BUS 438 FINAL UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
1. which of the following statements is FALSW reading profitable and unprofitable growth?
Answer:
if a firm wants to increase its share price, it must cut its dividend and invest more
Question:
2. all else equal, the internal growth rate increases when
Answer:
total assets decrease
Question:
3. the weighted average cost of capital for a firm is the
Answer:
rate of return a firm must earn on its existing assets to maintain the current value of its stock
Question:
4. a firm should select the capital structure that
Answer:
maximizes the value of the firm
Question:
5. which form of financing do firms prefer to use first according to the packing-order theory?
Answer:
internal funds
Question:
6. The discount rate assigned to an individual project should be based on:
Answer:
the risks associated with that project
Question:
7. the pre-tax cost of debt for a firm
Answer:
is based on the yield to maturity on the firm's outstanding bonds.
Question:
8. when a manager estimates the cost of capital for a specific project based on the cost of capital for a firm
which specializes in a line of business that is similar to the project, the manager is utilizing the ____
approach
Answer:
pure play
, Question:
9. Alpha and beta are two firms that are equal in every way except for their dividend payout ratios. alpha
has a 30% payout ratio while beta has a 40% payout ratio. given this difference:
Answer:
alpha has a higher internal growth rate than Beta
Question:
10. the idea that investors prefer to receive dividends rather than uncertain future capital gains is referred to
as _____
Answer:
bird-in-the-hand hypothesis
Question:
11. for an unlettered firm, the cost of capital can be determined by using the _____
Answer:
Capital asset pricing model (CAPM)
Question:
12. an announced dividend becomes a legal liability for the firm on the ______
Answer:
declaration date
Question:
13. what is the ex-dividend price of a share in a perfect capital market?
Answer:
market prices drop by the amount of the dividend payoff
dividend payoff: excess cash/shares outstanding
Question:
14. what is the share price once a share repurchase is complete?
Answer:
unaffected/ the same
Question:
15. in a perfect capital market, which makes a firm better off?
Answer:
both are the same
Question:
16. what will happen to value of stock upon announcement of change in policy?
Answer:
will remain the same
Question:
17. what would happen to value of stock on ex-dividend date of the one-time dividend?
CORRECT ANSWERS
Question:
1. which of the following statements is FALSW reading profitable and unprofitable growth?
Answer:
if a firm wants to increase its share price, it must cut its dividend and invest more
Question:
2. all else equal, the internal growth rate increases when
Answer:
total assets decrease
Question:
3. the weighted average cost of capital for a firm is the
Answer:
rate of return a firm must earn on its existing assets to maintain the current value of its stock
Question:
4. a firm should select the capital structure that
Answer:
maximizes the value of the firm
Question:
5. which form of financing do firms prefer to use first according to the packing-order theory?
Answer:
internal funds
Question:
6. The discount rate assigned to an individual project should be based on:
Answer:
the risks associated with that project
Question:
7. the pre-tax cost of debt for a firm
Answer:
is based on the yield to maturity on the firm's outstanding bonds.
Question:
8. when a manager estimates the cost of capital for a specific project based on the cost of capital for a firm
which specializes in a line of business that is similar to the project, the manager is utilizing the ____
approach
Answer:
pure play
, Question:
9. Alpha and beta are two firms that are equal in every way except for their dividend payout ratios. alpha
has a 30% payout ratio while beta has a 40% payout ratio. given this difference:
Answer:
alpha has a higher internal growth rate than Beta
Question:
10. the idea that investors prefer to receive dividends rather than uncertain future capital gains is referred to
as _____
Answer:
bird-in-the-hand hypothesis
Question:
11. for an unlettered firm, the cost of capital can be determined by using the _____
Answer:
Capital asset pricing model (CAPM)
Question:
12. an announced dividend becomes a legal liability for the firm on the ______
Answer:
declaration date
Question:
13. what is the ex-dividend price of a share in a perfect capital market?
Answer:
market prices drop by the amount of the dividend payoff
dividend payoff: excess cash/shares outstanding
Question:
14. what is the share price once a share repurchase is complete?
Answer:
unaffected/ the same
Question:
15. in a perfect capital market, which makes a firm better off?
Answer:
both are the same
Question:
16. what will happen to value of stock upon announcement of change in policy?
Answer:
will remain the same
Question:
17. what would happen to value of stock on ex-dividend date of the one-time dividend?
