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liability?
a. Professional partnership
b. Sole proprietorship
c. Corporation
d. Partnership
2) The financial manager may be responsible for any of the following EXCEPT
a. both the mix and the type of assets found on the firms balance sheet.
b. both the mix and the type of assets and liabilities found on the firms balance
sheet.
4) Wealth maximization as the goal of the firm implies enhancing the wealth of
5) The amount earned during the accounting period on each outstanding share
d. net income.
6) Cash flow and risk are the key determinants in share price. Increased cash
7) A more recent issue that is causing major problems in the business community
is
c. ethical problems.
d. environmental concerns.
a. a positive corporate image and increased respect, but is not expected to affect
cash flows.
b. a positive corporate image and increased respect, but is not expected to affect
share price.
c. an increased share price resulting from a decrease in risk, but is not expected
and governments. Individuals are net ________ of funds, and businesses are
a. demanders; suppliers
b. purchasers; sellers
c. suppliers; demanders
d. users; providers
13) Securities exchanges create efficient markets that do all of the following
EXCEPT
a. ensure a market in which the price reflects the true value of the security.
14) The tax deductibility of various expenses such as general and administrative
a. reduces
b. has no effect on
d. increases
15) The dividend exclusion for corporations receiving dividends from another
d. a higher relative cost of bond-financing for the corporation paying the dividend.
is
a. FASB.
c. SEC.
d. GAAP.
17) Candy Corporation had pretax profits of $1.2 million, an average tax rate
a. $4.52
b. $7.59
c. $7.42
d. $3.91
18) The analyst should be careful when evaluating a ratio analysis that
a. the dates of the financial statements being compared are the same time.
c. neither A nor B.
d. both A and B.
b. current ratio
20) The ________ ratio may indicate poor collections procedures or a lax credit
policy.
c. inventory turnover
d. quick
21) ________ are especially interested in the average payment period, since it
c. Stockholders
d. Customers
a. sales turnover.
c. sales efficiency.
23) The ________ ratio may indicate that the firm will not be able to meet interest
d. debt
24) The ________ measures the percentage of profit earned on each sales dollar
25) In the DuPont system, the return on total assets (asset) is equal to
corporation is utilizing.
a. long-term debt
b. total debt
c. operating leverage
d. total assets
27) Allocation of the historic costs of fixed assets against the annual revenue they
generate is called
a. amortization.
b. net profits.
c. depreciation.
d. gross profits.
28) The cash flows from operating activities section of the statement of cash
flows considers
a. interest expense.
b. stock repurchases.
c. dividends paid.
30) A firm has projected sales in May, June, and July of $100, $200, and $300,
respectively. The firm makes 20 percent of sales for cash and collects the
balance one month following the sale. The firms total cash receipts in July
a. are $200.
b. are $220.
c. are $180.
32) In the month of August, a firm had total cash receipts of $10,000, total cash
balance of $3,000, and a beginning cash balance of $500. The excess cash
33) The key inputs for preparing pro forma income statements using the simplified
approaches are the
a. sales forecast for the preceding year and financial statements for the coming
year.
b. sales forecast for the coming year and the cash budget for the preceding year.
c. cash budget for the coming year and sales forecast for the preceding year.
d. sales forecast for the coming year and financial statements for the preceding
year.
34) The ________ method of developing a pro forma balance sheet estimates values
a. cash
b. accrual
c. judgmental
d. percent-of-sales
35) The strict application of the percent-of-sales method to prepare a pro forma
income statement assumes the firm has no fixed costs. Therefore, the use of
the past cost and expense ratios generally tends to ________ profits when
a. have no effect on
b. accurately predict
c. overstate
d. understate
36) A firm plans to retire outstanding bonds in the next planning period. The
d. pro forma income statement, pro forma balance sheet, cash budget, and
37) Utilizing past cost and expense ratios (percent-of-sales method) when preparing
38) In a period of rising sales utilizing past cost and expense ratios (percent of-
sales method), when preparing pro forma financial statements and planning
39) For positive interest rates, the future value interest factor is
a. sometimes negative.
40) The amount of money that would have to be invested today at a given interest
a. present value.
b. future value.
