Questions from Financial Markets

Q: 1. Which of the following depository institutions is only state-

1. Which of the following depository institutions is only state-chartered? a. Commercial banks b. Savings and loan associations c. Savings banks d. Credit unions 2. Which of the following terms...

Q: 1. What is the profitability index (PI)? a

1. What is the profitability index (PI)? a. The benefit/cost ratio of a capital budgeting project, in present value terms. b. The benefit/cost ratio of a capital budgeting project, in future value ter...

Q: 1. The payback period is the amount of time until a

1. The payback period is the amount of time until a project achieves which of the following? a. Profits are positive b. Total cash flows (outflows and inflows) sum to zero c. Revenues equal operating...

Q: 1. Why might managers prefer to use capital budgeting techniques other

1. Why might managers prefer to use capital budgeting techniques other than the NPV? a. They give the manager an intuitive feel for a safety margin in case cash flow estimates are too high. b. Because...

Q: 1. What is the stand-alone principle? a

1. What is the stand-alone principle? a. Mutually exclusive projects should be considered one at a time. b. Independent projects should be considered one at a time. c. Each capital budgeting project m...

Q: 1. What are the components of a firm’s capital structure?

1. What are the components of a firm’s capital structure? a. Current assets and fixed assets b. Current assets, fixed assets, current liabilities, and long-term debt c. Long-term debt, fixed assets, a...

Q: 1. What is the relationship between a project’s cost of capital

1. What is the relationship between a project’s cost of capital and its minimum required rate of return? a. The cost of capital is always greater than the minimum required return. b. The cost of capit...

Q: 1. How is a firm’s after-tax cost of debt

1. How is a firm’s after-tax cost of debt determined? a. It is the same as the before-tax cost of debt. b. It equals the pretax cost of debt estimate multiplied by one minus the firm’s tax rate. c. It...

Q: 1. How is WACC computed? a. It is

1. How is WACC computed? a. It is an average of bank loan interest rates. b. It is a weighted average of the after-tax cost of each long-term financing source used by the firm. c. It is a weighted av...

Q: 1. What does the internal growth rate measure? a

1. What does the internal growth rate measure? a. How quickly firm assets can grow without any new sales. b. How quickly sales can grow without issuing new shares of stock. c. How quickly sales can gr...