Chat with us, powered by LiveChat 1.(TCO 4) Which of the following is true regarding the evaluation of projects?(P - Writemia

1.(TCO 4) Which of the following is true regarding the evaluation of projects?(P

1.(TCO 4) Which of the following is true regarding the
evaluation of projects?(Points : 4)
sunk costs should be included
erosion effects should not be considered
financing costs need to be included
opportunity costs are relevant
2.(TCO 4) There are several disadvantages to the payback
method, among them:(Points : 4)
payback ignores the time value of money.
payback can be used in conjunction with time adjusted
methods of evaluation.
payback is easy to use and to understand.
none of the above is a disadvantage.
3.(TCO 3 and 4) A net present value of zero implies that an
investment: (Points : 4)
has no initial cost.
has an expected return that is less than the required
return.
should be rejected even if the discount rate is lowered.
never pays back its initial cost.
is earning a return that exactly matches the requirement.
4.(TCO 3 and 4) What is the net present value of a project
with the following cash flows, if the discount rate is 10 percent
Year
0
1
2
3
4
Cash flow
-$32,000
$9,000
$10,000
$15,200
$7,800
(Points : 4)
$1,085.25
$1,193.77
$3,498.28
$4,102.86
$4,513.15
5.(TCO 4) Howard Company is considering a new project that
will require an initial cash investment of $575,000. The project will produce
no cash flows for the first three years. The projected cash flows for years 4
through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000,
respectively. How long will it take the firm to recover its initial investment
in this project? (Points : 4)
5.81 years
6.05 years
6.96 years
7.90 years
This project never pays back
6.(TCO 4) Ignoring the option to expand: (Points : 4)
overestimates the internal rate of return on a project.
ignores the possibility that a negative net present value
project might be positive, given changes over time.
ignores the possibility that one variable is the primary
source of the forecasting risk associated with a project.
underestimates the net present value of a project.
7.(TCO 4) ___________, occurs when a firm cannot raise
financing for a project under any circumstances. (Points : 4)
contingency planning.
hard rationing.
soft rationing.
capital constraint.
scenario analysis.
8.(TCO 3 and 4) ABC Cameras is considering an investment
that will have a cost of $10,000 and the following cash flows: $6,000 in year
1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%.
Which of the following is true regarding this investment? (Points : 4)
The net present value of the project is $11,000
This project should be accepted because it has a negative
net present value
This project should be accepted because it has a payback
higher than 3 years
The net present value of the project is close to $1,000
9.(TCO 4) Assume Company X plans to invest $60,000 in new
computers. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the
second year depreciation amount under MACRS? (Points : 4)
$12,000
$19,200
$19,800
None of the above
10.(TCO 1 and 4) Assume a corporation has earnings before
depreciation, and taxes of $100,000, depreciation of $40,000, and that it has a
30 percent tax bracket. What are the after-tax cash flows for the
company?(Points : 4)
$82,000
$110,000
$42,000
none of these
11.(TCO 8) Which of the following factors will affect the
expected rate of return on a security? (Points : 4)
multiple states of the economy
probability of occurrence for any one economic state
market rate of return given a particular economic state
all of the above will affect the expected rate of return
12.(TCO 8) Which statement is true regarding risk?(Points :
4)
the expected return is usually the same as the actual return
a key to assess risk is determining how much risk an
investment adds to a portfolio
risks can always be decreased or mitigated by the financial
manager
the higher the risk, the lower the return investors require
for the investment
13.(TCO 8) The stock of Chocolate Galore is expected to
produce the following returns, given the various states of the economy. What is
the expected return on this stock?
State of Economy
Probability of State of Economy
Rate of Return
Recession
.02
-.06
Normal
.88
.11
Boom
.10
.17
(Points : 4)
7.33 percent
9.82 percent
11.26 percent
11.33 percent
11.50 percent
14.(TCO 8) You own a portfolio that consists of $8,000 in
stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is
the portfolio weight of stock D? (Points : 4)
17.68 percent
17.91 percent
18.42 percent
19.07 percent
19.46 percent
15.(TCO 8) Stock A has an expected return of 14 percent and
a beta of 1.3. Stock B has an expected return of 10 percent and a beta of .9.
Both stocks have the same reward-to-risk ratio. What is the risk-free rate?
(Points : 4)
1.0 percent
1.8 percent
2.3 percent
2.5 percent
3.1 percent
1.(TCO 8) Weak form market efficiency states that the value
of a security is based on: (Points : 4)
all public and private information.
historical information only.
all publicly available information.
all publicly available information, plus any data that can
be gathered from insider trading.
random information with no clear distinction as to the
source of that information.
