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1) Financial assets include ownership of land, buildings, machinery, inventory,
commodities, and precious metals.
2) In an efficient market, expected and unexpected news should cause stock prices to
move up or down.
3) Local governments depend heavily on property taxes for their revenues, while state
governments depend largely on sales taxes and special taxes, such as those on tobacco
products.
4) Activities that decrease the cash conversion cycle will increase the firms need to
obtain financing.
5) A flexible exchange rate system in which currency exchange rates are determined by
supply and demand has been in place since 1973.
6) The Sarbanes-Oxley Act of 2002 was passed by the U.S. Congress in response
several accounting scandals.
7) The operating cycle can be reduced by lengthening the accounts payable period.
8) Inflation occurs when an increase in the price of goods or services is more than offset
by an increase in quality.
9) Accounting is primarily concerned with matching revenues and expenses while
finance focuses on identifying cash inflows and outflows.
10) Corporate saving for short-term working capital purposes is the most important
reason for businesses accumulating financial assets.
11) Transfer payments are income payments for which no current productive service is
rendered.
12) High inflation has been a significant problem in the United States during the past
decade.
13) A financial manager should strive to maximize the investment in current assets.
14) Holding demand constant, an increase in the supply of loanable funds will result in
an increase in interest rates.
15) Direct benefit payments for individuals amount to over half of total expenditures of
the federal government.
16) The relevant measure of risk for a diversified portfolio of assets is the portfolios
level of:
a.systematic risk
b.unsystematic risk
c.diversifiable risk
d. company specific risk
17) The initial impact of increasing the use of debt is to:
a.lower the cost of capital
b.lower the weight of the debt component
c.increase the cost of capital
d.lower the cost of retained earnings
18) All of the following statements are correct EXCEPT:
a.Capital budgeting analysis is a framework for evaluating all business decisions; it is
not only a tool for the financial types
b.Proper analysis will identify relevant cash flows and an appropriate discount rate to
reflect the risk of the strategy and will compare the benefits and costs of the project by
considering the time value of money
c.Whether the investment is one in a business strategy, building a new warehouse,
seeking fuel efficient methods of doing business, upgrading information technology
systems, or investing in human resources, we should not try to quantify the benefits and
cost of these choices in order to evaluate them properly
d.To achieve success over time, a firms managers must identify and invest in projects
that provide positive net present values to maximize shareholder wealth
e.all of the above statements are correct
19) Inflation caused by an increase in the money supply is called:
a.demand-pull inflation
b.cost-push inflation
c.administrative inflation
d.a combination of administrative and speculative inflation
20) Which of the following statements is most correct?
a.Capital formation was $1.6 trillion in 2009 up from $2.2 billion for 2006 largely due
to the steep rise in home prices; in addition, the change in private inventories for 2009
was -$125 billion reflecting the severity of the financial crisis of 2007-09
b.Capital formation was $1.6 billion in 2009 down from $2.2 trillion for 2006 largely
due to the steep decline in home prices; in addition, the change in private inventories
for 2009 was +$125 billion reflecting the severity of the financial crisis of 2007-09
c.Capital formation was $1.6 trillion in 2009 up from $2.2 trillion for 1993 largely due
to the steep decline in home prices; in addition, the change in private inventories for
2009 was -$125 thousand reflecting the severity of the financial crisis of 2007-09
d.Capital formation was $1.6 million in 2009 down from $2.2 million for 2006 largely
due to the steep decline in home prices; in addition, the change in private inventories
for 2009 was -$125 million reflecting the severity of the financial crisis of 2007-09
e.none of the above.
21) Which of the following are included in an annual report?
a.balance sheet
b.income statement
c.statement of cash flows
d.all of the above
e.none of the above
22) The study of how growth-driven, performance-focused, early stage firms raise
financial capital and manage operations and assets is called:
a.entrepreneurial finance
b.personal finance
c.finance
d.financial management
23) All of the following accounts are considered to be current assets on the balance
sheet except:
a.cash
b.short-term investments or marketable securities
c.accounts receivable
d.inventory
e.all of the above are current assets
24) Which of the following is not a rating category used when rating bonds?
a.AAA
b.BBB
c.B
d.D
e.F
25) Career opportunities in finance involving both treasury and control functions are
generally associated with:
a.business financial management
b.financial intermediaries
c.securities markets
d.government organizations
26) A firm with a total asset turnover lower than the industry standard and a current
ratio which meets the industry standard may have
a.excessive current assets
b.excessive inventory
c.excessive accounts receivable
d.excessive debt
e.none of the above
27) Mary wants to purchase a 20-year bond that has a par value of $1,000 and makes
semiannual interest payments of $40. If her required yield to maturity is 10%, how
much should Mary be willing to pay for the bond?
a.$902
b.$925
c.$1000
d.none of the above
28) If a firm actually sells its accounts receivable, the process is known as:
a.wholesale financing
b.floor planning
c.field crediting
d.factoring
29) Which of the following is not considered to be one of the three major forms of
business ownership in the United States?
