Financial Markets and Institutions
Exam Practice Tests
Course Introduction
This course provides a comprehensive overview of the structure, functioning, and role of financial markets and institutions within the global economy. Students will explore the various types of financial markets, including money markets, capital markets, and derivatives markets, as well as the key institutions such as commercial banks, investment banks, insurance companies, and regulatory agencies that facilitate financial transactions. Emphasis is placed on understanding how these institutions manage risk, allocate capital, and contribute to economic growth, stability, and development. The course also examines regulatory frameworks, current trends, and challenges faced by financial systems in an ever-changing global environment.
Recommended Textbook Fundamentals of Corporate Finance 9th Asia Global Edition by Stephen A. Ross
Available Study Resources on Quizplus
27 Chapters
2613 Verified Questions
2613 Flashcards
Source URL: https://quizplus.com/study-set/2775 Page 2
Chapter 1: Introduction to Corporate Finance
Available Study Resources on Quizplus for this Chatper
61 Verified Questions
61 Flashcards
Source URL: https://quizplus.com/quiz/55334
Sample Questions
Q1) A business formed by two or more individuals who each have unlimited liability for all of the firm's business debts is called a:
A)corporation.
B)sole proprietorship.
C)general partnership.
D)limited partnership.
E)limited liability company.
Answer: C
Q2) A stakeholder is:
A)a person who owns shares of stock.
B)any person who has voting rights based on stock ownership of a corporation.
C)a person who initially founded a firm and currently has management control over that firm.
D)a creditor to whom a firm currently owes money.
E)any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm.
Answer: E
To view all questions and flashcards with answers, click on the resource link above. Page 3
Chapter 2: Financial Statements, Taxes, and Cash Flow
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/55333
Sample Questions
Q1) Webster World has sales of $12,900, costs of $5,800, depreciation expense of $1,100, and interest expense of $700. What is the operating cash flow if the tax rate is 32 percent?
A)$4,704
B)$5,749
C)$5,404
D)$7,036
E)$7,100
Answer: C
Q2) The 2011 balance sheet of Global Tours showed current assets of $1,360 and current liabilities of $940. The 2012 balance sheet showed current assets of $1,640 and current liabilities of $1,140. What was the change in net working capital for 2012?
A)$80
B)$170
C)$190
D)$880
E)$920
Answer: A
To view all questions and flashcards with answers, click on the resource link above.
Page 4
Chapter 3: Working With Financial Statements
Available Study Resources on Quizplus for this Chatper
111 Verified Questions
111 Flashcards
Source URL: https://quizplus.com/quiz/55332
Sample Questions
Q1) According to the Statement of Cash Flows, an increase in interest expense will _____ the cash flow from _____ activities.
A)decrease; operating B)decrease; financing C)increase; operating D)increase; financing E)increase; investment
Answer: A
Q2) In general, what does a high Tobin's Q value indicate and how reliable does that value tend to be?
Answer: A high Tobin's Q indicates that the current market value of a firm's assets represents a high percentage of the firm's replacement cost. Higher Q values tend to indicate that a firm has a significant competitive advantage and/or has attractive investment opportunities. The problem with Tobin's Q is that the information used in the computation of the Q value is often questionable.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 4: Long-Term Financial Planning and Growth
Available Study Resources on Quizplus for this Chatper
103 Verified Questions
103 Flashcards
Source URL: https://quizplus.com/quiz/55331
Sample Questions
Q1) The Parodies Corp. has a 22 percent return on equity and a 23 percent payout ratio. What is its sustainable growth rate?
A)18.68 percent
B)19.25 percent
C)19.49 percent
D)20.39 percent
E)22.00 percent
Q2) Assume that Fake Stone, Inc. is operating at full capacity. Also assume that all costs, net working capital, and fixed assets vary directly with sales. The debt-equity ratio and the dividend payout ratio are constant. What is the pro forma net fixed asset value for next year if sales are projected to increase by 7.5 percent?
