Financial Management

61. The interest rate used in time value of money calculations is also referred to as:

  1. a discount rate, rate of return or yield
  2. a discount rate, accounting return or yield
  3. a compound rate, rate of return or market return
  4. a compound rate, accounting return, or yield
Correct answer: (A)
a discount rate, rate of return or yield

62. The value in five years of a stream of payments received over the five year period is known as:

  1. future value-annuity
  2. present value-annuity
  3. compound sum-single amount
  4. present value-single amount
Correct answer: (A)
future value-annuity

63. A payoff schedule for a loan is known as:

  1. a mortgage
  2. an interest schedule
  3. a principal
  4. an amortization schedule
Correct answer: (D)
an amortization schedule

64. The interest rate used to discount the cash flows associated with a bond is:

  1. the required rate of return on the firm's equity
  2. the yield to maturity
  3. the prime rate
  4. the government T-bill rate
Correct answer: (B)
the yield to maturity

65. If the yield to maturity changes, the effect will be greatest on:

  1. long term bonds
  2. short term bonds
  3. government bonds
  4. the effect will be the same for all bonds
Correct answer: (A)
long term bonds

66. The value of a share of common stock may be thought of as:

  1. a perpetuity
  2. an annuity
  3. the present value of a perpetuity
  4. the present value of expected future dividends
Correct answer: (D)
the present value of expected future dividends

67. The cost of debt is measured by:

  1. the yield to maturity on the firm's bonds
  2. the coupon rate on the firm's bonds
  3. the weighted average cost of capital
  4. the marginal cost of capital
Correct answer: (A)
the yield to maturity on the firm's bonds

68. The least expensive form of financing for the firm is:

  1. existing common stock
  2. preferred stock
  3. debt
  4. new common stock
Correct answer: (C)
debt

69. 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:

  1. the weighted average cost of capital
  2. the marginal cost of capital
  3. the cost of capital
  4. the incremental cost of capital
Correct answer: (B)
the marginal cost of capital

70. All of the following are widely used methods for evaluating capital expenditures except;

  1. payback period
  2. internal rate of return
  3. net present value
  4. weighted average cost of capital
Correct answer: (D)
weighted average cost of capital
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