20. All else held constant, the earnings per share will:

a) decrease as the total revenue of the firm increases.
b) increase as the tax rate increases.
c) decrease as the costs decrease.
d) decrease as net income increases.
e) decrease as the number of shares outstanding increase.

21. Accepting a positive net present value (NPV) project:

a) guarantees all cash flow assumptions will be realized.
b) ignores the inherent risks within the project.
c) means the present value of the expected cash flows is equal to the project’s cost.
d) is expected to increase the stockholders’ value by the amount of the NPV.
e) indicates the project will pay back within the required period of time.

22. You have decided to purchase shares of GHC but need an expected 12 percent rate of return to compensate for the perceived risk of such ownership. What is the maximum price you should pay per share if the company pays a constant $2.70 annual dividend per share?

a) $23.04
b) $32.67
c) $21.59
d) $22.50
e) $34.29

24. The primary reason that company projects with positive net present values are considered acceptable is that:

a) the project's rate of return exceeds the rate of inflation.
b) they create value for the owners of the firm.
c) they return the initial cash outlay within three years or less.
d) the investment's cost exceeds the present value of the cash inflows.
e) the required cash inflows exceed the actual cash inflows.

25. One of the primary weaknesses of many financial planning models is that they:

a) are iterative in nature.
b) ignore cash payouts to stockholders.
c) ignore the goals and objectives of senior management.
d) rely too much on financial relationships and too little on accounting relationships.
e) ignore the size, risk, and timing of cash flows.

26. Which one of these is a cash outflow from a corporation?

a) sale of common stock
b) issuance of debt
c) dividend payment
d) sale of an asset
e) profit retained by the firm

27. The ultimate control of a corporation lies in the hands of the corporate:
a) chief executive officer.
b) president.
c) chairman of the board.
d) board of directors.
e) stockholders.

28. You invested in long-term corporate bonds and earned 6.1 percent. During that same time period, large-company stocks returned 12.6 percent, long-term government bonds returned 5.7 percent, U.S. Treasury bills returned 4.2 percent, and inflation averaged 3.8 percent. What average risk premium did you earn?

a) 6.5%
b) 1.9%
c) 2.3%
d) 1.3%
e) 0.4%

29. A stock pays a constant annual dividend and sells for $31.11 a share. If the dividend yield of this stock is 9 percent, what is the dividend amount?

a) $2.40
b) $2.20
c) $2.80
d) $1.40
e) $1.80

30. The risk premium is computed by ______ the average return for the investment.

a) subtracting the average return on the U.S. Treasury bill from
b) subtracting the inflation rate from
c) adding the average return on the U.S. Treasury bill to
d) adding the inflation rate to
e) subtracting the average return on long-term government bonds from

31. A public firm's market capitalization is equal to the:

a) total book value of assets less book value of debt.
b) firm's stock price multiplied by the number of shares authorized.
c) the maximum value an acquirer would pay for the firm in an acquisition.
d) price per share multiplied by number of shares outstanding.
e) par value of common equity.

32. Assuming the number of shares outstanding remains constant, an increase in dividends per share will reduce the:

a) cash flow to stockholders.
b) earnings per share.
c) addition to retained earnings.
d) net income.
e) cash flow from assets.

33. The capital gains yield plus the dividend yield on a security is called the:

a) current yield.
b) average period return.
c) variance of returns.
d) geometric return.
e) total return.

34. You just paid $525,000 for a security that will pay you and your heirs $25,000 a year forever. What rate of return will you earn?

a) 4.39%
b) 4.50%
c) 5.00%
d) 4.76%
e) 4.95%

35. The amount that investors are willing to pay for each dollar of annual earnings is reflected in the:

a) debt-equity ratio.
b) DuPont identity.
c) price-earnings ratio.
d) return on equity.
e) return on assets.

36. Benson’s established a trust fund that provides $125,000 in college scholarships each year. The trust fund earns a rate of return of 6.15 percent and distributes only its annual income. How much money did Benson’s contribute to establish the trust fund?

a) $2,150,000.00
b) $2,032,520.33
c) $2,291,613.13
d) $2,018,970.44
e) $1,987,408.15

37. A bond with a coupon rate of 6 percent that pays interest semiannually and is priced at par will have a market price of _____ and interest payments in the amount of _____ each.

a) $1,000; $30
b) $1,000; $60
c) $1,060; $60
d) $1,060; $30
e) $1,006; $60

38. Book value:

a) is more of a financial than an accounting valuation.
b) is based on historical cost.
c) is adjusted to market value whenever the market value exceeds the stated book value.
d) generally tends to exceed market value when fixed assets are included.
e) is equivalent to market value for firms with fixed assets.

39. No matter how many forms of investment analysis you employ:

a) the internal rate of return will always produce the most reliable results.
b) only the first three years of a project ever affect its final outcome.
c) the initial costs will generally vary considerably from the estimated costs.
d) a project will never be accepted unless the payback period is met.
e) the actual results from a project may vary significantly from the expected results.

40. The net present value of a project is equal to the:

a) sum of the project’s anticipated cash flows.
b) future value of the future cash flows minus the present value of the initial cost.
c) present value of the future cash flows.
d) present value of the future cash flows minus the initial cost.
e) future value of the future cash flows minus the initial cost.

41. All else constant, a bond will sell at _____ when the yield to maturity is _____ the coupon rate.

a) at par; greater than
b) a discount; greater than
c) a premium; equal to
d) a premium; greater than
e) at par; less than

42. The financial statement summarizing a firm's accounting performance over a period of time is the:

a) income statement.
b) tax reconciliation statement.
c) balance sheet.
d) statement of cash flows.
e) statement of equity.

43. An asset that can be quickly converted into cash without significant loss in value is referred to as being:

a) fixed.
b) marketable.
c) liquid.
d) intangible.
e) tangible.

44. Ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as:

a) asset management ratios.
b) liquidity measures.
c) long-term solvency measures.
d) profitability ratios.
e) market value ratios.

45. A bond with a face value of $1,000 that sells for less than $1,000 in the market is called a _____ bond.

a) premium
b) par
c) floating rate
d) zero coupon
e) discount

46. Which one of these is a non-cash item?
a) selling expenses
b) dividends
c) interest expense
d) depreciation
e) current taxes

47. A project has an initial cost of $2,250. The cash inflows are $0, $500, $900, and $700 for Years 1 to 4, respectively. What is the payback period?

a) 3.98 years
b) never
c) 2.84 years
d) 3.92 years
e) 2.97 years

48. The average risk premium on U.S. Treasury bills over the period of 1926 to 2014 was _____ percent.

a) 3.1
b) 3.8
c) 1.6
d) 0.0
e) 2.2

49. Winslow, Inc. stock is currently selling for $40 a share. The stock has a dividend yield of 3.8 percent. How much dividend income will you receive per year if you purchase 500 shares of this stock?

a) $760
b) $329
c) $152
d) $190
e) $1,053

20. All else held constant, the earnings per share will: a) decr...