A)$19,800
B)$21,070
C)$23,600
D)$24,240
E)$26,810
Q3) Why do financial managers need to understand the implications of both the internal and the sustainable rates of growth?
To view all questions and flashcards with answers, click on the resource link above.
Chapter 5: Introduction to Valuation: The Time Value of Money
Available Study Resources on Quizplus for this Chatper
68 Verified Questions
68 Flashcards
Source URL: https://quizplus.com/quiz/55330
Sample Questions
Q1) You want to deposit sufficient money today into a savings account so that you will have $1,000 in the account three years from today. Explain why you could deposit less money today if you could earn 3.5 percent interest rather than 3 percent interest.
Q2) One year ago, you invested $1,800. Today it is worth $1,924.62. What rate of interest did you earn?
A)6.59 percent
B)6.67 percent
C)6.88 percent
D)6.92 percent
E)7.01 percent
Q3) Steve invested $100 two years ago at 10 percent interest. The first year, he earned $10 interest on his $100 investment. He reinvested the $10. The second year, he earned $11 interest on his $110 investment. The extra $1 he earned in interest the second year is referred to as:
A)free interest.
B)bonus income.
C)simple interest.
D)interest on interest.
E)present value interest.
Page 7
To view all questions and flashcards with answers, click on the resource link above.
Chapter 6: Discounted Cash Flow Valuation
Available Study Resources on Quizplus for this Chatper
132 Verified Questions
132 Flashcards
Source URL: https://quizplus.com/quiz/55329
Sample Questions
Q1) You would like to establish a trust fund that will provide $120,000 a year forever for your heirs. The trust fund is going to be invested very conservatively so the expected rate of return is only 5.75 percent. How much money must you deposit today to fund this gift for your heirs?
A)$2,086,957
B)$2,121,212
C)$2,300,000
D)$2,458,122
E)$2,500,000
Q2) City Bank wants to appear competitive based on quoted loan rates and thus must offer a 7.75 percent annual percentage rate on its loans. What is the maximum rate the bank can actually earn based on the quoted rate?
A)8.06 percent
B)8.14 percent
C)8.21 percent
D)8.26 percent
E)8.58 percent
Q3) Why might a borrower select an interest-only loan instead of an amortized loan, which would be cheaper?
To view all questions and flashcards with answers, click on the resource link above.
Page 8
Chapter 7: Interest Rates and Bond Valuation
Available Study Resources on Quizplus for this Chatper
128 Verified Questions
128 Flashcards
Source URL: https://quizplus.com/quiz/55328
Sample Questions
Q1) The Corner Grocer has a 7-year, 6 percent annual coupon bond outstanding with a $1,000 par value. The bond has a yield to maturity of 5.5 percent. Which one of the following statements is correct if the market yield suddenly increases to 6.5 percent?
A)The bond price will increase by $57.14.
B)The bond price will increase by 5.29 percent.
C)The bond price will decrease by $53.62.
D)The bond price will decrease by 5.43 percent.
E)The bond price will decrease by 5.36 percent.
Q2) The pure time value of money is known as the:
A)liquidity effect.
B)Fisher effect.
C)term structure of interest rates.
D)inflation factor.
E)interest rate factor.
Q3) Inflation has remained low for the past three years but you have come to the conclusion that trend is ending and inflation will increase significantly over the next 18 months. Assume you have reached this conclusion prior to other investors reaching the same conclusion. What adjustments should you make to your bond portfolio in light of your conclusions?
To view all questions and flashcards with answers, click on the resource link above.
Page 9
Chapter 8: Stock Valuation
Available Study Resources on Quizplus for this Chatper
119 Verified Questions
119 Flashcards
Source URL: https://quizplus.com/quiz/55327
Sample Questions
Q1) Beatrice Markets is expecting a period of intense growth and has decided to retain more of its earnings to help finance that growth. As a result, it is going to reduce its annual dividend by 30 percent a year for the next 2 years. After that, it will maintain a constant dividend of $2.50 a share. Last year, the company paid $3.60 as the annual dividend per share. What is the market value of this stock if the required rate of return is 14.5 percent?