2.(TCO 5) Royal Petroleum Co. can buy a piece of equipment
that can be financed with debt at a cost of 6 percent (after-tax) and common
equity at a cost of 18 percent. Assume debt and common equity each represent 50
percent of the firm’s capital structure. What is the weighted average cost of
capital? (Points : 4)
between 3 and 9%
exactly 12%
more than 14%
exactly 11%
none of the above
3.(TCO 5, 6 and 7) An issue of common stock is selling for
$57.20. The year end dividend is expected to be $2.32, assuming a constant
growth rate of six percent. What is the required rate of return?(Points : 4)
10.3%
10.1%
4.1%
5.8%
4.(TCO 5, 6 and 7) Which of the following is true regarding
the cost of debt? (Points : 4)
It is the return that the firm s creditors demand on new
borrowing.
It is always equal to the weighted cost of capital.
An appropriate method to compute the cost of debt is using
the coupon rate of current bonds outstanding.
All of the above are true.
5.(TCO 5) Which of the following is true regarding the cost
of retained earnings? (Points : 4)
it is irrelevant to the WACC
requires new funds to be raised
need to be adjusted for the flotation costs
have a cost, which is the opportunity cost associated with
stockholder funds
6.(TCO 4) A project has the following cash flows. What is
the internal rate of return
Year
0
1
2
3
Cash flow
-$443,600
$224,800
$224,800
$67,200
(Points : 4)
less than 7%
between 8 and 11%
more than 13%
exactly 15%
7.(TCO 5, 6 and 7) Which one of the following is a correct
statement? (Points : 4)
Current tax laws favor debt financing.
A decrease in the dividend growth rate increases the cost of
equity.
An increase in the systematic risk of a firm will decrease
the firm’s cost of capital.
A decrease in a firm’s debt-equity ratio will usually
decrease the firm’s cost of capital.
The cost of preferred stock decreases when the tax rate
increases.
8.(TCO 5, 6 and 7) The preferred stock of Blue Sky Air pays
an annual dividend of $7.25 a share and sells for $54 a share. The tax rate is
35 percent. What is the firm’s cost of preferred stock? (Points : 4)
8.56 percent
9.32 percent
11.85 percent
13.43 percent
14.47 percent
9.(TCO 2) Which one of the following occurs if a firm files
for Chapter 7 bankruptcy, but does not generally occur if the firm files for
Chapter 11 bankruptcy? (Points : 4)
a petition is filed in federal court
administrative fees are incurred
a list of creditors is compiled
pre-bankruptcy shareholders tend to lose part, if not all,
of their investment in the firm
a trustee-in-bankruptcy is elected by the creditors
10.(TCO 5) Which of the following statements is true
regarding the cost of capital? (Points : 4)
The cost of capital should not consider any flotation costs.
All other being equal, it is preferable to use book value
weights than market value weights.
The WACC is the most appropriate discount rate for all
projects.
Depends primarily on the use of the funds, not the source.
11.(TCO 2) Which of the following increases the cash
account? (Points : 4)
Goods are sold on credit
An interest payment on a notes payable is made
A payment due is received from a client
Raw materials are purchased and paid for with credit
12.(TCO 2) Which of the following statements is true?
(Points : 4)
The optimal credit policy minimizes the total cost of
granting credit.
Firms should avoid offering credit at all cost.
An increase in a firm’s average collection period generally
indicates that an increased number of customers are taking advantage of the
cash discount.
Character, refers to the ability of a firm to meet its
credit obligations out its operating cash flows.
The optimal credit policy, is the policy that produces the
largest amount of sales for a firm.
13.(TCO 2) All else constant, a decrease in the accounts
receivable period will: (Points : 4)
lengthen the accounts payable period.
shorten the inventory period.
lengthen the operating cycle.
shorten the cash cycle.
shorten the accounts payable period.
14.(TCO 2) Highland, Inc. has the following estimated
quarterly sales for next year. The accounts receivable period is 30 days. How
much does the firm expect to collect in the fourth quarter? Assume that each
month has 30 days.
