21.
Which of the following would be considered an "operating expense"?
A
Interest expense on a loan
B
Salaries and wages of employees
C
Repayment of a bond
D
Purchase of long-term assets
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Which of the following would be considered an "operating expense"?
Interest expense on a loan
Salaries and wages of employees
Repayment of a bond
Purchase of long-term assets
Which of the following is NOT a method of valuing a company?
Discounted Cash Flow (DCF)
Price-to-Earnings (P/E) ratio
Dividend Discount Model (DDM)
Earnings Per Share (EPS) ratio
What is the primary difference between a "financial option" and a "real option"?
Financial options give investors the right to buy stocks, while real options relate to corporate investment decisions
Financial options are more expensive than real options
Real options can be traded on the open market, but financial options cannot
Real options involve borrowing and lending decisions, while financial options do not
What is "accounting income"?
The income reported on a company's income statement
The net income after taxes
The gross revenue minus operating expenses
The total dividends paid to shareholders
What is the "hurdle rate" in capital budgeting?
The rate of return a project must exceed for it to be accepted
The cost of capital used to discount future cash flows
The minimum debt rate a company must pay on its loans
The average rate of return on all company projects
What does "price-to-earnings" (P/E) ratio compare?
The market price of a company's stock with its earnings per share
A company's debt to its equity
The market capitalization of a company with its revenue
The company's dividend payout with its total assets
Which of the following is a typical characteristic of a "preferred stockholder"?
The right to vote in shareholder meetings
A fixed dividend payout
A variable dividend based on earnings
A high degree of risk due to the volatility of the stock
Which of the following best defines "financial leverage"?
The use of equity to finance a firm's assets
The use of debt to increase the potential return on equity
The use of retained earnings to finance a firm's expansion
The use of short-term financing to meet liquidity needs
What is the formula for the "debt-to-equity ratio"?
Total debt / Total equity
Total liabilities / Total assets
Net income / Equity
Long-term debt / Shareholder equity
Which of the following methods of investment appraisal takes into account the time value of money?
Payback period
Internal rate of return (IRR)
Return on investment (ROI)
Discounted payback period
What does "earnings per share" (EPS) measure?
The profit available to shareholders divided by the number of shares
The company's total earnings from operations
The percentage return on total equity
The operating profit margin of the company
Which of the following is a "hybrid security"?
A stock option
A bond with a convertible feature
A fixed dividend-paying stock
A short-term commercial paper
What is the key characteristic of a bond?
It is a short-term investment instrument
It represents equity ownership in a company
It is a form of debt used by corporations
It can be converted into stock
What does "financial statement analysis" help an analyst determine?
The intrinsic value of a company's stock
The company's future profitability
The company's past performance and financial health
The company's future dividend payouts
What is the "cost of capital"?
The minimum return required to satisfy all of a company's investors
The cost of issuing new stocks or bonds
The interest rate paid on short-term loans
The cost of goods sold
Which of the following is a characteristic of "venture capital"?
It involves large amounts of debt financing for large companies
It provides equity financing for early-stage, high-risk companies
It is typically used to finance government projects
It is only available to publicly traded companies
What is a key assumption of the "Modigliani-Miller" theory of capital structure?
The firm is always able to reduce taxes through debt financing
There are no taxes or bankruptcy costs in an efficient market
The firm can never raise equity capital
A company always retains full control when issuing debt
What is the "liquidity ratio"?
A ratio that compares a company's current assets to its current liabilities
A ratio that measures a company's profitability
A ratio that measures a company's efficiency in using assets
A ratio that measures a company's total debt
Which of the following best describes "capital gains"?
The profit from the sale of an asset
The interest earned on bonds
The dividend income received from stocks
The amount invested in a business
What is the "weighted average cost of capital" (WACC)?
The average interest rate a company pays on its debt
The total capital invested in a company, including debt and equity
The weighted average rate of return a company must earn on its investments
The minimum rate of return required by shareholders