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1) The average investment of a firm in accounts receivable is equal to the firm's total
variable cost of annual sales divided by its average collection period.
2) The amount of preferred stock dividends that must be paid each year may be stated in
dollars or as a percentage of the firm's earnings.
3) A firm's operating cash flow (OCF) is the cash flow it generates from its normal
operations: producing and selling its output of goods or services.
4) The nominal (stated) annual rate is the rate of interest actually paid or earned.
5) If a firm stretches its accounts payable, its cost of giving up a cash discount is
increased.
6) The payment date is five days after the date of record, on which the company will
mail the dividend payment to the holders of record.
7) An overhanging issue is a convertible security that cannot be forced into conversion
by using the call feature.
8) The weighted average cost that reflects the interrelationship of financing decisions
can be obtained by weighing the cost of each source of financing by the target
proportion in a firm's capital structure.
9) Capital budgeting techniques are used to evaluate a firm's fixed asset investments
which provide the basis for the firm's earning power and value.
10) Despite the extensive research conducted in recent years in the area of capital
structure theory, it is not yet possible to provide financial managers with a specified
methodology for use in determining a firm's optimal capital structure.
11) Table 12.1
A corporation is assessing the risk of two capital budgeting proposals. The financial
analysts have developed pessimistic, most likely, and optimistic estimates of the annual
cash inflows which are given in the following table. The firm's cost of capital is 10
percent.
The range of the annual cash inflows for Project A is ________. (See Table 12.1)
A) $30,000
B) $10,000
C) $5,000
D) $0
12) ________ float is the time that elapses between the deposit of a check by the payee
and the actual availability of funds.
A) Mail
B) Processing
C) Clearing
D) Disbursement
13) ________ is a term used to describe the magnification of risk and return introduced
through the use of fixed-cost financing, such as preferred stock and debt.
A) Financial leverage
B) Operating leverage
C) Fixed-payment coverage
D) Benchmarking
14) The rate of interest actually paid or earned, also called the annual percentage rate
(APR), is the ________ interest rate.
A) effective
B) nominal
C) discounted
D) continuous
15) Table 3.2
Dana Dairy Products Key Ratios
Income Statement
Dana Dairy Products
For the Year Ended December 31, 2013
Balance Sheet
Dana Dairy Products
December 31, 2013
The net working capital for Dana Dairy Products in 2013 was ________. (See Table
3.2)
A) $10,325
B) -$10,325
C) -$1,425
D) $14,250
16) A behavioral approach that evaluates the impact on a firm's return through
simultaneous changes in a number variables of a project is called ________.
A) sensitivity analysis
B) scenario analysis
C) simulation analysis
D) Monte Carlo simulation
17) The future value of $200 received today and deposited at 8 percent for three years is
________.
A) $248
B) $252
C) $158
D) $200
18) A firm has a cash conversion cycle of 60 days. Annual outlays are $12 million and
the cost of financing is 12 percent. If the firm reduces its average age of inventory by
10 days, the annual savings is ________. (Assume a 365-day year.)
A) $10,400
B) $14,000
C) $28,800
D) $39,452
19) Find the future value at the end of year 3 of the following stream of cash flows
received at the end of each year, assuming the firm can earn 17 percent on its
investments.
A) $20,724
B) $20,127
C) $23,550
D) $23,350
20) For an investor who plans to purchase a bond maturing in one year, the primary
consideration should be ________.
A) retained earnings
B) face value
C) yield to maturity
D) net income
21) Nico Yong is considering the purchase of 100 shares of Cisco Systems stock at $22
per share. Because the economy is picking up, Nico believes the demand for Oracle's
router systems will increase substantially causing the price of Cisco's shares to increase
to $30 per share. As an alternative, Nico is considering the purchase of a call option for
100 shares of Cisco at with an exercise price of $25. This 180 day option will cost Nico
$200. Assume no brokerage costs or dividends.
(a)What will Nico's profit be on the stock transaction if he decides to buy the stock and
its price does increase to $30 per share and he sells?
(b)How much will Nico earn on the option transaction if he purchases the option and
the underlying stock price rises to $30?
(c)How much must the stock price rise for Nico to break even on the option
transaction?
(d)Based on parts (a) and (b) above, what should Nico do? Explain.
22) Which of the following is true of common stocks?
A) The common stock of a corporation can be either privately or publicly owned
B) Firms often issue common stock with no par value
C) Preemptive rights often result in a dilution of ownership
D) A firm's corporate charter indicates the rate at which dividends are paid
23) Which of the following is true of maintaining appropriate inventory levels?
A) A financial manager's general disposition toward inventory levels is to keep them
low
B) A marketing manager would like to have low inventories of a firm's finished
products
C) A manufacturing manager would keep raw materials inventories low for the sake of
lower unit production costs
D) A purchasing manager prefers lower level of inventories than are actually needed at
the time
24) Which of the following is typically a feature of common stock?
A) Most common stocks are callable
B) Most common stocks are cumulative
C) Common stocks have a maturity value
D) Common stocks may or may not pay dividends
25) The change in net working capital when evaluating a capital budgeting decision is
________.
A) the change in fixed liabilities minus the change in fixed assets
B) the increase in current assets
C) the increase in current liabilities
D) the change in current assets minus the change in current liabilities
26) Which of the following is a reason for firms not using the payback method as a
guideline in capital investment decisions?
A) It gives an explicit consideration to the timing of cash flows
B) It cannot be specified in light of the wealth maximization goal
C) It is a measure of risk exposure and projects the possibility of a calamity
D) It is easy to calculate and has intuitive appeal
27) The preferred approach to breakeven analysis for a multiproduct firm is the
________.
A) breakeven point expressed in units
B) breakeven point expressed in dollars
C) cash breakeven point
D) overall breakeven point
28) Nico bought 100 shares of Cisco Systems stock for $30.00 per share on January 1,
2013. He received a dividend of $2.00 per share at the end of 2013 and $3.00 per share
at the end of 2014. At the end of 2015, Nico collected a dividend of $4.00 per share and
sold his stock for $33.00 per share. What was Nico's realized holding period return?
A) -40%
B) +40%
C) -36.36%
D) +36.36%
29) ________ is concerned with design and delivery of advice and financial products to
individuals, businesses, and governments.
A) Managerial finance
B) Auditing services
C) Financial services
D) Cost accounting
