return is 15%.

d)Your portfolio has a beta greater than 1.6, and its expected return is greater than 15%.

e)Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6.

Question 3

Assume that in recent years both expected inflation and the market risk premium (rM− rRF) have declined. Assume also that all stocks have positive betas. Which of the following would be most likely to have occurred as a result of these changes?

Answer

The required returns on all stocks have fallen, but the decline has been greater for stocks with lower betas.

The required returns on all stocks have fallen, but the fall has been greater for stocks with higher betas.

The average required return on the market, rM, has remained constant, but the required returns have fallen for stocks that have betas greater than 1.0.

Required returns have increased for stocks with betas greater than 1.0 but have declined for stocks with betas less than 1.0.

The required returns on all stocks have fallen by the same amount

Question 4

1. Which of the following statements is CORRECT?

Answer

The beta of a portfolio of stocks is always smaller than the betas of any of the individual stocks.

If you found a stock with a zero historical beta and held it as the only stock in your portfolio, you would by definition have a riskless portfolio.

The beta coefficient of a stock is normally found by regressing past returns on a stock against past market returns. One could also construct a scatter diagram of returns on the stock versus those on the market, estimate the slope of the line of best fit, and use it as beta. However, this historical beta may differ from the beta that exists in the future.

The beta of a portfolio of stocks is always larger than the betas of any of the individual stocks.

It is theoretically possible for a stock to have a beta of 1.0. If a stock did have a beta of 1.0, then, at least in theory, its required rate of return would be equal to the risk-free (default-free) rate of return, rRF.

2 points

Question 5

1. Which is the best measure of risk for a single asset held in isolation, and which is the best measure for an asset held in a diversified portfolio?

Answer

Variance; correlation coefficient.

Standard deviation; correlation coefficient.

Beta; variance.

Coefficient of variation; beta.

Beta; beta.

2 points

Question 6

1. Bob has a $50,000 stock portfolio with a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%. Becky also has a $50,000 portfolio, but it has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%. The correlation coefficient, r, between Bob's and Becky's portfolios is zero. If Bob and Becky marry and combine their portfolios, which of the following best describes their combined $100,000 portfolio?

Answer

The combined portfolio's expected return will be less than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.

The combined portfolio's beta will be equal to a simple weighted average of the betas of the two individual portfolios, 1.0; its expected return will be equal to a simple weighted average of the expected returns of the two individual portfolios, 10.0%; and its standard deviation will be less than the simple average of the two portfolios' standard deviations, 25%.

The combined portfolio's expected return will be greater than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.

The combined portfolio's standard deviation will be greater than the simple average of the two portfolios' standard deviations, 25%.

The combined portfolio's standard deviation will be equal to a simple average of the two portfolios' standard deviations, 25%.

2 points

Question 7

1. Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which of the following statements must be true, according to the CAPM?

Answer

If you invest $50,000 in Stock X and $50,000 in Stock Y, your 2-stock portfolio would have a beta significantly lower than 1.0, provided the returns on the two stocks are not perfectly correlated.

Stock Y's realized return during the coming year will be higher than Stock X's return.

If the expected rate of inflation increases but the market risk premium is unchanged, the required returns on the two stocks should increase by the same amount.

Stock Y's return has a higher standard deviation than Stock X.

If the market risk premium declines, but the risk-free rate is unchanged, Stock X will have a larger decline in its required return than will Stock Y.

Question 8

1. Which of the following statements is CORRECT?

Answer

A large portfolio of randomly selected stocks will always have a standard deviation of returns that is less than the standard deviation of a portfolio with fewer stocks, regardless of how the stocks in the smaller portfolio are selected.

Diversifiable risk can be reduced by forming a large portfolio, but normally even highly-diversified portfolios are subject to market (or systematic) risk.

A large portfolio of randomly selected stocks will have a standard deviation of returns that is greater than the standard deviation of a 1-stock portfolio if that one stock has a beta less than 1.0.

