1) In Stage I of a firm’s life cycle, the firm will pay high dividends to shareholders in
order to attract additional investors.
2) The market-determined required rate of return is the appropriate discount rate used in
valuation calculations.
3) The investor’s portfolio should always be on the efficient frontier.
4) “Float” is the name given for a short-term loan between suppliers and buyers.
5) A firm will pay dividends as long as it has cash available.
6) One situation in which a stock dividend may be beneficial to the investor is when the
cash dividend per share remains constant.
7) The after-tax cost of debt is cheaper than preferred stock to the issuing corporation,
all things being equal.
8) Supply chain management has little impact on financial performance and is primarily
a marketing and management concept.
9) A rights offering is generally financially advantageous to the investor because it
provides them with additional shares of stock.
10) The net present value profile’s primary advantage over the internal rate of return
method is that it does not require the time-consuming, trial-and-error calculations of the
IRR.
11) Cash flow is equal to earnings before taxes minus depreciation.
12) A rights offering
A.gives a firm a built-in market for new securities
B.will likely lead to considerably higher distribution costs
C.will increase the shareholder’s total valuation
D.is the least expensive way to raise capital
13) Which of the following is not a recent trend in investment banking?
A.Consolidation of capital among a few investment bankers
B.Specialization of investment banking
C.The use of shelf registration by smaller investment bankers
D.The movement of non-brokerage firms into the brokerage area
14) From the banker’s point of view, short-term bank credit is an excellent way of
financing
A.fixed assets
B.permanent working capital needs
C.repayment of long-term debt
D.seasonal bulges in inventory and receivables
15) The par value on a preferred stock entitles the holder to
A.priority on all cumulative dividends
B.an established amount of money if the company is liquidated
C.a minimum amount of convertible common stock
D.None of these options
16) Which of the following is not true about debt financing and the weighted average
cost of capital?
A.Debt is usually the cheapest source of financing
B.As the level of debt increases beyond the optimum capital structure, the cost of
capital increases
C.No debt in the firm’s capital structure will minimize the firm’s weighted average cost
of capital
D.None of these options
17) Professor Merton Miller received the Nobel Prize in Economics for his work on
A.dividend policy
B.investment theory
C.working capital management
D.capital structure theory
18) If you were to put $1,000 in the bank at 6% interest each year for the next 10 years,
which table would you use to find the ending balance in your account?
A.Present value of $1
B.Future value of $1
C.Present value of an annuity of $1
D.Future value of an annuity of $1
19) Coase Corp. has 10,000,000 outstanding shares. There are 11 directors on the firm’s
board. The Becker family owns 2,300,000 shares of Coase Corp. How many directors
can the Becker family be assured of electing by themselves if Coase Corp. uses
majority voting?
A.Zero
B.One
C.Two
D.Three
20) The net present value method is considered to be a better method of evaluation than
the internal rate of return method because the NPV method
A.assumes cash flows are reinvested at the internal rate of return
B.is a more liberal method of analysis
C.assumes that cash flows can be reinvested at the firm’s more conservative cost of
capital
D.None of these options
21) If the actual February 28 A/R balance was $12,000 and projected sales in March are
$50,000, where 70% of sales are on credit, 60% of credit sales are collected in the
month of the sale, and 40% are collected in the month after the sale, what is the
projected A/R balance on the pro forma balance sheet for the end of March?
A.$26,000
B.$14,000
C.$20,000
D.$35,000
22) During inflation, replacement cost accounting will
A.increase the value of assets
B.lower the debt-to-asset ratio
C.reduce incomes
D.All of the options
23) MG Lighting had sales of 500 units at $100 per unit last year. The marketing
manager projects a 15 percent decrease in unit volume this year because a 10 percent
price increase is needed to pass rising costs through to customers. Returned
merchandise will represent 3.2 percent of total sales. What is your net dollar sales
projection for this year?
A.$26,976
B.$69,344
C.$72,800
D.None of the options
24) An S corporation
A.is similar to a partnership in that it carries unlimited liability
B.is a separate legal entity that is treated like a normal corporation
C.has all the organizational benefits of a corporation and its income is only taxed once
D.All of the options
25) Which of the following is an inducement for foreign investment in the United
States?
A.Shortage of land in foreign countries
B.Advanced technology
C.Large market size
D.All of these options
26) A financial executive devotes the most time to
A.long-range planning
B.capital budgeting
C.short-term financing
D.working capital management
27) A firm has targeted a 20% growth in sales this year. Last year’s cash as a percent of
sales was 10%, accounts receivable 30%, and inventory 25%. What percentage growth
in current liabilities is required to support the growth in sales under the percent-of-sales
forecasting method?
