1) The modified internal rate of return method assumes that inflows are reinvested at
80% of the internal rate of return.
2) Depreciation is important in calculating projected cash flows because it generates a
tax deduction.
3) Firms with an expectation for great potential tend to trade at low P/E ratios.
4) A lock-box system is a method of extending disbursements.
5) Short-term markets that comprise securities with maturities of less than one month
are referred to as money markets.
6) A primary goal of cash management is to insure that the inflows and outflows of cash
are synchronized.
7) A capital lease is the same as an operating lease.
8) The “ex-dividend date” will typically precede the “holder of record date.”
9) Lower ordering costs would tend to increase a firm’s economic order quantity.
10) Although the prime rate is the rate that U.S. banks charge their most credit-worthy
customers, the prime rate is normally higher than the London Interbank Offered Rate
(LIBOR).
11) A stock split involves a reduction in the firm’s retained earnings account.
12) Higher debt utilization ratios will always increase a firm’s return on equity given a
positive return on assets.
13) A joint venture with a private entrepreneur in a host country exposes the
multinational corporation to the least amount of political risk.
14) When interest rates rise, bond refunding becomes quite popular.
15) Firms with extra money should always repurchase their own stock, thus increasing
the value of the firm.
16) It is the difference in the reinvestment assumptions that can be significant in
determining when to use the net present value or internal rate of return methods.
17) Immediate access to capital markets allows greater risk-taking capability.
18) A contract giving the owner the right to buy or sell an asset at a fixed price for a
given period of time is
A.a common stock
B.an option
C.a futures contract
D.a capital investment
19) The ‘semi-strong” form of the efficient market hypothesis states that
A.pastprice data is unrelated to future prices
B.prices reflect all public information
C.all information both public and private is immediately reflected in stock prices
D.None of these options
20) Book value is the same as
A.stockholders’ equity
B.fixed assets minus long-term debt
C.net worth
D.current assets minus current debt
21) The Houston Corp. needs to raise money for an addition to its plant. It will issue
250,000 shares of new common stock. The new shares will be priced at $50 per share
with a 9% spread on the offer price. Additional registration costs will be $150,000.
Presently, Houston Corp. has earnings of $3 million and 700,000 shares outstanding.
a) Compute the potential dilution from this new stock issue.
b) Compute the net proceeds to Houston Corp.
c) What rate of return must be earned on the net proceeds of the new issue so that no
dilution of earnings per share occurs? You may ignore the effect of the costs of the new
issue on the numerator used in the earnings-per-share calculation by assuming it’s been
accrued already for purposes of the “before and after” calculation.
22) As exchange rates change, they
A.change the relative purchasing power between countries
B.can affect imports and exports between those two countries
C.will affect the flow of funds between the countries
D.All of these options are true
23) Disclosure requirements for a Eurobond are _____ demanding than those of the
Securities and Exchange Commission or other domestic regulatory agencies.
A.more
B.less
C.the same
D.More information is needed to determine an answer
24) A project requires an investment of $2,500 and has a net present value of $430. If
the IRR is 10%, what is the profitability index for the project?
A.0.25
B.2.33
C.0.70
D.1.17
25) A firm has beginning inventory of 400 units at a cost of $12 each. Production during
the period was 700 units at $13 each. If sales were 800 units, what is the value of the
ending inventory using LIFO?
A.$2,750
B.$3,600
C.$3,300
D.$3,850
26)
Refer to the figure above. The degree of operating leverage is _____.
A.1.40x
B.1.56x
C.3.33x
D.2.22x
27) Waldron Inc. is considering selling to a group of new customers that will bring in
credit sales of $24,000 with a return on sales of 5%. The only new investment will be in
accounts receivable. Waldron has a turnover ratio of 6 to 1 between sales and accounts
receivable. What is their expected return on investment?
A.30%
B.25%
C.5%
D.None of the options
28) Financial capital does not include
A.stocks
B.bonds
C.preferred stocks
D.working capital
29) Depreciation is a source of cash inflow because
A.it is a non-cash expense
B.it supplies cash for future asset purchases
C.it is a tax-deductible cash expense
D.it is a taxable expense
30)
Refer to the figure above. What is the firm’s average collection period?
A.29 days
B.25 days
C.14.4 days
D.20 days
31) If Turnpoint Inc. has net income of $400,000, assets of $5,000,000, sales of
$2,000,000, and debt of 2,000,000, what is their ROE?
A.Between 13-14%
B.Between 10-11%
C.Between 14-15%
D.None of the options
32) A Just-In-Time (JIT) inventory management program has all but which of the
following requirements?
A.Quality production
B.Large safety stocks
C.Close ties between suppliers, manufacturers, and customers
D.Minimizing inventory levels
33) When actual sales are greater than forecasted sales
A.inventory will decline
B.production schedules might have to be revised upward
C.accounts receivable will rise
D.All of the options
34)
Refer to the figure above. The degree of financial leverage is _____.
A.1.29x
B.4.20x
C.3.50x
D.1.18x
35)
Refer to the figure above. Fixed charge coverage for Marni Company is ____.
A.15x
B.7.5x
C.0.9x
D.4.6x
36) The net present value profile
A.doesn’t work if projects have a negative net present value
B.is a substitute for the IRR
C.graphically portrays the relationship between the discount rate and the net present
value
D.Two of the options
37) Which of the following is not commonly used to minimize transaction exposure in
foreign exchange dealings?
A.Hedging in the forward exchange market
B.Hedging in the money market
C.Hedging in the stock market
D.Hedging in the currency futures market
38) Two years ago, Maple Enterprises issued 4%, 20-year bonds, and Temple Corp
issued 4%, 10-year bonds. Since their time of issue, interest rates have increased.
Which of the following statements is true of each firm’s bond prices in the market,
assuming they have equal risk?
A.Maple’s decreased more than Temple’s
B.Temple’s decreased more than Maple’s
C.Maple’s increased more than Temple’s
D.They are both priced the same
39) A proxy is
A.a device for circumventing regular voting procedures
B.a coupon attached to each share of stock and used by the shareholder in casting his
vote on current issues
C.an authorization of a registered stockholder to another person to act in her place at the
meeting
D.a warrant allowing a stockholder to purchase a specified number of additional shares
at a given price
40) From Finance in Action – Global, we can correctly assume that
A.Japanese firms routinely employ high financial leverage
B.Japanese firms prefer a position of low operating leverage
C.Japanese firms tend to react aggressively to volume changes
D.Japanese firms routinely employ high financial leverage and tend to react
aggressively to volume changes
41) You will deposit $2,000 today. It will grow for six years at 10% interest
compounded semi-annually. You will then withdraw the funds annually over the next
four years at the end of each year. The annual interest rate is 8%. Your annual
withdrawal will be approximately ______.
A.$2,340
B.$4,332
C.$797
D.$1,085
42)
Refer to the figure above. The firm’s debt to assets ratio is ____.
A.58%
B.33%
C.25%
D.48%
43) The firm’s price-earnings (P/E) ratio is influenced by its
A.capitalstructure
B.earnings volatility
C.sales, profit margins, and earnings
D.All of the options