A large portfolio of stocks whose betas are greater than 1.0 will have less market risk than a single stock with a beta = 0.8.

If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio.

2 points

Question 9

1. Stock A's beta is 1.5 and Stock B's beta is 0.5. Which of the following statements must be true about these securities? (Assume market equilibrium.)

Answer

When held in isolation, Stock A has more risk than Stock B.

Stock B must be a more desirable addition to a portfolio than A.

Stock A must be a more desirable addition to a portfolio than B.

The expected return on Stock A should be greater than that on B.

The expected return on Stock B should be greater than that on A.

2 points

Question 10

1. Which of the following statements is CORRECT?

Answer

A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only that one stock.

If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless.

The required return on a firm's common stock is, in theory, determined solely by its market risk. If the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return.

Portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio.

A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock.

2 points

Question 11

1. During the coming year, the market risk premium (rM − rRF), is expected to fall, while the risk-free rate, rRF, is expected to remain the same. Given this forecast, which of the following statements is CORRECT?

Answer

The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.

The required return on all stocks will remain unchanged.

The required return will fall for all stocks, but it will fall more for stocks with higher betas.

The required return for all stocks will fall by the same amount.

The required return will fall for all stocks, but it will fall less for stocks with higher betas.

2 points

Question 12

1. Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2. Portfolio P has equal amounts invested in each of the three stocks. Each of the stocks has a standard deviation of 25%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume that there is an increase in the market risk premium, but the risk-free rate remains unchanged. Which of the following statements is CORRECT?

Answer

The required return of all stocks will remain unchanged since there was no change in their betas.

The required return on Stock A will increase by less than the increase in the market risk premium, while the required return on Stock C will increase by more than the increase in the market risk premium.

The required return on the average stock will remain unchanged, but the returns of riskier stocks (such as Stock C) will increase while the returns of safer stocks (such as Stock A) will decrease.

The required returns on all three stocks will increase by the amount of the increase in the market risk premium.

The required return on the average stock will remain unchanged, but the returns on riskier stocks (such as Stock C) will decrease while the returns on safer stocks (such as Stock A) will increase.

Question 13

1. Inflation, recession, and high interest rates are economic events that are best characterized as being

Answer

systematic risk factors that can be diversified away.

company-specific risk factors that can be diversified away.

among the factors that are responsible for market risk.

risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers.

irrelevant except to governmental authorities like the Federal Reserve.

2 points

Question 14

1. Which of the following statements is CORRECT?

Answer

If a company with a high beta merges with a low-beta company, the best estimate of the new merged company's beta is 1.0.

Logically, it is easier to estimate the betas associated with capital budgeting projects than the betas associated with stocks, especially if the projects are closely associated with research and development activities.

The beta of an "average stock," which is also "the market beta," can change over time, sometimes drastically.

If a newly issued stock does not have a past history that can be used for calculating beta, then we should always estimate that its beta will turn out to be 1.0. This is especially true if the company finances with more debt than the average firm.

During a period when a company is undergoing a change such as increasing its use of leverage or taking on riskier projects, the calculated historical beta may be drastically different from the beta that will exist in the future.

2 points

Question 15

1. Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE?

Answer

The fact that a security or project may not have a past history that can be used as the basis for calculating beta.

Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different from the "true" or "expected future" beta.

The beta of an "average stock," or "the market," can change over time, sometimes drastically.

Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.

All of the statements above are true.

2 points

Question 16

1. If a stock's dividend is expected

to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium.

Answer

The expected return on the stock is 5% a year.

The stock's dividend yield is 5%.

The price of the stock is expected to decline in the future.

The stock's required return must be equal to or less than 5%.

The stock's price one year from now is expected to be 5% above the current price.

2 points

Question 17

1. Which of the following statements is CORRECT, assuming stocks are in equilibrium?

Answer

The dividend yield on a constant growth stock must equal its expected total return minus its expected capital gains yield.

Assume that the required return on a given stock is 13%. If the stock's dividend is growing at a constant rate of 5%, its expected dividend yield is 5% as well.

