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1) Net fixed assets represent the difference between gross fixed assets and accumulated
depreciation of fixed assets.
2) Given a financial manager's preference for faster receipt of cash flows, a longer
depreciable life is preferred to a shorter one.
3) Financial leverage is concerned with the relationship between a firm's earnings after
interest and taxes and its common stock earnings per share.
4) Earnings per share represents amount earned during the period on each outstanding
share of common stock.
5) Net present value (NPV) assumes that intermediate cash inflows are reinvested at the
cost of capital, whereas internal rate of return (IRR) assumes that intermediate cash
inflows can be reinvested at a rate equal to the project's IRR.
6) ________ leverage measures the effect of fixed ________ costs on the relationship
between EBIT and EPS.
A) Operating; operating
B) Financial; financial
C) Operating; financial
D) Financial; operating
7) Which of the following would be used in the computation of an initial investment?
A) the annual after-tax inflow expected from the investment
B) the initial purchase price of the investment
C) the historic cost of the existing investment
D) the profits from the new investment
8) ________ results from the use of fixed-cost assets or funds to magnify returns to a
firm's owners.
A) Long-term debt
B) Equity
C) Leverage
D) Capital structure
9) The attempt by a nonmanagement group to gain control of the management of a firm
by soliciting a sufficient number of proxy votes is called a ________.
A) hostile takeover
B) bankruptcy proceeding
C) proxy battle
D) management buyout
10) A treasurer is commonly responsible for handling ________.
A) tax management
B) corporate accounting
C) investing surplus funds
D) cost accounting
11) Table 6.1
Assume the below information to answer the following question(s).
Based on the Table 6.1, assume this bond's face value is $1,000. What is the bond's
current market price?
A) $65.00
B) $655.00
C) $650.00
D) $6,550.00
12) Which of the following is true of a Eurodollar deposit?
A) Eurodollar deposits tend to provide yields below nearly all other marketable
securities with similar maturities due to their low risk
B) Eurodollar deposits are non-negotiable and pay interest only at maturity, hence the
yield is higher than on other marketable securities with similar maturities
C) Eurodollar deposits tend to provide yields above nearly all other marketable
securities with similar maturities due to the higher risk
D) Eurodollar deposits tend to provide higher yields above nearly all other marketable
securities with similar maturities due to the absence of an active secondary market
13) A firm with limited dollars available for capital expenditures is subject to
________.
A) capital dependency
B) capital gains
C) working capital constraints
D) capital rationing
14) Which of the following is true of a secondary market?
A) It is a market for an unlisted company to raise equity capital
B) It is a market where securities are issued through private placement
C) It is a market in which short-term money market instruments such as Treasury bills
are traded
D) It is a market in which preowned securities are traded
15) A corporation is considering expanding operations to meet growing demand. With
the capital expansion, the current accounts are expected to change. Management
expects cash to increase by $20,000, accounts receivable by $40,000, and inventories
by $60,000. At the same time accounts payable will increase by $50,000, accruals by
$10,000, and long-term debt by $100,000. The change in net working capital is
________.
A) an increase of $120,000
B) a decrease of $60,000
C) a decrease of $120,000
D) an increase of $60,000
16) The purpose of the restrictive debt covenant that requires that subsequent borrowing
be subordinated to the original loan is to ________.
A) maintain a minimum level of liquidity
B) limit the amount of fixed-payment obligations
C) ensure a long-run cash shortage does not cause an inability to meet current
obligations
D) protect the original lender in the priority of claims during liquidation
17) When warrants are exercised, ________.
A) only the number of common shares outstanding increases
B) debt is increased
C) both debt and equity are reduced
D) there is no effect on the firm's capital structure
18) A bond that is sold primarily in countries other than the country of the currency in
which the issue is denominated is called ________.
A) a sovereign bond
B) a foreign bond
C) a Eurobond
D) a double Dutch bond
19) The current yield on a bond is measured by ________.
A) the annual interest payment divided by the current price
B) the annual interest payment divided by the par value
C) the annual interest payment divided by the maturity value
D) the annual interest payment divided by the yield to maturity
20) Risk aversion is the behavior exhibited by managers who require ________.
A) an increase in return, for a given decrease in risk
B) an increase in return, for a given increase in risk
C) no changes in return, for a given increase in risk
D) decrease in return, for a given increase in risk
21) Which of the following is a source of cash flows?
A) increase in marketable securities
B) increase in accounts payable
C) decrease in notes payable
D) repurchase of stock
22) The decision to refund a callable bond ________.
A) should be made only if interest rates have increased
B) is a net working capital decision
C) is a capital budgeting decision
D) is an investing decision
23) Dorothy borrows $10,000 from the bank. For a four-year loan, the bank requires
annual end-of-year payments of $3,223.73. The annual interest rate on the loan is
________.
A) 9 percent
B) 10 percent
C) 11 percent
D) 12 percent
