MBA 702 - FINANCIAL MANAGEMENT
TEST 3 STUDY GUIDE WITH PRECISE
ANSWERS /GRADED A+
1. A $.45 quarterly cash payment paid by Jones & Co, to its shareholders
in the normal course of business becomes a liability of the company on
the: - ANSWER-declaration date
2. A company's current cost of capital is based on: - ANSWER-both the
returns currently required by its debtholders and stockholders.
3. A company's weighted average cost of capital: - ANSWER-is the return
investors require on the total assets of the firm
4. A firm should select the capital structure that: - ANSWER-maximizes
the value of the firm
5. A group of individuals got together and purchased all of the
outstanding shares of common stock of DL Smith Inc. What is the
return that these individuals require on this investment called? -
ANSWER-Cost of equity
6. A stock repurchase program - ANSWER-is essentially the same as a
cash dividend program provided there are no taxes or other costs
7. A syndicate can be best defined as a: - ANSWER-group of underwriters
sharing the risk of selling a new issue of securities.
, 8. Advertisements in a financial newspaper announcing a public offering
of securities, along with a list of the investment banks handling the
offering, are called: - ANSWER-tombstones
9. Alberto currently owns 2,500 shares of Southern Tools. He has just
been notified that the company is issuing additional shares and he is
being given a chance to purchase some of these shares prior to the
shares being offered to the general public. What is this type of an offer
called? - ANSWER-Rights offer
10. All else constant, which one of the following will increase a
company's cost of equity if the company computes that cost using the
security market line approach? Assume the firm currently pays an
annual dividend of $1 a share and has a beta of 1.2. - ANSWER-A
reduction in the risk-free rate
11. All of the following are supporting arguments in favor of IPO
underpricing except which one? - ANSWER-Provides better returns to
issuing firms
12. Assume Russo's has a debt-equity ratio of .4 and uses the capital
asset pricing model (CAPM) to determine its cost of equity. As a result,
the company's cost of equity: - ANSWER-is dependent upon a reliable
estimate of the market risk premium
13. Assume you are reviewing a graph that plots earnings per share
(EPS) against earnings before interest and taxes (EBIT). The steeper
the slope of the plotted line the: - ANSWER-greater the sensitivity of
EPS to changes in EBIT
14. Bailey's decided on Friday, March 7 to pay a dividend of $.28 a
share on Monday, April 7. The ex-dividend date is Tuesday, March 18.
What is the date of record? - ANSWER-Thursday, March 20
TEST 3 STUDY GUIDE WITH PRECISE
ANSWERS /GRADED A+
1. A $.45 quarterly cash payment paid by Jones & Co, to its shareholders
in the normal course of business becomes a liability of the company on
the: - ANSWER-declaration date
2. A company's current cost of capital is based on: - ANSWER-both the
returns currently required by its debtholders and stockholders.
3. A company's weighted average cost of capital: - ANSWER-is the return
investors require on the total assets of the firm
4. A firm should select the capital structure that: - ANSWER-maximizes
the value of the firm
5. A group of individuals got together and purchased all of the
outstanding shares of common stock of DL Smith Inc. What is the
return that these individuals require on this investment called? -
ANSWER-Cost of equity
6. A stock repurchase program - ANSWER-is essentially the same as a
cash dividend program provided there are no taxes or other costs
7. A syndicate can be best defined as a: - ANSWER-group of underwriters
sharing the risk of selling a new issue of securities.
, 8. Advertisements in a financial newspaper announcing a public offering
of securities, along with a list of the investment banks handling the
offering, are called: - ANSWER-tombstones
9. Alberto currently owns 2,500 shares of Southern Tools. He has just
been notified that the company is issuing additional shares and he is
being given a chance to purchase some of these shares prior to the
shares being offered to the general public. What is this type of an offer
called? - ANSWER-Rights offer
10. All else constant, which one of the following will increase a
company's cost of equity if the company computes that cost using the
security market line approach? Assume the firm currently pays an
annual dividend of $1 a share and has a beta of 1.2. - ANSWER-A
reduction in the risk-free rate
11. All of the following are supporting arguments in favor of IPO
underpricing except which one? - ANSWER-Provides better returns to
issuing firms
12. Assume Russo's has a debt-equity ratio of .4 and uses the capital
asset pricing model (CAPM) to determine its cost of equity. As a result,
the company's cost of equity: - ANSWER-is dependent upon a reliable
estimate of the market risk premium
13. Assume you are reviewing a graph that plots earnings per share
(EPS) against earnings before interest and taxes (EBIT). The steeper
the slope of the plotted line the: - ANSWER-greater the sensitivity of
EPS to changes in EBIT
14. Bailey's decided on Friday, March 7 to pay a dividend of $.28 a
share on Monday, April 7. The ex-dividend date is Tuesday, March 18.
What is the date of record? - ANSWER-Thursday, March 20