A stock's dividend yield can never exceed its expected growth rate.

A required condition for one to use the constant growth model is that the stock's expected growth rate exceeds its required rate of return.

Other things held constant, the higher a company's beta coefficient, the lower its required rate of return.

Question 18

1. Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of

the following statements is CORRECT?

X Y

Price $30 $30

Expected growth (constant) 6% 4%

Required return 12% 10%

Answer

Stock X has a higher dividend yield than Stock Y.

Stock Y has a higher dividend yield than Stock X.

One year from now, Stock X's price is expected to be higher than Stock Y's price.

Stock X has the higher expected year-end dividend.

Stock Y has a higher capital gains yield.

2 points

Question 19

1. Companies can issue different classes of common stock. Which of the following statements concerning stock classes is CORRECT?

Answer

All common stocks fall into one of three classes: A, B, and C.

All common stocks, regardless of class, must have the same voting rights.

All firms have several classes of common stock.

All common stock, regardless of class, must pay the same dividend.

Some class or classes of common stock are entitled to more votes per share than other classes.

2 points

Question 20

1. The required returns of Stocks X and Y are rX = 10% and rY = 12%. Which of the following statements is CORRECT?

Answer

If the market is in equilibrium, and if Stock Y has the lower expected dividend yield, then it must have the higher expected growth rate.

If Stock Y and Stock X have the same dividend yield, then Stock Y must have a lower expected capital gains yield than Stock X.

If Stock X and Stock Y have the same current dividend and the same expected dividend growth rate, then Stock Y must sell for a higher price.

The stocks must sell for the same price.

Stock Y must have a higher dividend yield than Stock X.

2 points

Question 21

1. Which of the following statements is CORRECT?

Answer

The constant growth model is often appropriate for evaluating start-up companies that do not have a stable history of growth but are expected to reach stable growth within the next few years.

If a stock has a required rate of return rs = 12% and its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%.

The stock valuation model, P0 = D1/(rs - g), can be used to value firms whose dividends are expected to decline at a constant rate, i.e., to grow at a negative rate.

The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.

The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.

2 points

Question 22

1. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A B

Required return 10% 12%

Market price $25 $40

Expected growth 7% 9%

Answer

These two stocks should have the same price.

These two stocks must have the same dividend yield.

These two stocks should have the same expected return.

These two stocks must have the same expected capital gains yield.

These two stocks must have the same expected year-end dividend.

Question 23

1. The preemptive right is important to shareholders because it

Answer

allows managers to buy additional shares below the current market price.

will result in higher dividends per share.

is included in every corporate charter.

protects the current shareholders against a dilution of their ownership interests.

protects bondholders, and thus enables the firm to issue debt with a relatively low interest rate.

2 points

Question 24

1. Two constant growth stocks are in equilibrium, have the same price, and have the same required rate of return. Which of the following statements is CORRECT?

Answer

The two stocks must have the same dividend per share.

If one stock has a higher dividend yield, it must also have a lower dividend growth rate.

If one stock has a higher dividend yield, it must also have a higher dividend growth rate.

The two stocks must have the same dividend growth rate.

The two stocks must have the same dividend yield.

2 points

Question 25

1. The expected return on Natter Corporation's stock is 14%. The stock's dividend is expected to grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following statements is CORRECT?

Answer

The stock's dividend yield is 7%.

The stock's dividend yield is 8%.

The current dividend per share is $4.00.

The stock price is expected to be $54 a share one year from now.

The stock price is expected to be $57 a share one year from now.

2 points

Question 26

1. If in the opinion of a given investor a stock's expected return exceeds its required return, this suggests that the investor thinks

Answer

the stock is experiencing supernormal growth.

the stock should be sold.

the stock is a good buy.

management is probably not trying to maximize the price per share.

dividends are not likely to be declared.

2 points

Question 27

1. Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT?

A B

Price $ 25 $40

Expected growth 7% 9%

Expected return 10% 12%

Answer

The two stocks should have the same expected dividend.

