If the financial markets are efficient, then investors should expect their investments in those markets to:

[removed]produce arbitrage opportunities on a routine basis.

[removed]earn extraordinary returns on a routine basis.

[removed]have zero net present values.

[removed]generally have positive net present values.

[removed]produce negative returns on a routine basis.

If behavioral finance holds, this implies:

[removed]some investors are irrational all of the time.

[removed]all investors are rational all of the time.

[removed]all investors are irrational some of the time.

[removed]all investors are irrational all the time.

[removed]some investors are irrational some of the time

Which one of these would generally be considered the most rational action for a tax-paying investor?

[removed]Throwing darts to select their portfolio holdings

[removed]Holding a less than fully diversified portfolio of securities

[removed]Trading frequently

[removed]Ignoring taxes when making investment decisions

[removed]Selling their losing and holding their winning securities

Keim s research presents evidence that the difference in performance between small capitalization stocks and large capitalization stocks is largest in the month of:

[removed]January.

[removed]October.

[removed]May.

[removed]April.

[removed]August.

Which of these help prevent arbitrage from totally correcting market mispricings?

I. Trading costs
II. Market domination by rational professionals
III. Number of amateur investors
IV. Near-term risk

[removed]III and IV only

[removed]I and II only

[removed]I, III, and IV only

[removed]I, II, III, and IV

[removed]I only

If the market is fully efficient, then an announcement by a firm of a new product with a high net present value will cause the market price of that firm’s stock to:

[removed]decline gradually over the next few days.

[removed]rise gradually over the next few days.

[removed]remain constant.

[removed]immediately decline to a new level equivalent to the decreased value of the firm.

[removed]immediately increase to a new level equivalent to the increased value of the firm.

Based on the efficient market hypothesis, a stock’s abnormal return at Time t is an indicator of:

[removed]cumulative market expectations.

[removed]semistrong form inefficiency.

[removed]conservatism.

[removed]weak form inefficiency.

[removed]a release of information at Time t.

[removed]

Your firm has a $295,000 bond issue outstanding. These bonds have a 6.35 percent coupon, pay interest semiannually, and have a current market price equal to 101 percent of face value. What is the amount of the annual interest tax shield given a tax rate of 35 percent?

[removed]$6,621.94

[removed]$6,556.38

[removed]$12,297.89

[removed]$6,125.50

[removed]$12,176.13

DL Trucking has a cost of equity of 14.4 percent and an unlevered cost of capital of 13 percent. The company has $20,000 in debt that is selling at par value. The levered value of the firm is $46,000 and the tax rate is 35 percent. What is the pretax cost of debt?

[removed]12.35%

[removed]11.75%

[removed]9.38%

[removed]11.20%

[removed]10.20%

The interest tax shield has no value for a firm when the:

I. the tax rate is equal to zero.
II. the debt-equity ratio is exactly equal to 1.
III. the firm is unlevered.
IV. a firm elects an all-equity capital structure.

[removed]I, III, and IV only

[removed]I, II, and IV only

[removed]I and III only

[removed]II, III, and IV only

[removed]II and IV only

Durbin, Inc., is an unlevered firm with a total market value of $365,000 with 20,000 shares of stock outstanding. The firm has expected EBIT of $24,000 if the economy is normal and $28,000 if the economy booms. The firm is considering a $73,000 bond issue with an attached interest rate of 5.5 percent. The bond proceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after the repurchase if the economy booms?

[removed]$1.47

[removed]$1.61

[removed]$1.75

[removed]$1.50

[removed]$1.68

JL Lumber has a debt-equity ratio of .62. The firm’s required return on assets is 12 percent and its current cost of equity is 15.60 percent. What is the firm’s pretax cost of debt? Ignore taxes.

[removed]6.25%

[removed]6.19%

[removed]6.45%

[removed]6.40%

[removed]6.03%

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An unlevered firm has a cost of capital of 14.6 percent and earnings before interest and taxes of $223,000. Assume the firm borrows $700,000 at a 7 percent rate of interest. The applicable tax rate is 34 percent. What is the value of the levered firm?

