If a firm has a negative cash flow from assets every year for several years, the firm:
A. may be continually increasing in size.
B. must also have a negative cash flow from operations each year.
C. is operating at a high level of efficiency.
D. is repaying debt every year.
E. has annual net losses.
A risky security has less risk than the overall market. What must the beta of this
security be?
A. 0
B. > 0 but < 1
C. 1
D. > 1
E. The beta cannot be determined based on the information provided.
Which of the following costs will tend to increase if a firm switches to a restrictive
short-term financial policy from a flexible short-term policy?I. lost sales due to
out-of-stock itemsII. inventory warehousing costsIII. cash-outsIV. total annual order
costs
A. I and III only
B. II and IV only
C. I, III, and IV only
D. I, II, and IV only
E. I, II, III, and IV
Which two of the following determine when revenue is recorded on the financial
statements based on the recognition principle?I. Payment is collected for the sale of a
good or service.II. The earnings process is virtually complete.III. The value of a sale
can be reliably determined.IV. The product is physically delivered to the buyer.
A. I and II only
B. I and IV only
C. II and III only
D. II and IV only
E. I and III only
The static theory of capital structure assumes a firm:
A. maintains a constant debt-equity ratio.
B. has an all-equity structure.
C. is fixed in terms of its assets.
D. pays no taxes.
E. is operating at the point where financial distress costs are eliminated.
Which one of the following indicates that a project should be rejected?
A. Average accounting return that exceeds the requirement
B. Payback period that is shorter than the requirement period
C. Positive net present value
D. Profitability index less than 1.0
E. Internal rate of return that exceeds the required return
You are scheduled to receive $7,500 in three years. When you receive it, you will invest
it for eight more years at 7.5 percent per year. How much will you have in eleven years?
A. $13,376.08
B. $14,428.09
C. $15,110.24
D. $16,113.33
E. $16,617.07
Assume a firm has positive net earnings. The operating cash flow of this firm:
A. ignores both depreciation and taxes.
B. is unaffected by the depreciation expense.
C. must be negative.
D. increases when tax rates decrease.
E. is equal to net income minus depreciation.
Which one of the following combinations will always result in an increased dividend
yield?
A. Increase in the stock price combined with a lower dividend amount
B. Increase in the stock price combined with a higher dividend amount
C. Decrease in the stock price combined with a lower dividend amount
D. Decrease in the stock price combined with a higher dividend amount
E. Increase in the stock price combined with a constant dividend amount
Which one of the following could cause the total return on an investment to be a
negative rate?
A. Constant annual dividend amount
B. Increase in the annual dividend amount
C. Stock price that remains constant over the investment period
D. Stock price that declines over the investment period
E. Stock price that increases over the investment period
Which one of the following methods of analysis is most appropriate to use when two
investments are mutually exclusive?
A. Internal rate of return
B. Profitability index
C. Net present value
D. Modified internal rate of return
E. Average accounting return
Junos has projected its first quarter sales at $42,000 and its second quarter sales at
$45,000. The firms cost of goods sold is equal to 70 percent of the next quarters sales.
The accounts receivable period is 30 days and the accounts payable period is 45 days.
As of the beginning of the first quarter, the accounts receivable balance is $13,200 and
the accounts payable balance is $14,500. The firm pays $1,800 a month in cash
expenses and $100 a month in taxes. At the beginning of the first quarter, the cash
balance is $380 and the short-term loan balance is zero. The firm maintains a minimum
cash balance of $50. Assume each month has 30 days. What is the cumulative cash
surplus (deficit) at the end of the first quarter, prior to any short-term borrowing?
A. -$5,210
B. -$4,620
C. -$3,615
D. $7,880
E. $9,380
A 4-year annuity of eight $6,200 semiannual payments will begin 6 years from now,
with the first payment coming 6.5 years from now. If the discount rate is 7 percent
compounded semiannually, what is the value of this annuity 4 years from now?
A. $37,139.58
B. $38,399.20
C. $40,687.14
D. $41,811.67
E. $42,618.52
Which one of the following is the rate that most international banks charge when they
loan Eurodollars to other banks?
A. ADR
B. LIBOR
C. Cross-rate
D. Gilt rate
E. Swap rate
If intermediate-term, default-free, pure discount bonds have a higher rate of return than
either the comparable shorter-term or longer-term bonds, the term structure of interest
rates will be:
A. upward sloping.
B. flat.
C. humped.
D. downward sloping.
E. double-humped.
You have just agreed to a forward trade that will be settled six months from now. When
will the exchange rate for this transaction be determined?
A. Today
B. Three months from today because that is the halfway point
C. Anytime you prefer within the next six months
D. Whenever the spot rate six months from today is known
E. Six months from now
Scenario analysis:
A. determines the impact a $1 change in sales has on the internal rate of return.
B. determines which variable has the greatest impact on a projects net present value.
C. helps determine the reasonable range of expectations for a projects anticipated
outcome.
D. evaluates a projects net present value while sensitivity analysis evaluates a projects
internal rate of return.
E. determines the absolute worst and absolute best outcome that could ever occur.
Mikes Fish Market is implementing a project that will initially increase accounts
payable by $4,600, increase inventory by $4,800, and decrease accounts receivable by
$800. All net working capital will be recouped when the project terminates. What is the
cash flow related to the net working capital for the last year of the project?
A. -$2,000
B. -$400
C. -$600
D. $200
E. $2,000