Intermediate Business Finance Final Exam with all Correct
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As the compounding rate becomes lower and lower, the future value of inflows approaches
✔Correct Answer-the present value of the inflows.
The concept of time value of money is important to financial decision making because
✔Correct Answer-it emphasizes earning a return on invested capital
&
it recognizes that earning a return makes $1 today worth more than $1 received in the future
&
it can be applied to future cash flows in order to compare different streams of income.
As the discount rate becomes higher and higher, the present value of inflows approaches
✔Correct Answer-0.
An annuity may best be defined as ✔Correct Answer-a series of consecutive payments of
equal amounts.
As the time period until receipt increases, the present value ✔Correct Answer-decreases.
Sharon Smith will receive $1 million in 20 years. The discount rate is 10%. As an alternative, she
can receive $200,000 today. Which should she choose? ✔Correct Answer-The $200,000 today.
The shorter the length of time between a present value and its corresponding future value,
✔Correct Answer-the higher the present value, relative to the future value.
Increasing the number of periods will increase all of the following except ✔Correct Answer-
the present value of $1.
Which statistical measure is helpful to estimate the risk associated with an individual company's
return? ✔Correct Answer-Standard deviation
The components of the return on common stock are ✔Correct Answer-Capital gains yield plus
dividend yield
The Security Market Line and the Capital Asset Pricing Model utilize beta. Beta tells the investor
the... ✔Correct Answer-correlation of the security's return to the return of the market as a
whole.
, An unexpected increase in inflation rate would be considered a(n)... ✔Correct Answer-
systematic risk.
When creating a portfolio of investments, diversification can eliminate which type of risk?
✔Correct Answer-Unsystematic
Financial capital does not include ✔Correct Answer-working capital.
The overall weighted average cost of capital is used instead of costs for individual sources of
funds because ✔Correct Answer-the use of the cost for specific sources of capital would make
investment decisions inconsistent, and investments funded by low-cost debt would have an
advantage over other investments.
For a firm paying 5% for new debt, the higher the firm's tax rate ✔Correct Answer-the lower
the after-tax cost of debt.
A firm's cost of financing, in an overall sense, is equal to its ✔Correct Answer-weighted
average cost of capital
&
required yield that investors seek for various kinds of securities
&
required rate of return that investors seek for various kinds of securities.
The pre-tax cost of debt for a new issue of debt is determined by ✔Correct Answer-the yield
to maturity of outstanding or comparable bonds.
A firm's debt-to-equity ratio varies at times because ✔Correct Answer-a firm will want to sell
common stock when prices are high and bonds when interest rates are low.
&
a firm will want to take advantage of timing its fund-raising in order to minimize costs over the
long run.
&
the market allows some leeway in the debt-to-equity ratio before penalizing the firm with a
higher cost of capital.
Within the capital asset pricing model ✔Correct Answer-beta measures the volatility of an
individual stock relative to a stock market index.
For many firms, the cheapest and most important source of equity capital is in the form of
✔Correct Answer-retained earnings.
Which of the following is NOT true about debt financing and the weighted average cost of
capital? ✔Correct Answer-No debt in the firm's capital structure will minimize the firm's
weighted average cost of capital.
& 100% Verified Answers |Actual Complete Update |
Already Graded A+
As the compounding rate becomes lower and lower, the future value of inflows approaches
✔Correct Answer-the present value of the inflows.
The concept of time value of money is important to financial decision making because
✔Correct Answer-it emphasizes earning a return on invested capital
&
it recognizes that earning a return makes $1 today worth more than $1 received in the future
&
it can be applied to future cash flows in order to compare different streams of income.
As the discount rate becomes higher and higher, the present value of inflows approaches
✔Correct Answer-0.
An annuity may best be defined as ✔Correct Answer-a series of consecutive payments of
equal amounts.
As the time period until receipt increases, the present value ✔Correct Answer-decreases.
Sharon Smith will receive $1 million in 20 years. The discount rate is 10%. As an alternative, she
can receive $200,000 today. Which should she choose? ✔Correct Answer-The $200,000 today.
The shorter the length of time between a present value and its corresponding future value,
✔Correct Answer-the higher the present value, relative to the future value.
Increasing the number of periods will increase all of the following except ✔Correct Answer-
the present value of $1.
Which statistical measure is helpful to estimate the risk associated with an individual company's
return? ✔Correct Answer-Standard deviation
The components of the return on common stock are ✔Correct Answer-Capital gains yield plus
dividend yield
The Security Market Line and the Capital Asset Pricing Model utilize beta. Beta tells the investor
the... ✔Correct Answer-correlation of the security's return to the return of the market as a
whole.
, An unexpected increase in inflation rate would be considered a(n)... ✔Correct Answer-
systematic risk.
When creating a portfolio of investments, diversification can eliminate which type of risk?
✔Correct Answer-Unsystematic
Financial capital does not include ✔Correct Answer-working capital.
The overall weighted average cost of capital is used instead of costs for individual sources of
funds because ✔Correct Answer-the use of the cost for specific sources of capital would make
investment decisions inconsistent, and investments funded by low-cost debt would have an
advantage over other investments.
For a firm paying 5% for new debt, the higher the firm's tax rate ✔Correct Answer-the lower
the after-tax cost of debt.
A firm's cost of financing, in an overall sense, is equal to its ✔Correct Answer-weighted
average cost of capital
&
required yield that investors seek for various kinds of securities
&
required rate of return that investors seek for various kinds of securities.
The pre-tax cost of debt for a new issue of debt is determined by ✔Correct Answer-the yield
to maturity of outstanding or comparable bonds.
A firm's debt-to-equity ratio varies at times because ✔Correct Answer-a firm will want to sell
common stock when prices are high and bonds when interest rates are low.
&
a firm will want to take advantage of timing its fund-raising in order to minimize costs over the
long run.
&
the market allows some leeway in the debt-to-equity ratio before penalizing the firm with a
higher cost of capital.
Within the capital asset pricing model ✔Correct Answer-beta measures the volatility of an
individual stock relative to a stock market index.
For many firms, the cheapest and most important source of equity capital is in the form of
✔Correct Answer-retained earnings.
Which of the following is NOT true about debt financing and the weighted average cost of
capital? ✔Correct Answer-No debt in the firm's capital structure will minimize the firm's
weighted average cost of capital.
