1) If a firm anticipates stretching accounts payable, its cost of giving up a cash discount
is reduced.
2) One of the major reasons for attaching a stock purchase warrant is that investors do
not require the issuing firm to pay an interest rate as high as on a security that does not
have an attached warrant.
3) An inverted yield curve is an upward-sloping yield curve that indicates generally
cheaper short-term borrowing costs than long-term borrowing costs.
4) Preferred stock has characteristics of debt since it provides a fixed periodic cash
payment.
5) Inventory is more attractive than accounts receivable as a short-term collateral since
it normally has a market value greater than its book value, which is used to establish its
value as collateral.
6) The financial decision makers find NPV more intuitive because it measures benefits
relative to the amount invested.
7) Self-liquidating loans are mainly invested in productive assets (i.e., fixed assets)
which provide the mechanism through which the loan is repaid.
8) Which of the following is the best measure to ensure that management decisions are
in the best interest of the stockholders?
A) fire managers who are inefficient
B) remove management’s perquisites
C) tie management compensation to the performance of the company’s common stock
price
D) tie management compensation to the level of dividend per share
9) Table 11.2
Computer Disk Duplicators, Inc. has been considering several capital investment
proposals for the year beginning in 2014. For each investment proposal, the relevant
cash flows and other relevant financial data are summarized in the table below. In the
case of a replacement decision, the total installed cost of the equipment will be partially
offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on
ordinary income and on long-term capital gains. The firm’s cost of capital is 15 percent.
________________________________________________________
*Not applicable
For Proposal 1, the annual incremental after-tax cash flow from operations for year 1 is
________. (See Table 11.2)
A) $60,000
B) $255,000
C) $300,000
D) $210,000
10) If the only information you are given about Ryan Corporation, a large public
company in business for many years, is that it has a current ratio of 2.9, what could you
infer from this?
A) It can meet the short-term obligations without any difficulty
B) You could determine that Ryan has a liquidity problem because Ryan’s current ratio
is greater than 2 which is the rule of thumb for the current ratio
C) Nothing, you would also need the current ratio’s from the last few years of the S&P
500 Index
D) You could determine that Ryan has an activity problem because Ryan’s current ratio
is greater than 2 which is the rule of thumb for the current ratio
11) The transfer of capital, managerial, and technical assets by a multinational firm
from its home country to a foreign country is termed ________.
A) an MNC
B) an SDI
C) an FDI
D) a CAPM
12) If the required return is greater than the coupon rate, a bond will sell at ________.
A) par
B) a discount
C) a premium
D) book value
13) The all-current-rate method dictated by the FASB No. 52 statement requires the
translation of all balance sheet accounts at the ________ rate and all income statement
items at the ________ rates.
A) closing; average
B) average; closing
C) historical; current
D) average; historical
14) In the capital asset pricing model, the beta coefficient is a measure of ________.
A) business-specific risk
B) maturity risk
C) market risk
D) unsystematic risk
15) A combination of companies where the former corporations cease to exist is
________.
A) a congeneric formation
B) a consolidation
C) a merger
D) a holding company
16) Given the following information about the two assets A and B, determine which
asset is preferred.
17) If an inventory turnover is divided into 365, it becomes a measure of ________.
A) financial efficiency
B) the average age of the inventory
C) sales turnover
D) the average collection period
18) Corporate owners receive return ________.
A) by realizing gains through increases in share price and interest earnings
B) by realizing gains through increases in share price and cash dividends
C) through capital appreciation and retained earnings
D) through interest earnings and earnings per share