Financial Management Questions and Answers Part-7

1. The interest rate used in time value of money calculations is also referred to as:
a) a discount rate, rate of return or yield
b) a discount rate, accounting return or yield
c) a compound rate, rate of return or market return
d) a compound rate, accounting return, or yield

Answer: a

2. The value in five years of a stream of payments received over the five year period is known as:
a) future value-annuity
b) present value-annuity
c) compound sum-single amount
d) present value-single amount

Answer: a

3. The interest rate used to discount the cash flows associated with a bond is:
a) the required rate of return on the firm's equity
b) the yield to maturity
c) the prime rate
d) the government T-bill rate

Answer: b

4. A payoff schedule for a loan is known as:
a) a mortgage
b) an interest schedule
c) a principal
d) an amortization schedule

Answer: d

5. If the yield to maturity changes, the effect will be greatest on:
a) long term bonds
b) short term bonds
c) government bonds
d) the effect will be the same for all bonds

Answer: a

6. The value of a share of common stock may be thought of as:
a) a perpetuity
b) an annuity
c) the present value of a perpetuity
d) the present value of expected future dividends

Answer: d

7. The cost of debt is measured by:
a) the yield to maturity on the firm's bonds
b) the coupon rate on the firm's bonds
c) the weighted average cost of capital
d) the marginal cost of capital

Answer: a

8. The least expensive form of financing for the firm is:
a) existing common stock
b) preferred stock
c) debt
d) new common stock

Answer: c

9. As more and more funds are required by the firm, the cost of each component of the capital structure may increase. These incremental changes are most correctly referred to as:
a) the weighted average cost of capital
b) the marginal cost of capital
c) the cost of capital
d) the incremental cost of capital

Answer: b

10. All of the following are widely used methods for evaluating capital expenditures except;
a) payback period
b) internal rate of return
c) net present value
d) weighted average cost of capital

Answer: d