41) The present value of $200 to be received 10 years from today, assuming an
a. $200.
b. $50.
c. $518.
d. $77.
42) The future value of a dollar ________ as the interest rate increases and
a. increases; increases
b. decreases; increases
c. decreases; decreases
d. increases; decreases
a. $350,000.
b. $285,000.
c. $178,571.
d. $219,298.
44) The future value of $100 received today and deposited in an account for four
a. $450.
b. $889.
c. $134.
d. $126.
45) The future value of an annuity of $1,000 each quarter for 10 years, deposited
a. $75,401.
b. $17,549.
c. $93,049.
d. $11,200.
a. $2,641.
b. $1,125.
c. $942.
d. $1,482.
47) Ashley owns stock in a company which has consistently paid a growing dividend
over the last five years. The first year Ashley owned the stock, she received
$1.71 per share and in the fifth year, she received $2.89 per share.
What is the growth rate of the dividends over the last five years?
a. 7 percent
b. 5 percent
c. 14 percent
d. 12 percent
48) Julian was given a gold coin originally purchased for $1 by his great-grandfather
50 years ago. Today the coin is worth $450. The rate of return realized
a. 13%.
b. 50%.
c. 7.5%.
49) Aunt Bertha borrows $19,500 from the bank at 8 percent annually compounded
a. $1,947.10
b. $1,336.00
c. $2,906.11
d. $1,560.14
50) What annual rate of return would Grandma Zoe need to earn if she deposits
$1,000 per month into an account beginning one month from today in order
a. 5.98%
b. 5.28%
c. 6.23%
d. 4.55%
51) ________ is the chance of loss or the variability of returns associated with a
given asset.
a. Value
b. Probability
c. Risk
d. Return
53) Combining negatively correlated assets having the same expected return
results in a portfolio with ________ level of expected return and ________
level of risk.
a. the same; a lower
b. a lower; a higher
c. a higher; a lower
d. the same; a higher
Final Examination
54) The purpose of adding an asset with a negative or low positive beta is to
a. reduce risk.
b. increase profit.
c. reduce profit.
d. increase risk.
56) ________ risk represents the portion of an assets risk that can be eliminated
by combining assets with less than perfect positive correlation.
a. Systematic
b. Total
c. Nondiversifiable
d. Diversifiable
57) Nico owns 100 shares of stock X which has a price of $12 per share and 200
shares of stock Y which has a price of $3 per share. What is the proportion of
Nicos portfolio invested in stock X?
a. 50%
b. 77%
c. 67%
d. 33%
59) The ________ rate of interest creates equilibrium between the supply of savings
and the demand for investment funds.
a. infl ationary
b. risk-free
c. real
d. nominal
60) The ________ rate of interest is typically the required rate of return on a
three-month U.S. Treasury bill.
a. premium
b. real
c. nominal
d. risk-free
62) The cost of long-term debt generally ________ that of short-term debt.
a. has no relation to
b. is less than
c. is equal to
d. is greater than
a. A trustee
b. A bond rating agency
c. A bond issuer
d. An investment banker
65) Another name for a deeply discounted bond that pays no coupon interest is a
a. floating rate bond.
b. junk bond.
c. subordinated debenture.
d. zero coupon bond.
Final Examination
66) A debenture is
a. a secured bond that is secured by unspecified assets.
b. a lengthy legal document stating the conditions under which a bond has been
issued.
c. an unsecured bond that only creditworthy firms can issue.
d. a bond secured by specific asset.
67) In utilizing a ________ the issuer can annually deduct the current years interest
accrual without having to actually pay the interest until the bond matures.
a. junk bond
b. extendible notes
c. zero coupon bond
d. floating rate bond
68) The less certain a cash flow, the ________ the risk, and the ________ the
present value of the cash flow.
a. higher; higher
b. lower; lower
c. higher; lower
d. lower; higher
69) Jia Hua Enterprises wants to issue sixty 20-year, $1,000 par value, zerocoupon
bonds. If each bond is priced to yield 7 percent, how much will Jia
Hua receive (ignoring issuance costs) when the bonds are first sold?
a. $12,393
b. $15,505
c. $18,880
d. $11,212
e. $20,000
70) If bankruptcy were to occur, stockholders would have prior claim on assets
over
a. preferred stockholders.
b. unsecured creditors.
c. secured creditors.
d. no one.
