Financial Management - Study Mode

[#641] The return component that gives periodic cash flows to the investor is known as the______________.
Correct Answer

(C) yield

Explanation

Solution: The return component that gives periodic cash flows to the investor is known as the yield. Yield is the periodic cash flow (or return on investment in the form of interest or dividends).

[#642] The dividend-payout ratio is equal to __________.
Correct Answer

(B) dividends per share divided by earnings per share

Explanation

Solution: The dividend-payout ratio is equal to dividends per share divided by earnings per share.

[#643] Altering the leverage ratio does not influence the market value of the firm. This is the basic premise of _______.
Correct Answer

(D) net operating income approach

Explanation

Solution: Net Operating Income Approach was also suggested by Durand. This approach is of the opposite view of Net Income approach. This approach suggests that the capital structure decision of a firm is irrelevant and that any change in the leverage or debt will not result in a change in the total value of the firm as well as the market price of its shares. This approach also says that the overall cost of capital is independent of the degree of leverage.

[#644] While calculating the weighted average cost of capital, market value weights are preferred because ____________.
Correct Answer

(A) Book value weights are historical in nature

Explanation

Solution: While calculating the weighted average cost of capital, market value weights are preferred because Book value weights are historical in nature.

[#645] According to Black Scholes model, rate which is constant and known is classified as
Correct Answer

(C) risk free interest rate

Explanation

Solution: According to Black Scholes model, rate which is constant and known is classified as risk free interest rate. The risk-free interest rate is the rate of return of a hypothetical investment with no risk of financial loss, over a given period of time.