Question 1) The principal differences between a forward contract and a future contract include all of the following EXCEPT:
- A future contract is standardized as to size and terms
- A future contract is only good on agricultural commodities
- There is an active secondary market in future contracts
- Forward contracts can be specifically designed to fit the exact needs of two counterparties, while a futures contract cannot
Question 2) Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet?
- Buying a fixed asset
- Selling shares of stock from treasury stock
- Declaring a cash dividend
- Calling in a callable bond issue
Question 3) If a typical U.S. company uses the same cost of capital to evaluate all projects, the firm will most likely become:
- riskier over time, but its intrinsic value will be maximized.
- riskier over time, and its intrinsic value will not be maximized.
- less risky over time, and its intrinsic value will not be maximized.
- less risky over time, and its intrinsic value will be maximized.
- There is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital.