CBUS 341-BUSINESS FINANCE Dr. Owens: Which one of the following generally pays a

Question

CBUS 341-BUSINESS FINANCE Dr. Owens: Which one of the following generally pays a fixed dividend, reces in dividend payment, and maintains the right to a dividend payment, ews payment is deferred? ves Tirs a. Cumulative common b. Noncumulative common c. Noncumulative preferred d. Cumulative preferred e. Senior common 2. Compound interest a. allows for the reinvestment of interest payments. b. does not allow for the reinvestment of interest payments. c. is the same as simple interest. d. provides a value that is less than simple interest. e. Both A and D 3. The time value of money concept can be defined as: a. the relationship between the supply and demand of moncy b. the relationship between money spent versus money c. the relationship between a dollar to be received in the future and a dollar today d. the relationship between interest rate stated and amount paid. e. None of the above received. 4. Discounting cash flows involves: a. discounting only those cash flows that occur at least 10 years in the future. b. estimating only the cash flows that occur in the first 4 years of a project. c. multiplying expected future cash flows by the cost of capital. d. discounting all expected future cash flows to reflect the time value of money. e. taking the cash discount offered on trade merchandise. An annuity: a. is a debt instrument that pays no interest. b. is a stream of payments that varies with current market interest rates. c. is a level stream of equal payments through time d. has no value. e. None of the above

Explanation / Answer

1.

Cumulative preferred stock generally pays fixed dividend, received first primary in dividend payment and maintains the right to dividend payment, even if payment is deferred.

Option (D) is correct answer.

2.

Compound interest allows for the reinvestment of interest payments.

Option (A) is correct answer.

3.

Time value of money can be defined as relationship between dollar to be received in the future and dollar today.

Option (C) is correct answer.

4.

Discounting cash flow involve discounting all expected future cash flow to reflect the time value of money.

Option (D) is correct answer.

5. An annuity is defined as stream of equal payment for fixed eriod of time.

Option (C) is correct answer.

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