1) A NPV profile shows how NPV varies given alternative IRRs.
2) Asset management ratios indicate the ability to meet short-term obligations to
creditors as they come due.
3) Special Drawing Rights are international reserve assets created by the International
Monetary Fund that can be drawn upon by member nations.
4) Financial theory favors the method using the market values of the firms debt and
equity to compare target and actual weights.
5) Inflation is an increase in the price of goods or services that is not offset by an
increase in quality.
6) A global depository receipt is traded on the American Stock Exchange.
7) The four groups of policy makers that are actively involved in achieving the nations
economic policy objectives are the Federal Reserve System, the President, Congress,
and the U.S. Treasury.
8) The depreciation tax shield equals the amount of the depreciation expense multiplied
by the firms tax rate.
9) If the compound inflation rate were greater than the compound interest rate,
purchasing power would fall.
10) Maturity factoring is where the firm selling its accounts receivable is paid on the
normal collection date or net due date of the account.
11) Undistributed profit is the proportion of after-tax profit paid as dividends to
shareholders by a corporation.
12) The federal government relies primarily on income taxes and social insurance taxes
for its revenues.
13) All of the following accounts are considered to be current liabilities on the balance
sheet except:
a.taxes payable
b.accounts payable
c.accruals
d.notes payable
e.all of the above are current liabilities
14) A firm is evaluating a proposal which has an initial investment of $50,000 and has
cash flows of $15,000 per year for five years. If the firms required return or cost of
capital is 10%, the NPV of the project is:
a.$5,000
b.$6,862
c.-$5,000
d.-$6,862
e.none of the above
15) Two sources of risk that investors in nondomestic securities face beyond those of
domestic securities include:
a.political risk
b.exchange rate risk
c.corruption risk
d.two of the above
e.all of the above
16) Stages of the capital budgeting include all of the following except:
a.follow-up
b.selection
c.identification
d.development
e.all of the above are included
17) The two routes of check clearance include the _____________ settlement, in which
the transaction takes place entirely within a single Federal Reserve district, and the
_____________ settlement, in which there are relationships between banks of two
Federal Reserve districts.
a.interdistrict, intradistrict
b.intradistrict, interdistrict
c.Fed wire, District wire
d.District wire, Fed wire
e.none of the above
18) The Public Company Accounting Oversight Board (PCAOB) is
a.a not-for-profit corporation that oversees auditors of public corporations
b.a not-for-profit corporation that oversees managers of public corporations
c.a for-profit corporation that oversees auditors of public corporations
d.a for-profit corporation that oversees managers of public corporations
e.none of the above
19) Which of the following is considered to be the most risky?
a.U.S. government bonds
b.mortgage bonds
c.corporate bonds
d.common stocks
20) The value of money results from:
a.its backing
b.rates set by the Federal Reserve
its purchasing power
none of the above
21) All of the following statements are correct except:
a.Capital budgeting is the process of identifying, evaluating, and implementing a firms
investment opportunities
b.Capital budgeting seeks to identify projects that will enhance a firms competitive
advantage and by so doing increase shareholders wealth
c.By its nature, capital budgeting involves long-term projects, although capital
budgeting techniques also can be applied to working capital decisions
d.Capital budgeting projects usually require small initial investments and may involve
acquiring or constructing plant and equipment
e.all of the above statements are correct
22) If an individual supplies funds to a business firm by purchasing bonds issued by the
firm, the transaction:
a.creates two types of financial assets and two types of financial liabilities
b.increases the liquidity and safety of principal for the individual
c.initially occurs in the secondary market
d.limits the ability of the security to be sold in the secondary market
e.none of the above
23) The personal savings rate is calculated as:
a.personal savings divided by personal outlays
b.personal savings divided by disposable personal income
c.disposable personal income divided by personal outlays
d.personal income divided by personal outlays
24) Several factors will be considered by the board of directors and management as
they consider the level of dividend payout. Some of these factors include:
a.the ability of the firm to generate cash to sustain the level of dividends.
b.legal and contractual considerations
c.growth opportunities
d.cost of other financing sources
e.all of the above
25) 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
26) Which of the following is an example of indirect financing?
a.corporate bonds
b.corporate stocks
c.business bank loans
d.U.S. government bonds
27) Which of the following statements is most correct?
