Q&A Hero

Q: From the lessee viewpoint, the riskiness of the cash flows, with the possible exception of the residual value, is about the same as the riskiness of the lessee's a. capital budgeting project cash flows. b. debt cash flows. c. pension fund cash flows. d. sales. e. equity cash flows.

Q: Explain a database lockout and the deadlock phenomenon. Contrast that to concurrency control and the timestamping technique. Describe the importance of these items in relation to database integrity.

Q: Leasing is typically a financing decision and not a capital budgeting decision. Thus, the availability of lease financing cannot affect the size of the capital budget. a. True b. False

Q: Explain the three views of a database.

Q: Heavy use of off-balance sheet lease financing will tend to a. make a company appear less risky than it actually is because its stated debt ratio will appear lower. b. affect a company's cash flows but not its degree of risk. c. have no effect on either cash flows or risk because the cash flows are already reflected in the income statement. d. affect the lessee's cash flows but only due to tax effects. e. make a company appear more risky than it actually is because its stated debt ratio will be increased.

Q: What are the four elements of the database approach? Explain the role of each.

Q: Financial Accounting Standards Board (FASB) Statement #13 requires that for an unqualified audit report, financial (or capital) leases must be included in the balance sheet by reporting the a. residual value as a liability. b. present value of future lease payments as an asset and also showing this same amount as an offsetting liability. c. undiscounted sum of future lease payments as an asset and as an offsetting liability. d. undiscounted sum of future lease payments, less the residual value, as an asset and as an offsetting liability. e. residual value as a fixed asset.

Q: Discuss and give an example of one-to-one, one-to-many, and many-to-many record associations.

Q: Leasing is often referred to as off-balance sheet financing because lease payments are shown as operating expenses on a firm's income statement and, under certain conditions, leased assets and associated liabilities do not appear on the firm's balance sheet. a. True b. False

Q: What is a data dictionary, and what purpose does it serve?

Q: The full amount of a lease payment is tax deductible provided the contract qualifies as a true lease under IRS guidelines. a. True b. False

Q: What is the internal view of a database?

Q: Which of the following statements is most CORRECT? a. Capitalizing a lease means that the firm issues equity capital in proportion to its current capital structure, in an amount sufficient to support the lease payment obligation. b. The fixed charges associated with a lease can be as high as, but never greater than, the fixed payments associated with a loan. c. Capital, or financial, leases generally provide for maintenance by the lessor. d. A key difference between a capital lease and an operating lease is that with a capital lease, the lease payments provide the lessor with a return of the funds invested in the asset plus a return on the invested funds, whereas with an operating lease the lessor depends on the residual value to realize a full return of and on the investment. e. Firms that use "off balance sheet" financing, such as leasing, would show lower debt ratios if the effects of their leases were reflected in their financial statements.

Q: Explain the relationship between the three levels of the data definition language. As a user, which level would you be most interested in?

Q: Operating leases often have terms that include a. full amortization over the life of the lease. b. very high penalties if the lease is canceled. c. restrictions on how much the leased property can be used. d. much longer lease periods than for most financial leases. e. maintenance of the equipment by the lessor.

Q: What are four ways in which database management systems provide a controlled environment to manage user access and the data resources?

Q: In a synthetic lease a special purpose entity (SPE) is set up by a corporation that wants to acquire the use of an asset. The SPE borrows up to 97% of its capital, uses its funds to buy the asset, and then leases it to the sponsoring corporation on a short-term basis. This keeps both the asset and the debt off the sponsoring company's books. a. True b. False

Q: What flat-file data management problems are solved as a result of using the database concept?

Q: A synthetic lease is a combination of derivative securities and asset purchases that mimic the cash flows of an operating lease. a. True b. False

Q: What types of problems does data redundancy cause?

Q: Under a sale and leaseback arrangement, the seller of the leased property is the lessee and the buyer is the lessor. a. True b. False

Q: What are the four primary elements of the database approach?

Q: Operating leases help to shift the risk of obsolescence from the user to the lessor. a. True b. False

Q: What is the flat-file model?

Q: A sale and leaseback arrangement is a type of financial, or capital, lease. a. True b. False

Q: What is a legacy system?

Q: Many leases written today combine the features of operating and financial leases. Such leases are often called "combination leases." a. True b. False

Q: What is a replicated database and what are the advantages of this approach?

