1) The European Central Bank that was created with the European Monetary Union has
no control over monetary policy but is responsible for clearing transactions between the
countries.
2) Stable dividends may cause a higher discount rate for the firm, thereby raising the
value of the firm.
3) Zero-coupon bonds are sold at a deep discount primarily because investors are not
interested in owning them.
4) Managers who are risk-averse and uncertain about the future would most likely
minimize combined leverage.
5) The appropriate discount rate for valuation of bonds is called the yield to maturity.
6) The calculation of cash receipts requires a breakout of cash and credit sales and
collections history.
7) Valuation of a common stock with no dividend growth potential is treated in the
same manner as preferred stock.
8) Too much diversification has led many companies to sell off companies previously
acquired during the merger boom.
9) Although corporate managers have a responsibility to act in the shareholders’ best
interest, management frequently opposes acquisitions due to personal motives.
10) The repurchase of a corporation’s own stock will generally have a negative impact
on its price.
11) Free cash flow is equal to cash flow from operating activities minus necessary
capital expenditures and normal dividend payments.
12) Stock classes may differ in both voting rights and dividend rights.
13) The farther into the future any given amount is received, the larger its present value.
14) A firm should always be at a single optimum debt-to-equity ratio to minimize its
cost of capital.
15) Commission rates for stock transactions are fixed as a result of the Securities Act
Amendments of 1975 .
16) The “term structure of interest rates” refers to the relationship between yields on
debt and their maturities.
17) Trend analysis is used to project the future performance of an industry.
18) A firm in a stable industry should use
A.a large amount of debt to lower the cost of capital
B.no debt at all
C.preferred stock in place of debt
D.a limited amount of debt to lower the cost of capital
19) The inventory decision model provides which type of information?
A.Optimal total inventory
B.Optimal safety stock
C.Optimal order size
D.Optimal carrying cost per unit
20) Legal, political, and economic factors are most conducive to which form of
multinational corporation (MNC) organization?
A.Exporter/importer
B.Licensing agreements
C.Joint ventures
D.Fully owned foreign subsidiaries
21) The Sarbanes-Oxley Act set up the Public Company Accounting Oversight Board
with the responsibility for all of the following except
A.auditing standards within companies
B.controlling the quality of audits
C.certifying the competence of financial executives
D.setting rules and standards for the independence of auditors
22) Match the following with the items below:
1>public warehousing
2>futures contract
3>securitization of assets
4>dealer paper
5>blanket inventory lien
6>installment loan
7>direct paper
8>trust receipt
9>commercial paper
10>field warehousing
11>trade credit
12>factoring receivables
13>hedging
14>pledging receivables
15>discounted loan
A. Selling accounts receivable to a financial institution.
B. Using accounts due to the firm as collateral for a loan.
C. An inventory financing arrangement in which collateralized inventory is stored on
the premises of the borrower, but is controlled by an independent warehousing
company.
D. Lessening or eliminating risk by taking a position that is the opposite of your initial
position.
E. A secured borrowing arrangement in which the lender has a general claim against the
stock in trade of the borrower.
F. An instrument acknowledging that the borrower holds the inventory and proceeds
from a sale in trust for the lender.
G. An inventory-financing arrangement in which inventory used as collateral is stored
with and controlled by an independent warehousing company.
H. This loan features subtraction of the calculated interest payment in advance.
I. Uses a series of equal payments to retire a loan.
J. An unsecured promissory note issued by a large corporation to investors.
K. A form of commercial paper sold from a finance company to a lender. (Also referred
to as financial paper.)
L. The issuance of a security that pledges the backing of an asset.
M. A legal agreement to buy or sell a commodity or currency at some specified price in
the future.
N. A form of commercial paper sold from a small company to an intermediary network
to distribute the paper.
O. Financing provided by sellers or suppliers in the normal course of business.
23) Firms exposed to the risk of interest rate changes may reduce that risk by
A.obtaining a Eurodollar loan
B.hedging in the financial futures market
C.hedging in the commodities market
D.pledging or factoring accounts receivable
24) A project has the following projected outcomes in dollars: $250, $350, and $500.
The probabilities of their outcomes are 25%, 50%, and 25%, respectively. What is the
expected value of these outcomes?
A.$362.5
B.$89.4
C.$94.5
D.$178.3
25) Which of the following is not a true statement?
A.Common stockholders have a residual claim to income
B.Bondholders may force a corporation into bankruptcy for failure to make interest
payments
C.Common stockholders are legally entitled to some dividend
D.A minority interest can still elect members to the Board of Directors under
cumulative voting even though someone else owns 51% of the stock
26)
Refer to the figure above. The degree of combined leverage (DCL) is _____.