The two stocks could not be in equilibrium with the numbers given in the question.

A's expected dividend is $0.50.

B's expected dividend is $0.75.

A's expected dividend is $0.75 and B's expected dividend is $1.20.

2 points

Question 28

1. Which of the following statements is CORRECT?

Answer

If a company has two classes of common stock, Class A and Class B, the stocks may pay different dividends, but under all state charters the two classes must have the same voting rights.

The preemptive right gives stockholders the right to approve or disapprove of a merger between their company and some other company.

The preemptive right is a provision in the corporate charter that gives common stockholders the right to purchase (on a pro rata basis) new issues of the firm's common stock.

The stock valuation model, P0= D1/(rs - g), cannot be used for firms that have negative growth rates.

The stock valuation model, P0= D1/(rs - g), can be used only for firms whose growth rates exceed their required returns.

Question 29

1. For a stock to be in equilibrium, that is, for there to be no long-term pressure for its price to depart from its current level, then

Answer

the expected future return must be less than the most recent past realized return.

The past realized return must be equal to the expected return during the same period.

the required return must equal the realized return in all periods.

the expected return must be equal to both the required future return and the past realized return.

the expected future returns must be equal to the required return.

2 points

Question 30

1. If markets are in equilibrium, which of the following conditions will exist?

Answer

Each stock's expected return should equal its realized return as seen by the marginal investor.

Each stock's expected return should equal its required return as seen by the marginal investor.

All stocks should have the same expected return as seen by the marginal investor.

The expected and required returns on stocks and bonds should be equal.

All stocks should have the same realized return during the coming year.

FIN 534 quiz 5 Week 6

Business / Economics

5/4/12

Price: $18.00
Posted by: argument
Date Posted: 5/4/12 4:51 PM

Question 1

Which of the following statements is CORRECT?

Answer

If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.

Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.

Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.

Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

2 points

Question 2

Call options on XYZ Corporation's common stock trade in the market. Which of the following statements is most correct, holding other things constant?

Answer

The price of these call options is likely to rise if XYZ's stock price rises.

The higher the strike price on XYZ's options, the higher the option's price will be.

Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months.

If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase.

If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend.

2 points

Question 3

Which of the following statements is CORRECT?

Answer

If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.

Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.

Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.

Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

2 points

Question 4

Which of the following statements is CORRECT?

Answer

An option's value is determined by its exercise value, which is the market price of the stock less its striking price. Thus, an option can't sell for more than its exercise value.

As the stock's price rises, the time value portion of an option on a stock increases because the difference between the price of the stock and the fixed strike price increases.

Issuing options provides companies with a low cost method of raising capital.

The market value of an option depends in part on the option's time to maturity and also on the variability of the underlying stock's price.

The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin gets bigger.

2 points

Question 5

An option that gives the holder the right to sell a stock at a specified price at some future time is

Answer

a call option.

a put option.

an out-of-the-money option.

a naked option.

a covered option.

2 points

Question 6

Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the

Answer

Strike price.

Variability of the stock price.

Option's time to maturity.

All of the above.

None of the above.

2 points

Question 7

Suppose you believe that Delva Corporation's stock price is going to decline from its current level of $82.50 sometime during the next 5 months. For $510.25 you could buy a 5-month put option giving you the right to sell 100 shares at a price of $85 per share. If you bought this option for $510.25 and Delva's stock price actually dropped to $60, what would your pre-tax net profit be?

Answer

-$510.25

$1,989.75

$2,089.24

$2,193.70

$2,303.38

2 points

Question 8

Which of the following statements is CORRECT?

Answer

Put options give investors the right to buy a stock at a certain strike price before a specified date.

Call options give investors the right to sell a stock at a certain strike price before a specified date.

Options typically sell for less than their exercise value.

LEAPS are very short-term options that were created relatively recently and now trade in the market.

An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend.

2 points

Question 9

Deeble Construction Co.'s stock is trading at $30 a share. Call options on the company's stock are also available, some with a strike price of $25 and some with a strike price of $35. Both options expire in three months. Which of the following best describes the value of these options?

