STUDY GUIDE 1. What is the beta of a stable whose equity has an expected requite of 21.30%, the destroy-free blame is 7%, and the expected requite on the supply negotiate is 18%? 2. Two reasons for the agency drift in late confirmations is: A. Dispersion of occupation, B. Managers apprehend how to trodden the stable emend than supplyholders, C. Disengagement of occupation and govern of the stable, D. [A] and [C]. 3. Cardinal budgeting includes the evaluation of which of the followingcitedcited? A. Bulk of coming specie issues barely B. Bulk and timing of coming specie issues C. Timing and destroy of coming specie issues D. Destroy and bulk of coming specie issues barely E. Size, timing, and destroy of coming specie issues 4. According to corpoblame finance, the financial troddenr is obligatory for: A. Cardinal budgeting, B. The Financing conclusion, C. Dividend plan, D. All of the over. 5. The primitive end of a corpoblame finance troddenr is to maximize: A. Floating proceeds B. Negotiate divide C. Estimate of divides uncollected D. Appreciate of the stable E. Revenue development 6. Which of the followingcitedcited trodden stimuluss may align troddenment ends retreat divideholder gains? I. Employee supply libertys II. Threat of a takeover III. Treatment boones tied to deed ends IV. Threat of a substitute combat A. I and III barely B. II and IV barely C. I, II, and III barely D. I, III, and IV barely E. I, II, III, and IV 7. The class of stakeholders of a stable includes: A. Anyone retreat a trodden or introdden gain in the stable as an ongoing employment anxiety. B. Anyone retreat govern of the stable. 8. The net exhibit appreciate of any cannonade represents the dissimilarity betwixt the cannonades: A. specie inflows and outflows. B. require and its net gain. C. require and its negotiate appreciate. D. specie issues and its proceeds. E. proceeds and liabilities. 9. The payback determination is the tediousness of space it takes an cannonade to geneblame adapted specie issues to strengthen the device to: A. property a urban annual specie issue. B. property a urban specie issue from proceeds. C. offset its urban expenses. D. offset its sum expenses. E. recoup its judicious require. 10. Which one of the followingcitedcited defines the inaspect blame of requite for a device? A. Abatement blame that engenders a nothing specie issue from proceeds B. Abatement blame that results in a nothing net exhibit appreciate for the device C. Abatement blame that results in a net exhibit appreciate correspondent to the device's judicious require D. Blame of requite required by the device's investors E. The device's floating negotiate blame of requite 11. Twain Projects A and B are enlivening as fractions devices. However, the excerption of either one of these devices eliminates the liberty of selecting the other device. Which one of the followingcitedcited provisions best defines the conformity betwixt Device A and Device B? A. Mutually unpopular B. Conventional C. Multiple excellent D. Dual requite E. Crosswise 12. Which one of the followingcitedcited indicates that a device is expected to engender appreciate for its owners? A. Profitforce condemnation hither than 1.0 B. Payback determination important than the required determination of space C. Urban net exhibit appreciate D. Urban mean accounting blame of requite E. Inaspect blame of requite that is hither than the device’s convenience require 13. The net exhibit appreciate: A. lowers as the required or hurdle blame of requite extensions. B. is correspondent to the judicious cannonade when the inaspect blame of requite is correspondent to the required requite. C. system of resolution cannot be applied to mutually unpopular devices. D. is troddenly kindred to the abatement blame. E. is natural by the timing of an cannonade's specie issues. 14. If an cannonade is conceding a requite that is correspondent to the required require of cardinal, the device's net exhibit appreciate achieve be: A. urban. B. important than the device's judicious cannonade. C. nothing. D. correspondent to the device's net gain. E. hither than, or correspondent to, nothing. 15. If the judicious cannonade of device X is -$400 pet dollar, the specie issue at the end of year 1 is +$ 960 pet and at the end of year 2 is $-572 pet. Is the IRR the frequented dupe to execute the cannonade conclusion? (No scarcity for calculations, exact defense yes, no, or mayhap). 16. One involved troddenrial stimulus is: A. The stable’s chance of failure, B. Stock-options, C. A boon, D. [B] and [C]. 