Q1
Q2
Q3
Q4
Sales
$3,200
$4,500
$4,400
$2,900
(Points : 4)
$3,250
$3,400
$3,600
$3,750
$3,900
15.(TCO 1) Which one of the following actions best matches
the primary goal of financial management? (Points : 4)
increasing the net, working capital while lowering the
long-term asset requirements
improving the operating efficiency, thereby increasing the
market value of the stock
increasing the firm s market share
reducing fixed costs and increasing variable costs
increasing the liquidity of the firm by transferring
short-term debt into long-term debt
1.(TCO 1) Which of the following are capital structure
concerns?
I. how to obtain short-term financing
II. the company’s financing mix
III. the cost of funds
IV. how and where to raise money (Points : 4)
I and II
I, II and III
II, III and IV
I, III and IV
All of the above
2.(TCO 1) Market value is important to the financial manager
because: (Points : 4)
It reflects the value of the asset based on
generally-accepted accounting principles.
Is a crucial component of the balance sheet, and can impact
the financial statements.
Market values reflect the amount someone is willing to pay
today for an asset. The market value of an asset reflects its historical cost.
3.(TCO 1) Use the following tax table to answer this
question:
Taxable Income
Tax Rate
$0-
$50,000
15%
$50,001-
75,000
25
$75,001-
100,000
34
$100,001-
335,000
39
$335,001-
10,000,000
34
John has taxable income of $389,745. What is John s average
tax rate? (Points : 4)
33%
34%
36%
37%
38%
4.(TCO 3) Regional Bank offers you an APR of nine percent
compounded quarterly, and Local Bank offers you an EAR of 9.15 percent for a
new automobile loan. You should choose ______________ because its _______ is
lower. (Points : 4)
Regional Bank, APR
Local Bank, EAR
Regional Bank, EAR
Local Bank, APR
5.(TCO 3) You deposited $5,000 in your bank account today.
An increase in which of the following will increase the future value of your
deposit, assuming that all interest is reinvested? Assume the interest rate is
a positive value. Select all that apply:(Points : 4)
interest rate
initial amount of your deposit
frequency of the interest payments

length of the investment period
6.(TCO 3) Thirteen years from now, you will be inheriting
$30,000. What is this inheritance worth to you today, if you can earn four
percent interest compounded annually? (Points : 4)
$18,017.22
$20,741.87
$23,190.98
$26,359.88
$28,846.15
7.(TCO 3) Paper Pro needed a new store. The company spent
$65,000 to refurbish an old shop and create the current facility. The firm
borrowed 75 percent of the refurbishment cost at eight percent interest for 11 years.
What is the amount of each monthly payment? (Points : 4)
$91.05
$284.13
$556.50
$682.87
$731.60
8.(TCO 3) Which type of loan is comparable to the present
value of a future lump sum? (Points : 4)
effective annual rate
amortized
interest-only
annual percentage
pure discount
9.(TCO 3) Fanta Cola has $1,000 par value bonds outstanding
at 12 percent interest. The bonds mature in 25 years. What is the current price
of the bond if the YTM is 13 percent? Assume annual payments. (Points : 4)
$1078
$1085
$927
$1000
10.(TCO 6) The market where new securities are offered is
called the _____ market. (Points : 4)
primary
main
secondary
principal
dealer
11.(TCO 7) A taxpaying, levered firm’s optimal capital
structure: (Points : 4)
is 100 percent equity financing.
consists of equal amounts of debt and equity financing.
is the mixture of debt and equity financing that minimizes
the firm’s aftertax cost of debt.
is the mixture of debt and equity financing that minimizes
the weighted average cost of capital.
is 100 percent debt financing.
12.(TCO 3) SmithKline Company’s bonds are currently selling
for $1,157.75 per $1000 par-value bond. The bonds have a 10 percent coupon rate
and will mature in 10 years. What is the approximate yield to maturity? (Points
: 4)
6.96%
7.69%
11.0%
12.1%
13.(TCO 8) Which of the following is true regarding bonds?
(Points : 4)
Bonds do not carry default risk.
Bonds are sensitive to changes in the interest rates.
Moody s and Standard and Poor s provide information
regarding a bond s interest rate risk.
Municipal bonds are free of default risk.
