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1) The use of the unaudited financial statements for ratio analysis is preferable because
it reflects the firm's true financial condition.
2) An internal sales forecast is based on the relationships that can be observed between
a firm's sales and certain key economic indicators such as the gross domestic product,
new housing starts, or disposable personal income.
3) Accruals are liabilities for services received for which payment has yet to be made.
4) Subprime mortgages are mortgage loans made to borrowers with high incomes and
better than average credit histories.
5) A spin-off is a form of divestiture in which an operating unit becomes an independent
company by issuing shares in it, on a pro rata basis to the parent company's
shareholders.
6) The overriding goal for merging is to ________.
A) develop monopoly control over the markets
B) maximize shareholders' wealth as reflected in the acquirer's share price
C) maximize shareholders' profit as reflected in the share price of the target firm
D) maximize dividend payout ratio
7) MACRS RATE
Under MACRS, an asset which originally cost $100,000, incurred installation costs of
$10,000, and has an estimated salvage value of $25,000, is being depreciated using a
5-year normal recovery period. What is the depreciation expense in year 1?
A) $15,000
B) $12,750
C) $11,250
D) $22,000
8) The approximate after-tax cost of debt for a 20-year, 7 percent, $1,000 par value
bond selling at $960 (assume a marginal tax rate of 40 percent) is ________.
A) 4.43 percent
B) 5.15 percent
C) 7 percent
D) 7.35 percent
9) Interest rate risk and the time to maturity have a relationship that is best
characterized as ________.
A) constant
B) varying
C) direct
D) inverse
10) Appropriate collateral for a loan secured under a trust receipt inventory loan is
________.
A) drill bits
B) pencils
C) vehicles
D) bolts
11) As the need for capital increases beyond the optimum capital structure, the cost of
debt financing will ________ the firm's weighted average cost of capital.
A) increase, lowering
B) increase, raising
C) decrease, lowering
D) decrease, raising
12) Which of the following elements is required for the calculation of cash conversion
cycle?
A) current assets ratio
B) average cost of goods sold
C) average collection period
D) cash flows from operations
13) The CAPM can be divided into ________.
A) risk-free rate and risk premium
B) risk premium and inflation rate
C) inflation rate and market rate
D) market rate and inflation premium
14) Funds on deposit at commercial banks having variable maturities and yields based
on size, maturity, and prevailing money market conditions are ________.
A) negotiable certificates of deposit
B) commercial paper
C) savings accounts
D) money market mutual funds
15) Which of the following is considered as a major offshore center for Euromarket
business?
A) Cuba
B) North Korea
C) Iran
D) Hong Kong
16) Which of the following activities of a finance manager determines the types of
assets the firm holds?
A) budget allocation
B) investment decisions
C) financing decisions
D) analyzing and planning cash flows
17) Making investment decisions includes ________.
A) inventory
B) fixed assets
C) accounts receivable
D) notes payable
18) Harry Mining, a U.S.-based MNC has a foreign subsidiary that earns $1,050,000
before local taxes, with all the after tax funds to be available to the parent in the form of
dividends. The foreign income tax rate is 30 percent, the foreign dividend withholding
tax rate is 15 percent, and the firm's U.S. tax rate is 35 percent. What are the funds
available to the parent MNC if foreign taxes can be applied as a credit against the
MNC's U.S. tax liability?
A) $624,750
B) $425,250
C) $257,250
D) $735,000
19) ________ ratios are a measure of the speed with which various accounts are
converted into sales or cash.
A) Activity
B) Liquidity
C) Debt
D) Profitability
20) Which of the following is an example of a nonconventional pattern of cash flows?
A)
B)
C)
D)
21) Patrick Company expects to generate free-cash of $120,000 per year forever. If the
firm's required return is 12 percent, the market value of debt is $300,000, the market
value of preferred stock is $70,000, and the company has 100,000 shares of stock
outstanding. What is the value of Patrick's stock?
A) $6.30
B) $10.00
C) $7.00
D) $9.70
22) The analyst should be careful when analyzing ratios that ________.
A) pre-audited statements are used
B) right interpretation of the ratio value is made
C) financial data being compared need not be uniform
D) inflation will not effect while comparing older to newer firms
23) Table 15.6
A breakdown of Teffan, Inc.'s outstanding accounts receivable dated June 30, 2014 on
the basis of the month in which the credit sale was initially made follows. The firm
extends 30-day credit terms.
Accounts receivable over 90 days total ________. (See Table 15.6)
A) $200,000
B) $470,000
C) $300,000
D) $100,000
24) The portfolio with a standard deviation of zero ________. (See Table 8.1)
A) is comprised of Assets A and B
B) is comprised of Assets A and C
C) is not possible
D) cannot be determined
25) A corporation borrows $1,000,000 at 10 percent annual rate of interest. The firm has
a 40 percent tax rate. The yearly, after-tax cost of this debt is ________.
A) $40,000
B) $60,000
C) $100,000
D) $166,667
