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1) Zero coupon bonds are not suited for tax-exempt accounts such as IRAs or pension
funds.
2) Incremental cash flows represents a projects cash flows summed together with the
firms other cash flows to get a total firm view of the project.
3) Operating leverage affects the top portion of a firms income statement whereas
financial leverage affects the bottom half of the income statement.
4) The most desirable form of business organization from a liquidity standpoint is a
limited liability company.
5) Independent projects are not in direct competition with one another.
6) The internal rate of return measures the return on the projects initial cost.
7) There are two basic sources of loanable funds: current savings and the expansion of
deposits of depository institutions.
8) One advantage of the corporate form of organization is the ease with which
ownership may be transferred.
9) The International Monetary Fund (IMF) was created to promote world trade through
monitoring and maintaining fixed exchange rates and by making loans to countries with
payment problems.
10) A trustee represents the company to ensure that the covenants of the bond indenture
are met.
11) Short-term financing may come in the form of trade credit extended between
businesses.
12) A limit order is an order to sell stock at the market price when the price of the stock
falls to a specified level.
13) Three reasons we study finance include all of the following except:
a.To make informed economic decisions
b.To make informed personal and business investment decisions
c.To make informed career decisions based on a basic understanding of business
finance
d. all of the above
14) All of the following statements are correct except:
a.A firms business risk is measured by its variability in EBIT over time and is affected
by several factors, including the business cycle, competitive pressures, and the firms
operating leverage or its level of fixed operating costs
b.The degree of financial leverage measures the sensitivity of earnings per share to
changes in EBIT
c.The degree of combined leverage is the percentage change in gross profit that results
from a 1 percent change in sales volume
d.The degree of combined leverage is simply the product of its degree of operating
leverage and its degree of financial leverage
e.All of the above statements are correct
15) Balances in foreign accounts are maintained for purposes of dealing in foreign
exchange by:
a.central banks
b.correspondents of domestic banks
c.correspondents or foreign branches of domestic banks
d.most multinational corporations
e. none of the above
16) Which of the following statements is most correct?
a.Eurodollars are deposits placed in foreign banks that remain denominated in U.S.
dollars
b.Treasury bills are actively traded in secondary money markets
c.The most common trading unit for federal funds is $1 million
d.All of the above statements are correct
17) In an efficient market:
a.it is fairly easy to find stocks whose prices do not fairly reflect the present value of
future expected cash flows
b.unexpected news will cause a rapid change in prices
c.information flows are random, both in timing and in content
d.all the above
18) The present value of an annuity of $5,000 to be received at the end of each of the 6
years at a discount rate of 4% would be:
a.$26,210
b.$33,165
c.$3,950
d.none of the above
19) You want to buy a Volvo in seven years. The car is currently selling for $50,000,
and the price will increase at a compound rate of 10% per year. You can presently invest
in high-yield bonds earning a compound annual rate 14% per year. How much must you
invest at the end of each of the next seven years to be able to purchase your dream car
in seven years?
a.$8,831.46
b.$9,080.20
c.$9,125.42
d.$9,282.09
20) A firms business risk is measured by the variability in which one of the following
over time:
a.net sales
b.total assets
c.operating income (EBIT)
d.net income
21) In reality, an options value will equal its intrinsic value only at expiration. At all
other times, the options premium or price will exceed its intrinsic value. A major reason
for this is/are _____________.
a.marketability
b.price
c.trade restrictions
d.brand
e. none of the above
22) ______________ is the tendency of prices, aided by union-corporation contracts, to
rise during economic expansions and resist declines during recessions.