[removed]$1,907,018.11

[removed]$546,082.19

[removed]$1,246,082.19

[removed]$547,018.11

[removed]$1,946,082.19

[removed]

Which of these proposes that the value of a levered firm exceeds the value of an unlevered firm by the present value of the tax shield?

[removed]MM Proposition II with tax

[removed]MM Proposition II without tax

[removed]MM Proposition I with tax

[removed]MM Proposition I with and without taxes

[removed]MM Proposition I without tax

Leverage becomes a disadvantage to a firm as soon as the firm’s earnings before interest:

[removed]exceed the break-even point.

[removed]are taxed.

[removed]fall below the break-even point.

[removed]become negative.

[removed]exceed the firm’s unlevered earnings.

A firm is technically insolvent when:

[removed]it is unable to meet its financial obligations.

[removed]it files the legal forms petitioning for bankruptcy protection.

[removed]it has a negative net worth on its balance sheet.

[removed]the value of the firm’s assets is less than the value of the firm’s liabilities.

[removed]the value of its stock declines by more than 50 percent in any given 12-month period.

Which one of these best describes the relationship between bondholders and stockholders at a time when it appears the firm may be facing increased financial distress?

[removed]Both bondholders and stockholders will encourage the firm to take on new high risk projects.

[removed]Stockholders have an incentive to underinvest in new projects to the detriment of bondholders.

[removed]Bondholders tend to milk the property at the expense of stockholders.

[removed]Both parties tend to work together for the common good of the firm.

[removed]Bondholders will tend to lower their required rate of interest so the firm can afford additional financing until its financial status improves.

A firm that has a negative net worth is said to be:

[removed]in legal bankruptcy.

[removed]experiencing accounting insolvency.

[removed]experiencing a business failure.

[removed]experiencing technical insolvency.

[removed]in Chapter 11 bankruptcy reorganization.

Which one of these actions by a firm is an example of milking the property? Assume the firm is in a period of financial distress.

[removed]Paying the semiannual bond interest

[removed]Cutting a regular dividend

[removed]Paying an extra dividend

[removed]Repaying a bond that matured

[removed]Paying a regular dividend

The complete termination of a firm as a going business concern is called a:

[removed]reorganization.

[removed]merger.

[removed]repurchase program.

[removed]liquidation.

[removed]divestiture.

Which one of these relationships will exist if a firm is operating under its optimal capital structure?

[removed]The firm will be financed with equal amounts of long-term debt and equity.

[removed]The net present value of the firm will equal zero.

[removed]The value of the firm equal the maximum value obtainable according to the MM theories.

[removed]The firm’s cost of capital will equal the risk-free rate.

[removed]The present value of the financial distress costs will equal the present value of the tax shield on debt.

ATC has a value of $70,000 in a good economy and $55,000 in a recession. The firm has $60,000 of debt. The probability of a recession is 50 percent. The firm is considering a project that would change the firm values to $73,000 in a good economy and $50,000 in a recession. If the firm accepts this project, the firm value will ______ and shareholder value will ______.

[removed]decrease by $1,000; increase by $1,500

[removed]decrease by $1,000; decrease by $1,000

[removed]decrease by $2,000; decrease by $2,000

[removed]increase by $1,500; decrease by $1,000

[removed]increase by $1,500; increase by $1,500

Quick Mart has been paying a quarterly dividend of $1.20 a share. Which of the following are valid reasons for the firm to reduce or eliminate these dividends?

I. The firm is on the verge of violating a bond restriction.
II. The firm wants to save cash for an acquisition with a 40 percent premium.
III. The firm can raise new capital easily at a very low cost.
IV. Congress just changed the tax laws eliminating all taxes on capital gains.

[removed]I, II, III, and IV

[removed]I and IV only

[removed]II, III, and IV only

[removed]II and IV only

[removed]I, II, and IV only

A stock currently sells for $8.40 a share. What type of stock split does the firm need to do if it wants to increase the price so that it trades around $25 a share?

