Question

1Firms that specialize in helping companies raise capital by selling shares of common stock are called _________.

Select one:

a. mutual funds

b. insurance companies

c. None of THESE

d. commercial banks

e. credit unions

2 Which of the following statements is true?

select one:

a.
All of THESE are true

b.
Activist shareholders that are not happy with the company’s performance, ask other shareholders to grant them the right to elect board directors via a proxy.

c. The right to elect the directors of a corporation by vote constitutes the most important control device of shareholders.

d.
Straight voting is advantageous to shareholders with large number of shares because they can elect more directors of the board that minority shareholders.

3 The market value of equity is equal to market value of common stock and preferred stock plus retained earnings.

Select one:

True

False

4.You invested $25,000 in shares of common stock two years ago. If today’s value of your investment is $20,000, your annual rate of return is _________.

Select one:

a. +11.80%

b. -10%

c. -10.56%   

d. -20%

e. +10%

5. Selling long-term assets represents an increase of cash flow of the firm.

Select one:

True

False

6Which of the following statements is true?

Select one:

a. An increase in accounts payable increases the net working capital of a firm.

b. Increase in treasure stock decreases the cash flow to shareholders.

c. A decrease in net working capital increases the cash flow of the firm.

d. All of THESE are true

e. None of THESE are true

7, A stock expects to pay a dividend of $3 in year one and expects to grow 2% in perpetuity. If the annual rate of return is 10%, then the present value of the stock is _______.

Select one:

a.
$30

b.
$25  

c.
$150

d. $37.5  

Answer 1

Q1) C) None of these

Explanation: Investment Banks are banks which helps companies to issue shares for raising capital

Q2) A) all of these are true

Explanation: All of the statements mentioned above are correct.

Q3) False

Explanation: market value of equity is equal to market price of share multiplied by no. of outstanding shares of equity.

Q4) c) -10.56%

Explanation: Using financial calculator to calculate the rate of return

Inputs: N= 2

Pv= -25,000

fv= 20,000

pmt= 0

i/y= compute

we get, rate of return as -10.56%

Q5) True

Explanation: Selling of asset, leads to increase in cash inflows.

Q6) D) All of these are true

Explanation: all the statements mentioned above are right.

Q7) D) $37.5

Explanation:

Price = dividend/ required rate - growth rate

= 3 / 0.10 - 0.02

= 3 / 0.08

= $37.5