None of the above is true
14.(TCO 8) Two years ago, Maple Enterprises issued six
percent, 20-year bonds and Temple Corp issued six percent, 10-year bonds. Since
their time of issue, interest rates have increased. Which of the following
statements is true of each firm’s bond prices in the market, assuming they have
equal risk? (Points : 4)
Maple’s decreased more than Temple’s
Temple’s decreased more than Maple’s
Maple’s increased more than Temple’s
They are both priced the same
15.(TCO 6) A call provision in a bond agreement grants the
issuer the right to: (Points : 4)
repurchase the bonds prior to maturity at a pre-specified
price.
replace the bonds with equity securities.
repurchase the bonds after maturity at a pre-specified
price.
change the coupon rate, provided the bondholders are
notified in advance.
buy back the bonds on the open market prior to maturity.1.(TCO 4) Which of the following is true regarding the
evaluation of projects?(Points : 4)sunk costs should be includederosion effects should not be consideredfinancing costs need to be includedopportunity costs are relevant2.(TCO 4) There are several disadvantages to the payback
method, among them:(Points : 4)payback ignores the time value of money.payback can be used in conjunction with time adjusted
methods of evaluation.payback is easy to use and to understand.none of the above is a disadvantage.3.(TCO 3 and 4) A net present value of zero implies that an
investment: (Points : 4)has no initial cost.has an expected return that is less than the required
return.should be rejected even if the discount rate is lowered.never pays back its initial cost.is earning a return that exactly matches the requirement.4.(TCO 3 and 4) What is the net present value of a project
with the following cash flows, if the discount rate is 10 percent Year01234Cash flow-$32,000$9,000$10,000$15,200$7,800(Points : 4)$1,085.25$1,193.77$3,498.28$4,102.86$4,513.155.(TCO 4) Howard Company is considering a new project that
will require an initial cash investment of $575,000. The project will produce
no cash flows for the first three years. The projected cash flows for years 4
through 8 are $73,000, $112,000, $124,000, $136,000, and $145,000,
respectively. How long will it take the firm to recover its initial investment
in this project? (Points : 4)5.81 years6.05 years6.96 years7.90 yearsThis project never pays back6.(TCO 4) Ignoring the option to expand: (Points : 4)overestimates the internal rate of return on a project.ignores the possibility that a negative net present value
project might be positive, given changes over time.ignores the possibility that one variable is the primary
source of the forecasting risk associated with a project.underestimates the net present value of a project.7.(TCO 4) ___________, occurs when a firm cannot raise
financing for a project under any circumstances. (Points : 4)contingency planning.hard rationing.soft rationing.capital constraint.scenario analysis.8.(TCO 3 and 4) ABC Cameras is considering an investment
that will have a cost of $10,000 and the following cash flows: $6,000 in year
1, $4,000 in year 2 and $3,000 in year 3. Assume the cost of capital is 10%.
Which of the following is true regarding this investment? (Points : 4)The net present value of the project is $11,000This project should be accepted because it has a negative
net present valueThis project should be accepted because it has a payback
higher than 3 yearsThe net present value of the project is close to $1,0009.(TCO 4) Assume Company X plans to invest $60,000 in new
computers. Using Tables 9.6 and 9.7 of your textbook (Page 277), which is the
second year depreciation amount under MACRS? (Points : 4)$12,000$19,200$19,800None of the above10.(TCO 1 and 4) Assume a corporation has earnings before
depreciation, and taxes of $100,000, depreciation of $40,000, and that it has a
30 percent tax bracket. What are the after-tax cash flows for the
company?(Points : 4)$82,000$110,000$42,000none of these11.(TCO 8) Which of the following factors will affect the
expected rate of return on a security? (Points : 4)multiple states of the economyprobability of occurrence for any one economic statemarket rate of return given a particular economic stateall of the above will affect the expected rate of return12.(TCO 8) Which statement is true regarding risk?(Points :
4)the expected return is usually the same as the actual returna key to assess risk is determining how much risk an
investment adds to a portfoliorisks can always be decreased or mitigated by the financial
managerthe higher the risk, the lower the return investors require
for the investment13.(TCO 8) The stock of Chocolate Galore is expected to
produce the following returns, given the various states of the economy. What is
the expected return on this stock?State of EconomyProbability of State of EconomyRate of ReturnRecession.02-.06Normal.88.11Boom.10.17(Points : 4)7.33 percent9.82 percent11.26 percent11.33 percent11.50 percent14.(TCO 8) You own a portfolio that consists of $8,000 in
stock A, $4,600 in stock B, $13,000 in stock C, and $5,500 in stock D. What is
the portfolio weight of stock D? (Points : 4)17.68 percent17.91 percent18.42 percent19.07 percent19.46 percent15.(TCO 8) Stock A has an expected return of 14 percent and
a beta of 1.3. Stock B has an expected return of 10 percent and a beta of .9.
Both stocks have the same reward-to-risk ratio. What is the risk-free rate?