A)$14.63
B)$16.70
C)$18.08
D)$19.61
E)$21.23
Q2) Which one of the following statements related to corporate dividends is correct?
A)Dividends are nontaxable income to shareholders.
B)Dividends reduce the taxable income of the corporation.
C)The Chief Executive Officer of a corporation is responsible for declaring dividends.
D)The Chief Financial Officer of a corporation determines the amount of dividend to be paid.
E)Corporate shareholders may receive a tax break on a portion of their dividend income.
To view all questions and flashcards with answers, click on the resource link above.
Page 10
Chapter 9: Net Present Value and Other Investment Criteria
Available Study Resources on Quizplus for this Chatper
112 Verified Questions
112 Flashcards
Source URL: https://quizplus.com/quiz/55326
Sample Questions
Q1) The profitability index is most closely related to which one of the following?
A)payback
B)discounted payback
C)average accounting return
D)net present value
E)modified internal rate of return
Q2) The Green Fiddle is considering a project that will produce sales of $87,000 a year for the next 4 years. The profit margin is estimated at 6 percent. The project will cost $90,000 and will be depreciated straight-line to a book value of zero over the life of the project.
The firm has a required accounting return of 11 percent. This project should be _____ because the AAR is _____ percent.
A)rejected; 10.03
B)rejected; 10.25
C)rejected; 11.60
D)accepted; 10.25
E)accepted; 11.60
Q3) How does the net present value (NPV) decision rule relate to the primary goal of financial management, which is creating wealth for shareholders?
To view all questions and flashcards with answers, click on the resource link above.
11
Chapter 10: Making Capital Investment Decisions
Available Study Resources on Quizplus for this Chatper
108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/55325
Sample Questions
Q1) Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. The equipment can be scraped at the end of the project for 5 percent of its original cost. Annual sales from this project are estimated at $420,000. Net working capital equal to 20 percent of sales will be required to support the project. All of the net working capital will be recouped. The required return is 16 percent and the tax rate is 35 percent. What is the recovery amount attributable to net working capital at the end of the project?
A)$21,000
B)$54,600
C)$84,000
D)$178,000
E)$196,000
Q2) Assume a firm sets its bid price for a project at the minimum level as computed using the discounted cash flow method. Given this, what do you know about the net present value and the internal rate of return on the project as bid?
Q3) In a single sentence, explain how you can determine which cash flows should be included in the analysis of a project.
To view all questions and flashcards with answers, click on the resource link above. Page 12
Chapter 11: Project Analysis and Evaluation
Available Study Resources on Quizplus for this Chatper
106 Verified Questions
106 Flashcards
Source URL: https://quizplus.com/quiz/55324
Sample Questions
Q1) Which of the following variables will be at their highest expected level under a worst case scenario?
I. fixed cost
II. sales price
III. variable cost
IV. sales quantity
A)I only
B)III only
C)II and III only
D)I and III only
E)I, III, and IV only
Q2) A company is considering a project with a cash break-even point of 22,600 units. The selling price is $28 a unit, the variable cost per unit is $13, and depreciation is $14,000. What is the projected amount of fixed costs?
A)$325,000
B)$339,000
C)$342,000
D)$348,000
E)$353,000
To view all questions and flashcards with answers, click on the resource link above.
13
Chapter 12: Some Lessons From Capital Market History
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/55323
Sample Questions
Q1) You want to invest in an index fund which directly correlates to the overall U.S. stock market. How can you determine if the market risk premium you are expecting to earn is reasonable for the long-term?
Q2) Which of the following statements are true based on the historical record for 1926-2007?