a.proprietorship
b.partnership
c.public limited company
d.corporation
30) Sacramento Sandals (SS) has fixed annual operating costs of $75,000. SS retails
each pair of sandals for $14.99 each and the variable cost per pair is $4.99. Based on
this information, the breakeven sales level in dollars is
a.$125,495
b.$112,425
c.$108,995
d.none of the above
31) Checks:
a.are orders to depository institutions to transfer money to the party who received the
check
b.may be safely sent in the mail
c.provide a record of payment
d.all of the above
e.none of the above
32) Which of the following statements is most correct?
a.The Export-Import Bank is a United States government-sponsored institution which is
owned by member banks that deal in financing foreign trade
b.Foreign exchange markets can be characterized most properly as a communication
network among many financial institutions than as an identifiable geographic location
c.When a financial institution with accounts abroad sells claims against those accounts,
it must replenish those accounts by borrowing abroad or shipping currency
d.The bankers sight draft is the most expensive way to purchase a claim to foreign
exchange
33) Between 1928 and 2008, the average annual return on Treasury Bills averaged
_____%, while the average annual inflation rate averaged _____%.
a.5.4, 3.8
b.3.8, 3.2
c.3.8, 5.4
d. none of the above
34) With independent projects, NPV and IRR provide identical accept/reject decisions.
If, however, you have two mutually exclusive projects to evaluate, the most accurate
thing you could say about the eventual results is that:
a.NPV and IRR may give conflicting results
b.NPV and IRR never give the same result
c.NPV and IRR always give the same result
d.IRR is more lenient in accepting
35) All of the following statements are correct except:
a.The pecking order hypothesis is a theory that states managers prefer to use new debt
to finance the firm, then retained earnings, and (as a final resort) new equity
b.The market timing hypothesis states that firms try to time the equity market by issuing
stock when their stock prices are low and repurchasing shares when stock values are
high
c.The static tradeoff hypothesis states that firms will balance the advantages of equity
(its lower cost and tax-deductibility of interest) with its disadvantages (greater
possibility of bankruptcy and the value of explicit and implicit bankruptcy costs)
d.Agency costs increase the optimal level of debt financing for a firm above the level
that would be appropriate if agency costs were zero
e.None of the above statements are correct
36) ___________________ is a highly regulated document which details the issuers
operations and finances and must be provided to each buyer of a newly issued security.
a.A prospectus
b.An underwriting agreement
c.A best efforts agreement
d.none of the above
37) Maximum diversification benefit can be achieved if one were to form a portfolio of
two stocks whose returns had a correlation coefficient of:
a.-1.0
b.+1.0
c.0.0
d. none of the above
38) The statement of retained earnings includes all of the following accounts within the
statement except:
a.interest expense
b.net profits after taxes
c.preferred stock dividends
d.common stock dividends
e.all of the above are included
39) Ratios used to compare different firms at the same point in time belong to a
category of analysis called:
a.time series analysis
b.cross-sectional analysis
c.industry comparative analysis
d.just-in-time analysis
40) Which one the following four basic economic units consistently represents a
savings surplus unit?
a.foreigners
b.business firms
c.financial intermediaries
d.governments
e.none of the above
41) When solving for the future value of an amount deposited now, which one of the
following factors would not be an input?
a.present value amount
b.1 plus the interest rate
c.1 divided by the sum of 1 plus the interest rate
d.number of periods to compound over
42) All else the same, a trade deficit:
a.increases GDP
b.decreases GDP
c.have no impact on GDP
d.two of the above
e.not enough information to tell
43) If the quarterly rate of interest is 2.5% and interest is compounded quarterly, then
the EAR is:
a.10.38%
b.10.00%
c.2.50%
d.none of the above
44) The two themes woven throughout this text include topics relating to
________________________________
a.personal and corporate financial planning
b.corporate finance and small business practice
c.marginal cost and marginal benefit
d.small business practice and personal financial planning
45) The notes receivable of a firm may be:
a.loans to other businesses
b.loans to employees
c.loans to the CEO
d.all of the above
46) Which of the following statements is most correct?
a.An efficient portfolio maximizes return for a given level of risk, or minimizes risk for
a given level of return
b.A collection of assets is called a portfolio
c.The goal of an efficient portfolio is to minimize risk for a given level of return
d. Combining negatively correlated assets having the same expected return results in a
portfolio with the same level of expected return and a lower level of risk
e. all of the above
47) Which of the following statements is most correct?
a.All component costs in a firms weighted average cost of capital must reflect after-tax
costs, but the only component that requires an adjustment for taxes is the cost of new
common stock
b.An increase in the corporate tax rate would lower the weighted average cost of capital
for the firm, other things held constant
c.The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon
rate on outstanding debt
d.All the above statements are equally true
48) Which of the following might be a characteristic of a field warehouse?
a.it serves a single customer
b.it exists only until the loan is repaid
c.a lease on that portion of the property which is to be used for warehousing purposes
must be obtained
d.all the above
e.none of the above
