TCO 1) Which of the following are capital structure concerns?

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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

Question 2. 2. (TCO 1) Market values reflect which of the following: (Points : 4)
The amount someone is willing to pay today for an asset.
The value of the asset based on generally-accepted accounting principles.
The asset’s historical cost.
A and B only
None of the above

Question 3. 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

Riddell, Inc. earned $144,320 in taxable income for the year. How much tax does the company owe on this income? (Points : 4)

Question 4. 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

Question 5. 5. (TCO 3) You deposited $8,000 in your bank account today. 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)
a decrease in the interest rate
increasing the initial amount of your deposit
decreasing the frequency of the interest payments
extending the length of the investment period

Question 6. 6. (TCO 3) You want to have $15,000 for a down payment on a house five years from now. If you can earn 13 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal? (Points : 4)

Question 7. 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)

Question 8. 8. (TCO 3) John borrowed $5,500 four years ago at an annual interest rate of 10 percent. The loan term is seven years. Since he borrowed the money, Sonny has been making annual payments of $550 to the bank. Which type of loan does John have? (Points : 4)
pure discount

Question 9. 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)

Question 10. 10. (TCO 6) The market where one shareholder sells shares to another shareholder is called the _____ market. (Points : 4)

Question 11. 11. (TCO 7) Which one of the following statements concerning financial leverage is correct? (Points : 4)
The benefits of leverage are unaffected by the amount of a firm’s earnings.
The use of leverage will always increase a firm’s earnings per share.
The shareholders of a firm are exposed to greater risk anytime a firm uses financial leverage.
Earnings per share are unaffected by changes in a firm’s debt-equity ratio.
Financial leverage is beneficial to a firm only when the firm has minimal earnings.

Question 12. 12. (TCO 3) A 10-year bond pays 11 percent interest on a $1000 face value annually. If it currently sells for $1,195, what is its approximate yield to maturity? (Points : 4)

Question 13. 13. (TCO 8) Which of the following is true regarding bonds? (Points : 4)
Bonds do not carry default risk.
Bonds are not 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 not free of default risk.
None of the above is true

Question 14. 14. (TCO 8) Which one of the following bonds is the most sensitive to interest rate movements? (Points : 4)
zero-coupon, five year
seven percent annual coupon, five year
zero-coupon, 10 year
five percent semi-annual coupon, 10 year
five percent annual coupon, 10 year

Question 15. 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

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