Week 7

The Modigliani-Miller theory suggests that it doesn’t matter
to a shareholder whether a company issues dividends. Why might that theory not
be applicable to the US stock market as it currently exists?

Question 1 options:

All of
these answers.

There
are transaction costs associated with trading stock.

Financial leverage does affect a company’s cost of capital.

There is information asymmetry between the company’s
managers and its investors.

Question 2

Which of the following is an accurate description of one of
the dates related to issuing dividends.

Question 2 options:

All of these answers.

The ex-dividend date refers to when the shareholders must be
registered on record.

The in-dividend date is the last day when the stock is cum
dividend.

The declaration date is the day the board of directors
announces it will pay a dividend.

Question 3

Under the Modigliani-Miller theorem in finance, the value of
a company depends on:

Question 3 options:

how managers work together.

the
capital structure of the company.

the competitive situation of the company and the projects
that the company undertakes and plans.

stock
returns and dividends.

Question 4

Which of the following is a method of payment a corporation
can use to pay a dividend?

Question 4 options:

Securities
of other companies.

Cash

All of these answers.

Stock

Question 5

A company wants to implement a capital growth policy. In the
current year it had $10 million in net income. How much income should it
distribute in dividends?

Question 5 options:

$8
million

$1
million

$10 million

$20
million

Question 6

Which of the following is a drawback of share repurchases
for shareholders?

Question 6 options:

All of these answers.

Insiders
have an advantage of knowing when to sell, which puts other shareholders at a
disadvantage.

Shareholders can have a hard time gauging how a repurchase
will affect the value of their holdings.

Share
repurchases can be used to manipulate financial metrics, which can mislead
investors.

Question 7

Which of the following accurately describes how a stock
dividend differs from a stock split?

Question 7 options:

A stock
dividend causes the stock’s price to fall; a stock split does not.

A stock
dividend increases the shareholder’s percentage ownership in the company; a
split does not.

A stock dividend is paid using already issued shares; a
split requires new shares to be issued.

All of
these answers.

Question 8

Which of the following changes after a stock splits?

Question 8 options:

The stock’s per share price.

The
company’s total market value.

All of
these answers.

The stockholder’s ownership percentage in the company.

Question 9

Which of the following is a shareholder benefit associated
with a dividend reinvestment program (DRIP)?

Question 9 options:

DRIPs allow the investors to reinvest their dividend income
in the company quickly.

DRIPs allow investors take advantage of dollar-cost
averaging.

DRIPs
help to stabilize the stock price.

All of these answers.

Question 10

Complete the following statement so that it is always true:
If a company has significant working capital, _____.

Question 10 options:

it is guaranteed to have enough cash to pay all of its
expenses.

it will probably be able to obtain credit at a lower
interest rate.

All of these answers.

the
company is growing at the highest rate possible.

Question 11

A company has $20,000 in cash, $10,000 in accounts
receivable and $45,000 in fixed assets. It has $12,5000 in accounts payable. It
owes $50,000 in two years on a note that has an annual interest payment of
$5,000. What is its working capital?

Question 11 options:

$17,500

$12,500

$7,500

$57,500

Question 12

Which of the following factors need to be considered
evaluating a company’s working capital strategy?

Question 12 options:

The level of inventory necessary to ensure that a company
can meet its customers demands.

All of
these answers.

The number of days it takes a business to obtain payment
from its customers for its completed sales.

The number of days the company can wait before it must pay
its debts.

Question 13

Which of the following explains why working capital may not
be a pure measure of short-term assets and liabilities?

Question 13 options:

Cash flows available for paying current liabilities may be
closely related to long-term assets.

Many businesses are complex, making it difficult to
determine the length of the operating cycle.

The distinction between “current” and
“non-current” is arbitrary.

All of these answers.

Question 14

A company has $350,000 in accounts receivable, $100,000 in
current inventory, and $125,000 in accounts payable. What is its working
capital?

Question 14 options:

$325,000

$225,000

$375,000

$450,000

Question 15

Which of the following correctly defines a factor that
influences a company’s working capital financing decisions?

Question 15 options:

All of
these answers.

A company’s return on capital is income divided by the
capital used to earn that revenue.

Credit
policy is how a company uses credit to make purchases and whether it allows
sales on credit.

A CCC
is the number of days from the purchase of materials until the customer pays
for the product.

Question 16

Which of the following is an acceptable strategy for
managing a company’s disbursements?

Question 16 options:

All of
these answers.

A company should distribute payroll after the point when
banks will clear checks for that week.

A
company should be overinsured to ensure that it has adequate coverage.

A
company should always purchase products it needs to avoid long-term rental
expenses.

Question 17

Which of the following should a company ALWAYS do with regards
to its collection policy?

Question 17 options:

Tailor its collection policy based on each customer’s needs
and importance.

Set up
lock box banking for its customers’ convenience.

Require
a deposit from all customers for large purchases.

Demand upfront payment when the good or service is
delivered.

Question 18

Which of the following is a reason a company would hold
marketable securities?

Question 18 options:

To ensure that the company can meet known financial
requirements, such as maturing bond issues.

To serve as a substitute for cash balances.

All of these answers.

To obtain a return instead of letting the funds remain idle.

Question 19

A customer has 45 days from the date of invoice to pay a
bill in full, but if he pays within 15 days of the invoice, he gets a 10%
discount. Which of the following describes these terms of trade?

Question 19 options:

15/45, net 10.

15/10,
net 45.

10/15, net 45.

10/45, net 15.

Question 20

Which of the following correctly defines one of the
“Five C’s of Credit?”

Question 20 options:

All of
these answers.

Capacity: Does the borrower have sufficient assets to secure
the loan?

Character: Is the borrower trustworthy with a history of
meeting its debt obligations?

Capital: Does the borrower have enough cash flow to make its
payments?