Q: NorthWest Water (NWW)Five years ago, NorthWest Water (NWW) issued $50,000,000 face value of 30-year bonds carrying a 14% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NWW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.Refer to the data for NorthWest Water (NWW). What is the NPV if NWW refunds its bonds today?a. $1,746,987b. $1,838,933c. $1,935,719d. $2,037,599e. $2,241,359

Q: What is the partitioned database approach and what are its advantages?

Q: NorthWest Water (NWW)Five years ago, NorthWest Water (NWW) issued $50,000,000 face value of 30-year bonds carrying a 14% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NWW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.Refer to the data for NorthWest Water (NWW). The amortization of flotation costs reduces taxes and thus provides an annual cash flow. What will the net increase or decrease in the annual flotation cost tax savings be if refunding takes place?a. $6,480b. $7,200c. $8,000d. $8,800e. $9,680

Q: What is a database lockout?

Q: NorthWest Water (NWW)Five years ago, NorthWest Water (NWW) issued $50,000,000 face value of 30-year bonds carrying a 14% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NWW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.Refer to the data for NorthWest Water (NWW). What will the after-tax annual interest savings for NWW be if the refunding takes place?a. $664,050b. $699,000c. $768,900d. $845,790e. $930,369

Q: NorthWest Water (NWW)Five years ago, NorthWest Water (NWW) issued $50,000,000 face value of 30-year bonds carrying a 14% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NWW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.Refer to the data for NorthWest Water (NWW). What is the required after-tax refunding investment outlay, i.e., the cash outlay at the time of the refunding?a. $5,049,939b. $5,315,725c. $5,595,500d. $5,890,000e. $6,200,000

Q: Why are the hierarchical and network models called navigational databases?

Q: Stanovich Enterprises has 10-year, 12.0% semiannual coupon bonds outstanding. Each bond is now eligible to be called at a call price of $1,060. If the bonds are called, the company must replace them with new 10-year bonds. The flotation cost of issuing new bonds is estimated to be $45 per bond. How low would the yield to maturity on the new bonds have to be in order for it to be profitable to call the bonds today, i.e., what is the nominal annual "breakeven rate"?a. 9.29%b. 9.78%c. 10.29%d. 10.81%e. 11.35%

Q: Describe an environment in which a firm should use a partitioned database.

Q: Palmer Company has $5,000,000 of 15-year maturity bonds outstanding. Each bond has a maturity value of $1,000, an annual coupon of 12.0%. The bonds can be called at any time with a premium of $50 per bond. If the bonds are called, the company must pay flotation costs of $10 per new refunding bond. Ignore tax considerations⎯assume that the firm's tax rate is zero.The company's decision of whether to call the bonds depends critically on the current interest rate on newly issued bonds. What is the breakeven interest rate, the rate below which it would be profitable to call in the bonds?a. 9.57%b. 10.07%c. 10.60%d. 11.16%e. 11.72%

Q: What are two types of distributed databases?

Q: Five years ago, the State of Oklahoma issued $2,000,000 of 7% coupon, 20-year semiannual payment, tax-exempt bonds. The bonds had 5 years of call protection, but now the state can call the bonds if it chooses to do so. The call premium would be 5% of the face amount. Today 15-year, 5%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2%. What is the net present value of the refunding? Because these are tax-exempt bonds, taxes are not relevant.a. $278,606b. $292,536c. $307,163d. $322,521e. $338,647

Q: What is a database authorization table?

Q: Describe two tests of controls that would provide evidence that the database management system is protected against unauthorized access attempts.

Q: 10 years ago, the City of Melrose issued $3,000,000 of 8% coupon, 30-year, semiannual payment, tax-exempt muni bonds. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 6% of the face amount. New 20-year, 6%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2% of the amount of bonds sold. What is the net present value of the refunding? Note that cities pay no income taxes, hence taxes are not relevant.a. $453,443b. $476,115c. $499,921d. $524,917e. $551,163

Q: Which of the following factors would increase the likelihood that a company would call its outstanding bonds at this time? a. A provision in the bond indenture lowers the call price on specific dates, and yesterday was one of those dates. b. The flotation costs associated with issuing new bonds rise. c. The firm's CFO believes that interest rates are likely to decline in the future. d. The firm's CFO believes that corporate tax rates are likely to be increased in the future. e. The yield to maturity on the company's outstanding bonds increases due to a weakening of the firm's financial situation.

Q: How does the database approach solve the problem of data redundancy?

