MGMT 200 EXAM 3 (PURDUE UNIVERSITY) NEWEST
2024 EXAM 3 AND PRACTICE EXAM 320 QUESTIONS
AND CORRECT DETAILED ANSWERS (VERIFIED
ANSWERS) |ALREADY GRADED A
The advantages of obtaining funds by issuing debt,
rather than issuing additional common stock, include
which of the following?
A. Funds are obtained without surrendering
ownership control.
B. Funds are obtained without surrendering
ownership control, as well as, interest expense
is tax‐deductible.
C. The company's default risk decreases.
D. Interest expense is tax‐deductible. - ANSWER >>>B. Funds are
obtained without surrendering
ownership control, as well as, interest expense
is tax‐deductible.
Banks will charge a very profitable company a higher
interest rate as compared to a company with minimal
income since the high‐income business will be better
able to pay the extra interest cost.
A. True
B. False - ANSWER >>>B. False
The lower the debt to equity ratio, the greater the
financial risk the company is taking.
A. True
B. False - ANSWER >>>B. False
Cash flow generally limits the amount of debt a
business can finance.
,A. True
B. False - ANSWER >>>True
A debt to equity ratio of approximately .34 means that
one‐fourth of the company's assets are financed by
creditors.
A. True
B. False - ANSWER >>>A. True
Which of the following definitions describes a term
bond?
A. Matures on a single date.
B. Secured only by the "full faith and credit" of the
issuing corporation.
C. Matures in installments.
D. Supported by specific assets pledged as
collateral by the issuer. - ANSWER >>>Matures on a single date
Which of the following is not true regarding callable
bonds?
A. This feature allows the borrower to repay the
bonds before their scheduled maturity date.
B. This feature helps protect the borrower against
future decreases in interest rates.
C. Callable bonds benefit the bond investor.
D. A bond can be both callable and convertible. - ANSWER
>>>Callable bonds benefit the bond investor
The term used for bonds that are unsecured as
to principal is
A. series bonds.
B. indenture bonds.
C. debenture bonds.
D.callable bonds. - ANSWER >>>Debenture Bonds
The amount at a present time that is equivalent to a
series of payments and interest in the future.
,A. Present value of a single amount
B. Future value of a single amount
C. Present value of an annuity
D. Future value of an annuity - ANSWER >>>Present value of an
annuity
What measurement should be used when reporting
long‐term liabilities on a balance sheet?
A. Present value of the present outflow
B. Present value of the future outflow
C. Future value of the present outflow
D. Future value of the future outflow - ANSWER >>>Present value of
the future outflow
The price of a bond is equal to:
A. The present value of the interest only
B. The future value of the face amount only
C. The future value of the face amount plus the
future value of the stated interest payments
D. The present value of the face amount plus the
present value of the stated interest payments - ANSWER >>>The
present value of the face amount plus the present value of the stated
interest payments
On January 1, 2018, San Bruno, Inc. issued twenty‐year bonds
payable
with a face value of $50,000,000 and a face interest rate of 5 percent.
The
bonds were issued with a market interest rate of 6 percent. Interest is
payable semi‐annually on January 1 and July 1. In calculating the
present
value of the bond issue on January 1, 2018,
A. the 5 percent rate will be used to calculate the present value of
the face amount and the present value of the periodic interest
payments
B. the 6 percent rate will be used to calculate the present value of
the face amount and the present value of the periodic interest
, payments.
C. a 3 percent rate will be used to calculate the present value of
the face amount and the present value of the periodic interest
payments.
D. the 6 percent rate will be used to calculate the present value of
the face amount and a 2.5 percent rate will be used to calculate
the present value of the periodic - ANSWER >>>C. a 3 percent rate
will be used to calculate the present value of
the face amount and the present value of the periodic interest
payments
The price of a bond is equal to:
A. The present value of the interest only
B. The future value of the face amount only
C. The present value of the face amount plus the
present value of the stated interest payments
D. The future value of the face amount plus the
future value of the stated interest payments - ANSWER >>>The
present value of the face amount plus the present value of the stated
interest payments
The market interest rate on bonds is higher than
the stated or face rate when bonds sell
A. at face value.
B. below face value.
C. above face value.
D. at maturity value - ANSWER >>>Below face value
If the market interest rate at the date of
issuance of a bond is below the face or stated
interest rate, the bond will probably be sold at a
premium.
A. True
B. False - ANSWER >>>True
Bonds usually sell at a premium when
A. investors are willing to invest in bonds at rates
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