I. Risk and potential reward are inversely related.
II. Risk-free securities produce a positive real rate of return each year.
III. Returns are more predictable over the short-term than they are over the long-term.
IV. Bonds are generally a safer investment than are stocks.
A)I only
B)IV only
C)II and III only
D)II and IV only
E)II, III, and IV only
Q3) What are the two primary lessons learned from capital market history?
Use historical information to justify that these lessons are correct.
Q4) Define and explain the three forms of market efficiency.
To view all questions and flashcards with answers, click on the resource link above. Page 14
Chapter 13: Return, Risk, and the Security Market Line
Available Study Resources on Quizplus for this Chatper
108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/55322
Sample Questions
Q1) The excess return earned by an asset that has a beta of 1.34 over that earned by a risk-free asset is referred to as the:
A)market risk premium.
B)risk premium.
C)systematic return.
D)total return.
E)real rate of return.
Q2) The expected return on a portfolio considers which of the following factors?
I. percentage of the portfolio invested in each individual security
II. projected states of the economy
III. the performance of each security given various economic states
IV. probability of occurrence for each state of the economy
A)I and III only
B)II and IV only
C)I, III, and IV only
D)II, III, and IV only
E)I, II, III, and IV
Q3) Explain the difference between systematic and unsystematic risk. Also explain why one of these types of risks is rewarded with a risk premium while the other type is not.
To view all questions and flashcards with answers, click on the resource link above.
Page 15
Chapter 14: Cost of Capital
Available Study Resources on Quizplus for this Chatper
101 Verified Questions
101 Flashcards
Source URL: https://quizplus.com/quiz/55321
Sample Questions
Q1) All else constant, which one of the following will increase a firm's cost of equity if the firm computes that cost using the security market line approach? Assume the firm currently pays an annual dividend of $1 a share and has a beta of 1.2.
A)a reduction in the dividend amount
B)an increase in the dividend amount
C)a reduction in the market rate of return
D)a reduction in the firm's beta
E)a reduction in the risk-free rate
Q2) Stock in Country Road Industries has a beta of 0.97. The market risk premium is 10 percent while T-bills are currently yielding 5.5 percent. Country Road's most recent dividend was $1.70 per share, and dividends are expected to grow at a 7 percent annual rate indefinitely. The stock sells for $32 a share. What is the estimated cost of equity using the average of the CAPM approach and the dividend discount approach?
A)13.94 percent
B)14.06 percent
C)14.21 percent
D)14.38 percent
E)14.50 percent
To view all questions and flashcards with answers, click on the resource link above.
Page 16
Chapter 15: Raising Capital
Available Study Resources on Quizplus for this Chatper
91 Verified Questions
91 Flashcards
Source URL: https://quizplus.com/quiz/55320
Sample Questions
Q1) What is a seasoned equity offering?
A)an offering of shares by shareholders for repurchase by the issuer
B)shares of stock that have been recommended for purchase by the SEC
C)equity securities held by a firm's founder that are being offered for sale to the general public
D)sale of newly issued equity shares by a firm that is currently publicly owned
E)a set number of equity shares that are issued and offered to the public annually
Q2) Explain why there is a tendency for IPOs to be underpriced.
Q3) Before a seasoned stock offering, you owned 7,500 shares of a firm that had 500,000 shares outstanding. After the seasoned offering, you still owned 7,500 shares but the number of shares outstanding rose to 625,000. Which one of the following terms best describes this situation?
A)overallotment
B)percentage ownership dilution
C)Green Shoe
D)Red herring
E)abnormal event
Q4) Explain both a rights offering and the basic characteristics of a right.
To view all questions and flashcards with answers, click on the resource link above.
Page 17
Chapter 16: Financial Leverage and Capital Structure Policy
Available Study Resources on Quizplus for this Chatper
98 Verified Questions
98 Flashcards
Source URL: https://quizplus.com/quiz/55319
Sample Questions
Q1) Down Bedding has an unlevered cost of capital of 13 percent, a cost of debt of 7.8 percent, and a tax rate of 32 percent. What is the target debt-equity ratio if the targeted cost of equity is 15.51 percent?
