The lower the rate of interest, the smaller is
a. the economic order quantity
b. the number of units sold
c. the cost of carrying inventory
d. the safety stock
Money market mutual funds invest in
a. corporate bonds
b. corporate stock
c. federal government Treasury bills
d. federal government Treasury bonds
Common features of preferred stock include
a. variable, cumulative dividends
b. variable, non-cumulative dividends
c. fixed, non-cumulative dividends
d. fixed, cumulative dividends
The Federal Reserve
a. is part of the U.S. Treasury
b. establishes the target federal funds rate
c. is the nation’s largest commercial bank
d. lends funds to corporations
If an investment’s net present value is negative,
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. 1, 2, and 3
Which of the following are true concerning dividend reinvestment plans?
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. 1, 2, and 3
If a financial manager must sell a product in the future that is currently being
manufactured, that individual may reduce the risk of loss from a price decline by
a. 1 and 3
b. 1 and 4
c. 2 and 3
d. 2 and 4
A firm with sales of $1000 has the following balance sheet.
If the firm earns 10 percent after taxes on sales and pays no dividends,
a. Determine the entries for a new balance sheet for sales of $1,500 using the percent of
sales.
b. Will the firm need external financing?
c. Construct a new balance sheet using the estimates obtained in a. If necessary, issue
new stock to cover any external financing needs. If the firm has excess funds, retire the
accounts payable.
An origination fee
a. increases the yield on a loan to the bank
b. increases the amount of money the firm may borrow
c. reduces the cost of a loan to the borrower
d. increases the discount on commercial paper
The Securities and Exchange Commission regulates
a. trading in publicly held securities
b. trading in privately held securities
c. the margin requirement
d. the amount a stock’s price may change
The current ratio excludes
a. accrued interest
b. inventory
c. cash equivalents
d. retained earnings
If the dividend growth model is used, the cost of equity depends on
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. 1, 2, and 3
An investment banker is not a financial intermediary because
a. it does not transfer money from investors to firms
b. it does not create claims on itself
c. it does facilitate the transfer of funds
d. it creates claims on itself
Treasury bills are
a. long-term securities issued by the federal government
b. short-term securities issued by the federal government
c. long-term securities issued by money market mutual funds
d. short-term securities issued by money market mutual funds
The Federal Reserve increases reserves by
a. selling securities
b. buying securities
c. raising reserve requirements
d. raising the discount rate
A repurchase agreement occurs when a firm sells a Treasury bill and agrees to buy it
back at a lower price.
The value of shares in bond funds tend to rise with an increase in interest rates.
Regression analysis as a forecasting tool is less restrictive than the percent of sales.
Which of the following $1,000 investments would the payback method select?
Reserve requirements are infrequently changed to affect commercial bank lending.
An increase in an investment’s cash inflows that is not the result of an increase in
earnings has no effect on the net present value of an investment.
The yield curve relates risk and interest rates.
Since not all new credit sales will be collected, that implies the firm should not grant
credit.
An increase in the required return will tend to increase the value of a stock.
If an individual owns a portfolio of common stocks and wants to hedge the portfolio,
that investor may sell a stock index call option.
The straight-line total revenue function suggests the firm may sell additional output
without having to lower the price of the product.
A stock dividend has no impact on a firm’s liabilities or the price of its stock.
The net present value of an investment is independent of the firm’s cost of capital.
The DuPont system combines liquidity and earnings.
Depreciation is excluded from the cash budget.
The internal rate of return assumes that cash inflows are reinvested at the firm’s cost of
capital.
An increase in accounts receivable increases profitability because the receivables are a
source of funds.
When the Federal Reserve buys securities, the reserves of banks are increased.
A long position in a futures contract can be canceled by selling a futures contract (i.e., a
contract to make delivery).