1.Which of the following items represents a business risk in capital structure decisions?
a.Management preferences.
b.Cash flow.
c.Timing of information.
d.Contractual obligations.
2.The prime rate is the
a.Size of the commitment fee on a commercial bank loan
b.Effective cost of commercial paper
c.Effective cost of a commercial bank loan
d.Rate charged on business loans to borrowers with high credit ratings
3.When compared with a debt-to-assets ratio, a debt-to-equity ratio is
a.Unrelated to the debt-to-assets ratio
b.About the same as the debt-to-assets ratio
c.Lower than the debt-to-assets ratio
d.Higher than the debt-to-assets ratio
4.Which of the following describes a normal yield curve?
a.Upward sloping.
b.Downward sloping.
c.Flat.
d.Humped.
5.Unlike the traditional full-absorption cost system, activity-based costing (ABC) assigns
a.Costs to individual products based only on nonfinancial variables.
b.Costs to individual products based on various activities involved.
c.Overhead to individual products based on some common measure of production volume.
d.Only costs which can be directly traced to individual products.
6.Which of the following formulas should be used to calculate the economic rate of return on common stock?
a.Dividends per share divided by market price per share
b.Market price per share divided by earnings per share
c.(Dividends + change in price) divided by beginning price
d.(Net income - preferred dividend) divided by common shares outstanding
7.In statistical analysis, a weighted-average using probabilities as weights is the
a.Standard deviation.
b.Expected value.
c.Coefficient of variation.
d.Objective function.
8.Compared to another bond with the same risk and maturity but without a conversion feature, a convertible bond is likely to have a
a.Higher face amount
b.Lower face amount
c.Higher coupon rate
d.Lower coupon rate
9.A company has two divisions. Division A has operat¬ing income of $500 and total assets of $1,000. Division B has operating income of $400 and total assets of $1,600. The required rate of return for the company is 10%. The company s residual income would be which of the following amounts?
a.$0
b.$260
c.$640
d.$900
10.An organization s managerial decision-making model for capital budgeting is based on the net present value of discounted cash flows. The same organization s managerial performance evaluation model is based on annual divisional return on investment. Which of the following is true?
a.Divisional managers are likely to maximize the measures in the decision-making model.
b.Divisional managers are likely to maximize the measures in the performance evaluation model.
c.The manager has an incentive to accept a project with a positive net present value that initially has a negative effect on net income.
d.The use of models with different criteria promotes goal congruence.