Questions from Financial Management

Q: Executive salaries have been shown to be more closely correlated to the

Executive salaries have been shown to be more closely correlated to the size of the firm than to its profitability. If a firm’s board of directors is controlled by management rather than outside direc...

Q: A bond’s expected return is sometimes estimated by its YTM and sometimes

A bond’s expected return is sometimes estimated by its YTM and sometimes by its YTC. Under what conditions would the YTM provide a better estimate, and when would the YTC be better?

Q: A sinking fund can be set up in one of two ways

A sinking fund can be set up in one of two ways: a. The corporation makes annual payments to the trustee, who invests the proceeds in securities (frequently government bonds) and uses the accumulated...

Q: Indicate using a (+), (-), or (0) whether each of

Indicate using a (+), (-), or (0) whether each of the following events would probably cause accounts receivable (A/R), sales, and profits to increase, decrease, or be affected in an indeterminate mann...

Q: The values of outstanding bonds change whenever the going rate of interest

The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond pr...

Q: Bradford Manufacturing Company has a beta of 1.45, while

Bradford Manufacturing Company has a beta of 1.45, while Farley Industries has a beta of 0.85. The required return on an index fund that holds the entire stock market is 12.0%. The risk-free rate of i...

Q: Rentz Corporation is investigating the optimal level of current assets for the

Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $2 million as a result of an asset expansion presently...

Q: Consider the following information for three stocks, Stocks X, Y

Consider the following information for three stocks, Stocks X, Y, and Z. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correla...

Q: If interest rates rise after a bond issue, what will happen

If interest rates rise after a bond issue, what will happen to the bond’s price and YTM? Does the time to maturity affect the extent to which interest rate changes affect the bond’s price?

Q: Cyclone Software Co. is trying to establish its optimal capital structure

Cyclone Software Co. is trying to establish its optimal capital structure. Its current capital structure consists of 25% debt and 75% equity; however, the CEO believes that the firm should use more de...