[removed]2-for-3 reverse stock split

[removed]3-for-1 stock split

[removed]5-for-2 stock split

[removed]1-for-3 reverse stock split

[removed]2-for-5 reverse stock split

Robinson’s has 18,500 shares of stock outstanding with a par value of $1 per share and a market price of $36 a share. The balance sheet shows $18,500 in the common stock account, $315,000 in the capital in excess of par value account, and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split. What will be the value of the common stock account after the split?

[removed]$22,500

[removed]$12,500

[removed]$15,000

[removed]$18,500

[removed]$10,000

Of the following factors, which one is considered to be the primary factor affecting a firm’s dividend decision?

[removed]Maintaining consistency with the historical dividend policy

[removed]Attracting institutional investors

[removed]Sustainable changes in earnings

[removed]Attracting retail investors

[removed]The personal taxes company stockholders incur on dividend distributions

[removed]

Men’s Place has 15,000 shares of stock outstanding with a par value of $1 per share and a market value of $19.50 per share. The balance sheet shows $15,000 in the common stock account, $218,000 in the capital in excess of par value account, and $312,500 in the retained earnings account. The firm just announced a 50 percent (large) stock dividend. What is the market value per share after the dividend?

[removed]$19.50

[removed]$39.00

[removed]$15.25

[removed]$29.25

[removed]$13.00

Alpha Company is paying a $1.50 per share dividend today. There are 200,000 shares outstanding with a par value of $1 per share. As a result of this dividend, the:

[removed]common stock account will decrease by $150,000.

[removed]capital in excess of par value account will decrease by $150,000.

[removed]common stock account will decrease by $300,000.

[removed]retained earnings will decrease by $300,000.

[removed]retained earnings will decrease by $150,000.[removed]

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A cash payment made by a firm to its owners when some of the firm’s assets are sold off is called a(n):

[removed]liquidating dividend.

[removed]regular cash dividend.

[removed]extra cash dividend.

[removed]special dividend.

[removed]share repurchase.

[removed]

End Zone just paid an annual dividend of $.68 a share. The firm has a target payout ratio of .6 and a speed of adjustment value of .4. What is the expected value of next year’s annual dividend if the firm expects its earnings per share to be $2.20?

[removed]$.53

[removed]$.90

[removed]$1.32

[removed]$.94

[removed]$1.09

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The __________ is the supreme law of the land. United States Constitution Declaration of Independence United States Code model law Uniform Commercial Code
2 points

Question 24

Which of the following are types of warranties? Express and unknown Implied and understood Acknowledged and express Express, implied, and acknowledged Express and implied, but not acknowledged
2 points

Question 25

A breaching party’s right to provide conforming goods when nonconforming goods were initially delivered is known as __________. substantial impairment usage of trade cure perfect tender rule course of dealing
2 points

Question 26

Heather innocently misrepresented the status of a puppy as being a full-blooded Pomeranian when actually it was a mixed breed. Brad had contracted to purchase the dog, but the problem was discovered prior to his paying for the dog and picking it up. Nevertheless, Brad was very angry and felt that Heather should have been more careful. He said that he planned to rescind the contract and also sue her for damages to punish her and deter others from behaving similarly. Which of the following is true regarding the remedies available to Brad? Because Heather violated the contract to provide a full-blooded Pomeranian, Brad is entitled to rescind the contract and also to the damages he seeks. Because Heather violated the contract to provide a full-blooded Pomeranian, Brad is entitled to rescind the contract, but he is not entitled to the damages he seeks. Because Heather is not guilty of any wrongdoing, Brad is entitled to no remedy, and Heather has an additional 30 days in order to honor the contract. Because Heather is not guilty of any wrongdoing, Brad is entitled to no remedy, and Heather has an additional 60 days in order to honor the contract. Because Heather is not guilty of any wrongdoing, Brad is entitled to no remedy, and Heather has an additional 90 days in order to honor the contract.
2 points