Final Examination
71) The advantages of issuing preferred stock from the common stockholders
perspective include all of the following EXCEPT
a. increased leverage.
b. flexibility.
c. use in mergers.
d. seniority of preferred stockholders claim over common stockholders.
72) All of the following features may be characteristic of preferred stock EXCEPT
a. convertible.
b. no maturity date.
c. callable.
d. tax-deductible dividends.
b. stock right.
c. pre-emptive right.
d. warrant.
76) Tangshan China Companys stock is currently selling for $80.00 per share.
The expected dividend one year from now is $4.00 and the required return is
13 percent. What is Tangshans dividend growth rate assuming that dividends
are expected to grow at a constant rate forever?
a. 9%
b. 10%
c. 8%
d. 11%
77) Which of the following valuation methods is superior to the others in the list
since it considers expected earnings?
a. P/E multiple
b. liquidation value
c. book value
78) Nico Corporation expects to generate free-cash flows of $200,000 per year
for the next five years. Beyond that time, free cash flows are expected to grow
at a constant rate of 5 percent per year forever. If the firms average cost of
capital is 15 percent, the market value of the firms debt is $500,000, and
Nico has a half million shares of stock outstanding, what is the value of
Nicos stock?
a. $0.00
b. $1.43
c. $3.43
d. $2.43
80) ________ projects have the same function; the acceptance of one ________
the others from consideration.
a. Mutually exclusive; eliminates
b. Replacement; does not eliminate
c. Capital; eliminates
d. Independent; does not eliminate
82) When evaluating a capital budgeting project, the change in net working capital
must be considered as part of
a. the initial investment.
b. the incrementaloperating cash inflows.
c. the operating cash inflows.
d. the operating cash outflows.
83) The tax treatment regarding the sale of existing assets that are sold for their
book value results in
a. recaptured depreciation taxed as ordinary income.
b. no tax benefit or liability.
c. an ordinary tax benefi t.
d. a capital gain tax liability and recaptured depreciation taxed as ordinary income.
84) A corporation is selling an existing asset for $1,000. The asset, when purchased,
cost $10,000, was being depreciated under MACRS using a five year
recovery period, and has been depreciated for four full years. If the as
sumed tax rate is 40 percent on ordinary income and capital gains, the tax
87) The minimum return that must be earned on a project in order to leave the
firms value unchanged is
a. the compound rate.
b. the cost of capital.
c. the interest rate.
88) A firm would accept a project with a net present value of zero because
a. the project would enhance the wealth of the firms owners.
b. the return on the project would be positive.
c. the project would maintain the wealth of the firms owners.
d. the return on the project would be zero.
89) What is the NPV for the following project if its cost of capital is 15 percent
and its initial after tax cost is $5,000,000 and it is expected to provide
after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year
2, $1,700,000 in year 3 and $1,300,000 in year 4?
a. ($137,053)
b. $371,764
c. $1,700,000
d. None of the above
90) What is the NPV for the following project if its cost of capital is 0 percent and
its initial after tax cost is $5,000,000 and it is expected to provide aftertax
operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2,
$1,700,000 in year 3 and $1,300,000 in year 4?
a. $1,700,000
b. $137,053
c. $371,764
d. None of the above
91) The ________ is the compound annual rate of return that the firm will earn if
it invests in the project and receives the given cash inflows.
a. internal rate of return
b. cost of capital
c. discount rate
d. opportunity cost
93) Diagrams that permit the mapping of the various investment decision
alternatives
and payoffs as well as their probabilities of occurrence are called
a. multiple regression analysis.
b. simulations.
c. decision trees.
d. sensitivity analysis.
97) The ________ reflects the return that must be earned on the given project to
compensate the firms owners adequately according to the projects variability
of cash flows.
a. internal rate of return
b. cost of capital
c. average rate of return
d. risk-adjusted discount rate
100) The before-tax cost of debt for a firm which has a 40 percent marginal tax rate
is 12 percent. The after-tax cost of debt is
a. 12 percent.
b. 7.2 percent.
c. 4.8 percent.
d. 6.0 percent.