1) Increases in the cash conversion cycle will lower the firms short-term financing
needs.
2) The ratio of long-term debt to GDP for non-financial U.S. corporations declined
drastically during the late 1990s.
3) Years of budget surpluses during the Reagan and first Bush presidencies changed
into deficits under the Clinton presidency.
4) An amortized loan is repaid in equal payments over a specified time period.
5) Compound interest is interest earned on interest in addition to interest earned on the
principal.
6) The monetary base is the banking system reserves, plus currency held by the public.
7) The future value of a $100 annuity deposited for 10 years at 10% is $1,593.74.
8) The sustainable growth rate measures how quickly a firm can increase its asset base
over the next year without raising outside funds.
9) The prospectus is a contract outlining the duties, responsibilities and fees between
the issuing firm and its underwriter.
10) Economic risk is the risk associated with possible slow or negative economic
growth, as well as with the likelihood of variability.
11) Beta measures the variability of an assets returns relative to the market portfolio.
12) A line of credit is a legal obligation of the bank to provide funds up to the
agreed-upon borrowing limit for a period of time.
13) The choice of financing strategy involves a tradeoff between return and risk.
14) It will take approximately 18.8 years for a $100 deposit to result in a future value of
$600 if I can earn 10% on my deposit.
15) The present value of a $100 deposit in 10 years at 10% is $259.37.
16) On average and across countries, underpricing securities issues represents a
significant cost to firms that issue securities.
17) Many putable bonds possess a call deferment period which is a specified period of
time after the issue during which the bonds cannot be called.
18) Which of the following cycles is not a component of the firms short-term operating
cycle?
a.inventory cycle
b.accounts receivable cycle
c.accounts payable cycle
d.fixed asset cycle
19) Under conditions of interest rate parity (IRP), a country with a relatively _______
higher nominal interest rate will have its currency _______ relative to a country with a
relatively _______ nominal interest rate.
a.higher, depreciate, lower
b.lower, depreciate, higher
c.higher, appreciate, lower
d.lower, appreciate, higher.
20) The list of financial institutions that either failed or were merged with other firms or
bailed out by the federal government during financial crisis of 2007-2009 include all of
the following except:
a.Lehman Brothers
b.American International Group
c.Charles Schwab
d.Washington Mutual
e.All of the above firms failed, merged or were bailed out
21) Ningbo Steel had year end 2010 and 2011 retained earnings balances of $5,000,000
and $6,000,000 respectively. The firm paid $100,000 of dividends in 2011. Based on
this information, Ningbo Steels net profit after taxes in 2011 was:
a.$100,000
b.$900,000
c.$1,000,000
d.$1,100,000
e.none of the above
22) The financial crisis of 2007-2009 resulted from a number of negative economic and
financial trends including:
a.a decline in housing prices
b.a decline in stock prices
c.mortgage defaults
d.high debt levels
e.all of the above
23) Which of the following interest rates are not determined in the money market?
a.U.S. Treasury bill rate
b.prime rate
c.commercial paper rate
d.federal funds rate
e.all are determined in the money market
24) The short-term accumulation of financial assets on the part of business
corporations:
a.are held in short-term, safe, and liquid debt obligations
b.add to the level of long-term savings of the economy as a whole
c.do not enter the monetary stream to fund consumers, government, or other businesses
d.are held in the form of long-term obligations of the federal government
25) The rate of interest actually paid or earned, also called the annual percentage rate
(APR), is the ________ interest rate.
a.effective
b.nominal
c.discounted
d.continuous
26) Which of the following is not an advantage of shelf registration?
a.saving time on issuing securities
b.allows issuer to determine which investment bank offers the best service
c.eliminates filing fees
d.all the above
none of the above
27) Purchasers and sellers of futures are generally required to deposit an initial margin
in the range of ___________ with the exchanges clearinghouse to reduce credit risk.
a.3 to 6 percent
b.3 to 6 dollars
c.10 to 15 percent
d.10 to 15 dollars
e. none of the above
28) Paid-in-capital in excess of par represents:
a.the net proceeds from the original sale of stock
b.the proceeds from resale of treasury stock
c.the current market value of the stock
d.the current book value of the stock
e.none of the above
29) Which of the following statements is most correct?
a.Speculative grade bonds have ratings of Baa or higher and meet financial institution
(banks, pension funds, insurance companies, etc.) investment standards
b.Investment grade bonds have ratings of Daa or higher and meet financial institution
(banks, pension funds, insurance companies, etc.) investment standards
c.Speculative grade bonds have ratings of Caa or lower and meet financial institution
(banks, pension funds, insurance companies, etc.) investment standards
d.Investment grade bonds have ratings of Aaa or higher and meet financial institution
(banks, pension funds, insurance companies, etc.) investment standards
e. none of the above
30) Positive NPV projects may originate from cost saving projects such as those that
a.reduce economies of scale
b.create product differentiation
c.reduce absolute cost advantages
d.fail to exploit advantages in distribution channels
e.none of the above statements are correct
31) The Small Business Administration:
a.lends exclusively to small business investment companies that in turn lend to small
businesses
b.makes only working capital loans
c.lends to businesses with reasonable prospects of repayment but which cannot obtain
credit through private channels
d.none of the above
32) Using the DuPont system of analysis and holding other factors constant, an increase
in financial leverage will result in ________ in the return on equity.