(Points : 4)1.0 percent1.8 percent2.3 percent2.5 percent3.1 percent1.(TCO 8) Weak form market efficiency states that the value
of a security is based on: (Points : 4)all public and private information.historical information only.all publicly available information.all publicly available information, plus any data that can
be gathered from insider trading.random information with no clear distinction as to the
source of that information.2.(TCO 5) Royal Petroleum Co. can buy a piece of equipment
that can be financed with debt at a cost of 6 percent (after-tax) and common
equity at a cost of 18 percent. Assume debt and common equity each represent 50
percent of the firm’s capital structure. What is the weighted average cost of
capital? (Points : 4)between 3 and 9%exactly 12%more than 14%exactly 11%none of the above3.(TCO 5, 6 and 7) An issue of common stock is selling for
$57.20. The year end dividend is expected to be $2.32, assuming a constant
growth rate of six percent. What is the required rate of return?(Points : 4)10.3%10.1%4.1%5.8%4.(TCO 5, 6 and 7) Which of the following is true regarding
the cost of debt? (Points : 4)It is the return that the firm s creditors demand on new
borrowing.It is always equal to the weighted cost of capital.An appropriate method to compute the cost of debt is using
the coupon rate of current bonds outstanding.All of the above are true.5.(TCO 5) Which of the following is true regarding the cost
of retained earnings? (Points : 4)it is irrelevant to the WACCrequires new funds to be raisedneed to be adjusted for the flotation costshave a cost, which is the opportunity cost associated with
stockholder funds6.(TCO 4) A project has the following cash flows. What is
the internal rate of returnYear0123Cash flow-$443,600$224,800$224,800$67,200(Points : 4)less than 7%between 8 and 11%more than 13%exactly 15%7.(TCO 5, 6 and 7) Which one of the following is a correct
statement? (Points : 4)Current tax laws favor debt financing.A decrease in the dividend growth rate increases the cost of
equity.An increase in the systematic risk of a firm will decrease
the firm’s cost of capital.A decrease in a firm’s debt-equity ratio will usually
decrease the firm’s cost of capital.The cost of preferred stock decreases when the tax rate
increases.8.(TCO 5, 6 and 7) The preferred stock of Blue Sky Air pays
an annual dividend of $7.25 a share and sells for $54 a share. The tax rate is
35 percent. What is the firm’s cost of preferred stock? (Points : 4)8.56 percent9.32 percent11.85 percent13.43 percent14.47 percent9.(TCO 2) Which one of the following occurs if a firm files
for Chapter 7 bankruptcy, but does not generally occur if the firm files for
Chapter 11 bankruptcy? (Points : 4)a petition is filed in federal courtadministrative fees are incurreda list of creditors is compiledpre-bankruptcy shareholders tend to lose part, if not all,
of their investment in the firma trustee-in-bankruptcy is elected by the creditors10.(TCO 5) Which of the following statements is true
regarding the cost of capital? (Points : 4)The cost of capital should not consider any flotation costs.All other being equal, it is preferable to use book value
weights than market value weights.The WACC is the most appropriate discount rate for all
projects.Depends primarily on the use of the funds, not the source.11.(TCO 2) Which of the following increases the cash
account? (Points : 4)Goods are sold on creditAn interest payment on a notes payable is madeA payment due is received from a clientRaw materials are purchased and paid for with credit12.(TCO 2) Which of the following statements is true?