A).63
B).68
C).71
D).76
E).84
Q2) Which of the following are correct according to pecking-order theory?
I. Firms stockpile internally-generated cash.
II. There is an inverse relationship between a firm's profit level and its debt level.
III. Firms avoid external debt at all costs.
IV. A firm's capital structure is dictated by its need for external financing.
A)I and III only
B)II and IV only
C)I, III, and IV only
D)I, II, and IV only
E)I, II, III, and IV
To view all questions and flashcards with answers, click on the resource link above.
18
Chapter 17: Dividends and Dividend Policy
Available Study Resources on Quizplus for this Chatper
104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/55318
Sample Questions
Q1) Dividend payments are mailed on which one of the following dates?
A)ex-rights date
B)ex-dividend date
C)date of record
D)date of payment
E)declaration date
Q2) The common stock of Checkers, Inc. is selling for $56 a share and the par value per share is $1. Currently, the firm has a total market value of $812,000. How many shares of stock will be outstanding if the firm does a 3-for-2 stock split?
A)9,667 shares
B)12,500 shares
C)14,500 shares
D)17,750 shares
E)21,750 shares
Q3) Which one of the following is a direct result of a 2-for-1 stock split?
A)a 100 percent increase in the number of shareholders
B)a 100 percent increase in the common stock account balance
C)a 100 percent decrease in the stock price
D)a 50 percent increase in the number of shares outstanding
E)a 50 percent decrease in the par value per share
To view all questions and flashcards with answers, click on the resource link above. Page 19
Chapter 18: Short-Term Finance and Planning
Available Study Resources on Quizplus for this Chatper
110 Verified Questions
110 Flashcards
Source URL: https://quizplus.com/quiz/55317
Sample Questions
Q1) Forest Gardens, Inc., has a beginning receivables balance on February 1 of $730. Sales for February through May are $720, $760, $820, and $850, respectively. The accounts receivable period is 30 days. What is the amount of the April collections? Assume a year has 360 days.
A)$720
B)$760
C)$790
D)$820
E)$850
Q2) The Harvester collects 25 percent of sales in the month of sale, 60 percent of sales in the month following the month of sale, and 15 percent of sales in the second month following the month of sale. During the month of April, the firm will collect:
A)60 percent of February sales.
B)15 percent of April sales.
C)60 percent of March sales.
D)15 percent of March sales.
E)25 percent of February sales.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 19: Cash and Liquidity Management
Available Study Resources on Quizplus for this Chatper
101 Verified Questions
101 Flashcards
Source URL: https://quizplus.com/quiz/55316
Sample Questions
Q1) The main purpose of a cash concentration account is to:
A)decrease collection float.
B)decrease disbursement float.
C)consolidate funds.
D)replace a lockbox system.
E)cover compensating balance requirements.
Q2) A repurchase agreement generally has a maximum life of:
A)1 day.
B)a few days.
C)one month.
D)one to three months.
E)three to six months.
Q3) Municipal bonds:
A)are less liquid than U.S.Treasury bills.
B)produce income that is subject to federal income taxation.
C)generally pay a higher coupon than corporate bonds.
D)are also referred to as commercial paper.
E)are issued by the federal government.
Q4) Explain what a zero-balance account is, how it is used, and how it affects cash management.
21
To view all questions and flashcards with answers, click on the resource link above.
Chapter 20: Credit and Inventory Management
Available Study Resources on Quizplus for this Chatper
97 Verified Questions
97 Flashcards
Source URL: https://quizplus.com/quiz/55315
Sample Questions
Q1) Which of the following statements correctly reflect the effects of granting credit to customers?
