If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000,
then net working capital is:
a. $100,000
b. $70,000
c. $50,000
d. $0
Treasury bills are:
a. issued on a premium basis and pay a fixed annual interest rate.
b. issued on a discount basis and mature at par.
c. issued on a premium basis and mature at par.
d. issued on a discount basis and pay a fixed annual interest rate.
e. none of the above
Financial statements that must be included in the annual report include all of the
following EXCEPT:
a. the income statement
b. the balance sheet
c. the statement of cash flows
d. the cash budget
e. all of the above must be included
RJR Nabisco recently experienced a market reevaluation due to a number of tobacco
lawsuits. The firm has a bond outstanding with 15 years to maturity, and a coupon rate
of 8%, with interest being paid semiannually. The required yield to maturity has risen to
16%. What is the price of the RJR Nabisco bond?
a. $1,000
b. $804
c. $767
d. $550
Which of the following statements is most correct?
a. The Dow Jones Industrial Average is market-value weighted.
b. The Dow Jones Industrial Average is a good benchmark by which to measure the
performance of investment managers.
c. The 500 stocks comprising the S&P 500 are the largest 500 firms.
d. Indexes exist for the bond market.
The Public Company Accounting Oversight Board (PCAOB) is
a. a not-for-profit corporation that oversees auditors of public corporations
b. a not-for-profit corporation that oversees managers of public corporations
c. a for-profit corporation that oversees auditors of public corporations
d. a not-for-profit corporation that oversees CEOs of public corporations
e. a for-profit corporation that oversees CEOs of public corporations
A wealthy inventor has decided to endow her favorite art museum by establishing funds
for an endowment which would provide $1,000,000 per year forever. She will fund the
endowment upon her fiftieth birthday 10 years from today. She plans to accumulate the
endowment by making annual end-of-year deposits into an account. The rate of interest
is expected to be 6 percent in all future periods. How much must the scientist deposit
each year to accumulate to the required amount?
a. $1,575,333
b. $736,000
c. $1,264,446
d. $943,396
The degree of financial leverage measures the sensitivity of __________ to changes in
__________.
a. net sales, EBIT
b. EBIT, net sales
c. EBIT, EPS
d. EPS, EBIT
The risk cause by changes in inflation that affect revenues, expenses and profitability is
called:
a. interest rate risk
b. business risk
c. purchasing power risk
d. financial risk
e. none of the above
Anders was given a gold coin originally purchased for $1 by his great-grandfather 50
years ago. Today the coin is worth $450. The rate of return realized on the sale of this
coin is approximately equal to
a. 8%
b. 13%
c. 50%
d. cannot be determined with the given information
The Federal Open Market committee:
a. establishes and administers protective consumer finance regulations
b. furnishes currencies
c. handles U.S. government debt and cash balances
d. all the above
e. none of the above
All of the following statements regarding capital structure weights in the WACC
equation are correct except:
a. The weights represent a specific intended financing mix.
b. These target weights represent a mix of debt and equity that the firm will try to
achieve or maintain over the planning horizon.
c. As much as possible, the target weights should reflect the combination of debt and
equity that management believes will minimize the firm’s weighted average cost of
capital.
d. The firm should make an effort over time to move toward and maintain its target
capital structure mix of debt and equity.
e. All of the above statements are correct.
A market whereby large institutional investors arrange purchases and sales of securities
among themselves without the benefit of a broker or dealer is referred to as the:
a. primary market
b. secondary market
c. third market
d. fourth market
11. Price inflation:
a. is relatively unimportant to individuals
b. is considered to be acceptable in the nation€s quest for high levels of employment
c. levels the playing field and encourages investment by reducing the uncertainty about
future returns
d. is almost always due to financing wars
e. none of the above
The level of investment in accounts receivable depends on:
a. credit analysis
b. credit terms
c. collection efforts
d. all the above
e. none of the above
A limit order, if not executed, will expire at the end of
a. the day.
b. the week.
c. the month.
d. all of the above are possibilities as the trader will decide the expiration date.
Which of the following statements is most correct?
a. The par value of a common stock or preferred stock is not important.
b. A convertible preferred stock gives the corporation the right to retire the preferred
stock at its option.
c. The U.S. security markets are the only public financial markets in which preferred
stock can be sold.
d. Similar to bonds, the fixed preferred stock dividend is a tax-deductible expense.
What would be the return on total assets of a firm if net income is $50,000, total sales
are $100,000, and total assets are $175,000?
a. 35%
b. 28.6%
c. 57.14%
d. not enough information available
The time between when the firm pays its suppliers and when it collects money from its
customers is known as the:
a. operating cycle
b. cash conversion cycle
c. accounts receivable period
d. none of the above
Which of the following features is characteristic of a payback period?
a. uses discounting
b. ignores cash flows beyond the payback period
c. equivalent to net present value
d. considers time value of money
Mutual funds are open-end investment companies that can issue an unlimited number of
shares to its investors and use the pooled proceeds to purchase corporate and
government securities.
Personal savings are savings accumulated on a regular schedule for a specified length of
time by prior agreement.
Higher levels of fixed costs result in lower levels of operating leverage.
Shareholder wealth is the market value of a firm’s common stock.
The term “Big Board” is another name for the NASDAQ market.