Need help with Finance questions

Oct 23rd, 2015
Business Finance
Price: $10 USD

Question description


Please only bid on  this  test if you are experiences and educated in the area of finance. The test has true or false,and some multiple choice questions.

1.The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond.



2.If an investment project would make use of land which the firm currently owns, the project should be charged with the opportunity cost of the land.



3.As a firm's sales grow, its current assets also tend to increase. For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable. Thus, spontaneous liabilities that reduce AFN arise from transactions brought on by sales increases.



4.Which of the following could explain why a business might choose to operate as a corporation rather than as a sole proprietorship or a partnership?


Corporations generally face relatively few regulations.


Corporate shareholders escape liability for the firm's debts, but this factor may be offset by the tax disadvantages of the corporate form of organization.


Corporations generally find it relatively difficult to raise large amounts of capital.


Less of a corporation's income is generally subjected to taxes than would be true if the firm were a partnership.


Corporate investors are exposed to unlimited liability.

5.Which of the following statements is CORRECT, assuming positive interest rates and holding other things constant?


The present value of a 5-year, $250 annuity due will be lower than the PV of a similar ordinary annuity.


A bank loan's nominal interest rate will always be equal to or less than its effective annual rate.


A 30-year, $150,000 amortized mortgage will have larger monthly payments than an otherwise similar 20-year mortgage.


If an investment pays 10% interest, compounded annually, its effective annual rate will be less than 10%.


Banks A and B offer the same nominal annual rate of interest, but A pays interest quarterly and B pays semiannually. Deposits in Bank B will provide the higher future value if you leave your funds on deposit.

6.firm should never accept a project if its acceptance would lead to an increase in the firm's cost of capital (its WACC).



7.BLW Corporation is considering the terms to be set on the options it plans to issue to its executives. Which of the following actions would decrease the value of the options, other things held constant?


The life of the option is increased, i.e., the time until it expires is lengthened.


BLW's stock price becomes more risky (higher variance).


The Federal Reserve takes actions that increase the risk-free rate.


BLW's stock price suddenly increases.


The exercise price of the option is increased.

8.The form of organization for a business is not an important issue, as this decision has very little effect on the income and wealth of the firm's owners.



9.tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.



10.Heavy use of off-balance sheet lease financing will tend to


have no effect on either cash flows or risk because the cash flows are already reflected in the income statement.


make a company appear less risky than it actually is because its stated debt ratio will appear lower.


affect the lessee's cash flows but only due to tax effects.


affect a company's cash flows but not its degree of risk.


make a company appear more risky than it actually is because its stated debt ratio will be increased.

Tutor Answer

(Top Tutor) Doctor Gabler
School: Boston College

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