A.3.08x
B.5.45x
C.2.25x
D.6.83x
27) Federally sponsored credit agencies include all but which of the following?
A.Securities Investor Protection Corporation (SIPC)
B.Federal Home Loan Banks (FHLB)
C.Student Loan Marketing Association (Sallie Mae)
D.Federal National Mortgage Association (Fannie Mae)
28) A 20-year bond pays 6% on a face value of $1,000. If similar bonds are currently
yielding 5%, what is the market value of the bond? Use annual analysis.
A.Over $1,100
B.Under $1,000
C.Under $900
D.Not enough information is given to tell
29) The extent to which inventory financing may be used depends on the
A.marketability of pledged goods
B.price stability of goods
C.perishability of goods
D.All of these options
30) Which of the following is true about the concept of leverage?
A.At the break-even point, operating leverage is equal to zero
B.Combined leverage measures the impact of operating and financial leverage on EBIT
C.Financial leverage measures the impact of fixed costs on earnings
D.None of the options
31) Which of the following is not a money market instrument?
A.Treasury bills
B.Commercial paper
C.Negotiable certificates of deposit
D.Treasury bonds
32) In financial statements, the number of units shown in cost of goods sold as
compared to the number of the units actually produced
A.is higher
B.is lower
C.is the same
D.can be either higher or lower
33) An issue of common stock’s most recent dividend is $1.75. Its growth rate is 5.7%.
What is its price if the market’s rate of return is 7.7%?
A.$24.63
B.$87.50
C.$92.50
D.None of these options
34) A 10-year bond, with a par value equaling $1,000, pays 7% annually. If similar
bonds are currently yielding 6% annually, what is the market value of the bond? Use
semi-annual analysis.
A.$700.00
B.$927.50
C.$1,074.70
D.$1,520.70
35) Frank’s Sporting Goods projects sales for the second quarter of 20XX to be as
follows:
April $100,000; May $120,000; June $110,000.
20% of Frank’s sales are for cash, 70% of accounts receivable are collected one month
following the sale, and the rest are collected two months following the sale. January
sales were $40,000, February sales were $60,000, and March sales were $80,000.
a) Prepare a monthly schedule of cash receipts for the second quarter of 20XX.
b) What is the balance in accounts receivable at the end of June?
36) From the following income statement, calculate the
a) degree of financial leverage.
b) degree of operating leverage.
c) degree of combined leverage.
37) An annuity may best be defined as
A.a payment at a fixed interest rate
B.a series of payments of unequal amount
C.a series of yearly payments, regardless of amount
D.a series of consecutive payments of equal amounts
38) Which of the following is NOT a form of compensation that selling stockholders
could receive?
A.Stock
B.Cash
C.Stock options
D.Fixed income securities
39) Football player Walter Johnson signs a contract calling for payments of $250,000
per year, to begin 10 years from now and then continue for five more years. To find the
present value of this contract, which table or tables should you use?
A.The future value of $1
B.The future value of an annuity of $1 and the future value of $1
C.The present value of an annuity of $1 and the present value of $1
D.None of these options
40) Ian would like to save $2,000,000 by the time he retires in 40 years. If he believes
that he can achieve a 7% rate of return, how much does he need to deposit each year,
starting one year from now, to achieve his goal?
A.$12,065
B.$37,500
C.$5,790
D.$10,018
41) International cash management is more complex than domestic-based cash
management because of
A.liquidity management issues
B.different banking systems
C.currency fluctuation risk
D.All of the options
42) Sydney saved $10,000 during her first year of work after college and plans to invest
it for her retirement in 40 years. How much will she have available for retirement if she
can make 8% on her investment?
A.$596,250
B.$453,000
C.$345,100
D.$217,250
43) Eurodollar certificates of deposit
A.are not marketable investments
B.are used by banks to loan out funds to anyone seeking U.S. dollars
C.pay interest rates usually lower than the rates on U.S. treasury bills
D.are European currencies deposited into international U.S. branch banks
44) In the percent-of-sales method, if (A/S) and (L/S) both increase,
A.RNF stays the same
B.RNF goes down
C.RNF goes up
D.More information is needed
45) If you invest $10,000 today at 10% interest, how much will you have in 10 years?
A.$13,860
B.$25,940
C.$3,860
D.$80,712
46) Which of the following is an inflow of cash?
A.Funds spent in normal business operations
B.The purchase of a new factory
C.The sale of the firm’s bonds
D.The retirement of the firm’s bonds
47) Which of the following is associated with the recession of 2007-2009?
A.Hundreds of bank failures occurred
B.The Federal Reserve and the Federal Deposit Insurance Corporation forced large
banks at risk of collapse to be taken over by healthy banks
C.Commercial banks and investment banks were allowed to merge
D.All of these options