Finance multiple choice

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Convertible bonds:
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a.) pay a fixed rate of interest c.) give the investor the option to convert the bond into a specified number of shares of common stock
Payment of interest is required only when the earnings are available – in case of:
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b.) income bonds
Junk bonds:
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b.) are high-yield securities
Payment of dividends is at the discretion of
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b.) the board of Directors
Securities are first issued through the ___primary__ market and then trade on the __secondary___ market
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Securities are first issued through the ___primary__ market and then trade on the __secondary___ market
Capital market instruments are:
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a.) corporate stocks
When the interest rate goes up:
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the bond price always go down
When calculating the Initial Investment in capital budgeting we should include:
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a.) change in net working capital b.) installation cost of new assets
Increase in current assets mean:
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the cash inflows
We should accept the project if its IRR is:
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greater than the cost of capital
Certainty Equivalents as a risk adjustment technique of capital budgeting assumes
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) considering only the part of estimated cash inflow (the part which is certain)
The degree of financial leverage (DFL) measures:
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) the sensitivity of changes in EPS to changes in EBIT
The times interest earned ratio (interest coverage ratio) is one of:
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debt ratios
The most expensive source of capital is:
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short-term debt
Spontaneous financing:
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a.) is dependent on the level of production (purchases and sales) c.) is unsecured
A line of credit guaranteed to a borrower by a bank for a stated period of time is:
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Revolving Credit Agreement
The greater the firm’s net working capital:
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a. the lower the risk c. the lower the profitability
Cash flow for investment activities include
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a) change in gross fixed assets c.) changes in business interests
When the amount of financing is growing, the WEighted Marginal Cost of Capital:
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a. Increases
Short term market securities take place
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in the money market
Security market line shows the realation between expected return on investment and itsb
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b. market risk
identifying CFs corporate finance relevant to capital budget decision we should:
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b. include opportunity cost
The time factor in the value of money is not taken into account in
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Payback period method
Information about the personnel expenses can be found in:
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The income statment

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