1) A firm paying a stock dividend will experience a drop in its earnings per share but its
shareholders’ total claim on earnings will increase.
2) The term balance of payments refers to the flow of economic transactions between
the residents of one country and the residents of another.
3) During economic upswings, spreads between bonds of different ratings tend to
widen.
4) As tax rates on dividends have decreased, the preference for retention of earnings has
increased.
5) While a horizontal merger may improve profitability, it will not necessarily reduce
the portfolio risk of the acquiring company.
6) It is standard practice to evaluate investment decisions using the cost of the specific
financing method involved.
7) The primary purpose of the cash budget is to allow the firm to anticipate the need for
outside funding or excess funds to be invested.
8) “Cash flow” consists of illiquid cash equivalents that are difficult to convert to cash
within 90 days.
9) The expected future value of a currency is reflected in its spot rate.
10) Marketable securities are temporary investments of excess cash and are valued at
their original purchase price.
11) Yield curves change very little in the short run (three months).
12) The stock market tends to move up when inflation goes up.
13) In most capital budgeting decisions, the emphasis should be on reported earnings
rather than cash flows.
14) A foreign affiliate may be an exporter, a joint venture, or a fully owned foreign
subsidiary.
15) The constant dividend growth valuation formula is P0 = D1/(Ke – g).
16) The most common form of short-term financing is a bank loan.
17) If a single amount were put on deposit at a given interest rate and allowed to grow,
its future value could be determined by reference to a “future value of $1” table.
18) Modos Company has deposited $3,500 in checks received from customers. It has
written $1,400 in checks to its suppliers. The initial bank and book balance was $600. If
$1,600 of its customers’ checks have cleared, but only $600 of its own, calculate its
float.
A.$1,200
B.$1,100
C.$300
D.$700
19) The owner of a put has
A.the right and the obligation to buy an asset at a given price
B.the right and the obligation to sell an asset at a given price
C.the right but not the obligation to buy an asset at a given price
D.the right but not the obligation to sell an asset at a given price
20) Wiggles Right forecasted sales of $5,000 in October, $4,000 in November, and
$4,000 in December. All sales are on credit. 40% is collected in the month of the sale,
and the remainder in the following month. How much is collected from accounts
receivable in November?
A.$5,400
B.$4,800
C.$6,000
D.$4,600
21) Cooper Construction is considering purchasing new, technologically advanced
equipment. The equipment will cost $640,000 with a salvage value of $75,000 at the
end of its useful life of 10 years. The equipment is expected to generate additional
annual cash inflows with the following probabilities for the next 10 years:
a) What is the expected annual cash flow?
b) Cooper’s cost of capital is 10%. What is the expected net present value?
c) Should Cooper buy the equipment?
22) White knights
A.advise companies on ways to avoid being taken over
B.offer a higher purchase price and “friendlier offer” in the event of an unsolicited and
unfriendly takeover attempt
C.attempt to make money in the stock market on stocks that are likely merger
candidates
D.buy depressed stock of quality companies when merger talks are discontinued
23) Compensating balances
A.are used by banks as a substitute for charging service fees
B.are created by having a sweep account
C.generate returns to customers from interest-bearing accounts
D.are used to reward new accounts
24) The pre-tax cost of debt for a new issue of debt is determined by
A.the investor’s required rate of return on issued stock
B.the coupon rate of existing debt
C.the yield to maturity of outstanding or comparable bonds
D.All of these options
25) The North American Free Trade Association (NAFTA) continues to generate more
foreign trade despite some negative political views.
26) Which method of controlling pledged inventory provides the greatest degree of
security to the lender?
A.Blanket inventory liens
B.Overall inventory liens
C.Trust receipts
D.Warehousing
27) Capital budgeting is primarily concerned with
A.capital formation in the economy
B.planning future financing needs
C.evaluating investment alternatives
D.minimizing the cost of capital
28) Allen Lumber Company had earnings after taxes of $750,000 in the year 2009 with
300,000 shares outstanding on December 31, 2009 . On January 1, 2010, the firm issued
50,000 new shares. Because of the proceeds from these new shares and other operating
improvements, 2010 earnings after taxes were 25 percent higher than in 2009 . Earnings
per share for the year 2010 were
A.$2.14
B.$2.68
C.$3.13
D.None of the options
29) Which of the following is not a true statement about the goal of maximizing
shareholder wealth?
A.It takes into account the timing of cash-flows
B.It is a short-run point of view that takes risk into account
C.It considers risk as a factor
D.None of the options is a false statement
30) Inventory is usually divided into three basic categories except
A.projected sales
B.work in process
C.finished goods
D.raw materials
31) Generally, more use is made of short-term financing because
A.short-term interest rates are generally lower than long-term interest rates
B.most firms do not have basic access to the capital markets
C.short-term financing is usually more predictable than long-term financing
D.short-term interest rates are generally lower than long-term interest rates and most
firms do not have basic access to the capital markets
32) John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he
promised to repay the loan in 15 equal annual payments. What is the principal
outstanding after the first loan payment?