A.32%
B.13%
C.8%
D.Not enough information to determine
28) Which of the following is NOT a motive for selling by the stockholders of the
acquired company?
A.The opportunity to diversify
B.Gaining a tax advantage
C.An attractive price
D.Avoiding bias against smaller businesses
29) An example of a horizontal merger would be
A.Pepsi and Sears
B.McDonald’s and Pillsbury
C.Pepsi and Frito Lay
D.Coca-Cola and Dr Pepper
30) For a firm paying 5% for new debt, the higher the firm’s tax rate
A.the higher the after-tax cost of debt
B.the lower the after-tax cost of debt
C.the after-tax cost is unchanged
D.Not enough information to judge
31) Which of the following best represents a benefit of a rights offering?
A.Rights offerings increase return on equity
B.Rights offerings substantiate higher debt-to-equity ratios
C.Rights offerings have lower margin requirements
D.None of these options
32) The conversion ratio is the
A.price at which a convertible security is exchanged into common stock
B.ratio of conversion value to market value of a convertible security
C.number of shares of common stock into which the convertible may be converted
D.ratio of the conversion premium to market value of a convertible security
33) Projects that are negatively correlated
A.reduce the standard deviation of returns for the firm
B.increase the possible losses of the firm
C.are generally in the same industry
D.None of these options
34) Jacobs and Company has warrants outstanding, which are selling at a $2.50
premium above intrinsic value. Each warrant allows its owner to purchase one share of
common stock at $26. If the common stock currently sells for $30, what is the warrant
price?
A.$6.40
B.$6.75
C.$7.25
D.$6.50
35) Mirrlees Furniture earned $750,000 last year and had a 30% payout ratio. How
much did the firm add to its retained earnings?
A.$225,000
B.$525,000
C.There is not enough information to determine an answer
D.None of these options
36) All of the following are benefits of just-in-time inventory ordering systems except
that JIT
A.reduces warehouse space
B.saves utility and manpower costs
C.reduces inventory costs
D.prevents stock outs
37) With non-mutually exclusive projects,
A.the payback method will select the best project
B.the net present value is not acceptable
C.the internal rate of return method will always select the best project
D.the net present value and the internal rate of return methods will accept or reject the
same project
38) The Bubba Corp. had earnings before taxes of $400,000 and sales of $2,000,000. If
it is in the 40% tax bracket, its after-tax profit margin is
A.40%
B.12%
C.20%
D.25%
39) Assume that you had U.S. dollar quotes for the Japanese yen and the British pound.
If you want to know the yen/pound exchange rate, you would rely on
A.forward rates
B.cross rates
C.The Wall Street Journal
D.hedge ratios
40) The concept of time value of money is important to financial decision making
because
A.it emphasizes earning a return on invested capital
B.it recognizes that earning a return makes $1 worth more today than $1 received in the
future
C.it can be applied to future cash flows in order to compare different streams of income
D.All of these options
41) At higher tax rates, depreciation is
A.more beneficial
B.less beneficial
C.unaffected
D.None of these options
42) Mike Carlson will receive $12,000 a year from the end of the third year to the end
of the 12th year (10 payments). The discount rate is 10%. The present value today of
this deferred annuity is ______.
A.$61,450
B.$42,185
C.$55,379
D.$60,909
43) According to the law, dividends may be funded from
A.past earnings
B.current earnings
C.future earnings
D.past earnings and current earnings
44) Nonfinancial motives for mergers include
A.synergy
B.the portfolio effect
C.vertical integration
D.synergy and vertical integration
45) An increase of $100,000 in inventory would result in a(n)
A.Decrease of net cash flow
B.Increase in net cash flow
C.Decrease in marketable securities
D.Increase in bonds payable
46) Which of the following is not a true statement about commercial paper?
A.Finance paper is sold directly to the lender by the finance company
B.Finance paper is also referred to as direct paper
C.Dealer paper is sold directly to the lender by a finance company
D.Industrial companies, utility firms, or finance companies too small to sell direct paper
sell dealer paper instead
47) A firm has forecasted sales of $4,500 in April, $3,000 in May, and $5,000 in June.
All sales are on credit. 30% is collected in the month of the sale, and the remainder in
the following month. What will be the balance in accounts receivable at the beginning
of July?
A.$1,950
B.$6,500
C.$4,550
D.$3,500