Question 1 of 20 The initial decision of what products and services to produce has a much __________ on the profitability of the firm when compared to the __________. A. smaller impact; financing decision B. larger impact; dividend decision C. larger impact; investment decision D. larger impact; financing decision Question 2 of 20 You have a project that costs $800,000. It has a 1/3 chance of paying off $3,000,000 and a 2/3 chance of paying off $0. What is the expected profit from the new project? A. $300,000 B. $200,000 C. $100,000 D. Zero Question 3 of 20 Financial leverage is the degree to which a firm or individual utilizes: A. borrowed money to pay wages. B. borrowed money to pay dividends. C. borrowed money to magnify equity earnings. D. borrowed money to diminish equity earnings. Question 4 of 20 Which of the statements below is FALSE? A. Two different individuals or companies could go to the same bank and request exactly the same amount of funding for their projects and yet could be required to pay different costs for their funds. B. It is important to remember that a public company is a separate entity and in that capacity can borrow from bondholders, preferred stockholders, and common shareholders, but not from banks. C. Lenders, regardless of their classification, all consider their funds as investments, for which they hope to make a positive return. D. The return to the investor is the cost to the seller. Question 5 of 20 __________ is the point at which the equity value of the firm is zero. A. The optimal capital structure B. Bankruptcy C. The optimal tax structure D. None of the above Question 6 of 20 Information is asymmetric when one party in a transaction has a different set of __________ than the other party in the transaction. A. asymmetries B. information C. hypotheses D. earnings Question 7 of 20 The process of borrowing money from others to make money on your idea is commonly known in the investment world as: A. “losing other people’s money”. B. “using other people’s money”. C. “abusing other people’s money”. D. “misusing other people’s money”. Question 8 of 20 Moving from one source of funding to another in a particular order is called the: A. Pecking Order Hypothesis. B. Barnyard Order Hypothesis. C. Funding Order Hypothesis. D. Capital Market Hypothesis. Question 9 of 20 If earnings reflect a return greater than the cost of debt, then: A. the more debt the company has sold, the worse off the shareholders are. B. the less debt the company has sold, the better off the shareholders are. C. the more debt the company has sold, the better off the shareholders are. D. the more debt the company has bought, the better off the shareholders are. Question 10 of 20 The federal government bond market is open only to: A. state government agencies. B. local government agencies. C. the federal government. D. municipal government. Question 11 of 20 Capital structure refers to how the firm finances its operations and growth through a combination of: A. equity types. B. security types. C. types of earnings. D. types of debt. Question 12 of 20 __________ means that managers or owners of a company know more about the future performance of the company than potential outside lenders. A. Symmetric information B. External financing C. Asymmetric information D. Two-sided information Question 13 of 20 Which of the statements below is FALSE? A. The “riskier” borrower will most likely have to pay a lower cost for funds. B. In the bond market, we see different rates as the different yields on bonds for different companies. C. In the equity market, we see different rates as the different required returns for companies due to their different betas. D. In general, the cost of funds for an individual or company will be directly related to the lender’s view of the risk of repayment of the funds. Question 14 of 20 __________ capital structure refers to a combination of debt and equity that maximizes the value of the firm. A. …
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