All else equal, the contribution margin must increase as:

30

​Which one of these is a correct definition?

· Correct Answer

​Current assets are assets with short lives, such as inventory.

· Correct Answer

​Long-term debt is defined as a residual claim on a firm's assets.

· Correct Answer

​Current liabilities are debts that must be repaid in 18 months or less.

· Correct Answer

​Tangible assets are fixed assets such as patents.

· Correct Answer

​Net working capital equals current assets plus current liabilities.

29

All else held constant, interest rate risk will increase when the time to maturity:​

· Correct Answer

​Increases or the coupon rate decreases.

· Correct Answer

​Increases or the coupon rate increases.

· Correct Answer

​Decreases or the coupon rate increases.

· Correct Answer

​Decreases and the coupon rate equals zero.

· Correct Answer

28

The market price of a bond increases when the:​

· Correct Answer

​Face value decreases.

· Correct Answer

​Coupon rate decreases.

· Correct Answer

​Par value decreases.

· Correct Answer

​Coupon is paid annually rather than semiannually.

· Correct Answer

​Discount rate decreases.

27

Book value:​

· Correct Answer

​Generally tends to exceed market value when fixed assets are included.

· Correct Answer

​Is adjusted to market value whenever the market value exceeds the stated book value.

· Correct Answer

​Is more of a financial than an accounting valuation.

· Correct Answer

​Is equivalent to market value for firms with fixed assets.

· Correct Answer

​Is based on historical cost.

26

The cash flow resulting from a firm's ongoing, normal business activities is referred to as the:​

· Correct Answer

​Cash flow to investors.

· Correct Answer

​Additions to net working capital.

· Correct Answer

​Net capital spending.

· Correct Answer

​Cash flow to retained earnings.

· Correct Answer

​Operating cash flow.

25

An efficient capital market is one in which:​

· Correct Answer

​Taxes are irrelevant.

· Correct Answer

​Security prices reflect all available information.

· Correct Answer

​Brokerage commissions are zero.

· Correct Answer

​Securities always offer a positive NPV.

· Correct Answer

​All investments earn the market rate of return

24

All else equal, the contribution margin must increase as:​

· Correct Answer

​Sales price per unit declines.

· Correct Answer

​The fixed cost per unit declines.

· Correct Answer

​The sales price minus the fixed cost per unit increases.

· Correct Answer

​The variable cost per unit declines.

· Correct Answer

​Both the sales price and variable cost per unit increase

23

​Which one of the following statements about preferred stock is true?

· Correct Answer

​Dividends on preferred stock payable during the next twelve months are considered to be a corporate liability.

· Correct Answer

​There is no significant difference in the voting rights granted to preferred and common shareholders.

· Correct Answer

​Preferred stock usually has a stated liquidating value of $100 per share.

· Correct Answer

​Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense.

· Correct Answer

​If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year

22

Which one of these statements is correct concerning the cash cycle?​

· Correct Answer

​Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.

· Correct Answer

​Increasing the accounts payable period increases the cash cycle.

· Correct Answer

​A positive cash cycle is preferable to a negative cash cycle.

· Correct Answer

​The longer the cash cycle, the more likely a firm will need external financing.

· Correct Answer

​The cash cycle can exceed the operating cycle if the payables period is equal to zero.

21

Which one of the following statements is false?​

· Correct Answer

​Aging schedules are used to monitor accounts receivable.

· Correct Answer

​If sales are seasonal, the percentages shown on an aging schedule will vary during the year.

· Correct Answer

​Collection efforts may involve legal action.

· Correct Answer

​An aging schedule includes only overdue accounts.

· Correct Answer

​Investments in accounts receivable equal average daily sales times average collection period.

19

A firm has a debt-equity ratio of .64, a pretax cost of debt of 8.5 percent, and a required return on assets of 12.6 percent. What is the cost of equity if you ignore taxes?​

· Correct Answer

​11.12%

· Correct Answer

​16.38%

· Correct Answer

​15.22%

· Correct Answer

​8.55%

· Correct Answer

​8.06%