17. Which one of the followingcitedcited systems of resolution is most alienate to use when two cannonades are mutually unpopular? A. Inaspect blame of requite B. Profitforce condemnation C. Net exhibit appreciate D. Equivalent annuities E. B and D 18. The net exhibit appreciate of device A is $442 retreat a manliness of 5 years. The net exhibit appreciate of device B is $478 retreat a manliness of 10 years. If the WACC is 12% and twain devices are mutually unpopular which one you achieve glean? 19. Any alters to a stable's deviceed coming specie issues that are caused by adding a new device are referred to as which one of the followingcitedcited? A. Eroded specie issues B. Deviated deviceions C. Incremental specie issues D. Straightly collisioned issues E. Assumed issues 20. Jamie is analyzing the estimated net exhibit appreciate of a device lower variegated what if scenarios. The image of resolution that Jamie is doing is best pictorial as: A. sensitivity resolution. B. erosion planning. C. scenario resolution. D. avail planning. E. convenience evaluation 21. If financial negotiates are not fertile, then: A. Expected requites are not scarcityed, B. The scarcity for a abatement blame to dissect device specie issues is not scarcityed, C. Estimates of expected requites fixed on certainty appraisements are not current, D. None of the over. 22. Scenario resolution: A. mentions the collision a $1 alter in sales has on the inaspect blame of requite. B. mentions which unsteady has the highest collision on a device's net exhibit appreciate. C. helps mention the sedate collocate of expectations for a device's anticipated remainder. D. evaluates a device's net exhibit appreciate conjuncture sensitivity resolution evaluates a device's inaspect blame of requite. E. mentions the arbitrary strike and arbitrary best remainder that could forforever arise. 23. Turner Industries inaugurated a new device three months ago. Sales arising from this device are bland all expectations. Given this, which one of the followingcitedcited is troddenment most apt to tool? A. Liberty to hold B. Soft agreementning C. Strategic liberty D. Liberty to surrender E. Liberty to amplify 24. By the liberty to hold: A. may heighten the inaspect blame of requite on a device. B. may lowerestimate the net exhibit appreciate of a device. C. ignores the force of a troddenr to extension output followingcited a device has been tooled. D. is the selfselfsame as by all strategic libertys. E. ignores the appreciate of discontinuing a device coming. 25. The force to retreat an cannonade: A. is commbarely referred to as the best-case scenario. B. is precious granted there are stipulations lower which the cannonade achieve own a urban net exhibit appreciate in the coming. C. ensures that the cannonade achieve own an expected net exhibit appreciate that is urban. D. offsets the scarcity to precede sensitivity resolution. E. is referred to as the liberty to surrender. 26. Illustreprove the concept of incremental specie issue resolution and its design. 27. Identify three troddenrial libertys that detail to device resolution and illustreprove how those libertys feign the net exhibit appreciate of a device. 28. Which one of the followingcitedcited defines systemic destroy? A. Economic-driven destroy that feigns a abundant estimate of proceeds B. An separeprove certainty's sum destroy C. Diversifiable destroy D. Asset summit destroy E. Destroy rare to a stable's troddenment 29. Which of the followingcitedcited provisions can be used to define freakish destroy? I. Asset-summit destroy II. Diversifiable destroy III. Negotiate destroy IV. Rare destroy A. I and IV barely B. II and III barely C. I, II, and IV barely D. II, III, and IV barely E. I, II, III, and IV 30. Which one of the followingcitedcited statistics measures the quantity of essential destroy exhibit in a summit destroyy asset not-absolute to that in an mean destroyy asset? A. Squared hiatus B. Beta cofertile C. Gauge hiatus D. Mean E. Hostility 31. From the financial summit of examination the asset aspect of the et sheet of a confirmation includes: A. Urban proceeds, B. Development proceeds, C. Proceeds in attribute, D. [B] and [C]. 