Financial Management

181. The cost of capital is:

1. used as an evaluation tool
2. based on the present cost obligation's of the firm
3. the cost of long-term investment
4. the cost of maintaining the bureaucrats in Ottawa

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182. A growth firm in a stable industry can normally afford to absorb how much debt relative to a firm in a cyclical industry:

1. more debt
2. less debt
3. about the same amount of debt
4. cannot be determined

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183. Financial capital:

1. appears under liabilities and equity on the corporate income statement
2. and the optimum capital structure are the same
3. consists of common stock, preferred stock and retained earnings only
4. consists of stocks, bonds and retained earnings

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184. Perhaps the most important step in the decision making process is:

1. collection of data
2. search and discovery of investment opportunities
3. evaluation and decision making
4. re-evaluation and adjustment

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185. The main difficulty in the capital budgeting process is:

1. determining where we want to be on the risk-return scale
2. finding viable investment opportunities
3. determining the appropriate discount rate
4. maximizing shareholder value

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186. All of the following are true regarding the use of simulation techniques except:

1. the computer randomly selects inputs from probability distributions
2. sensitivity testing allows for the asking of "what if" questions
3. its applications are limited in the area of capital budgeting
4. they generate a range of outcomes with standard deviations

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187. The major supplier of funds for investment is:

1. the federal government
2. provincial and local governments
3. corporations and other business entities
4. households

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188. The strong form of the efficient market hypothesis states that:

1. past price information is unrelated to future prices
2. prices reflect all public information
3. both public and private information is reflected in security prices
4. prices reflect all private or inside information

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189. When new shares in a public firm are to be issued, the price will normally be established:

1. at the current market price
2. slightly above the current market price
3. slightly below the current market price
4. at whatever price the market will bear.

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190. Payment to subordinated debenture holders takes place:

1. prior to payment to secured debt holders
2. prior to payment to senior debenture holders
3. after payment of preferred shareholders
4. after payment to senior debenture holders

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