Question 27

Monique was licensed to train massage therapists. A new federal agency, the Aesthetic and Massage Commission, was committed to enforcing the statute that licensed massage therapists must refrain from “any act or conduct indicating bad faith, incompetence, dishonesty, or improper dealing.” Monique, while driving home late one night from a party, was stopped by the police and arrested for driving under the influence of alcohol. She pled guilty to the offense. When the Aesthetic and Massage Commission discovered the offense, the officials of the agency met, decided that Monique might drink on the job, and concluded that she might pose a danger to students. Accordingly, her license to teach massage therapy was revoked. Monique threatened to sue to retain her license and was told by the agency head that she had no right to appeal to court because of the nature of the Aesthetic and Massage Commission, and that, in any event, action by an agency is always upheld. Which of the following is TRUE regarding the statement of the agency that Monique had no right to appeal to court? The agency representative was wrong, and if Monique cannot resolve the issue within the agency, she may appeal to court for judicial review. Because the agency was set up to protect the safety of the public, the agency representative is correct unless Monique can establish that she entered into a separate contractual arrangement with the agency when she was hired that gave her the right to appeal decisions to court. Further information is needed regarding whether the agency was an executive agency or an independent agency because while actions of an independent agency may be appealed to court, actions of an executive agency may not be appealed to court. Further information is needed regarding whether the agency was an executive agency or an independent agency because while actions of an executive agency may be appealed to court, actions of an independent agency may not be appealed to court. Because the agency was set up to protect the safety of the public, the agency representative is correct, and Monique has no right to a court action and no right to enter into a contractual agreement with the agency regarding appeal rights.
2 points

Question 28

Which of the following refers to the right of an offeror to revoke an offer? The offeror is the “originator of his offer.” The offeror is the “master of his offer.” The offeror is the “proponent of his offer.” The offeror is the “adjudicator of his offer.” The offeror is the “arbiter of his offer.”
2 points

Question 29

What was the result in the case in the textbook of Lucy v. Zehmer involving whether allegations of joking involving the sale of land prevented the formation of a contract? The court ruled that the contract would not be enforced because one of the parties was subjectively joking. The court ruled that the contract would not be enforced because one of the parties was joking, and a reasonable person should have known that. The court ruled that the contract would not be enforced because the parties had been drinking although they were not intoxicated. The court ruled that the agreement would be enforced because of the outward manifestations of agreement. The court ruled that the contract would be enforced because of what the parties verbally said regardless of whether an objective person would have thought joking was involved.
2 points

Question 30

Jim, who is a bit eccentric, says that he is fed up with the way a certain employer in his town treats employees and that he is going to sue that employer in an effort to improve matters. Jim also says that he is going to start his case at the appellate court level, skipping over all of those “lesser” judges. Jim says that those justices will surely hear him out and that he will also seek a jury. Although he is not a lawyer, Jim believes that the offenses of the employer are so severe that the justices will appreciate his attempt to make things better for the employees involved. Will Jim get a jury at the appellate court level? Only if the opposing party agrees In some states but not in others Only if he is in federal court Only if he is in state court No
2 points

Question 31

Which of the following is a person who has a duty to act primarily for another person’s benefit? Principal Employer Fiduciary Trustor Benefitor
2 points

Question 32

Which of the following is TRUE regarding whether the shape of a product or package may be a trademark? The shape of a product may be a trademark if it is nonfunctional, but the shape of a package may not be the subject of a trademark. The shape of a product may be the subject of a trademark if it is functional, but the shape of the package may not be the subject of a trademark. The shape of a product or package may be a trademark if it is functional. The shape of a product or the shape of a package may be a trademark if it is nonfunctional. The shape of a package may be a trademark if it is nonfunctional, but the shape of a product may not be the subject or a trademark.
2 points

Question 33

Which of the following BEST determines the obligations of sellers/lessors and buyers/lessees? Terms the parties outline in agreements Custom Rules outlined by the UCC Terms the parties outline in agreements, custom, and rules outlined by the UCC Terms the parties outline in agreements and custom, but not rules outlined by the UCC
2 points

Question 34

In a limited partnership, which of the following have no part in the management of the business? General partners Limited partners Special partners General partners, limited partners, and special partners General and special partners but not limited partners
2 points

Question 35

Patricia, the president of a company that makes batteries, has a new interest in the environment. She recently went to a seminar on environmental dangers and has decided to take steps to clean things up. She started at home and was also committed to change things at work. Patricia had to face the fact that her company has been cheating and is not in compliance with applicable environmental regulations due to dumping in a nearby river. Her company has never been cited, however, because it employs a very large number of people in the community, including the mayor’s wife and the chief-of-police’s brother.

