1. The goal of the firm should be<\/p>\n
A. maximization of profits<\/p>\n
B. maximization of shareholder wealth<\/p>\n
C. maximization of consumer satisfaction<\/p>\n
D. maximization of sales<\/p>\n
2) An example of a primary market transaction is<\/p>\n
A. a new issue of common stock by AT&T<\/p>\n
B. a sale of some outstanding common stock of AT&T<\/p>\n
C. AT&T repurchasing its own stock from a stockholder<\/p>\n
D. one stockholder selling shares of common stock to another individual<\/p>\n
3) According to the agency problem, _________ represent the principals of a corporation.<\/p>\n
A. shareholders<\/p>\n
B. managers<\/p>\n
C. employees<\/p>\n
D. suppliers<\/p>\n
4) Which of the following is a principle of basic financial management?<\/p>\n
A. Risk\/return tradeoff<\/p>\n
B. Derivatives<\/p>\n
C. Stock warrants<\/p>\n
D. Profit is king<\/p>\n
5) Another name for the acid test ratio is the<\/p>\n
A. current ratio<\/p>\n
B. quick ratio<\/p>\n
C. inventory turnover ratio<\/p>\n
D. average collection period<\/p>\n
6) The accounting rate of return on stockholders\u2019 investments is measured by<\/p>\n
A. return on assets<\/p>\n
B. return on equity<\/p>\n
C. operating income return on investment<\/p>\n
D. realized rate of inflation<\/p>\n
7) If you are an investor, which of the following would you prefer?<\/p>\n
A. Earnings on funds invested compound annually<\/p>\n
B. Earnings on funds invested compound daily<\/p>\n
C. Earnings on funds invested would compound monthly<\/p>\n
D. Earnings on funds invested would compound quarterly<\/p>\n
8) The primary purpose of a cash budget is to<\/p>\n
A. determine the level of investment in current and fixed assets<\/p>\n
B. determine accounts payable<\/p>\n
C. provide a detailed plan of future cash flows<\/p>\n
D. determine the estimated income tax for the year<\/p>\n
9) Which of the following is a non-cash expense?<\/p>\n
A. Depreciation expenses<\/p>\n
B. Interest expense<\/p>\n
C. Packaging costs<\/p>\n
D. Administrative salaries<\/p>\n
10) The break-even model enables the manager of a firm to<\/p>\n
A. calculate the minimum price of common stock for certain situations<\/p>\n
B. set appropriate equilibrium thresholds<\/p>\n
C. determine the quantity of output that must be sold to cover all operating costs<\/p>\n
D. determine the optimal amount of debt financing to use<\/p>\n
11) A zero-coupon bond<\/p>\n
A. pays no interest<\/p>\n
B. pays interest at a rate less than the market rate<\/p>\n
C. is a junk bond<\/p>\n
D. is sold at a deep discount at less than the par value<\/p>\n
12) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of 5 years?<\/p>\n
A. $3,525.62<\/p>\n
B. $5,008.76<\/p>\n
C. $3,408.88<\/p>\n
D. $2,465.78<\/p>\n
13) At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?<\/p>\n
A. 6%<\/p>\n
B. 5%<\/p>\n
C. 7%<\/p>\n
D. 8%<\/p>\n
14) The present value of a single future sum<\/p>\n
A. increases as the number of discount periods increase<\/p>\n
B. is generally larger than the future sum<\/p>\n
C. depends upon the number of discount periods<\/p>\n
D. increases as the discount rate increases<\/p>\n
15) Which of the following is considered to be a spontaneous source of financing?<\/p>\n
A. Operating leases<\/p>\n
B. Accounts receivable<\/p>\n
C. Inventory<\/p>\n
D. Accounts payable<\/p>\n
16) Compute the payback period for a project with the following cash flows, if the company\u2019s discount rate is 12%.<\/p>\n
Initial outlay = $450<\/p>\n
Cash flows:<\/p>\n
Year 1 = $325<\/p>\n
Year 2 = $65<\/p>\n
Year 3 = $100<\/p>\n
A. 3.43 years<\/p>\n
B. 3.17 years<\/p>\n
C. 2.88 years<\/p>\n
D. 2.6 years<\/p>\n
17) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________.<\/p>\n
A. less than zero, greater than the required return<\/p>\n
B. greater than zero, greater than one<\/p>\n
C. greater than one, greater than zero<\/p>\n
D. greater than zero, less than one<\/p>\n
18) Which of the following is considered to be a deficiency of the IRR?<\/p>\n
A. It fails to properly rank capital projects.<\/p>\n
B. It could produce more than one rate of return.<\/p>\n
C. It fails to utilize the time value of money.<\/p>\n
D. It is not useful in accounting for risk in capital budgeting.<\/p>\n
