Which one of the following types of securities has no priority in a bankruptcy proceeding? Convertible bond Senior debt Common stock Preferred stock Straight bond Question 32 Any person who owns a license to trade on the NYSE is called a: dealer. floor trader. specialist. member. proxy. Question 33 The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to: produce a positive annual cash flow. produce a positive cash flow from assets. offset its fixed expenses. offset its total expenses. recoup its initial cost Question 34 Which one of the following defines the internal rate of return for a project? Discount rate that creates a zero cash flow from assets Discount rate which results in a zero net present value for the project Discount rate which results in a net present value equal to the project’s initial cost Rate of return required by the project’s investors The project’s current market rate of return Question 35 Both Projects A and B are acceptable as independent projects. However, the selection of either one of these projects eliminates the option of selecting the other project. Which one of the following terms best describes the relationship between Project A and Project B? Mutually exclusive Conventional Multiple choice Dual return Crosswise Question 36 Any changes to a firm’s projected future cash flows that are caused by adding a new project are referred to as which one of the following? Eroded cash flows Deviated projections Incremental cash flows Directly impacted flows Assumed flows Question 37 A firm uses its weighted average cost of capital to evaluate the proposed projects for all of its varying divisions. By doing so, the firm: automatically gives preferential treatment in the allocation of funds to its riskiest division. encourages the division managers to only recommend their most conservative projects. maintains the current risk level and capital structure of the firm. automatically maximizes the total value created for its shareholders. allocates capital funds evenly amongst its divisions Question 38 A pro forma financial statement is a financial statement that: expresses all values as a percentage of either total assets or total sales. compares actual results to the budgeted amounts. compares the performance of a firm to its industry. projects future years’ operations. values all assets based on their current market values. Question 39 Sensitivity analysis: looks at the most reasonably optimistic and pessimistic results for a project. helps identify the variable within a project that presents the greatest forecasting risk. is used for projects that cannot be analyzed by scenario analysis because the cash flows are unconventional. is generally conducted prior to scenario analysis just to determine if the range of potential outcomes is acceptable. 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. Question 40 The rate of return on which one of the following is used as the risk-free rate? Long-term government bonds Long-term corporate bonds Inflation, as measured by the Consumer Price Index U.S. Treasury bill Large-company stocks Question 41 Which one of the following measures the amount of systematic risk present in a particular risky asset relative to that in an average risky asset? Squared deviation Beta coefficient Standard deviation Mean Variance Question 42 Systematic risk is: totally eliminated when a portfolio is fully diversified. defined as the total risk associated with surprise events. risk that affects a limited number of securities. measured by beta. measured by standard deviation Question 43 Lester lent money to The Corner Store by purchasing bonds issued by the store. The rate of return that he and the other lenders require is referred to as the: pure play cost. cost of debt. weighted average cost of capita…

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