[SOLVED] Secured Financing

Multiple-choice questions. Write your answers on your answer script or file. (2 marks for each question) 1. Which of the following statements is FALSE?a) The process of moving a value or cash flow forward in time is known as compounding.b) A dollar in the future is worth more than a dollar today. c) The effect of earning interest on interest is known as compound interest. d) It is only possible to compare or combine values at the same point in time.2. Which of the following costs would you consider when making a capital budgetingdecision?a) Sunk cost. b) Opportunity cost. c) Interest expense. d) Fixed overhead cost.3. A decrease in the sales of a current project because of the launching of a newproject is:a) a sunk cost. b) an overhead expense. c) cannibalization. d) irrelevant to the investment decision.4. Which of the following is NOT a specific financing option for temporary workingcapital?a) Secured financing. b) Commercial paper. c) Bank loans. d) Treasury bills.5. In the context of credit management, the term 3/15 net 45 means:a) If the invoice is paid within 15 days a 3% discount can be taken. If the invoice is paid between 16 and 44 days a 1% discount can be taken. After 45 days the full invoice is due.b) If the invoice is paid within 3 days a 15% discount can be taken, otherwise the full invoice is due in 45 days.c) If the invoice is paid within 15 days a 3% discount can be taken, otherwise the full invoice is due in 45 days.d) If the invoice is paid within 3 days a 15% discount can be taken, otherwise a 3% discount can be taken if the invoice is paid in 45 days.Continued on the next page…C38FNPage 3 of 5 Semester 2 – 2020/26. The assumption that the debt-to-equity ratio of a firm is constant means:a) corporate taxes are the only imperfection. b) the risk of the firm’s debt and equity will change when it accepts a newproject. c) the firm?s cost of capital will not fluctuate when it accepts a new project. d) the firm adjusts its leverage to maintain a constant debt-to-equity ratio interms of book value. 7. The Pecking Order theory states how financing should be raised. To avoidasymmetric information problems and misinterpretation of whether management is sending a signal on security overvaluation, the firm’s first rule is to:a) finance with internally generated funds. b) issue debt first. c) always issue debt and the market won’t know when management thinks thesecurity is overvalued. d) issue new equity first.8. The risk-free rate of return is 4.5% and the market risk premium is 9%. What isthe expected rate of return on a stock with a beta of 1.6?