Finance Questions

Firms that compile financial statements according to GAAP:A. record income and expenses at the time they affect the firm's cash flowsB. have no discretion of recording either revenue or expense itemsC. must record all expenses when incurredD. can still manipulate their earnings to some degree

Which of the following statements is TRUE?A. The marginal tax rate for most U.S. corporations prior to 2018 was 35% while the average tax rate actually paid across U.S. corporations had actually been closer to 25%B. A Limited Liability Company (LLC) is legally defined as a person, while a corporation with limited liability is considered a partnership of several personsC. The ability of a corporation to grow can be seriously limited by an inability to raise cash via the primary capital markets for investment.D. According to the theory of the firm, among all stakeholders, the stockholders take the least risk.

A firm has a debt-to-equity ratio of 0.50. Its cost of debt is 10 percent. Its overall cost of capital is 14 percent. What is its cost of equity if there are no taxes?A. 16 percentB. 15 percentC. 18 percentD. 13 percent

Which of the following is NOT an effective means of aligning management goals withshareholder interests?A. Employee stock optionsB. Threat of a takeoverC. Management bonuses tied to performance goalsD. Compensating managers with salaries significantly higher than their peers

BOLD Industries is financed entirely by common stock that is priced to offer a 20 percent expected return. If the company repurchases 50 percent of the common stock and substitutes an equal value of debt yielding 8 percent, what is the expected return on the common stock after refinancing? (Ignore taxes.)

Market Value:NWC = $200LTA = $2,800D = $500E = $2,500According to MM's Proposition 1 corrected for taxes, what will be the change in company value if Devin & Ben Co. issues $200 of equity and uses it to make a permanent reduction in the company's debt? Assume a 35% marginal corporate tax rate.

Which of the following statements is false?A. Financial Managers make three basic types of decisions: Capital Budgeting, Capital Structure, and Working Capital Management.B. Capital budgeting is the process of planning and managing a firm's short-term investments.C. The primary goal for corporate managers should be to make good decisions to maximize the market value of the owner's equity.D. Agency conflicts, which sometimes arise when CEOs are overly motivated to seek job security, can be reduced by adjusting managerial compensation.

Which of the following is an advantage of the corporate form of organization?A. Corporations can easily raise capital and its ownership can be transferred easily.B. Corporations can be started easily and face little regulation.C. Owners of corporations have unlimited liability and full control.D. Corporations pay taxes on income before dividends to their owners

Devin's Donut Empire, Inc. expects to pay a dividend of $3 per share at the end of year 1, $4 per share at the end of year 2, and then be sold for $40 at the end of year 2. If the required rate of return on the stock is 12%, what is the current value of the stock?

Dunder Mifflin forecasted a $10 dividend next year which represented 100% of its earnings. This would have provided investors with a 12% expected return. Instead, CFO David Wallace argues that they should plowback 40% of earnings at the firm's current return on equity of 20%. What is the PVGO?

What is the present value of the following cash flows at a discount rate of 8 percent? Year 1: $100,000Year 2: $200,000 Year 3: $250,000

Managers should act in shareholders' interests because shareholders have ___________priority in receiving their claims.A. TopB. Somewhere in the middleC. BottomD. Equal (to those of all other stakeholders)

TA Co. is financed entirely by common stock that is priced to offer an 18 percent expected rate of return. The stock price is $50 and the earnings per share are $9. The company wishes to repurchase 50 percent of the stock and substitute an equal value of debt yielding 7 percent. Suppose that before refinancing, an investor owned 100 shares of TA Co. common stock. What should they do if they wish to ensure that the risk and expected return on their investment continue to mirror the portfolio of the company?

Which of the following statements is true?A. In a sole proprietorship, the owner has limited liability and full control.B. In a partnership, ownership can be transferred quickly, and capital can be raised easily.C. Corporations face double taxation, meaning the corporation pays taxes on income before dividends, while the owners pay personal taxes on dividends and capital gains.D. Intended to improve public disclosures, the Sarbanes-Oxley Act has likely increased the number of small companies going public in the USA.

A firm has a project with an NPV of −$52 million. If it has access to risk-free government financing that can create a permanent annual tax shield of $5 million, what is the APV of the project assuming the risk-free interest rate is 6 percent?A. −$52 millionB. $5 millionC. $31 millionD. $83 million

You are considering the purchase of one of two machines. Machine X has a life of 2 years. Machine X costs $100 initially and then $50 per year in maintenance. Machine Y has a life of 3 years. Machine Y has an initial cost of $80 and it requires $40 maintenance per year. Both machines must be replaced at the end of their lives. Assume the discount rate is 12% and there are no taxes. What are the relative EAC's and which is the better machine for the firm to purchase?

Calculate the increase or decrease in working capital if accounts receivables increase by $5,000, inventories decrease by $1,000 and accounts payables increase by $6,000 and state whether that is a source or use of cash.

The beta of an all-equity firm is 0.9. Suppose the firm changes its capital structure to 50 percent debt and 50 percent equity using 6 percent debt financing. What is the equity beta of the levered firm? The beta of debt is 0.1. (Assume no taxes.)

If any, which of the following statements is FALSE?A. Capital Budgeting is the process of planning and managing a firm's long-term investments where managers identify investments that are worth more than they cost to acquire.B. Capital Structure is the mix of debt and equity maintained by a firm to finance operations, where the firm decides how much to borrow and what the cheapest sources of funds are.C. Working Capital Management is the day-to-day management of finances that determines how much cash and inventory should be kept on hand, whether to sell on credit to customers, and how to obtain short-term financing.D. None of the above statements is false.

In October 2020, you purchase a $1000 bond which pays a 6% coupon every year. If the bond matures in 2025, and the YTM is 2%, what is the value of the bond?