32. Which one of the followingcitedcited is the acception of the certainty negotiate continuity? A. Risk-free blame B. Negotiate destroy reward C. Beta cofertile D. Destroy reward on an separeprove asset E. Negotiate blame of requite 33. Which one of the followingcitedcited is the insufficiency required blame of requite on a new cannonade that executes that cannonade agreeable to any implicit investor? A. Risk-free blame B. Negotiate destroy reward C. Expected requite minus the destroy-free blame D. Negotiate blame of requite E. Require of cardinal 34. Which one of the followingcitedcited is the inference of the destroy reward for an separeprove certainty? E(R) is the expected requite on the certainty, Rf is the destroy-free blame, β is the certainty's beta, and E(RM) is the expected blame of requite on the negotiate. A. E(RM) - Rf B. E(R) - E(RM) C. E(R) - [E(RM) + Rf] D. β[E(RM) - Rf] E. β[E(R) - Rf] 35. Which one of the followingcitedcited is the best specimen of freakish destroy? A. Inflation bland negotiate expectations B. A warehouse energy C. Lower in corpoblame tax blames D. Lower in the appreciate of the dollar E. Extension in not-notorious sepaadmonish consumer spending 36. Which one of the followingcitedcited is the best specimen of essential destroy? A. Discovery of a important gas scene B. Lower in textile imports C. Extension in unwandering exports D. Lower in unseemly private emanation E. Lower in troddenment boones for banking executives 37. Gauge hiatus measures _____ destroy conjuncture beta measures _____ destroy. A. essential; freakish B. freakish; essential C. sum; freakish D. sum; essential E. asset-specific; negotiate 38. Which one of the followingcitedcited portfolios achieve own a beta of nothing? A. A portfolio that is correspondently as destroyy as the overall negotiate B. A portfolio that consists of a unique supply C. A portfolio middle simply of U. S. Treasury bills D. A portfolio retreat a nothing hostility of requites E. No portfolio can own a beta of nothing. 39. A destroyy certainty has hither destroy than the overall negotiate. What must the beta of this certainty be? A. 0 B. > 0 but < 1 C. 1 D. > 1 E. The beta cannot be mentiond fixed on the notification granted. 40. The adduction of a destroyy certainty to a amply variegated portfolio: A. must lower the portfolio's expected requite. B. must extension the portfolio beta. C. may or may not feign the portfolio beta. D. achieve extension the freakish destroy of the portfolio. E. achieve own no property on the portfolio beta or its expected requite. 41. Which one of the followingcitedcited is the perpendicular catch of the certainty negotiate continuity? A. Negotiate blame of requite B. Separeprove certainty blame of requite C. Negotiate destroy reward D. Separeprove certainty beta various by the negotiate destroy reward E. Risk-free blame 42. Fixed on the cardinal asset pricing type, investors are consoled fixed on which of the followingcitedcited? I. Negotiate destroy reward II. Portfolio gauge hiatus III. Portfolio beta IV. Risk-free blame A. I and III barely B. II and IV barely C. I, II, and III barely D. I, III, and IV barely E. I, II, III, and IV 43. Ben & Terry's has an expected requite of 12.9 percent and a beta of 1.25. The expected requite on the negotiate is 11.7 percent. What is the destroy-free blame? A. 3.87 percent B. 4.24 percent C. 4.61 percent D. 6.29 percent E. 6.92 percent 44. Lower the niggardly limitation of corpoblame governance, the financial troddenr is obligatory for making conclusions that are in the best gain of the stable's owners. A. True, B. False 45. The importanceed mean require of cardinal is defined as the importanceed mean of a stable's: A. requite on its cannonades. B. require of equity and its followingcited-tax require of debit. C. pretax require of debit and equity securities. D. fastening coupon blames. E. dividend and cardinal gains grants. 46. Which of the followingcitedcited achieve extension the require of equity for a stable retreat a beta of 1.1? I. Lower in the certainty's beta II. Lower in the negotiate destroy reward III. Lower in the destroy-free blame IV. Extension in the destroy-free blame A. II barely B. III barely C. I and II barely D. II and III barely E. I and IV barely 47. All else immutable, which of the followingcitedcited achieve extension the followingcited-tax require of debit for a stable? I. Extension in the grant to manliness of the stable's uncollected debit II. Lower in the grant to manliness of the stable's uncollected debit III. Extension in the stable's tax blame IV. Lower in the stable's tax blame A. I barely B. I and III barely C. I and IV barely D. II and III barely E. II and IV barely 48. Which one of the followingcitedcited achieve feign the cardinal erection importances used to scold a stable's importanceed mean require of cardinal? A. Lower in the quantity appreciate of a stable's equity B. Lower in a stable's tax blame C. Extension in the negotiate appreciate of the stable's vile supply D. Extension in the negotiate destroy reward E. Extension in the stable's beta 49. A stable has a require of equity of 13 percent, a require of preferred of 11 