Q: Which of the following statements is most CORRECT? a. The key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. b. The mechanics of finding the NPV of a refunding decision are fairly straightforward. However, the decision of when to refund is not always clear because it requires a forecast of future interest rates. c. If a firm with a positive NPV refunding project delays refunding and interest rates rise, the firm can still obtain the entire NPV by locking in a low coupon rate when the rates are low, even though it actually refunds the debt after rates have risen. d. Suppose a firm is considering refunding and interest rates rise during time when the analysis is being done. The rise in rates would tend to lower the expected price of the new bonds, which would make them cheaper to the firm and thus increase the expected interest savings. e. If new debt is used to refund old debt, the correct discount rate to use in the refunding analysis is the before-tax cost of new debt.

Q: The __________________________ describes every data element in the database.

Q: When a firm refunds a debt issue, the firm's stockholders gain and its bondholders lose. This points out the risk of a call provision to bondholders and explains why a non-callable bond will typically command a higher price than an otherwise similar callable bond. a. True b. False

Q: The __________________________ authorizes access to the database.

Q: The ____________________ allows users to retrieve and modify data easily.

Q: If the firm uses the after-tax cost of new debt as the discount rate when analyzing a refunding decision, and if the NPV of refunding is positive, then the value of the firm will be maximized if it immediately calls the outstanding debt and replaces it with an issue that has a lower coupon rate. a. True b. False

Q: The appropriate discount rate to use when analyzing a refunding decision is the after-tax cost of new debt, in part because there is relatively little risk of not realizing the interest savings. a. True b. False

Q: The conceptual view of the database is often called ____________________.

Q: Suppose a company issued 30-year bonds 4 years ago, when the yield curve was inverted. Since then long-term rates (10 years or longer) have remained constant, but the yield curve has resumed its normal upward slope. Under such conditions, a bond refunding would almost certainly be profitable. a. True b. False

Q: Use the following words to complete the sentences in questions 1 through 5.database administrator data dictionarydata redundancy index sequential access methodquery language schemasequential structure subschema_________________________ occurs when a specific file is reproduced for each user who needs access to the file.

Q: To finance its ongoing construction project, Bowen-Roth Inc. will need $5,000,000 of new capital during each of the next 3 years. The firm has a choice of issuing new debt or equity each year as the funds are needed, or issue only debt now and equity later. Its target capital structure is 40% debt and 60% equity, and it wants to be at that structure in 3 years, when the project has been completed. Debt flotation costs for a single debt issue would be 1.6% of the gross debt proceeds. Yearly flotation costs for 3 separate issues of debt would be 3.0% of the gross amount. Ignoring time value effects, how much would the firm save by raising all of the debt now, in a single issue, rather than in 3 separate issues?a. $79,425b. $83,606c. $88,006d. $92,406e. $97,027

Q: To preserve the confidentiality and integrity of the database requires:a. biometric devicesb. user-defined procedures.c. backup controlsd. inference controls

Q: Which of the following statements is NOT CORRECT? a. "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares. b. Publicly owned companies have sold shares to investors who are not associated with management, and they must register with and report to a regulatory agency such as the SEC. c. When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public," and the market for such stock is called the new issue market. d. It is possible for a firm to go public and yet not raise any additional new capital. e. When a corporation's shares are owned by a few individuals who own most of the stock or are part of the firm's management, we say that the firm is "closely, or privately, held."

Q: Which of the following is not a test of access controls? a. biometric controls b. encryption controls c. backup controls d. inference controls

Q: Which of the following statements concerning common stock and the investment banking process is NOT CORRECT? a. If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market. b. Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and reputation probably outweigh the additional costs to the firm. c. Stockholders have the right to elect the firm's directors, who in turn select the officers who manage the business. If stockholders are dissatisfied with management's performance, an outside group may ask the stockholders to vote for it in an effort to take control of the business. This action is called a tender offer. d. The announcement of a large issue of new stock could cause the stock price to fall. This loss is called "market pressure," and it is treated as a flotation cost because it is a cost to stockholders that is associated with the new issue. e. The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue.

Q: All of the following tests of controls will provide evidence that access to the data files is limited except a. inspecting biometric controls b. reconciling program version numbers c. comparing job descriptions with access privileges stored in the authority table d. attempting to retrieve unauthorized data via inference queries

Q: Which of the following statements is most CORRECT? a. Private placements occur most frequently with stocks, but bonds can also be sold in a private placement. b. Private placements are convenient for issuers, but the convenience is offset by higher flotation costs. c. The SEC requires that all private placements be handled by a registered investment banker. d. Private placements can generally bring in funds faster than is the case with public offerings. e. In a private placement, securities are sold to private (individual) investors rather than to institutions.

