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1) The cost of capital is a static concept and it is not affected by economic and
firm-specific factors such as business risk and financial risk.
2) The accountant of a firm evaluates financial statements, develops additional data, and
makes decisions based on his or her assessment of the associated returns and risks.
3) Future value increases with increases in the interest rate or the period of time funds
are left on deposit.
4) A lockbox system is used to reduce collection float by shortening all three basic float
components (i.e., mail, processing, and clearing).
5) Dividends are the only means by which firms can distribute cash to shareholders.
6) Lines of credit are non-guaranteed loans that specify the maximum amount that a
firm can owe the bank at any point in time.
7) FASB No. 52 requires U.S. multinationals to first convert the financial statement
accounts of foreign subsidiaries into their functional currency and then to translate the
accounts into the parent firm's currency using the all-current-rate method.
8) A firm has arranged for a lockbox system to reduce collection time of accounts
receivable. Currently the firm has an average collection period of 43 days, an average
age of inventory of 50 days, and an average payment period of 10 days. The lockbox
system will reduce the average collection period by 3 days by reducing processing,
mail, and clearing float. The firm's cash conversion cycle ________.
A) increases by 3 days
B) decreases by 3 days
C) increases by 6 days
D) decreases by 6 days
9) The objective for managing inventory is to ________.
A) turn over inventory as quickly as possible without losing sales from stockouts
B) improve the average collection period without affecting the sales
C) make payment for the inventory as slowly as possible without losing suppliers
D) reduce the time taken to process inventory into finished goods and increase sales
10) The average tax rate of a corporation with ordinary income of $105,000 and a tax
liability of $24,200 is ________.
A) 46 percent
B) 23 percent
C) 34 percent
D) 15 percent
11) In planning and managing the requirements of a firm, the financial manager is
concerned with ________.
A) the mix and type of assets, but not the type of financing utilized
B) the type of financing utilized, but not the mix and type of assets
C) the acquisition of fixed assets, allowing someone else to plan the level of current
assets required, and the market value of the share
D) the mix and type of assets, the type of financing utilized, and analysis in order to
monitor the financial condition
12) The combination of a dress manufacturer and a credit bureau is an example of
________.
A) congeneric merger
B) conglomerate merger
C) horizontal merger
D) vertical merger
13) ________ is the potential use of fixed operating costs to magnify the effects of
changes in sales on earnings before interest and taxes.
A) Financial leverage
B) Operating leverage
C) Operating budget
D) Ratio analysis
14) Alexis owns stock in a company which has consistently paid a growing dividend
over the last 10 years. The first year Alexis owned the stock, she received $4.50 per
share and in the 10th year, she received $4.92 per share. What is the growth rate of the
dividends over the last 10 years?
A) 15 percent
B) 14.8 percent
C) 12.2 percent
D) 9.3 percent
15) A ski chalet at Peak n' Peak now costs $250,000. Inflation is expected to cause this
price to increase at 5 percent per year over the next 10 years before Chris and Julie
retire from successful investment banking careers. How large an equal annual
end-of-year deposit must be made into an account paying an annual rate of interest of
13 percent in order to buy the ski chalet upon retirement?
A) $ 8,333
B) $13,572
C) $25,005
D) $22,109
16) For the year ended December 31, 2014, a corporation had cash flow from operating
activities of -$10,000, cash flow from investment activities of $4,000, and cash flow
from financing activities of $9,000. The statement of cash flows would show a
________.
A) net decrease of $3,000 in cash and marketable securities
B) net decrease of $5,000 in cash and marketable securities
C) net increase of $3,000 in cash and marketable securities
D) net increase of $5,000 in cash and marketable securities
17) Generally, increases in leverage result in ________ return and ________ risk.
A) decreased; increased
B) decreased; decreased
C) increased; increased
D) increased; decreased
18) Bamboo manufacturing sells its finished product for an average of $35 per unit with
a variable cost per unit of $21. The company has fixed operating costs of $1,050,000.
(a)Calculate the firm's operating breakeven point in units.
(b)Calculate the firm's operating breakeven point in dollars.
(c)Using 100,000 units as a base, what is the firm's degree of operating leverage?
