58) __________ says to recognize the value of options contained in derivatives. A. The Options Principle B. The Principle of Comparative Advantage C. The Principle of Valuable Ideas
59) The conversion price (for a convertible security) is usually adjusted __________. A. for a new debt offering. B. for stock splits. D. all of these
C. for cash dividends
60) According advance loans for payday New Jersey to the Principle of Risk-Return Trade-Off, investors require a higher return to compensate for __________. A. less risk B. greater risk C. diversification D. lack of diversification
61) __________ says to use derivatives to pay others to take risks. The Principle of Self-Interested Behavior C. The Signaling Principle D. The Principle of Two-Sided Transactions
62) You do a study and find out that, on average, stock prices for firms decrease 3% for every 5% decrease in inside ownership. You are watching the nightly business report and find out that Magic Tape?s stock has announced that insiders have sold 10% of their holdings. You are concerned because you own 1,000 shares of Magic Tape and it had closed the day before unchanged at $30 per share. If markets are at least semi-strong form efficient, what would you expect? A. You would lose $1,800. B. You would lose $2.00 per share C. You would lose $4,000. D. You would expect Magic Tape to close at $28 the day of the announcement.
The Capital Market Efficiency Principle D
63) Which of the following is not an advantage of going public? A. Going public generally brings a lower price in the public market than in the venture capital or private placement markets. B. Going public achieves liquidity and diversification for current shareholders C. Going public gives existing shareholders a chance to sell portions of their shares as part of the IPO giving them a cash return on their investment and allows them to diversify their investment portfolios. D. Going public enables a firm to raise additional capital.
64) Which (if any) statement is false? A. The Principle of Self-Interested Behavior suggests that self-interested capital market transactions force market prices toward being fair prices. B. The Principle of Two-Sided Transactions states that intense capital market competition to get and use information to take advantage of arbitrage opportunities eliminates such opportunities. C. The Principle of Signaling states that information in the transactions of others can be valuable, such as providing an accurate measure of current market value, or information about expected future value. D. none of these answers are correct.
65) Transfer-pricing systems exist to _____. A. encourage managers to purchase goods and services internally B. maximize worldwide taxes, duties, and tariffs C. evaluate segment performance D. all of these answers are correct
66) It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 2,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 2,000 scales. If the special order is accepted, what will be the effect on net income? A. $6,000 decrease B. $4,000 decrease C. $30,000 increase D. $4,000 increase
67) Baden Company manufactures a product with a unit variable cost of $50 and a unit sales price of $88. Fixed manufacturing costs were $240,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $70 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: A. Income would increase by $70,000. B. Income would increase by $4,000. C. Income would increase by $20,000 D. Income would decrease by $4,000.