On her mission to clean things up, Patricia has decided to go even further than the law requires and install the very latest environmental protections. When she announced her plan, the chair of the company’s board of directors, Cindy, had a meeting with Patricia. Cindy told Patricia to analyze the situation carefully because the cost of the additional equipment would mean no dividend to shareholders and no raise for employees. Furthermore, Cindy told Patricia that installing all of the new equipment would result in higher prices for the company’s batteries and could bankrupt the company because of foreign competition. Cindy hinted that Patricia could be fired if she persisted. Cindy suggested that Patricia just be concerned with a minimal standard of ethics. Which of the following is the minimal standard that a business must meet in a consideration of business ethics? Decisions must be legal. Decisions must meet the criteria of a follower of the WPH Framework for Business Ethics. Decisions must meet the requirements of the most important stakeholders. Decisions must receive a majority vote of acceptance by employees. Both that decisions must be legal and that decisions receive a majority vote of acceptance by employees.
2 points

Question 36

Which of the following is FALSE regarding the agency relationship? It is a consensual relationship. It may be formed by formal written contracts. It may usually be formed by informal oral agreements. It exists when the principal takes action to ask another individual to act on behalf of the principal. People must be trained in the field involved in order to qualify as agents.
2 points

Question 37

Barry, an auctioneer, was holding an auction on a Saturday morning. At the beginning of the auction, Barry announced that the auction was being held without reserve. At the auction, Mary saw a great deal on a used table. She bid $20 on it. No one else bid anything. Barry announced that $20 was clearly insufficient for the table, that it was worth much more than that, and that he was taking it out of the auction. Mary sued Barry, attempting to obtain possession of the table. What is the likely result in the lawsuit brought by Mary against Barry for the table? Barry will win because Mary was simply making an offer that he was free to decline. Barry will win because the price was clearly insufficient for the table. Barry will win because no acceptance occurred. Mary will win because the auction was without reserve, and Barry had agreed to accept the highest bid. Barry will win because he did not inform attendees in writing that the auction was without reserve.
2 points

Question 38

Which of the following articles of the Uniform Commercial Code (UCC) governs sales contracts? 2 2(A) 4 4(A) 6
2 points

Question 39

A __________ is a FALSE representation of a material fact that is consciously false and intended to mislead the other party. negligent misrepresentation fraudulent misrepresentation scienter misrepresentation negligent misrepresentation, fraudulent misrepresentation, and a scienter
misrepresentation negligent or fraudulent misrepresentation, but not a scienter misrepresentation
2 points

Question 40

Which of the following do NOT meet the UCC definition of a good? Real estate Corporate stocks Copyrights Neither real estate, corporate stocks, nor copyrights meet the definition of goods Real estate and corporate stocks do not, but copyrights do meet the definition of good
2 points

Question 41

Briefly define what makes each of the following entities different from each other and what the advantages might be for each: sole proprietorship, general partnership, limited partnership, and limited liability partnership (LLP).

Your response should be at least 200 words in length. Arial3 (12pt)ParagraphFont familyFont sizePath: pWords:0
10 points

Question 42

What are the major differences between a corporation and a limited liability corporation (LLC)? Why do you believe governing bodies have chosen to create the two different entities?