Answer

The options with the $25 strike price will sell for $5.

The options with the $25 strike price will sell for less than the options with the $35 strike price.

The options with the $25 strike price have an exercise value greater than $5.

The options with the $35 strike price have an exercise value greater than $0.

If Deeble's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.

2 points

Question 10

Warner Motors' stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?

Answer

The price of the call option will increase by $2.

The price of the call option will increase by more than $2.

The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%.

The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%.

The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10%.

2 points

Question 11

Which of the following statements is CORRECT?

Answer

If the underlying stock does not pay a dividend, it makes good economic sense to exercise a call option as soon as the stock's price exceeds the strike price by about 10%, because this permits the option holder to lock in an immediate profit.

Call options generally sell at a price less than their exercise value.

If a stock becomes riskier (more volatile), call options on the stock are likely to decline in value.

Call options generally sell at prices above their exercise value, but for an in-the-money option, the greater the exercise value in relation to the strike price, the lower the premium on the option is likely to be.

Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.

2 points

Question 12

The current price of a stock is $22, and at the end of one year its price will be either $27 or $17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of $22, is available. Based on the binominal model, what is the option's value?

Answer

$2.43

$2.70

$2.99

$3.29

$3.62

2 points

Question 13

Suppose you believe that Johnson Company's stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $310.25 you can buy a 5-month call option giving you the right to buy 100 shares at a price of $25 per share. If you buy this option for $310.25 and Johnson's stock price actually rises to $45, what would your pre-tax net profit be?

Answer

-$310.25

$1,689.75

$1,774.24

$1,862.95

$1,956.10

2 points

Question 14

GCC Corporation is planning to issue options to its key employees, and it is now discussing the terms to be set on those options. Which of the following actions would decrease the value of the options, other things held constant?

Answer

GCC's stock price suddenly increases.

The exercise price of the option is increased.

The life of the option is increased, i.e., the time until it expires is lengthened.

The Federal Reserve takes actions that increase the risk-free rate.

GCC's stock price becomes more risky (higher variance).

2 points

Question 15

An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?

Answer

In-the-money

Put

Naked

Covered

Out-of-the-money

2 points

Question 16

Which of the following statements is CORRECT?

Answer

The bond-yield-plus-risk-premium approach to estimating the cost of common equity involves adding a risk premium to the interest rate on the company's own long-term bonds. The size of the risk premium for bonds with different ratings is published daily in The Wall Street Journal.

The WACC is calculated using a before-tax cost for debt that is equal to the interest rate that must be paid on new debt, along with the after-tax costs for common stock and for preferred stock if it is used.

An increase in the risk-free rate is likely
to reduce the marginal costs of both debt and equity.

The relevant WACC can change depending on the amount of funds a firm raises during a given year. Moreover, the WACC at each level of funds raised is a weighted average of the marginal costs of each capital component, with the weights based on the firm's target capital structure.

Beta measures market risk, which is generally
the most relevant risk measure for a publicly-owned firm that seeks to maximize its intrinsic value. However, this is not true unless all of the firm's stockholders are well diversified.

2 points

Question 17

Which of the following statements is CORRECT?

Answer

The WACC is calculated using before-tax
costs for all components.

The after-tax cost of debt usually exceeds
the after-tax cost of equity.

For a given firm, the after-tax cost of debt is always more expensive than the after-tax cost of non-convertible preferred stock.

Retained earnings that were generated in the past and are reported on the firm's balance sheet are available to finance the firm's capital budget during the coming year.

The WACC that should be used in capital budgeting is the firm's marginal, after-tax cost of capital.

2 points

Question 18

For a typical firm, which of the following sequences is CORRECT? All rates are after taxes, and assume that the firm operates
at its target capital structure.

Answer

rs> re > rd > WACC.

re> rs > WACC > rd.

WACC > re > rs> rd.

rd> re > rs > WACC.

WACC > rd > rs > re.