Q: Audit objectives for the database management system include all of the following except a. verifying that the security group monitors and reports on fault tolerance violations b. confirming that backup procedures are adequate c. ensuring that authorized users access only those files they need to perform their duties d. verifying that unauthorized users cannot access data files

Q: If its managers make a tender offer and buy all shares that were not held by the management team, this is called a private placement. a. True b. False

Q: Which of the following is not a basic database backup and recovery feature? a. checkpoint b. backup database c. transaction log d. database authority table

Q: Which of the following is not an access control in a database system? a. antivirus software b. database authorization table c. passwords d. voice prints

Q: The term "equity carve-out" refers to the situation where a firm's managers give themselves the right to purchase new stock at a price far below the going market price. Since this dilutes the value of the public stockholders, it "carves out" some of their value. a. True b. False

Q: In its negotiations with its investment bankers, Patton Electronics has reached an agreement whereby the investment bankers receive a smaller fee now (6% of gross proceeds versus their normal 10%) but also receive a 1-year option to purchase an additional 200,000 shares at $5.00 per share. Patton will go public by selling $5,000,000 of new common stock. The investment bankers expect to exercise the option and purchase the 200,000 shares in exactly one year, when the stock price is forecasted to be $6.50 per share. However, there is a chance that the stock price will actually be $12.00 per share one year from now. If the $12 price occurs, what would the present value of the entire underwriting compensation be? Assume that the investment banker's required return on such arrangements is 15%, and ignore taxes.a. $1,235,925b. $1,300,973c. $1,369,446d. $1,441,522e. $1,517,391

Q: In a direct access file system a. backups are created using the grandfather-father-son approach b. processing a transaction file against a maser file creates a backup file c. files are backed up immediately before an update run d. if the master file is destroyed, it cannot be reconstructed

Q: Whereas commercial banks take deposits from some customers and make loans to other customers, the principal activities of investment banks are (1) to help firms issue new stock and bonds and (2) to give firms advice with regard to mergers and other financial matters. However, financial corporations often own and operate subsidiaries that operate as commercial banks and others that are investment banks. This was not true some years ago, when the two types of banks were required by law to be completely independent of one another. a. True b. False

Q: When creating and controlling backups for a sequential batch system, a. the number of backup versions retained depends on the amount of data in the file b. off-site backups are not required c. backup files can never be used for scratch files d. the more significant the data, the greater the number of backup versions

Q: Which backup technique is most appropriate for sequential batch systems? a. grandparent-parent-child approach b. staggered backup approach c. direct backup d. remote site, intermittent backup

Q: The term "leaving money on the table" refers to the situation where an investment banking house makes a very low bid for the right to underwrite a firm's new stock offering. The banker is, in effect, "buying the job" with the low bid and thus not getting all the money his firm would normally earn on the job. a. True b. False

Q: Which of the following statements about listing on a stock exchange is most CORRECT? a. Any firm can be listed on the NYSE as long as it pays the listing fee. b. Listing provides a company with some "free" advertising, and it may enhance the firm's prestige and help it do more business. c. Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC. d. The OTC is the second largest market for listed stock, and it is exceeded only by the NYSE. e. Listing is a decision of more significance to a firm than going public.

Q: All of the following are advantages of a partitioned database except a. increased user control by having the data stored locally b. deadlocks are eliminated c. transaction processing response time is improved d. partitioning can reduce losses in case of disaster

Q: Which of the following is generally NOT true and an advantage of going public? a. Increases the liquidity of the firm's stock. b. Makes it easier to obtain new equity capital. c. Establishes a market value for the firm. d. Makes it easier for owner-managers to engage in profitable self-dealings. e. Facilitates stockholder diversification.

Q: Data concurrency a. is a security issue in partitioned databases b. is implemented using time stamping c. may result in data lockout d. occurs when a deadlock is triggered

Q: What control maintains complete, current, and consistent data at all information processing units? a. deadlock control b. replication control c. concurrency control d. gateway control

Q: The cost of meeting SEC and possibly additional state reporting requirements regarding disclosure of financial information, the danger of losing control, and the possibility of an inactive market and an attendant low stock price are potential disadvantages of going public. a. True b. False

Q: A replicated database is appropriate when a. there is minimal data sharing among information processing units b. there exists a high degree of data sharing and no primary user c. there is no risk of the deadlock phenomenon d. most data sharing consists of read-write transactions