Financial Management Sixth Set

Why does a firm's investment opportunities affect it dividend payout ratio?

• a. Maximization of shareholder wealth strategy

• b. Limited access to market financing

• c. Attempts to increase stock price

• d. All of the above     

If two annuities have the same payments and term, why is an Annuity Due more valuable than an Ordinary Annuity?

• a. The have equal value

• b. Annuity Due payments occur earlier

• c. Annuity Due uses a lower discount rate

• d. Ordinary annuities are consider more risky          

What is the impact of rising interest rates on foreign exchange?

• a. Makes USD decline in value

• b. Has no impact on USD

• c. Increases the value of USD

• d. Increases the value of EUR           

In cash flow statements, which section reflects so-called "spontaneous" accounts which vary with sales?

• a. Cash flow operations

• b. Cash flow investing

• c. Cash flow financing

• d. Cash flow Sales     

What are the practical disadvantages of the Gordon model for equity valuation?

• a. How to use if no dividends are paid

• b. Must project dividends "forever" into the future.

• c. Does not address the appropriate discount rate

• d. All of the above     

What factor determines the "market risk premium" on stocks?

• a. The level of Treasury yields

• b. The investor-perceived riskiness of stocks

• c. Seasonality

• d. Projected future earnings  

Why would a company buy back outstanding stock?

• a. To boost the price of the stock

• b. To increase financial leverage

• c. Lack of investment opportunities

• d. All of the above     

Which factor does NOT affect a firm's WACC?

• a. The market risk premium

• b. The tax rate

• c. Treasury yields

• d. The exchange rate 

Why should an investor diversify the portfolio?

• a. To achieve a better combination of risk and return

• b. To avoid putting "all eggs in one basket"

• c. Stock returns are a function of systematic risk

• d. All of the above     

Which statement about a PE ratio is false?

• a. High PE ratios reflect higher expected growth rates

• b. Low PE stocks are cheap

• c. PE is the ratio of price to earnings

• d. High Beta stocks have lower PE ratios