2 points

Question 19

Which of the following statements is CORRECT?

Answer

The WACC as used in capital budgeting is an estimate of a company's before-tax cost of capital.

The percentage flotation cost associated with issuing new common equity is typically smaller than the flotation cost for new debt.

The WACC as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets.

There is an "opportunity cost" associated with using retained earnings, hence they are not "free."

The WACC as used in capital budgeting would
be simply the after-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year.

2 points

Question 20

The MacMillen Company has equal amounts of low-risk, average-risk, and high-risk projects. The firm's overall WACC is 12%. The CFO believes that this is the correct WACC for the company's average-risk projects, but that a lower rate should be used for lower-risk projects and a higher rate for higher-risk projects. The CEO disagrees, on the grounds that even though projects have different risks, the WACC used to evaluate each project should be the same because the company obtains capital for all projects from the same sources. If the CEO's position is accepted, what is likely to happen over time?

Answer

The company will take on too many high-risk projects and reject too many low-risk projects.

The company will take on too many low-risk projects and reject too many high-risk projects.

Things will generally even out over time, and, therefore, the firm's risk should remain constant over time.

The company's overall WACC should decrease
over time because its stock price should be increasing.

The CEO's recommendation would maximize the
firm's intrinsic value.

2 points

Question 21

Which of the following statements is CORRECT?

Answer

Since the costs of internal and external
equity are related, an increase in the flotation cost required to sell a new issue of stock will increase the cost of retained earnings.

Since its stockholders are not directly
responsible for paying a corporation's income taxes, corporations should focus on before-tax cash flows when calculating the WACC.

An increase in a firm's tax rate will increase the component cost of debt, provided the YTM on the firm's bonds is not affected by the change in the tax rate.

When the WACC is calculated, it should reflect the costs of new common stock, retained earnings, preferred stock, long-term debt, short-term bank loans if the firm normally finances with bank debt, and accounts payable if the firm normally has accounts payable on its balance sheet.

If a firm has been suffering accounting losses that are expected to continue into the foreseeable future, and therefore its tax rate is zero, then it is possible for the after-tax cost of preferred stock to be less than the after-tax cost of debt.

2 points

Question 22

Which of the following statements is CORRECT? Assume that the firm is a publicly-owned corporation and is seeking to maximize shareholder wealth.

Answer

If a firm has a beta that is less than 1.0, say 0.9, this would suggest that the expected returns on its assets are negatively
correlated with the returns on most other firms' assets.

If a firm's managers want to maximize the value of their firm's stock, they should, in theory, concentrate on project risk as measured by the standard deviation of the project's expected future cash flows.

If a firm evaluates all projects using the same cost
of capital, and the CAPM is used to help determine that cost, then its risk as measured by beta will probably decline over time.

Projects with above-average risk typically have higher
than average expected returns. Therefore, to maximize a firm's intrinsic value, its managers should favor high-beta projects over those with lower betas.

Project A has a standard deviation of expected returns
of 20%, while Project B's standard deviation is only 10%. A's returns are negatively correlated with both the firm's other assets and the returns on most stocks in the economy, while B's returns are positively correlated. Therefore, Project A is less risky to a firm and should be evaluated with a lower cost of capital.

2 points

Question 23

Which of the following statements is CORRECT?

Answer

A change in a company's target capital
structure cannot affect its WACC.

WACC calculations should be based on the before-tax costs of all the individual capital components.

Flotation costs associated with issuing new common stock normally reduce the WACC.

If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.

An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.

2 points

Question 24

Which of the following statements is CORRECT?

Answer

In the WACC calculation, we must adjust the cost of preferred stock (the market yield) to reflect the fact that 70% of the dividends received by corporate investors are excluded from their taxable income.

We should use historical measures of the component costs from prior financings that are still outstanding when estimating a company's WACC for capital budgeting purposes.

The cost of new equity (re) could possibly be lower than the cost of retained earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.

A firm's cost of retained earnings is the rate of return stockholders require on a firm's common stock.