a.More firms fail or suffer financial distress during periods of economic expansion than
during periods of economic recession. Thus, investors tend to require higher premiums
to compensate for default risk when the economy is in a recession or is expected to
enter one
b.More firms fail or suffer financial distress during periods of recession than during
periods of economic expansion. Thus, investors tend to require lower premiums to
compensate for default risk when the economy is in a recession or is expected to enter
one
c.Fewer firms fail or suffer financial distress during periods of recession than during
periods of economic expansion. Thus, investors tend to require higher premiums to
compensate for default risk when the economy is in a recession or is expected to enter
one
d.Fewer firms fail or suffer financial distress during periods of recession than during
periods of economic expansion. Thus, investors tend to require lower premiums to
compensate for default risk when the economy is in a recession or is expected to enter
one
e. none of the above
28) A decrease in contractual managers salaries will result in:
a.an increase in the degree of combined leverage
b.a decrease in the degree of combined leverage
c.no change in the degree of combined leverage
d.none of the above
29) If the interest rate is less than 0%, then a dollar today is worth
a.more than a dollar tomorrow
b.the same as a dollar tomorrow
c.less than a dollar tomorrow
d.there is not sufficient information to tell
30) All other things being equal, an increase in the amount of fixed operating costs for a
firm would:
a.increase the break-even point
b.decrease the break-even point
c.have no impact on the break-even point
d.not enough information given
31) During the onset of the Financial Crisis between 2007 and 2008, the returns on
stocks and treasury bonds
a.converged
b.convened
c.were about the same
d. were unrelated
e. none of the above
32) The possible conflict between managers and owners is sometimes called the
a.principal-subordinate problem
b.boss-agent problem
c.boss-subordinate problem
d.employee- gent problem
e.none of the above
33) Ken purchases a perpetual investment that pays $90 per year indefinitely, beginning
one year from today. What is price of the investment if the current discount rate is
7.6%?
a.$1,000
b.$4,126.45
c.$1,150.66
d.$1,184.21
34) In fall 2008, the U.S. Congress and President George W. Bush responded to the
financial crisis with the passage of the _____________ in early October of that year.
a.Economic Stimulus Act
b.Economic Recovery Act
c.Economic Stabilization Act
d.Economic Booster Act
e.none of the above
35) If personal consumption expenditures are $1 billion, government purchases are $2
billion, gross private domestic investments are $4 billion and net exports are $5 billion,
then GDP is:
a.$11 billion
b.$8 billion
c.$7 billion
d.$2 billion
e.none of the above
36) The market portfolio would have a beta of:
a.0
b.1
c.1
d.0.8
37) Which of the following statements is correct?
a.The typical capital budgeting project involves a small upfront cash outlay, followed
by a series of smaller cash inflows and outflows, but the projects cash flows, including
the total upfront cost of the project, are not known with certainty before the project
starts
b.The typical capital budgeting project involves a large upfront cash outlay, followed by
a series of larger cash inflows and outflows, but the projects cash flows, including the
total upfront cost of the project, are not known with certainty before the project starts
c.The atypical capital budgeting project involves a large upfront cash outlay, followed
by a series of smaller cash inflows and outflows, but the projects cash flows, including
the total upfront cost of the project, are not known with certainty before the project
starts
d.The typical capital budgeting project involves a large upfront cash outlay, followed by
a series of smaller cash inflows and outflows, and the projects cash flows, including the
total upfront cost of the project, are known with certainty before the project starts
e.none of the above statements are correct
38) Which of the following statements is false?
a.During the past couple of decades, generally high fixed-rate mortgage loan interest
rates and the desire to extend housing ownership to more individuals in the U.S., the
use of adjustable-rate mortgages grew in usage
b.An adjustable-rate mortgage (ARM) has an interest rate that changes or varies over
time with market-determined interest rates on a U.S. treasury bill or other debt security
c.The interest rate on an ARM is often adjusted annually to reflect changes in treasury
bill rates (or other interest rate benchmark)
d.Lenders typically offer ARMs with variable interest rates for one to five years with a
provision to switch to a fixed-rate over the remaining life of the ARM
e.all of the above statements are true
39) When a customer demands additional currency and cashes a check for $500, all of
the following occur except:
a.the deposits of the bank are reduced $500
b.required reserves are reduced
c.Federal Reserves notes decrease
d.additional reserves must be acquired if the bank has no excess reserves
40) Automatic stabilizers include all of the following except:
a.unemployment insurance
b.social security
c.welfare
d.pay-as-you-go tax system
41) The perfect financial storm that developed in 2008, which put the U.S. economy
was on the verge of collapse was characterized by all of the following EXCEPT:
a.The housing price bubble burst in 2006 and began a sharp decline
b.Stock market prices began a rally in 2007 and began a sharp incline
c.Many of the mortgage-related debt securities originated and sold to others, or held, by
banks became difficult to value during the perfect financial storm and quickly became
known as troubled or tonic assets
d.Individuals and businesses were defaulting on loans and home mortgages in
increasing numbers due to the weakening economy and falling home prices
e.All of the above were factors