I. Total revenues may increase if both the quantity sold and the price per unit increase when credit is granted.
II. A firm's cash cycle generally increases if credit is granted, all else equal.
III. Both the cost of default and the cost of discounts must be considered before granting credit.
IV. A firm may have to increase its long-term borrowing if it decides to grant credit to its customers.
A)I, II, and III only
B)II, III, and IV only
C)I, III, and IV only
D)I, II, and IV only
E)I, II, III, and IV
Q2) Why might firms forego discounts offered by their suppliers even though it is costly to do so?
What steps might a firm pursue to be able to take these discounts?
To view all questions and flashcards with answers, click on the resource link above. Page 22
Chapter 21: International Corporate Finance
Available Study Resources on Quizplus for this Chatper
99 Verified Questions
99 Flashcards
Source URL: https://quizplus.com/quiz/55314
Sample Questions
Q1) You are expecting a payment of C$100,000 four years from now. The risk-free rate of return is 3.8 percent in the U.S. and 4.1 percent in Canada. The inflation rate is 2 percent in the U.S. and 3 percent in Canada. Suppose the current exchange rate is C$1 = $0.8273. How much will the payment four years from now be worth in U.S. dollars?
A)$61,129
B)$62,414
C)$66,667
D)$78,202
E)$81,745
Q2) The international Fisher effect states that _____ rates are equal across countries. A)spot
B)one-year future
C)nominal
D)inflation
E)real
Q3) Using currencies A, B, and C construct an example in which triangle arbitrage exists and then show how to exploit it.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 22: Behavioral Finance: Implications for Financial Management
Available Study Resources on Quizplus for this Chatper
45 Verified Questions
45 Flashcards
Source URL: https://quizplus.com/quiz/55313
Sample Questions
Q1) Ramon opened a combination laundry and dry cleaning establishment three years ago. Due to his excellent service and reasonable prices, his business has grown and is doing quite well financially. He has considered expanding this business by opening another location but keeps putting off that decision for fear that the second location will not be a success. Ramon is currently displaying which one of the following behavior characteristics?
A)self-attribution bias
B)overconfidence
C)regret aversion
D)house money effect
E)frame dependence
Q2) Bill feels that he possesses a good dose of "street smarts". Thus, he makes his business decisions based on how a project feels to him rather than taking the time to financially analyze a project. This type of behavior is referred to as:
A)overconfidence.
B)endowment effect.
C)money illusion.
D)affect heuristic.
E)sentiment-based risk.
To view all questions and flashcards with answers, click on the resource link above. Page 24
Chapter 23: Risk Management: An Introduction to Financial Engineering
Available Study Resources on Quizplus for this Chatper
71 Verified Questions
71 Flashcards
Source URL: https://quizplus.com/quiz/55312
Sample Questions
Q1) Which one of the following methods of setting prices would reduce the transactions exposure for both the buyer and seller of a swap contract?
A)setting a permanent price at which a commodity will be traded
B)setting the price at the minimum spot price during a given period of time
C)setting the price equal to the spot price on the delivery date
D)using the average market price over a given period of time
E)setting the contract price equal to some percentage, less than 100 percent, of the market price on any given day
Q2) Long-run financial risk:
A)can frequently be hedged on a permanent basis.
B)is best hedged on a division by division basis within a conglomerate.
C)is related more to near-term transactions than to advancements in technology.
D)generally results from changes in the underlying economics of a business.
E)can generally be hedged such that the financial viability of a firm is protected.
Q3) What are the primary motives for a hedger and a speculator in the derivatives market?
If a wheat farmer sells wheat futures, is that hedging or speculating? Explain.
To view all questions and flashcards with answers, click on the resource link above. Page 25
Chapter 24: Options and Corporate Finance
Available Study Resources on Quizplus for this Chatper
106 Verified Questions
106 Flashcards
Source URL: https://quizplus.com/quiz/55311
Sample Questions
Q1) Employee stock options are primarily designed to do which one of the following?