a.Administrative inflation
b.Speculative inflation
c.Cost-push inflation
d.Demand-pull inflation
23) Suppose Ningbo Steel had sales revenue of $10,000 sales revenue, cost of goods
sold of $5,000, operating expenses of $3000, interest expense of $1,000, a tax rate of
20%, and 1,000 shares of common stock outstanding. Based on this information,
earnings per share was:
a.$2.00
b.$1.00
c.$0.50
d.$0.0
e.none of the above
24) The value of a share of stock currently selling for $50 after a 1 for 5 split is:
a.$10
b.$200
c.$500
d.$1000
e.none of the above
25) The time between when the firm pays its suppliers and when it collects money from
its customers is known as the:
a.operating cycle
b.cash conversion cycle
c.accounts receivable period
d.none of the above
26) 2/10 net 30 MOM translates as
a.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid within
10 days, the net amount is due in 20 days
b.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid
within 10 days, the net amount is due 20 days after the middle of the month
c.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid within
10 days, the net amount is due 30 days after the end of the month
d.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid
within 10 days, the net amount is due in 20 days
e.none of the above
27) A stock that went from $40 per share at the beginning of the year to $45 at the end
of the year and paid a $2 dividend provided an investor with a ____ return.
a. 8.75%
b.14%
c.17.5%
d.7%
e. none of the above
28) The final step in the capital budgeting process is
a.implementation
b.selection
c.follow-up
d.development
29) Which of the following is true of sunk costs?
a.not included in initial cash flow
b.similar to opportunity costs
c.often combined with terminal cash flow
d.deciding factor in most project decisions
30) One factor that decreases the volume of bank reserves is a decrease in:
a.bank holdings of loans and securities
b.time and savings deposits
c.life insurance company reserves
d.Federal Reserve float
31) The Federal Reserve System and the New York Stock Exchange regulations
currently require the short seller to have an initial margin of at least _______ of the
price of the stock:
a.10%
b.25%
c.30%
d.50%
32) ___________________ is when an investor borrows money and invests t he
borrowed funds along with his or her own funds in securities.
a.A short sale
b.A stop-loss order
c.A limit order
d.Buying on margin
33) Which of the following statements is most correct?
a.Corporate after-tax profits rose from $473.8 billion in 2006 to $616.2 billion in 2008.
This rise coincided with the 2007-09 financial crisis
b.Corporate after-tax profits remained about the same at $500 million between 2006
and 2008
c.Corporate after-tax profits declined from $616.2 billion in 2006 to $473.8 billion in
2008. This decline coincided with the 2007-09 financial crisis
d.Corporate after-tax profits rose from $473.8 million in 2006 to $616.2 million in
2008. This rise coincided with the 2007-09 financial crisis
e.none of the above
34) Which would not be likely to be accepted as collateral for an inventory loan?
a.nails at a hardware store
b.cars at an automobile dealership
c.clothing at a fashion store
d.all the above would be likely to be accepted
35) For bank loans, the effective interest rate is generally
a.not affected by whether or not the loan is a discount loan or a traditional loan
b.higher if the loan is a discount loan
c.lower if the loan is a discount loan
d.higher if the interest is paid at maturity
e.none of the above
36) Which of the following statements is most correct?
a.Personal consumption expenditures of $10.1 trillion in 2009 accounted for about 71
percent of GDP; this percentage relationship has been very stable throughout the decade
of the 2000s
b.Personal consumption expenditures of $1.1 trillion in 2009 accounted for about 11
percent of GDP; this percentage relationship has been very stable throughout the decade
of the 2000s
c.Personal consumption expenditures of $10.1 trillion in 2009 accounted for about 11
percent of GDP; this percentage relationship has been very unstable throughout the
decade of the 2000s
d.Personal consumption expenditures of $1.1 trillion in 2009 accounted for about 71
percent of GDP; this percentage relationship has been very unstable throughout the
decade of the 2000s
e.none of the above.
37) The short-term accumulation of financial assets on the part of business
corporations:
a.are primarily held in derivative securities
b.add to the level of long-term savings of the economy as a whole
c.do not enter the monetary stream to fund consumers, government, or other businesses
d.are held in the form of long-term obligations of the federal government
e.none of the above
38) Which of the following would not be a use of funds?
a.increase in an asset account
b.decrease in a liability account
c.decrease in an equity account
d.all the above are uses of funds
39) An option is ______________ if its exercise price is equal to the current market
price of the underlying asset.
a.in-the-money
b.out-of-the-money
c.at-the money
d.on-the-money