19) The firm should accept independent projects if<\/p>\n
A. the payback is less than the IRR<\/p>\n
B. the profitability index is greater than 1.0<\/p>\n
C. the IRR is positive<\/p>\n
D. the NPV is greater than the discounted payback<\/p>\n
20) The most expensive source of capital is<\/p>\n
A. preferred stock<\/p>\n
B. new common stock<\/p>\n
C. debt<\/p>\n
D. retained earnings<\/p>\n
21) The cost associated with each additional dollar of financing for investment projects is<\/p>\n
A. the incremental return<\/p>\n
B. the marginal cost of capital<\/p>\n
C. risk-free rate<\/p>\n
D. beta<\/p>\n
22) The XYZ Company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required rate of return on debt is 9%, and the required rate of return on equity is 14%. If the company is in the 40% tax bracket, what is the marginal cost of capital?<\/p>\n
A. 14.0%<\/p>\n
B. 9.0%<\/p>\n
C. 10.6%<\/p>\n
D. 11.5%<\/p>\n
23) Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt\u201310%; preferred stock\u201311%; and common stock\u201318%. Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?<\/p>\n
A. 18.0%<\/p>\n
B. 13.0%<\/p>\n
C. 10.0%<\/p>\n
D. 14.2%<\/p>\n
24) Lever Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if its current capital structure is too conservative. Lever Brothers\u2019 present EBIT is $3 million, and profits available to common shareholders are $1,560,000, with 342,857 shares of common stock outstanding. If the firm were to instead have a debt ratio of 60%, additional interest expense would cause profits available to stockholders to decline to $1,440,000, but only 228,571 common shares would be outstanding. What is the difference in EPS at a debt ratio of 60% versus 40%?<\/p>\n
A. $1.75<\/p>\n
B. $2.00<\/p>\n
C. $3.25<\/p>\n
D. $4.50<\/p>\n
25) Zybeck Corp. projects operating income of $4 million next year. The firm\u2019s income tax rate is 40%. Zybeck presently has 750,000 shares of common stock which have a market value of $10 per share, no preferred stock, and no debt. The firm is considering two alternatives to finance a new product: (a) the issuance of $6 million of 10% bonds, or (b) the issuance of 60,000 new shares of common stock. If Zybeck issues common stock this year, what will be the projected EPS next year?<\/p>\n
A. $4.94<\/p>\n
B. $2.96<\/p>\n
C. $5.33<\/p>\n
D. $3.20<\/p>\n
26) _________ risk is generally considered only a paper gain or loss.<\/p>\n
A. Transaction<\/p>\n
B. Translation<\/p>\n
C. Economic<\/p>\n
D. Financial<\/p>\n
27) Capital markets in foreign countries<\/p>\n
A. offer lower returns than those obtainable in the domestic capital markets<\/p>\n
B. provide international diversification<\/p>\n
C. in general are becoming less integrated due to the widespread availability of interest rate and currency swaps<\/p>\n
D. have been getting smaller in the past decade<\/p>\n
28) Buying and selling in more than one market to make a riskless profit is called<\/p>\n
A. profit maximization<\/p>\n
B. arbitrage<\/p>\n
C. international trading<\/p>\n
D. an efficient market<\/p>\n
29) What keeps foreign exchange quotes in two different countries in line with each other?<\/p>\n
A. Cross rates<\/p>\n
B. Forward rates<\/p>\n
C. Arbitrage<\/p>\n
D. Spot rates<\/p>\n
30) One reason for international investment is to reduce<\/p>\n
A. portfolio risk<\/p>\n
B. price-earnings (P\/E) ratios<\/p>\n
C. advantages in a foreign country<\/p>\n
D. exchange rate risk<\/p>\n","protected":false},"excerpt":{"rendered":"
1. The goal of the firm should be A. maximization of profits B. maximization of shareholder wealth C. maximization of consumer satisfaction D. maximization of sales 2) An example of a primary market transaction is A. a new issue of Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-118718","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/118718","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=118718"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/118718\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=118718"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=118718"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=118718"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}