Your response should be at least 200 words in length. Arial3 (12pt)ParagraphFont familyFont sizePath: pWords:0
10 points

Penny is investigating what she needs to do to legally to open a dog grooming business in her city

Penny is investigating what she needs to do to legally to open a dog grooming business in her city. Which of the following would govern the business? State statutes City ordinances Model laws State statutes, city ordinances, and model laws State statutes and city ordinances, but not model laws

Connie, the president of a company that makes paper, has a new interest in the environment. She recently went to a seminar on environmental dangers and has decided to take steps to clean things up. She started at home and was also committed to change things at work. Connie had to face the fact that her company has been cheating and is not in compliance with applicable environmental regulations due to dumping in a nearby river. Her company has never been cited, however, because it employs a very large number of people in the community, including the mayor’s wife and the chief-of-police’s brother.

On her mission to clean things up, Connie has decided to go even further than the law requires and install the very latest environmental protections. When she announced her plan, the chair of the company’s board of directors, Brooke, had a meeting with Connie. Brooke told Connie to analyze the situation carefully because the cost of the additional equipment would mean no dividend to shareholders and no raise for employees. Furthermore, Brooke told Connie that installing all of the new equipment would result in higher prices for the company’s paper products and could bankrupt the company because of foreign competition. Brooke hinted that Connie could be fired if she persisted. Brooke suggested that Connie just be concerned with a minimal standard of ethics. Which of the following would be a stakeholder in the company? The community only The shareholders only Future generations only The community and shareholders only The community, shareholders, and future generations
2 points

Which of the following is TRUE regarding the liability in tort of employers for the actions of employees and independent contractors? Employers are generally liable in tort for the actions of their employees, while they are generally not liable for the actions of independent contractors. Employers are generally liable in tort for the actions of independent contractors, while they are generally not liable for the actions of employees. Employers are not generally liable in tort for the actions of independent contractors or for the actions of employees. Employers are generally liable in tort for the actions of independent contractors and also for the actions of employees. Employers are generally liable in tort for the actions of independent contractors and the actions of employees, but only if the employer has agreed to be liable in a written contract with the employee or independent contractor.
2 points

Which of the following was the result on appeal in the case of Webster v. Blue Ship Tea Room Inc.—the case in which the plaintiff sued after getting a bone caught in her throat while eating clam chowder? That the plaintiff could recover based upon the implied warranty of merchantability That the plaintiff could recover based upon the implied warranty of fitness for a particular purpose That the plaintiff could recover based on an express warranty That the plaintiff could not recover because she waited too long in which to sue and also because she was not the direct purchaser of the fish That the plaintiff could not recover for reasons including that the bone should not have been unexpected
2 points

A partnership in which the partners divide profits and management responsibilities and share unlimited personal liability for the partnership’s debt is called a __________. general partnership limited partnership limited liability partnership corporation limited liability company
2 points

A person who contracts with another to do something for him or her but who is not controlled by the other nor subject to the other’s right to control with respect to his or her physical conduct in the performance of the undertaking is a(n) __________. employee independent contractor authorized contractor task-specific contractor partial contractor
2 points

Which of the following occurs when a party to a contract transfers his or her rights to a contract to a third party? Assignment Referral Disgorgement Privity Transfer
2 points

Sally agrees to mow Paul’s yard for $300 for the summer. Paul wishes to assign the contract to his grandmother. Sally objects because Paul’s yard is very small while the grandmother’s yard is over an acre. Which of the following is the correct legal outcome for the dispute between Sally and Paul? Sally will win because Paul’s attempted assignment would increase the duties to which she agreed. Sally will win because all assignments are invalid without the obligor’s consent. Sally will win unless Paul paid her the $300 in advance in which case Paul will win. Paul will win because he may validly assign the contract without Sally’s consent. Paul will win so long as he tells Sally about the assignment prior to the time she begins any performance whatsoever.
2 points

Which of the following is FALSE regarding a sole proprietorship? A sole proprietorship requires few legal formalities. A sole proprietor has complete control of the management of the business. The sole proprietor keeps all the profits from the business. Profits are taxed as the personal income of the sole proprietor. A sole proprietor is not personally liable for obligations of the business.
2 points

If the plaintiff wants a court order that requires the defendant to fulfill the terms of the contract, the plaintiff is seeking __________. specific performance directive instructional edict demand injunction
2 points