The component cost of preferred stock is expressed as rp(1 - T), because preferred stock dividends are treated as
fixed charges, similar to the treatment of interest on debt.

2 points

Question 25

Firm M's earnings and stock price tend to move up and down with other firms in the S&P 500, while Firm W's earnings and stock price move counter cyclically with M and other S&P companies. Both M and W estimate their costs of equity using the CAPM, they have identical market values, their standard deviations of returns are identical, and they both finance only with common equity. Which of the following statements is CORRECT?

Answer

M should have the lower WACC because it is like most other companies, and investors like that fact.

M and W should have identical WACCs because their risks as measured by the standard deviation of returns are identical.

If M and W merge, then the merged firm MW should have a WACC that is a simple average of M's and W's WACCs.

Without additional information, it is impossible to predict what the merged firm's WACC would be if M and W merged.

Since M and W move counter cyclically to one another, if they merged, the merged firm's WACC would be less than the simple average of the two firms' WACCs.

2 points

Question 26

Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the corporate (composite) WACC is 12.0%. All of Division A's projects are equally risky, as are all of Division B's projects. However, the projects of Division A are less risky than those of Division B. Which of the following projects should the firm accept?

Answer

A Division B project with a 13% return.

A Division B project with a 12% return.

A Division A project with an 11% return.

A Division A project with a 9% return.

A Division B project with an 11% return.

2 points

Question 27

Schalheim Sisters Inc. has always paid out all of its earnings as dividends; hence, the firm has no retained earnings. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?

Answer

The market risk premium declines.

The flotation costs associated with issuing new common stock increase.

The company's beta increases.

Expected inflation increases.

The flotation costs associated with issuing preferred stock increase.

2 points

Question 28

Norris Enterprises, an all-equity firm, has a beta of 2.0. The chief financial officer is evaluating a project with an expected
return of 14%, before any risk adjustment. The risk-free rate is 5%, and the market risk premium is 4%. The project being evaluated is riskier than an average project, in terms of both its beta risk and its total risk. Which of the following statements is CORRECT?

Answer

The project should definitely be accepted because its expected return (before any risk adjustments) is greater than its required return.

The project should definitely be rejected because its expected return (before risk adjustment) is less than its required return.

Riskier-than-average projects should have their expected returns increased to reflect their higher risk. Clearly, this would make the project acceptable regardless of the amount of the adjustment.

The accept/reject decision depends on the firm's risk-adjustment policy. If Norris' policy is to increase the required return on a riskier-than-average project to 3% over rS, then it should reject the project.

Capital budgeting projects should be evaluated solely on the basis of their total risk. Thus, insufficient information has been provided to make the accept/reject decision.

2 points

Question 29

For a company whose target capital structure calls for 50% debt and 50% common equity, which of the following statements is CORRECT?

Answer

The interest rate used to calculate the WACC is the average after-tax cost of all the company's outstanding debt as shown on its balance sheet.

The WACC is calculated on a before-tax basis.

The WACC exceeds the cost of equity.

The cost of equity is always equal to or greater than the cost of debt.

The cost of retained earnings typically exceeds the cost of new common stock.

2 points

Question 30

Which of the following statements is CORRECT?

Answer

The discounted cash flow method of estimating the cost
of equity cannot be used unless the growth rate, g, is expected to be constant forever.

If the calculated beta underestimates the firm's true investment risk--i.e., if the forward-looking beta that investors think exists exceeds the historical beta--then the CAPM method based on the historical beta will produce an estimate of rs and thus WACC that is too high.

Beta measures market risk, which is, theoretically, the most relevant risk measure for a publicly-owned firm that seeks to maximize its intrinsic value. This is true even if not all of the firm's stockholders are well diversified.

An advantage shared by both the DCF and CAPM methods when they are used to estimate the cost of equity is that they
are both "objective" as opposed to "subjective," hence little or no judgment is required.

The specific risk premium used in the CAPM is the same as the risk premium used in the bond-yield-plus-risk-premium approach.

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