A)provide employees with put options on their shares of company stock
B)provide an immediately vested benefit to key employees
C)influence the actions and priorities of employees
D)distribute excess cash to key employees to avoid corporate taxation
E)provide an immediate capital gain to certain employees
Q2) Lucas Enterprises recently opted to open a new retail outlet. If the outlet outperforms the expectations, the manager can opt to increase the store's size. If it underperforms, the manager can opt to close the store. These choices that the manager has been given are called:
A)call options.
B)put options.
C)straddles.
D)managerial options.
E)executive options.
Q3) What are the basic similarities and basic differences between warrants and call options?
Q4) Explain how the floor and the ceiling prices for a convertible bond are determined.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 25: Option Valuation
Available Study Resources on Quizplus for this Chatper
86 Verified Questions
86 Flashcards
Source URL: https://quizplus.com/quiz/55310
Sample Questions
Q1) Theta measures an option's:
A)intrinsic value.
B)volatility.
C)rate of time decay.
D)sensitivity to changes in the value of the underlying asset.
E)sensitivity to risk-free rate changes.
Q2) Which one of the following will provide you with the same value that you would have if you just purchased BAT stock?
A)sell a put option on BAT stock and invest at the risk-free rate of return
B)buy both a call option and a put option on BAT stock and also lend out funds at the risk-free rate
C)sell a put and buy a call on BAT stock as well as invest at the risk-free rate of return
D)lend out funds at the risk-free rate of return and sell a put option on BAT stock
E)borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options on BAT stock
Q3) Explain how an increase in T-bill rates will affect the value of an American call and an American put.
To view all questions and flashcards with answers, click on the resource link above. Page 27
Chapter 26: Mergers and Acquisitions
Available Study Resources on Quizplus for this Chatper
79 Verified Questions
79 Flashcards
Source URL: https://quizplus.com/quiz/55309
Sample Questions
Q1) If General Electric, a highly diversified company, were to acquire Ocean Freight Limited, the acquisition would be classified as a _____ acquisition.
A)horizontal
B)longitudinal
C)conglomerate
D)vertical
E)integrated
Q2) Empirical evidence indicates that the returns to shareholders of the target firm vary significantly from the returns to the shareholders of the acquiring firm. Identify the shareholders that tend to realize the smaller return and provide some possible explanation for these low returns.
Q3) In a tax-free acquisition, the shareholders of the target firm:
A)receive income which is considered to be tax-exempt.
B)gift their shares to a tax-exempt organization and therefore have no taxable gain.
C)are viewed as having exchanged shares on a dollar-for-dollar basis.
D)sell their shares to a qualifying entity thereby avoiding both income and capital gains taxes.
E)sell their shares at cost thereby avoiding the capital gains tax.
To view all questions and flashcards with answers, click on the resource link above.
Chapter 27: Leasing
Available Study Resources on Quizplus for this Chatper
72 Verified Questions
72 Flashcards
Source URL: https://quizplus.com/quiz/55308
Sample Questions
Q1) Steven's Auto Detailers is trying to decide whether to lease or buy some new equipment for polishing vehicles. The equipment costs $22,000, has a 3-year life, and will be worthless after the 3 years. The aftertax discount rate is 6.2 percent. The annual depreciation tax shield is $1,760 and the aftertax annual lease payment is $6,650. What is the net advantage to leasing?
A)-$397.11
B)-$248.16
C)$184.92
D)$315.40
E)$462.84
Q2) Which one of the following statements is correct concerning taxes and leasing?
A)Tax-deferral is a legitimate reason for leasing.
B)The lessee should be the party with the higher tax bracket.
C)Generally speaking, lessors tend to benefit from leases while lessees do not.
D)If a firm has significant net operating losses, it should be the lessor in a lease.
E)You should only lease an asset if the lease will be fully amortized.
Q3) Explain the differences between purchasing an asset and leasing an asset.
Q4) Why might a firm opt to sell and leaseback an asset which it currently owns?
Q5) What are some "good" reasons for opting to lease rather than purchase an asset?
To view all questions and flashcards with answers, click on the resource link above. Page 29