Financial Management

71. All of the following are true regarding capital rationing except:

1. it places on artificial constraint on funds that many be invested
2. it may result out of a fear of growth
3. it may result out of a hesitation to use external sources of funds
4. it will help the overall profitability of the firms

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72. The expected value may be defined as:

1. a weighted average of outcomes times their probability
2. the arithmetic average of the outcomes
3. the median value of the possible outcomes
4. a measure of dispersion or variability

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73. The key to simulation analysis has been:

1. statistical analysis
2. the development of the computer
3. risk adjusted interest rates
4. the ability to classify investments as to their risk class

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74. Markets comprised of securities with maturities of one year or less are generally referred to as:

1. money markets
2. capital markets
3. stock markets
4. bond markets

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75. A major disadvantage of preferred stock is:

1. common stock dividends have a higher order of precedence
2. dividends are not tax-deductible
3. there is no secondary market for preferred stock
4. the preferred dividend may vary greatly year to year

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76. Organized securities markets exhibit all of the following characteristics except:

1. listings on national and regional exchanges are mutually exclusive
2. each exchange has a central location where buying and selling occurs
3. brokers represent the actual buyers and sellers
4. securities are listed and traded with the approval of the board of governors

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77. All of the following influence the price of a stock for the firm going public by way of an IPO except:

1. the previous share price
2. an in-depth company analysis
3. the P/E ratio for similar firms in the industry
4. anticipated public demand

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78. Going public offers the firm many of the advantages listed below with the exception of:

1. security markets may be tapped for a greater amount of funds
2. the prestige of a public security may help in bank negotiations
3. marketable securities may be used for acquisitions
4. there is less pressure for short-term profits

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79. With a secured claim:

1. specific assets are pledged in the event of default
2. a debenture exists
3. the lower the value of the initial security
4. pledged assets are often sold off and the proceeds distributed

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80. Which of the following is a benefit of debt to the firm:

1. interest and principal obligations are contractually set
2. interest payments are tax deductible
3. indenture agreements provide the firm with no restrictions
4. used beyond a certain point, debt will decrease the cost of capital

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