What yield curve shape is depicted if intermediate-term Treasury securities yield 10
percent, short-term Treasuries yield 10.5 percent, and long-term Treasuries yield 9.5
percent?
a. downward sloping
b. flat or level
c. upward sloping
d. U shaped
Working capital does not include:
a. cash
b. accounts receivable
c. marketable securities
d. property, plant, and equipment
Which of the following statements is most correct?
a. A closed-end mortgage bond is one that allows the same assets to be used as security
in future bond issues.
b. Covenants in a trust indenture restrict or limit the actions the firm can take.
c. Retractable bonds can be redeemed prior to maturity by the firm.
d. All of the above are correct.
Holding all other factors constant, if a firm increases its current assets relative to total
assets,
a. its financing costs will fall.
b. net working capital will rise.
c. has no effect on return and reduces risk.
d. it reduces return and increases risk.
e. none of above are correct
The correlation between the return on the risk-free asset with a constant return over
time and the return on a risky asset is always:
a. -1
b. 0
c. 1
d. 0.5
Examples of non-financial data required for project analysis include all of the following
except:
a. distribution channels
b. quantity and quality of labor force in different locations
c. labor-management relations
d. status of technological change in the industry
e. all of the above are included
Which of the following is not required to compute the expected return of a three-asset
portfolio?
a. the amount invested in each stock
b. the correlation between the returns on each stock
c. the expected return on each stock
d. all of the above are required
Ningbo Shipping has prepared the coming year’s pro forma balance sheet and has
estimated that external financing required would be -$230,000. The firm should prepare
to
a. repurchase common stock totaling $230,000.
b. pay off an existing loan in the amount of $230,000.
c. accumulate an additional $230,000 of cash on its books.
d. invest in marketable securities totaling $230,000.
e. all of the above
____________________________ sets up a procedure for the prompt correction of
errors on a revolving charge account and prevents damage to credit ratings while a
dispute is being settled.
a. Truth in Lending Act
b. Equal Credit Opportunity Act
c. Federal Trade Commission Improvement Act
d. Fair Credit Billing Act
The U.S. Treasury is primarily responsible for:
a. monetary policy
b. debt management
c. fiscal policy
d. the money supply
The profitability ratio that measures the return that shareholders earned on their
investment in the firm is the:
a. operating profit margin
b. return on equity
c. net profit margin
d. return on assets
In the case of independent projects:
a. the financial manager is responsible for choosing the average of these alternatives
since only one can be chosen; selecting one project requires the selection of the other.
b. they are to be evaluated based on their expected effect on net income; all such
projects that enhance net income should be included in the firm’s capital budget.
c. the financial manager is responsible for choosing the best of these alternatives since
only one can be chosen; selecting one project precludes the other from being
undertaken.
d. they are to be evaluated based on their past effect on shareholder wealth; all such
projects that enhance shareholder wealth should be included in the firm’s capital budget.
e. none of the above statements are correct
With independent projects, NPV and IRR provide identical accept/reject decisions. If,
however, you have two mutually exclusive projects to evaluate, the most accurate thing
you could say about the eventual results is that:
a. NPV and IRR may give conflicting rankings
b. NPV and IRR never give the same rankings
c. NPV and IRR always give the same rankings
d. IRR is more lenient in accepting
Examples of regular cash outflows would not include:
a. materials purchases
b. rent
c. utility bills
d. all the above are regular cash outflows
When the market interest rate falls below the coupon rate for a particular quality of
bond, the “current yield:”
a. will be below the coupon rate
b. will be the same as the coupon rate
c. will be above the coupon rate
d. cannot be determined
What is Ningbo Shipping’s WACC if it’s after tax cost of debt is 3.5%, it’s cost of
retained earnings is 14%, and the firm’s market value of debt is $40 million while the
market value of its equity is $60 million?
a. 9.8%.
b. 3.5%.
c. 11.8%.
d. 14.7%.
e. none of the above.
BP has a cash conversion cycle of 80 days, an average collection period of 25 days, and
an average age of inventory of 70 days. Based on this information, BPs operating cycle
is ________ days.
a. 95
b. 85
c. 75
d. 65
e. none of the above
All of the groups of cash flows from the firm’s statement of cash flows are also used in
the analysis of project cash flows EXCEPT:
a. cash flow from financing
b. cash flow from investment
c. cash flow from operations
d. all are included
The role of financial institutions in a country’s financial system is to accumulate and
invest savings.
A higher coefficient of variation indicates more risk per unit of return.
The flotation costs of an initial public offering are comprised solely of direct costs and
the spread.
The return provided by a $100 annuity deposited for 10 years that results in a
future value of $1,593.74 is 10%.
Financial assets include claims in the form of obligations or liabilities issued by
individuals, businesses, financial intermediaries, and governments.
The transactions motive is the demand for holding cash.
The principle of finance that “reputation matters” sometimes is harmed by the different
objectives of owners and managers.
There is an inverse relation between debt instrument prices and nominal interest rates in
the marketplace.
Keynesians believe that a change in the money supply first causes a change in interest
rate levels, which, in turn, alters the demand for goods and services.
The main provisions of the Monetary Control Act of 1980 are deregulation and
monetary control.