1. Preferred stock is called a hybrid security because:
a. Shareholders receive a stipulated dividend but have no guarantee of a return of principle
b. Dividends accumulate
c. Preferred shareholders receive payment before common shareholders
d. There is moderate risk and moderate return
e. Shareholders have no voting rights

2. The discount rate used in making capital budget decisions is derived from:
a. Weighted Average Cost of Capital (WACC)
b. Bond Yield
c. Federal Reserve discount rate
d. 6 Month T Bill rate
e. Prime Rate

3. The goal of an optimal capital structure is:
a. Use as little debt as possible
b. Use only retained earnings
c. Avoid diluting current shareholder ownership
d. Achieve minimum overall cost of capital
e. Use only common stock

4. When determining the price to be paid for an acquisition, one of the factors considered is often:
a. Earnings
b. Cash Flow
c. Dividends
d. Growth potential
e. All of the above

5. The purchasing power parity theory examines the relationship of purchasing power with:
a. Government Policies
b. Interest rates
c. Balance of payments
d. Currency exchange rates
e. Other international financial factors