percent, and an followingcited-tax require of debit of 6 percent. Given this, which one of the followingcitedcited achieve extension the stable's importanceed mean require of cardinal? A. Increasing the stable's tax blame B. Issuing new fastenings at par C. Redeeming divides of vile supply D. Increasing the stable's beta E. Increasing the debit-equity agreement 50. Bermuda Cruises issues barely vile supply and coupon fastenings. The stable has a debit-equity agreement of 0.65. The require of equity is 18.3 percent and the pretax require of debit is 9.9 percent. What is the cardinal erection importance of the stable's equity if the stable's tax blame is 34 percent? A. 46.75 percent B. 49.97 percent C. 52.93 percent D. 59.08 percent E. 60.61 percent 51. M & M sentence I states that the cardinal erection drift is inappropriate A. True, B. False. 52. The WACC of the stable is 13%. You apprehend that the stable's require of debit is 10% and the require of equity 20%. What adjustment of the stable is financed retreat debit? 53. Paying gain reduces the taxes appropriate by a stable. Which one of the followingcitedcited provisions applies to this conformity? A. Static speculation of gain blames B. M&M Sentence I C. Financial destroy D. Gain tax fall E. Homemade leverage 54. No disengagement in the cardinal negotiates: A. Provides buttress to the pecking dispose speculation of Myers and Majluf, B. Means that there is barely one big global negotiate, C. Builds from Akerlof’s lemons drift, D. [A] and [C]. 55. Which one of the followingcitedcited is a trodden failure require? A. Loss of customer goodachieve resulting from a failure filing B. Legal and accounting fees kindred to a failure business C. Treatment space departed on a failure business D. Any financial mortify require E. Costs a stable spends enigmatical to relinquish failure 56. Given the lemons drift: A. One can mark a negotiate breakdown, B. Notification asymmetries are critical to illustreprove the aptitude of the negotiates, C. Cross-subsidization may fall, D. All of the over. 57. Two determinants of the optimal debit agreement are: A. Depreciation, B. Operating destroy, C. Final tax blame, D. [B] and [C]. 58. Which one of the followingcitedcited statements is the heart power of M&M Sentence I (externally taxes)? A. A stable's require of equity is troddenly kindred to the stable's debit-equity agreement. B. A stable's WACC is troddenly kindred to the stable's debit-equity agreement. C. The gain tax fall extensions the appreciate of a stable. D. The cardinal erection of a stable is sumly inappropriate. E. Levered stables own important appreciate than unlevered stables. 59. Which one of the followingcitedcited is an coil of M&M Sentence II (retreat taxes)? A. A stable's optimal cardinal erection is 100 percent debit. B. WACC is natural by the cardinal erection of a stable. C. WACC lowers as the debit-equity agreement extensions. D. A stable's cardinal erection is inappropriate. E. The destroy of equity depends on financial leverage and the destroyiness of the stable's operations. 60. Which one of the followingcitedcited represents the exhibit appreciate of the gain tax fall? A. D × (1 - Tc) B. D/(1 - Tc) C. D/Tc D. D - D(Tc) E. Tc × D 61. Which one of the followingcitedcited factors favors a high-dividend payout? A. Low business requires on supply trades B. Lower taxes on cardinal gains than on dividends C. Tax deferment on cardinal gains, but not on dividend proceeds D. Flotation requires E. Corpoblame divideholders 62. Specie dividends cast which two of the followingcitedcited signals to the negotiate? I. Agency requires achieve be lowered since hither specie achieve be held by the stable. II. The stable is planning on downsizing. III. The stable is floatingly, and expects to remain to be, gainable. IV. The stable achieve no longer precede supply repurchases. A. I and II barely B. II and III barely C. III and IV barely D. II and IV barely E. I and III barely 63. The winners’ execrebuke in IPOs refers to: A. The disclaiming appraisement reaction followingcited going notorious owing of overvaluation. B. The disclaiming appraisement reaction followingcited going notorious owing of colluding betwixt the syndicate of lowerwriters and the issuer. 64. The beta of the supply is 1.25, the final tax blame of the stable is 36%, and the debit equity agreement is 0.30. What is the appreciate of the unlevered beta? 65. Illustreprove briefly the pecking dispose speculation of funds open by Myers and Majluf (1984)? What is Ross (1977) dispute for disengagement in the cardinal negotiates?
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