FIN 202 QUESTIONS AND ANSWERS SURE A+
✔✔QN=200 (20455) Which of the following statements is true?
a. Preferred stockholders are considered to be the true owners of public corporations.
b. Dividends paid to preferred stockholders are not fixed.
c. Preferred stockholders do not typically have voting rights.
d. Preferred stock can never be converted to common stock. - ✔✔C
✔✔QN=201 (20456) Which of the following statements is true about the general
dividend valuation model?
a. It implies that the underlying value of a share of stock is determined by the market's
expectations of the future dividends that the firm will generate.
b. It implies that the value of a firm's common stock can be determined only if the
expected future dividends are infinite.
c. It implies that the value of a growth stock can be determined by forecasting the future
price of the stock.
d. The model cannot be used to calculate the value of a common stock unless the
dividends exceed the firm's expected growth rate. - ✔✔A
✔✔QN=202 (20448) Applying the valuation procedure to common stocks is more
difficult than applying it to bonds because
a. the size and timing of the dividend cash flows are less certain than the coupon
payments for bonds.
b. common stocks have no final maturity date.
c. unlike the rate of return, or yield, on bonds, the rate of return on common stock is not
directly observable.
d. All of these are true. - ✔✔D
✔✔QN=203 (20430) The largest holders of equity securities are
a. mutual funds.
b. pension funds.
c. foreign investors.
,d. households. - ✔✔D
✔✔QN=204 (20453) Which one of the following statements is NOT true about constant-
growth stocks?
a. Dividend stays constant over time.
b. Mature companies with a history of stable growth show this pattern.
c. Dividends grow at a constant rate each period forever.
d. Dividends that are to be paid out in the distant future have a very small present value
and add little to the stock's price. - ✔✔A
✔✔QN=205 (20458) The constant growth dividend model would be useful to determine
the value of all but which of the following firms?
a. A firm whose earnings and dividends are declining at a fairly steady rate.
b. A firm whose sales, profits, and dividends are growing at an annual average
compound rate of 5 percent.
c. A firm whose earnings and dividends are growing at a fairly steady rate.
d. A firm whose expected sales, profits, and dividends are flat. - ✔✔D
✔✔QN=206 (20445) Which ONE of the following statements is NOT true about
preferred stock?
a. Preferred dividend payments are fixed amounts paid regularly by the firm, similar to
the interest payments on corporate bonds.
b. Preferred dividends are deductable from taxable income just like the interest on
bonds.
c. Preferred stock holders have limited voting privileges relative to common-stock
owners.
d. While preferred stock is legally classified as perpetuities, some issues do have a
fixed maturity. - ✔✔B
✔✔QN=207 (20460) Which of the following statements about preferred stock is false?
a. Preferred stock has a higher-priority claim on the firm's assets than common stock.
b. Failure to pay dividends will result in default.
c. Preferred stock has a lower-priority claim on the firm's assets than the firm's creditors
in the event of default.
d. Preferred stock typically pays a fixed dividend. - ✔✔B
✔✔QN=208 (20436) The least efficient of all the different types of secondary markets is
the
a. auction market.
b. direct search market.
c. dealer market.
d. broker market. - ✔✔B
✔✔QN=209 (20432) Which ONE of the following statements is true about secondary
markets in the United States?
,a. In terms of total volume of activity and total capitalization of the firms listed, the
NASDAQ is the largest in the world and the NYSE is the second largest.
b. In terms of the number of companies listed and shares traded on a daily basis,
NASDAQ is larger than the NYSE.
c. Firms listed on the NASDAQ tend to be, on average, larger in size, and their shares
trade more frequently than firms whose securities trade on NYSE.
d. In the United States, most secondary market transactions are done over the counter.
- ✔✔B
✔✔QN=210 (20441) Which one of the following statements is NOT true about auction
markets?
a. In an auction market, buyers and sellers face each other directly and bargain over
price.
b. The NASDAQ is the most efficient stockmarket in the United States.
c. The New York Stock Exchange is the best-known example of an auction market.
d. The auctioneer in this case is the specialist, who is designated by the exchange to
represent orders placed by public customers. - ✔✔B
✔✔QN=211 (20444) Which one of the following statements is NOT true about preferred
stock?
a. Preferred stock represents ownership in the firm.
b. Owners of preferred stock are not guaranteed dividend payments by the firm.
c. Preferred stock dividends are fixed financial amounts paid regularly by the firm just
like bond coupon payments.
d. Preferred stock holders have limited voting privileges relative to common-stock
owners. - ✔✔B
✔✔QN=212 (20470) Which one of the following statements is NOT true?
a. Accepting a positive-NPV project increases shareholder wealth.
b. Accepting a negative-NPV project has no impact on shareholder wealth.
c. Accepting a negative-NPV project decreases shareholder wealth.
