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
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
