1) The two basic types of risk associated with international cash flows are inflation and
foreign exchange risks and political risks.
2) A revolving credit agreement is a form of financing consisting of short-term,
unsecured promissory notes issued by firms with a high credit standing.
3) The three major cash flow components include the initial investment, nonoperating
cash flows, and terminal cash flow.
4) A firm’s credit selection is the process of determining the minimum requirements for
extending credit to a customer.
5) The reason for a difference in the yield between a Aaa corporate bond and an
otherwise identical Baa bond is the risk premium; other things being equal.
6) Credit selection involves application of techniques for determining which customers
should receive credit.
7) NAFTA is an international financial market that provides for borrowing and lending
currencies outside their country of origin.
8) In a 2-for-1 stock split, the number of shares outstanding decreases by fifty percent
and the stock’s per share par value will double.
9) The earnings per share of a merged firm are generally above the premerger earnings
per share of one firm and below the premerger earnings per share of the other, after
making the necessary adjustment for the ratio of exchange.
10) Credit analysts usually analyze an applicant’s creditworthiness by using the
dimensions of credit such as character, capacity, capital, collateral, and conditions.
11) The objective of capital rationing is to select the group of projects that provides the
quickest overall payback and does not require more dollars than are budgeted.
12) The simplest type of probability distribution is a ________.
A) bar chart
B) normal distribution
C) lognormal distribution
D) Poisson distribution
13) A terminal warehouse is ________.
A) a warehouse located beyond city limits for storing the merchandise
B) a warehouse on the borrower’s premises to store the merchandise
C) a central warehouse storing the merchandise of various customers
D) a warehouse located near the lender’s home for storing the merchandise
14) A financial merger is undertaken to ________.
A) increase profit margin to enhance the retained earnings of the merged firm
B) improve raw material sourcing and finished product distribution
C) increase market share, which is used to maximize shareholder wealth
D) increase cash flows to service the debt incurred to finance the merger
15) Common stockholders expect to earn a return by receiving ________.
A) semiannual interest
B) fixed periodic payments
C) dividends
D) annual interest
16) One type of simulation program made popular by the widespread use of personal
computers is called ________.
A) Monaco Simulation
B) Lemans Simulation
C) Cannes Simulation
D) Monte Carlo Simulation
17) A firm with a total asset turnover lower than industry standard may have ________.
A) excessive debt
B) excessive interest costs
C) insufficient sales
D) insufficient fixed assets
18) A firm with a gross profit margin which meets industry standard and a net profit
margin which is below industry standard must have excessive ________.
A) general and administrative expenses
B) cost of goods sold
C) dividend payments
D) principal payments
19) Marginal analysis states that financial decisions should be made and actions should
be taken only when ________.
A) marginal revenue equals marginal cost
B) benefits equal costs
C) added benefits exceed added costs
D) added benefits are greater than zero
20) A credit applicant’s ________ reflects his or her record of meeting past obligations.
A) condition
B) capacity
C) control
D) character
21) In the traditional approach to capital structure, as the amount of debt increases in a
firm’s capital structure, ________.
A) the cost of equity rises faster than the cost of debt
B) the cost of debt rises faster than the cost of equity
C) debt becomes less risky
D) equity cost is unaffected