1) The conversion ratio can be obtained by dividing the par value of the convertible by
the conversion price.
2) For a risk-averse manager, required return would decrease for an increase in risk.
3) A bond issued by an American company that is denominated in Swiss Francs and
sold in Switzerland would be an example of a foreign bond.
4) If the NPV is greater than $0, a project should be accepted.
5) When computing the number of deposits needed to accumulate a future sum, it will
take longer if the interest rates are higher, holding the future value and deposit size
constant.
6) Net present value is considered a sophisticated capital budgeting technique since it
gives explicit consideration to the time value of money.
7) Combining uncorrelated assets can reduce risknot as effectively as combining
negatively correlated assets, but more effectively than combining positively correlated
assets.
8) The payback period of a project that costs $1,000 initially and promises after-tax
cash inflows of $2,000 each year for the next three years is 0.5 years.
9) The cost to maturity of existing bonds reflects the rate of return required by the
market.
10) Lower the coefficient of variation, the greater the risk and therefore the higher the
expected return.
11) A(n) ________ effectively raises the interest cost to the borrower on a line of credit.
A) operating-change restriction
B) annual cleanup
C) compensating balance
D) commitment fee
12) According to ________, investors’ demands for dividends fluctuate over time.
A) the catering theory
B) Modigliani and Miller theory
C) the residual theory of dividends
D) CAPM theory
13) A ________ option is an option to purchase a specified number of shares of a stock
on or before some future date at a specified price, whereas a ________ option is an
option to sell a specified number of shares of a stock on or before some future date at a
specified price. ________ are purchased if the stock price is expected to fall.
A) put; call; Puts
B) call; put; Puts
C) put; call; Calls
D) call; put; Calls
14) MACRS RATE
Under MACRS, an asset which originally cost $100,000 is being depreciated using a
10-year normal recovery period. The depreciation expense in year 11 is ________.
A) $3,000
B) $4,000
C) $0
D) $6,000
15) If an investor buys a 100-share call option for $300 with an exercise price of $30
and the underlying price per share of the stock at expiration is $32, what is the amount
of profit or loss, ignoring brokerage fees?
A) There would be a profit of $200
B) There would be a profit of $100
C) There would be a loss of $100
D) There would be a loss of $300
16) Tangshan Mining has 100,000 shares outstanding and just declared a 3-for-2 stock
split. Before the announcement, the firm’s shares were trading at $50.00 per share. After
the stock split, the firm’s shares should trade at ________ per share.
A) $33.33
B) $66.67
C) $75.00
D) $100.00
17) A firm has fixed operating costs of $253,750, a sales price per unit of $100, and a
variable cost per unit of $65. The firm’s operating breakeven point in dollars is
________.
A) $725,000
B) $700,000
C) $906,250
D) $390,385
18) The key dimension of credit selection which analyzes an applicant’s ability to repay
the requested credit focused on cash flows available is ________.
A) collateral
B) capital
C) conditions
D) capacity
19) In October, a firm had an ending cash balance of $35,000. In November, the firm
had a net cash flow of $40,000. The minimum cash balance required by the firm is
$25,000. At the end of November, the firm had ________.
A) an excess cash balance of $50,000
B) an excess cash balance of $75,000
C) required total financing of $15,000
D) required total financing of $5,000
20) Which of the following is a duty of a financial manager in a business firm?
A) developing marketing plans
B) controlling the stock price
C) raising financial resources
D) auditing financial records
21) A ________ is a professionally managed portfolio of marketable securities and is
sold in fractional parts.
A) negotiable certificate of deposit
B) repurchase agreement
C) money market mutual fund
D) commercial paper issue
22) What is the payback period for Tangshan Mining company’s new project if its initial
after-tax cost is $5,000,000 and it is expected to provide after-tax operating cash
inflows of $1,800,000 in year 1, $1,900,000 in year 2, $700,000 in year 3, and
$1,800,000 in year 4?
A) 4.33 years
B) 3.33 years
C) 2.33 years
D) 1.33 years
23) Which of the following is true of the accept-reject approach?
A) It involves ranking projects on the basis of some predetermined measure, such as the
rate of return
B) It cannot be used when the firm has limited funds
C) It can be used for making capital budgeting decisions when there is capital rationing
D) It can be used only for evaluating mutually exclusive projects
24) The ________ is a technique that divides inventory into three groups, according to
dollar investment.
A) JIT system
B) ABC system
C) EOQ model
D) LIFO model
25) Stated interest rate under ________ is adjusted periodically within stated limits in
response to changes in specified money market or capital market rates.
A) junk bonds
B) floating rate bonds
C) extendible notes
D) putable bonds
26) Table 4.1
True Sandpaper Co.
Balance Sheets
For the Years Ended 2014 and 2015
The firm ________ fixed assets worth ________. (See Table 4.1)
A) purchased; $0
B) purchased; $200
C) sold; $0
D) sold; $200
27) Financial leverage multiplier is the ratio of ________.
A) current assets to common stockholders’ equity
B) total assets to common stockholders’ equity
C) total assets to total debt
D) current assets to current liabilities
28) A loan that is usually a one-time loan made to a borrower who needs funds for a
specific purpose for a short period is called a ________.
A) term loan
B) bill of exchange
C) mortgage loan
D) single-payment note