____________ is anything generally accepted as a means of paying for goods and
services and for paying off debts. It must be easily divisible, so that eXchanges can take
place in small or large quantities; relatively ineXpensive to store and transfer; and
reasonably stable in value over time.
a. A financial asset
b. A real asset
c. money
d. all of the above
e. none of the above
In the statement of cash flows, changes in retained earnings are reported as two separate
line items, which are __________ and ___________.
a. revenues and expenses
b. assets and liabilities
c. depreciation and amortization
d. net profits and taxes
e. none of the above
Capital budgeting is
a. the process of identifying, evaluating, and implementing a firm’s investment
opportunities.
b. the process of identifying, evaluating, and implementing a firm’s objectives.
c. the process of identifying, evaluating, and implementing a firm’s strategic plans.
d. the process of identifying, evaluating, and implementing a firm’s financing
requirements.
e. all of the above statements are correct
The advantage of buying on margin is:
a. larger potential profit
b. using more of your own money
c. deductible loss
d. non-taxable capital gain
A financial technique that involves dividing various financial statement numbers into
one another is called:
a. trend analysis
b. cross sectional analysis
c. ratio analysis
d. percent of sales analysis
Given the following financial data: net income/sales = 6%; sales/total assets = 3.5;
debt/total assets = 30%. The return on total assets is:
a. 15%
b. 21%
c. 30%
d. not enough information available
If you have an account with a 21.5% annual percentage rate where interest is
compounded quarterly, what is the effective annual rate of interest?
a. 23.75%
b. 23.3%
c. 21.5%
d. none of the above
_____________ are very short-term loans, usually with maturities of one day to one
week made between depository institutions.
a. Overnight loans
b. Commercial paper
c. Federal funds
d. A banker’s acceptance
e. none of the above
As sales increase over time, assets will increase at the same growth rate so long as the
a. asset turnover increases
b. asset turnover ratio remains constant
c. asset turnover ratio decreases
d. profit margin remains constant
An investment will mature in 20 years. Its maturity value is $1,000. If the discount rate
is 7%, what is the present value of the investment?
a. $178
b. $258
c. $276
d. $362
The operating profit margin is calculated as the firms earnings before interest and taxes
divided by net sales.
Economic Risk is the risk associated with the possibility that a national government
might confiscate or expropriate assets held by foreigners.
ADRs, or American Depository Receipts, which are traded on U.S. exchanges,
represent shares of common stock that trade on foreign exchanges.
The corporate retention rate is simply another term for the corporate savings rate.
An order bill of lading is a document given by a transportation company that lists goods
to be transported and terms of the shipping agreement.
The principle of finance that “financial markets are efficient in pricing securities”
implies that the prices of securities reflect some information available to the public and
that when new information becomes available, prices change over time to reflect that
information.
The call price of a callable bond is typically equal to par value plus two years interest.