d. Managers are indifferent about accepting or rejecting a zero NPV project. - ✔✔B
✔✔QN=213 (20462) Which of the following are aspects of independent projects?
a. Their cash flows are related.
b. Their cash flows are unrelated.
c. Selecting one would automatically eliminate accepting the other.
d. None of these. - ✔✔B
✔✔QN=214 (20463) Two projects are considered to be independent if
a. (i) selecting one would have no bearing on accepting the other.
b. (ii) their cash flows are unrelated.
c. Both (i) and (ii).
d. None of these. - ✔✔C
, ✔✔QN=215 (20477) Advantages of the payback method include the following.
a. (i) The technique is simple for managers to compute and interpret.
b. (ii) It is a good measure of liquidity risk.
c. Both (i) and (ii).
d. None of these. - ✔✔C
✔✔QN=216 (20483) Which one of the following cash flow patterns is NOT an
unconventional cash flow pattern?
a. A positive initial cash flow is followed by negative future cash flows.
b. Future cash flows from a project could include both positive and negative cash flows.
c. A negative initial cash flow is followed by positive future cash flows.
d. A cash flow stream looks similar to a conventional cash flow stream except for a final
negative cash flow. - ✔✔C
✔✔QN=217 (20473) The net present value
a. uses the discounted cash flow valuation technique.
b. will provide a direct measure of how much the firm value will change because of the
capital project.
c. is consistent with shareholder wealth maximization goal.
d. all of these. - ✔✔D
✔✔QN=218 (20466) Contingent projects would imply that
a. (i) the acceptance of one project is dependent on the acceptance of the other.
b. (ii) the projects can be either mandatory or optional.
c. Both (i) and (ii).
d. None of these. - ✔✔C
✔✔QN=219 (20469) Capital rationing implies that
a. funding resources exceed funding needs.
b. funding needs exceed funding resources.
c. funding needs equal funding resources.
d. none of these. - ✔✔B
✔✔QN=220 (20480) The internal rate of return is
a. (i) the discount rate that makes the NPV greater than zero.
b. (ii) the discount rate that makes the NPV equal to zero.
c. (iii) the discount rate that makes the NPV less than zero.
d. both (i) and (iii). - ✔✔B
✔✔QN=221 (20479) Which one of the following statements about IRR is NOT true?
a. The IRR is the discount rate that makes the NPV greater than zero.
b. The IRR is a discounted cash flow method.
c. The IRR is an expected rate of return.
d. None of these. - ✔✔A
✔✔QN=200 (20455) Which of the following statements is true?
a. Preferred stockholders are considered to be the true owners of public corporations.
b. Dividends paid to preferred stockholders are not fixed.
c. Preferred stockholders do not typically have voting rights.
d. Preferred stock can never be converted to common stock. - ✔✔C
✔✔QN=201 (20456) Which of the following statements is true about the general
dividend valuation model?
a. It implies that the underlying value of a share of stock is determined by the market's
expectations of the future dividends that the firm will generate.
b. It implies that the value of a firm's common stock can be determined only if the
expected future dividends are infinite.
c. It implies that the value of a growth stock can be determined by forecasting the future
price of the stock.
d. The model cannot be used to calculate the value of a common stock unless the
dividends exceed the firm's expected growth rate. - ✔✔A
✔✔QN=202 (20448) Applying the valuation procedure to common stocks is more
difficult than applying it to bonds because
a. the size and timing of the dividend cash flows are less certain than the coupon
payments for bonds.
b. common stocks have no final maturity date.
c. unlike the rate of return, or yield, on bonds, the rate of return on common stock is not
directly observable.
d. All of these are true. - ✔✔D
✔✔QN=203 (20430) The largest holders of equity securities are
a. mutual funds.
b. pension funds.
c. foreign investors.
,d. households. - ✔✔D
✔✔QN=204 (20453) Which one of the following statements is NOT true about constant-
growth stocks?
a. Dividend stays constant over time.
b. Mature companies with a history of stable growth show this pattern.
c. Dividends grow at a constant rate each period forever.
d. Dividends that are to be paid out in the distant future have a very small present value
and add little to the stock's price. - ✔✔A
✔✔QN=205 (20458) The constant growth dividend model would be useful to determine
the value of all but which of the following firms?
a. A firm whose earnings and dividends are declining at a fairly steady rate.
b. A firm whose sales, profits, and dividends are growing at an annual average
compound rate of 5 percent.
c. A firm whose earnings and dividends are growing at a fairly steady rate.
d. A firm whose expected sales, profits, and dividends are flat. - ✔✔D
✔✔QN=206 (20445) Which ONE of the following statements is NOT true about
preferred stock?
a. Preferred dividend payments are fixed amounts paid regularly by the firm, similar to
the interest payments on corporate bonds.
b. Preferred dividends are deductable from taxable income just like the interest on
bonds.
