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MILESTONE
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24 questions were answered correctly.
1 question was answered incorrectly.
1
Which descriptor relates to the market-based approach for valuing corporations?
Considers the weighted average cost of capital
Involves the average cost of a unit of company income
Considered the truest estimate
Involves an analysis of risk
CONCEPT
Valuing the Corporation
2
Rose is concerned about a stock in her portfolio because in recent periods, the dividend she has received for each
share has gotten smaller while the share price has remained relatively constant.
What financial metric is Rose analyzing?
Dividend cover12/9/2020 Sophia :: Welcome
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Dividend yield
Dividend per share
Payout ratio
CONCEPT
Introduction to Dividends
3
The process of predicting what the market would pay for a company's investments and bonds is
__________.
valuation
assessment
financial management
appraisal
CONCEPT
Goals of Financial Management
4
An electronics company is preparing a capital budget and considering four long-term investments. The payback
period of each project is as follows:
Project A: 4 years
Project B: 5.2 years
Project C: 2.4 years
Project D: 3 years
In theory, which two projects should the company pursue?
Projects C and D12/9/2020 Sophia :: Welcome
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Projects A and B
Projects B and D
Projects A and C
CONCEPT
Introduction to Capital Budgeting
5
Which of the following types of financing is typical for a business in its mature stage?
Bank loans
Start-up venture capital
Equity
Second-round venture capital
CONCEPT
Types of Financing
6
Consider the P/E ratios of the following companies:
Company A: 5.34
Company B: 3.33
Company C: 7.90
Company D: 6.75
Which company has the lowest relative value among investors?
Company C12/9/2020 Sophia :: Welcome
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Company D
Company A
Company B
CONCEPT
Market Value Ratios
7
The pro forma balance sheet reflects the impact of a company's strategic plan on its __________.
assets and liabilities
revenue and expenses
revenue and expenses
share price
CONCEPT
Forecasting the Balance Sheet
8
Which of the following is true of systematic risk?
It is the risk associated with a general downward turn of the market or a market segment.
Research shows that investors can best mitigate this type of risk by holding ≤ 30 assets within a portfolio.
It can be hedged against by choosing investments with negative correlations.12/9/2020 Sophia :: Welcome
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It is affected by the level of diversification within a portfolio.
CONCEPT
Diversification
9 Y
ou invest $1,000 in a stock that has a 15% chance of a 1% return, a 60% chance of a 5% return and a 25%
chance of a 7% return.
What is your expected return after one year?
4.9%
4.3%
4.5%
5.3%
CONCEPT
Expected Return
10
Consider what you have learned about valuing bonds.
A: Coupon rate = 4.5%, YTM = 5.2%
B: Coupon rate = 5%, YTM = 4.5%
C: Coupon rate = 3.5%, YTM = 3.75%
D: Coupon rate = 4%, YTM = 4%
Which of the bonds is selling at par?
C A B12/9/2020 Sophia :: Welcome
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D
CONCEPT
Valuing Bonds
11
Select the true statement about reinvestment risk.
Reinvestment risk is inversely related to interest rate risk.
A smart investor can eliminate reinvestment risk in addition to interest rate risk.
Callable bonds are less exposed to reinvestment risk.
It is the risk that a bond's price will fall below its par value.
CONCEPT
Bond Risk
12
Using the following variables, calculate an organization's cost of common equity.
Rf: 1.5%
βs: 1.4
(Rm – Rf): 8%
10.2%
11.6%
9.7%
12.7%12/9/2020 Sophia :: Welcome
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CONCEPT
Valuing Different Costs
13
What expenses typically come first in the "Expenses" section of an income statement?
Non-operating expenses
Selling, general and administrative expenses
Tax expenses
Irregular expenses
CONCEPT
Standardizing Financial Statements
14
When managing its cash, a company should make use of float to __________.
increase the length of the disbursement cycle
set aside cash for future payments
make payments before they come due
decrease the length of time for a payment to clear the bank
CONCEPT
Cash Management
15
Select the pairing that is correctly matched.12/9/2020 Sophia :: Welcome
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Common stock: usually has a pre-negotiated dividend
Common stock: may only be sold on the secondary market
Preferred stock: stockholders' claim to assets is subordinate to that of debtholders
Preferred stock: the value of the stock is not affected by market factors
CONCEPT
Rules and Rights of Common and Preferred Stock
16
Select the true statement about the bankruptcy process.
A company must still pay its debts on time while in bankruptcy.
Companies that reorganize under Chapter 11 are guaranteed a lower cost of capital in the future.
A Chapter 11 bankruptcy can be quite complicated and can take a long time to complete.
A Chapter 7 bankruptcy is the least common form of bankruptcy for businesses.
CONCEPT
Understanding the Bankruptcy Process
17
Under GAAP, how would dividends paid to company stockholders be accounted for on the statement of
cash flows?
As a decrease in cash flow from financing
As an increase in cash flow from operations12/9/2020 Sophia :: Welcome
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As a decrease in cash flow from investment
As an increase in cash flow from financing
CONCEPT
The Statement of Cash Flows
18
A social media start-up wants to raise funds to support growth by offering shares to a select group of investors.
What type of market transaction should they pursue?
Share buyback
Secondary market offering
IPO
Private placement
CONCEPT
The Security Markets
19
An investment fund that uses more complex investment strategies to generate returns for their wealthy or
institutional investors is a(n) __________.
hedge fund
mutual fund
exchange-traded fund12/9/2020 Sophia :: Welcome
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index fund
CONCEPT
Stock Markets
20
A business that has too little working capital can take what action?
Reduce cash on hand
Increase short-term financing
Reduce credit to consumers
Increase inventory
CONCEPT
Working Capital
21
If Company A has a TIE ratio of 3 and Company B has a TIE ratio of 1.2, then Company A is more likely
to __________ than Company B.
be able to repay its long-term debt
be able to honor its debt payments
need to use cash on hand to meet its interest obligations
default on its short-term debt
CONCEPT
Debt Management Ratios
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Betina is trying to convince a buyer to purchase her company. The buyer wants to know what the company's
overall financial condition was on December 31, 2018.
What type of financial statement should Betina provide?
Income statement
Balance sheet
Statement of changes in equity
Cash flow statement
CONCEPT
Introducing Financial Statements
23
Hans purchased a 20-year corporate bond in 2015 that promised to pay him 3% interest semi-annually for the
life of the loan. The corporation reserved the right to redeem the bond in 2020.
Which of those numbers is the bond's maturity?
2020
20
2015
3
CONCEPT
Key Characteristics of Bonds
24
A company is considering a new plan for its capital structure.12/9/2020 Sophia :: Welcome
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Which of the following is true if, under the new plan, the company's weighted average cost of capital
exceeds the expected return?
The company is over-leveraged.
The company's cost of capital is still at a comfortable level.
The company's value will increase.
The company's proposed capital structure may put it at risk for bankruptcy.
25
Which of the following is an example of a market risk for a company that manufactures automobiles?
A failure in the company's accounts receivable process
Damage to completed cars being transported to a buyer
Being suddenly unable to source a critical component of the automobile
A competitor that offers a similar line of cars with comparable quality at lower prices
CONCEPT
Risk and Capital Budgeting
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