1. Which of the following statements are correct? I. the SML approach is depende

Question

1. Which of the following statements are correct?

I. the SML approach is dependent upon a reliable measure of a firm's unsystematic risk

II. the SML apporahc can be applied to firms that retain all of their earnings

III. The SML approach assumes a firm's future risks are similar to its past risks

IV. The SML approach assumes the reward-to-risk ratio is constant

a. I and II only

b. II and IV only

c. III and IV only

d. I, II and III only

e. II, III, and IV only

2.The weighted average cost of capital for a firm may be dependent upon the firm's:

I. rate of growth

II. debt-equity ratio

III. preferred dividend payment

IV. retention ratio

a. I and III only

b. II and IV only

c. I, II and IV only

d. I, III, IV only

e. I, II, III, and IV

3. Costs that decrease as a firm acquires additional current assets are called __________  costs.

a. carrying

b. shortage

c. debt

d. equity

e. payables

4. The wire house purchases its inventory one quarter prior to the quarter of sale. The purchase price is 55 percent of the sales price. The accounts payable period is 45 days. The accounts payable balance at the beginning of quarter one is $62,000. What is the amount of the expected disbursments for quarter two given te following expected quarterly sales?

Quarter 1 ..........................$32,000

Quarter 2...........................$36,000

Quarter 3...........................$53,000

Quarter 4............................$54,000

a. $20,500

b. $24,725

c. $24,250

d. $24,475

e. $26,675

Explanation / Answer

Which of the following statements are correct?
I. The SML approach is dependent upon a reliable measure of a firm's unsystematic risk.
II. The SML approach can be applied to firms that retain all of their earnings.
III. The SML approach assumes a firm's future risks are similar to its past risks.
IV. The SML approach assumes the reward-to-risk ratio is constant.
A. I and III only
B. II and IV only
C. III and IV only
D. I, II, and III only
E. II, III, and IV only-------------answer

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