c. Preferred stock holders have limited voting privileges relative to common-stock
owners.
d. While preferred stock is legally classified as perpetuities, some issues do have a
fixed maturity. - ✔✔B
✔✔QN=207 (20460) Which of the following statements about preferred stock is false?
a. Preferred stock has a higher-priority claim on the firm's assets than common stock.
b. Failure to pay dividends will result in default.
c. Preferred stock has a lower-priority claim on the firm's assets than the firm's creditors
in the event of default.
d. Preferred stock typically pays a fixed dividend. - ✔✔B
✔✔QN=208 (20436) The least efficient of all the different types of secondary markets is
the
a. auction market.
b. direct search market.
c. dealer market.
d. broker market. - ✔✔B
✔✔QN=209 (20432) Which ONE of the following statements is true about secondary
markets in the United States?
,a. In terms of total volume of activity and total capitalization of the firms listed, the
NASDAQ is the largest in the world and the NYSE is the second largest.
b. In terms of the number of companies listed and shares traded on a daily basis,
NASDAQ is larger than the NYSE.
c. Firms listed on the NASDAQ tend to be, on average, larger in size, and their shares
trade more frequently than firms whose securities trade on NYSE.
d. In the United States, most secondary market transactions are done over the counter.
- ✔✔B
✔✔QN=210 (20441) Which one of the following statements is NOT true about auction
markets?
a. In an auction market, buyers and sellers face each other directly and bargain over
price.
b. The NASDAQ is the most efficient stockmarket in the United States.
c. The New York Stock Exchange is the best-known example of an auction market.
d. The auctioneer in this case is the specialist, who is designated by the exchange to
represent orders placed by public customers. - ✔✔B
✔✔QN=211 (20444) Which one of the following statements is NOT true about preferred
stock?
a. Preferred stock represents ownership in the firm.
b. Owners of preferred stock are not guaranteed dividend payments by the firm.
c. Preferred stock dividends are fixed financial amounts paid regularly by the firm just
like bond coupon payments.
d. Preferred stock holders have limited voting privileges relative to common-stock
owners. - ✔✔B
✔✔QN=212 (20470) Which one of the following statements is NOT true?
a. Accepting a positive-NPV project increases shareholder wealth.
b. Accepting a negative-NPV project has no impact on shareholder wealth.
c. Accepting a negative-NPV project decreases shareholder wealth.
d. Managers are indifferent about accepting or rejecting a zero NPV project. - ✔✔B
✔✔QN=213 (20462) Which of the following are aspects of independent projects?
a. Their cash flows are related.
b. Their cash flows are unrelated.
c. Selecting one would automatically eliminate accepting the other.
d. None of these. - ✔✔B
✔✔QN=214 (20463) Two projects are considered to be independent if
a. (i) selecting one would have no bearing on accepting the other.
b. (ii) their cash flows are unrelated.
c. Both (i) and (ii).
d. None of these. - ✔✔C
, ✔✔QN=215 (20477) Advantages of the payback method include the following.
a. (i) The technique is simple for managers to compute and interpret.
b. (ii) It is a good measure of liquidity risk.
c. Both (i) and (ii).
d. None of these. - ✔✔C
✔✔QN=216 (20483) Which one of the following cash flow patterns is NOT an
unconventional cash flow pattern?
a. A positive initial cash flow is followed by negative future cash flows.
b. Future cash flows from a project could include both positive and negative cash flows.
c. A negative initial cash flow is followed by positive future cash flows.
d. A cash flow stream looks similar to a conventional cash flow stream except for a final
negative cash flow. - ✔✔C
✔✔QN=217 (20473) The net present value
a. uses the discounted cash flow valuation technique.
b. will provide a direct measure of how much the firm value will change because of the
capital project.
c. is consistent with shareholder wealth maximization goal.
d. all of these. - ✔✔D
✔✔QN=218 (20466) Contingent projects would imply that
a. (i) the acceptance of one project is dependent on the acceptance of the other.
b. (ii) the projects can be either mandatory or optional.
c. Both (i) and (ii).
d. None of these. - ✔✔C
✔✔QN=219 (20469) Capital rationing implies that
a. funding resources exceed funding needs.
b. funding needs exceed funding resources.
c. funding needs equal funding resources.
d. none of these. - ✔✔B
✔✔QN=220 (20480) The internal rate of return is
a. (i) the discount rate that makes the NPV greater than zero.
b. (ii) the discount rate that makes the NPV equal to zero.
c. (iii) the discount rate that makes the NPV less than zero.
d. both (i) and (iii). - ✔✔B
✔✔QN=221 (20479) Which one of the following statements about IRR is NOT true?
a. The IRR is the discount rate that makes the NPV greater than zero.
b. The IRR is a discounted cash flow method.
c. The IRR is an expected rate of return.
d. None of these. - ✔✔A