a.an increase
b.a decrease
c.no change
d.an undetermined change
33) The risk cause by variations in interest expense unrelated to sales or operating
income arising from changes in the level of interest rates in the economy is called:
a.financial risk
b.business risk
c.tax risk
d. purchasing power risk
e. none of the above
34) Paper money popularly called greenbacks was issued by the U.S. government to
help finance which of the following wars?
a.Civil War
b.World War I
c.Revolutionary War
d.Spanish-American War
35) Estimates of using up plant and equipment for business purposes are called
a.accelerated depreciation estimates
b.gross capital formations
c.capital consumption adjustments
d.none of the above
36) Under ___________________ a factor pays the firm for its receivables before the
account due date.
a.reverse factoring
b.maturity factoring
c.advance factoring
d.nonrecourse factoring
37) If a firms inventories on hand are $200,000, its cost of goods sold is $600,000, and
its sales are $800,000, what is the inventory turnover using cost of goods sold?
a.2 times
b.3 times
c.4 times
d.5 times
38) Which of the following costs must be adjusted to an after-tax cost?
a.cost of debt
b.cost of preferred stock
c.cost of common stock
cost of retained earnings
39) The liquidity preference theory holds that interest rates are determined by the:
a.supply of and demand for money
b.supply of and demand for loanable funds
c.flow of funds over time
d.flow of bank credit over time
40) If the interest rate is equal to 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
41) Given the conflict between risk and return, the purpose of capital structure
management is to find the debt level:
a.that will always be kept below the equity level
b.where the price of company stock is maximized
c.that most adequately supports corporate goals
d.that is equal in dollar value to the equity level
42) Generally accepted accounting principles are formulated by the:
a.Securities and Exchange Commission
b.Financial Accounting Standards Board
c.Federal Trade Commission
d.General Accounting Office
43) Assume a firm is developing, manufacturing, and selling a basic software package
at $500 per copy. Raw materials and direct labor total $200 per copy. Fixed costs are
$250,000. If the firm sells 5,000 units per year, what will be the operating profit?
a.$1,250,000
b.$1,500,000
c.$2,250,000
d.$2,500,000
44) The risk-free interest rate is composed of:
a.an inflation premium and a default risk premium
b.a default risk premium and a maturity risk premium
c.a real rate of interest and a liquidity premium
d.a real rate of interest and an inflation premium
45) Commercial banks lend unsecured short-term funds in the following three basic
ways:
a.Commercial paper, lines of credit, and revolving credit agreements
b.Single-payment note, revolving credit agreements, and commercial paper
c.Single-payment note, lines of credit, and revolving credit agreements
d.Commercial paper, lines of credit, and revolving credit agreements
e.none of the above
46) If Stock A is considered to be of average risk for the market and Stock B is also
considered of average risk for the market, then the
a.standard deviation for each of the stocks will be equal
b.beta for each of the stocks will be equal
c.coefficient of variation for each of the stocks will be equal
d.cannot determine from the information given
47) If we will receive $100 per year beginning one year from now for a period of three
years with a 12% discount rate, what would be the value of our investment today?
a.$230
b.$240
c.$250
d.$260
48) Sound capital budgeting decisions require a variety of information including
internal financial data, external economic and political data, and non-financial data.
49) Which of the following is the most liquid form of savings?
a.cash balances
b.time deposits
c.insurance reserves
d.securities
50) Information about which accounting principles were used by the firm are included
in the:
a.balance sheet
b.footnotes
c.management discussion on annual report
d.none of the above
51) The Export-Import Bank:
a.makes loans and offers guarantees to foreign exporters to the United States
b.may offer emergency credits to assist other countries to maintain their level of exports
to the United States
c.makes loans or offers guarantees when the soundness of the transaction is in doubt
d.makes loans to domestic exporters to encourage foreign trade
e.none of the above
52) Only one of the following features is characteristic of a payback period. Identify
this feature.
a.uses discounting
b.ignores cash flows beyond the payback period
c.equivalent to net present value
d.considers time value of money
53) Computation of a firms market value added (MVA) includes all of the components
EXCEPT:
a.market value of equity
b.market value of debt
c.book value of equity
d.book value of debt
e. all of the above are included
54) In general, the less net working capital a company has
a.the greater the risk
b.the lower the risk
c.the less likely creditors will lend to the firm
d.none of the above
55) If a firm has a receivables turnover of 12, on average, which of the following would
be the firms average collection period?
a.12 months
b.1 month
c.8.67
d.not enough information given