Finance Questions

Which of the following statements is FALSE?A. Asset-specific risks can be easily diversified with highly correlated assets in a portfolioB. Asset-specific risks can be easily diversified with numerous assets in a portfolioC. Bearing risk is rewarded with higher expected returnsD. Only market-wide risks, not asset-specific risks, should earn rewards

Which of the following statements is FALSE?A. Sensitivity analysis helps determine the reasonable range of expectations for a project's outcome.B. The impacts of estimation errors and forecasting risks are small when NPVs are large and negative.C. Under intense competition, positive NPV projects are rare.D. The error of commission, or Type 1 error NPV estimation, is the risk that a project will be accepted when its true NPV is negative.

Which of the following statements is TRUE?A. Opportunity costs are those values that have already been incurred, cannot be recouped, and should not be considered in an investment decision.B. Under hard capital rationing, a business enforces limits on investment budgets because it prefers not to raise financing from the capital markets.C. Managerial real options can be very valuable but difficult to measure, and ignoring them will underestimate a project's true Net Present Value.D. Forecasting risk is more troublesome when NPV estimates are particularly large.

Which one of the following methods of analysis is most similar to computing the return on assets (ROA)?A. Average accounting returnB. PaybackC. Internal rate of returnD. Profitability index

Which of the following statements is TRUE?A. The Gordon Growth Model assumes constant dividend growth but implies that stock prices grow at a different rate.B. A stock's price is the present value of its future cash flows, namely, its expected capital gains and dividends.C. Brokers buy and sell securities from their own inventory, while dealers bring buyers and sellers together to complete transactions.D. Holders of common stock have greater voting rights in corporate decisions than holders of preferred stock, but they have less voting rights than creditors of the corporation.

A call provision in a bond...A. Limits the actions of the borrower.B. Protects the borrower from unscrupulous practices by the lender.C. Allows the issuer to repurchase the bonds on the open market prior to maturity.D. Grants the issuer the option to repurchase the bonds prior to maturity at a pre-specified price

Which of the following statements is FALSE?A. The impacts of estimation errors and forecasting risks are small when NPVs are large and positive.B. Under intense competition, positive NPV projects are as common as negative NPV projects.C. Scenario analysis helps determine the reasonable range of expectations for a project's outcome.D. Sensitivity analysis helps identify the variable within a project that presents the greatest forecasting risk.

Which of the following statements is FALSE?A. The yield to maturity is a bond's rate of return that is required by the market place.B. When a bond's yield to maturity is less than a bond's coupon rate, the bond is selling at a premium.C. A convertible bond initially sells at a deep discount and pays no interest payments.D. The invoice amount that an investor actually pays to purchase an outstanding bond is not its 'clean' quoted price.

Queenan Company computes depreciation on equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows - Depreciation Expense 1,000 Equipment 1,000- Depreciation Expense 1,000 Accumulated Depreciation Equipment 1,000- Equipment Expense 1,000 Accumulated Depreciation, Equipment 1,000- Depreciation Expense 1,000 Accumulated Depreciation, Queenan Company 1,000

Sensitivity analysis:A. looks at the most reasonably optimistic and pessimistic results for a project.B. helps identify the variable within a project that presents the greatest forecasting risk.C. is generally conducted prior to scenario analysis just to determine if the range of potential outcomes is acceptable.D. illustrates how an increase in operating cash flow caused by changing both the revenue and the costs simultaneously will change the net present value for a project.

An agent who buys and sells securities from inventory is called a:A. SpecialistB. DealerC. BrokerD. Floor Trader

Which of the following statements is FALSE?A. The internal rate of return is defined as the discount rate which results in a zero net present value for the project.B. The primary advantage to payback analysis is that it biases companies to invest in long-term projects that require large current expenditures on research and development.C. The average accounting return ignores cash flows is most similar to computing the return on assets (ROA).D. The profitability index reflects the value created per dollar invested.

If any, which of the following statements is FALSE?A. NPV measures the value created by taking on an investmentB. NPV indicates how much a project will improve owner wealthC. NPV is the discounted present value of a project's expected future accounting net income at the required return, subtracting the initial investmentD. None of the above statements is false

Which of the following statements is FALSE?A. One reason why the Average Accounting Return is a flawed measure in making business decisions is that it is based on cash flows.B. IRR measures the dollar-weighted return on an investment.C. In order to use the Payback Rule as a tool to determine if an investment is acceptable, a manager needs to provide a pre-specified limit of time for recouping investment costs.D. The Profitability Index measures the value created per dollar invested, based on the time value of money

If any, which of the following does NOT have the potential to increase the net present value of a proposed investment?A. The ability to immediately shut down a project should the project become unprofitableB. The ability to wait until the economy improves before making the investmentC. The option to increase production beyond that initially projectedD. All of the above have the potential to increase the NPV of a proposed investment

Which of the following statements is TRUE?A. When yields increase, bonds with shorter maturities tend to decrease in value more than bonds with longer maturities.B. Over time, if yields do not change, the values of premium bonds decrease toward par smoothly.C. A "call provision" allows the bond holder the option to determine when they want the company to buy back the bond.D. Treasury Bonds are pure discount loans sold by the US government as a means to borrow money for less than one year.

A broker is an agent who:A. Trades on the floor of an exchange for himself or herself.B. Buys and sells from inventory.C. Offers new securities for sale to dealers only.D. Brings buyers and sellers together.

Fill in the blanks: Stock prices fall if investors either expect _________ growth rates or require _________ returns.A. higher, higherB. higher, lowerC. lower, higherD. lower, lower

The average accounting return method of analyzing projects:A. Incorporates cash flows.B. Is similar to calculating the Return on Assets.C. Is difficult to estimate using information from accounting statements.D. Should accept all projects with positive AAR

Which of the following statements is TRUE?A. Companies are required by law to have their bonds rated by agencies such as Moody's orS&P.B. The Fisher effect is the relationship between nominal returns, real returns, and inflation.C. Investors require higher yields on secured bonds than on unsecured bonds.D. A callable bond can be swapped for a fixed number of shares of stock before maturity at the holder's option