A.$143,555
B.$134,560
C.$141,200
D.None of these options
33) A corporate investor of preferred stock receiving a before-tax preferred yield of
8.5%, and having a corporate tax rate of 30%, would receive an after-tax preferred yield
of approximately _____. Assume the tax rate on dividends is 15%.
A.10.2%
B.7.7%
C.8.1%
D.9.3%
34) One advantage of level production is that
A.manpower and equipment are used efficiently at lower cost
B.current assets fluctuate more than with seasonal production
C.seasonal bulges and sharp declines in current assets occur
D.None of the options are advantageous
35) In the Eurobond market,
A.the interest rate is very high
B.the security is denominated in a currency that is different from that of the nation in
which the bonds are issued
C.the Swiss franc is the most important currency
D.disclosure requirements are very strict
36) In the percent-of-sales method, an increase in dividends
A.will increase required new funds
B.will decrease required new funds
C.has no effect on required new funds
D.More information is needed
37) Farah Snack Co. has earnings after taxes of $150,000. Interest expense for the year
was $20,000; preferred dividends paid were $20,000; and common dividends paid were
$30,000. Taxes were $22,500. The firm has 100,000 shares of common stock
outstanding. Earnings per share on the common stock was
A.$1.30
B.$1.10
C.$0.75
D.$0.80
38) Match the following with the items below:
1>Treasury notes
2>commercial paper
3>bankers’ acceptance
4>compensating balance
5>Eurodollars
6>automated clearing house
7>lockbox
8>Treasury bills
9>float
10>cost-benefit analysis
11>Dun & Bradstreet
12>certificates of deposit
A. The difference between the corporation’s recorded cash balance on its books and the
amount credited to the corporation by the bank.
B. Is offered by banks and savings and loans for the deposit of funds at a given interest
rate over a specified time period.
C. Intermediate term obligations of the federal government with maturities from one to
seven years.
D. A credit-rating agency that publishes information on over 40 million business
establishments.
E. Short-term obligations of the federal government with maturities up to one year.
F. A procedure used to expedite cash flows to a business having accounts receivable.
G. An unsecured promissory note issued by large corporations to investors.
H. A study of the positive and negative results that can be derived from a given course
of action.
I. A short-term security that arises from foreign trade.
J. U.S. dollars held on deposit by foreign banks and loaned out to anyone seeking
dollars.
K. Transfers information between one financial institution and another via computer
tape.
L. Banks typically require that this cash balance be held to indirectly pay for certain
bank services.
39) The major supplier of funds for investment in the whole economy is
A.businesses
B.households
C.government
D.financial institutions
40) Asset utilization ratios
A.relate balance sheet assets to income statement sales
B.measure how much cash is available for reinvestment into current assets
C.are most important to stockholders
D.measure the firm’s ability to generate a profit on sales
41) Which of the following represents an inflow in a bond refunding decision?
A.The call premium
B.The write-off of underwriting cost
C.The cost savings from lower interest rates
D.Two of the options
42)
Refer to the figure above. The degree of operating leverage (DOL) is _____.
A.1.62x
B.1.80x
C.3.50x
D.1.40x
43) In general, how often are floating rate bonds adjusted to meet the market demands?
A.Daily
B.Weekly
C.Quarterly
D.Annually
44) The purpose of cumulative voting is
A.to maintain majority control of the board of directors
B.to allow minority stockholders the possibility of a voice on the board of directors
C.to obstruct unfriendly mergers and takeover efforts
D.to prevent the dilution of common stock through preemptive rights offerings
45) The risk function of investment banking is categorized mainly under
A.underwriting function
B.market-maker function
C.advisor function
D.agent function
46) The Truth in Lending law is primarily designed to protect
A.corporate borrowers
B.banks
C.consumers
D.investors in municipal bonds
47) Firm X has declared a stock dividend that pays one share of stock for every five
shares owned. After the stock dividend, earnings per share will
A.remain the same
B.decline 20%
C.decline 5%
D.Not enough information is given to determine an answer
48) Which of the following securities represents an unsecured promissory note issued
by a corporation?
A.Certificates of deposit
B.Savings accounts
C.Commercial paper
D.Money market fund
49) Corporate governance is the
A.relationship and exercise of oversight by the board of directors of the company
B.relationship between the chief financial officer (CFO) and institutional investors
C.operation of a company by the chief executive officer (CEO) and other senior
executives on the management team
D.governance of the company by the board of directors with a focus on social
responsibility
50) All of the following are disadvantages of going public except for which one?
A.The firm may now more easily become active in mergers and acquisitions
B.The company must make more information available to the public through filings to
the SEC and the state
C.An erosion in value may take place after the initial offering
D.There is a high cost associated with going public