(Points : 4)The optimal credit policy minimizes the total cost of
granting credit.Firms should avoid offering credit at all cost.An increase in a firm’s average collection period generally
indicates that an increased number of customers are taking advantage of the
cash discount.Character, refers to the ability of a firm to meet its
credit obligations out its operating cash flows.The optimal credit policy, is the policy that produces the
largest amount of sales for a firm.13.(TCO 2) All else constant, a decrease in the accounts
receivable period will: (Points : 4)lengthen the accounts payable period.shorten the inventory period.lengthen the operating cycle.shorten the cash cycle.shorten the accounts payable period.14.(TCO 2) Highland, Inc. has the following estimated
quarterly sales for next year. The accounts receivable period is 30 days. How
much does the firm expect to collect in the fourth quarter? Assume that each
month has 30 days.Q1Q2Q3Q4Sales$3,200$4,500$4,400$2,900(Points : 4)$3,250$3,400$3,600$3,750$3,90015.(TCO 1) Which one of the following actions best matches
the primary goal of financial management? (Points : 4)increasing the net, working capital while lowering the
long-term asset requirementsimproving the operating efficiency, thereby increasing the
market value of the stockincreasing the firm s market sharereducing fixed costs and increasing variable costsincreasing the liquidity of the firm by transferring
short-term debt into long-term debt1.(TCO 1) Which of the following are capital structure
concerns?I. how to obtain short-term financingII. the company’s financing mix III. the cost of fundsIV. how and where to raise money (Points : 4)I and III, II and IIIII, III and IVI, III and IVAll of the above2.(TCO 1) Market value is important to the financial manager
because: (Points : 4)It reflects the value of the asset based on
generally-accepted accounting principles.Is a crucial component of the balance sheet, and can impact
the financial statements.Market values reflect the amount someone is willing to pay
today for an asset. The market value of an asset reflects its historical cost.3.(TCO 1) Use the following tax table to answer this
question:Taxable IncomeTax Rate$0-$50,00015%$50,001-75,00025$75,001-100,00034$100,001-335,00039$335,001-10,000,00034John has taxable income of $389,745. What is John s average
tax rate? (Points : 4)33%34%36%37%38%4.(TCO 3) Regional Bank offers you an APR of nine percent
compounded quarterly, and Local Bank offers you an EAR of 9.15 percent for a
new automobile loan. You should choose ______________ because its _______ is
lower. (Points : 4)Regional Bank, APRLocal Bank, EARRegional Bank, EARLocal Bank, APR5.(TCO 3) You deposited $5,000 in your bank account today.
An increase in which of the following will increase the future value of your
deposit, assuming that all interest is reinvested? Assume the interest rate is
a positive value. Select all that apply:(Points : 4)interest rate initial amount of your depositfrequency of the interest paymentslength of the investment period6.(TCO 3) Thirteen years from now, you will be inheriting
$30,000. What is this inheritance worth to you today, if you can earn four
percent interest compounded annually? (Points : 4)$18,017.22$20,741.87$23,190.98$26,359.88$28,846.157.(TCO 3) Paper Pro needed a new store. The company spent
$65,000 to refurbish an old shop and create the current facility. The firm
borrowed 75 percent of the refurbishment cost at eight percent interest for 11 years.
What is the amount of each monthly payment? (Points : 4)$91.05$284.13$556.50$682.87$731.608.(TCO 3) Which type of loan is comparable to the present
value of a future lump sum? (Points : 4)effective annual rateamortizedinterest-onlyannual percentagepure discount9.(TCO 3) Fanta Cola has $1,000 par value bonds outstanding
at 12 percent interest. The bonds mature in 25 years. What is the current price
of the bond if the YTM is 13 percent? Assume annual payments. (Points : 4)$1078$1085$927$100010.(TCO 6) The market where new securities are offered is
called the _____ market. (Points : 4)primarymainsecondaryprincipaldealer11.(TCO 7) A taxpaying, levered firm’s optimal capital
structure: (Points : 4)is 100 percent equity financing.consists of equal amounts of debt and equity financing.is the mixture of debt and equity financing that minimizes
the firm’s aftertax cost of debt.is the mixture of debt and equity financing that minimizes
the weighted average cost of capital.is 100 percent debt financing.12.(TCO 3) SmithKline Company’s bonds are currently selling
for $1,157.75 per $1000 par-value bond. The bonds have a 10 percent coupon rate
and will mature in 10 years. What is the approximate yield to maturity? (Points
: 4)6.96%7.69%11.0%12.1%13.(TCO 8) Which of the following is true regarding bonds?
(Points : 4)Bonds do not carry default risk.Bonds are sensitive to changes in the interest rates.Moody s and Standard and Poor s provide information
regarding a bond s interest rate risk.Municipal bonds are free of default risk.None of the above is true14.(TCO 8) Two years ago, Maple Enterprises issued six
percent, 20-year bonds and Temple Corp issued six percent, 10-year bonds. Since
their time of issue, interest rates have increased. Which of the following
statements is true of each firm’s bond prices in the market, assuming they have
equal risk? (Points : 4)Maple’s decreased more than Temple’sTemple’s decreased more than Maple’sMaple’s increased more than Temple’sThey are both priced the same15.(TCO 6) A call provision in a bond agreement grants the
issuer the right to: (Points : 4)repurchase the bonds prior to maturity at a pre-specified
price.replace the bonds with equity securities.repurchase the bonds after maturity at a pre-specified
price.change the coupon rate, provided the bondholders are
notified in advance.buy back the bonds on the open market prior to maturity.

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