1) The net present value, internal rate of return and payback period methods always
agree on which project would enhance shareholder wealth and which would diminish it.
2) Savings surplus occurs when all of an economic units income is not consumed, but
held in the form of cash and other financial assets.
3) The money multiplier indicates the maximum increase in deposits (and money
supply) that can result from a given increase in excess reserves.
4) A commercial finance company typically purchases the accounts receivable outright
and assumes all credit risks.
5) A factor engages in accounts receivable financing for business by taking accounts
receivable as collateral for making short-term loans.
6) At present, receipts of social insurance taxes received exceed payments made.
However, it is expected that this situation will be reversed within the next two years.
7) The interest coverage ratio indicates the ability of a firm to meet its contractual
obligations for interest, leases, and debt principal repayments out of its operating
income.
8) A loan amortization schedule shows the breakdown of each payment between interest
and principal, as well as the remaining balance after each payment.
9) If a corporation liquidates in bankruptcy, creditors may attach the personal assets of
the owners of the company.
10) Inventory loans are less expensive than unsecured loans to business borrowers.
11) The fiscal policy effects of a tax cut occur more slowly than an increase in
government spending.
12) A current ratio of 2.0 is desirable and it means that a firm has twice as many current
liabilities as current assets.
13) If the interest rate is zero, the future value interest factor equals ________.
a.-1.0
b.0.0
c.1.0
d.2.0
14) All of the following accounts are considered to be fixed assets on the balance sheet
except:
a.buildings
b.equipment
c.marketable securities
d.machinery
e.all of the above are fixed assets
15) Which one of the following asset accounts is not a part of a firms working capital?
a.cash and marketable securities
b.accounts receivable
c.inventories
d.fixed assets
16) Under required reserves of 20%, the maximum to which the money supply could be
expanded by the banking system is:
a.ten times a new primary deposit
b.fifteen times a new primary deposit
c.twenty times a new primary deposit
d.fifty times a new primary deposit
e. none of the above
17) The manager of the foreign exchange office of a multinational corporation could, in
anticipation of a decline in the value of currency of one of its foreign accounts:
a.borrow in that country and add to its account with that branch
b.accelerate the timing of remitting on the payables of that foreign branch
c.enter into a futures contract for delivery of that currency at todays rate
d.shift funds from branches in other countries to that foreign branch
18) In fall 2008, the U.S. Congress and President George W. Bush responded to the
financial crisis with the passage of the _____________ in early October of that year.
a.Economic Stimulus Act
b.Economic Recovery Act
c.Economic Expansion Act
d.Economic Booster Act
e.none of the above
19) The ratio between the present value of a projects cash inflows and the present value
of its initial investment is called the:
a.MIRR
b.IRR
c.PI
d.NPV
e.none of the above are correct
20) When determining the short-term operating cycle, which of the following
components reduce the length of the cycle?
a.increases in the inventory period
b.increases in the accounts receivable period
c.increases in the accounts payable period
d.all of the above
21) 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 fixed assets
b.excessive inventory
c.excessive accounts receivable
d.excessive debt
e.none of the above
22) All of the following components are needed to calculate the sustainable growth rate
except:
a.return on assets
b.retention rate
c.return on equity
d.all are needed
23) The ________ is the lowest rate of interest charged on business loans to the best
business borrowers by the nation’s leading banks.
a.prime rate
b.commercial paper rate
c.federal funds rate
d.treasury bill rate
e.none of the above
24) The financial statement that provides a snapshot view of the financial condition of a
business at a point in time is the:
a.balance sheet
b.income statement
c.statement of cash flows
d.statement of retained earnings
e.two of the above
25) The lowest quotation on foreign exchange is given for:
a.cable rates
b.bankers time drafts
c.bankers sight drafts
d.bankers acceptance
26) A promise of future payment issued by a firm guaranteed by a bank is called a (n)
a.bill of exchange
b.commercial letter of credit
c.bankers acceptance
d.documentary draft
27) If a firm has current earnings per share of $2 and a degree of operating leverage of
4, a 10% increase in sales would result in earnings per share of:
a.$2.80
b.$8
c.$2.20
d.cannot tell from this information
28) How much would you be willing to pay for a preferred stock that pays $6.50 to
perpetuity if the appropriate discount rate is 9%?
a.$65.00
b.$72.22
c.$81.25
d.$722.20
29) Which of the following statements is most correct?
a.a downward sloping yield curve implies that government securities with long-term
maturities have lower interest rates relative to similar quality securities with short-term
maturities
b.commercial paper is a primary source of short-term borrowing used by the U.S.
government
c.a decline in interest rates for long-term Treasury securities indicates an increase in
investor long-run inflation expectations
d.the establishment of the Federal Reserve System has caused the yield curve to always
be upward sloping
30) The exporters bank may offer considerable assistance to the exporter by:
a.accepting a bill of lading as security for a loan
b.arranging credit with the imports bank
c.allowing the exporter to borrow against the security of a documentary draft
d.issuing a letter of credit to the exporter
31) A firms sales forecast is usually based on
a.forecasts of external economic activity
b.the firms sales force estimates of demand
c.both internal and external factor estimates
d.accounts receivable experience
32) The cost of debt:
a.is typically higher than the cost of preferred stock
b.must be adjusted to an after-tax cost
c.is higher than the cost of retained earnings
d.is the lowest component cost because corporations can deduct 70 percent of the
interest expense
33) A (n) ________________ is an extra dividend declared by the firm over and above
its regular dividend payout.
a.special dividend
b.supplemental dividend
c.extra-large dividend
d.treasury dividend
e.none of the above
34) Unlike other corporations undertaking the capital budgeting process, ___________
need to consider possible added political and economic risks such as the possibility of
seizure of assets, unstable currencies, foreign exchange controls and foreign tax
regulations.
a.MOGs
b.INCs
c.SWOTs
d.LTDs
e.none of the above
35) The prudent use of derivatives to hedge, or reduce risk, is similar to the concept of
________________.
a.gambling
b.juggling
c.hiding
d.insurance
e. none of the above
36) The primary purpose of the liquidity ratios is to determine:
a.the extent to which borrowed funds are used to finance assets
b.the ability of the firm to meet short-term obligations to creditors
c.the extent to which assets are used to support sales
d.none of the above
37) A saver who chooses securities as a savings medium and desires maximum safety of
principal buys:
a.public utility stocks
b.corporate stocks
c.high-grade corporate bonds
d.government bonds
38) A business deposit in a commercial bank represents:
a.a liability of the bank and an asset to the business
b.an asset of the bank and a liability to the business
c.liability to the bank and capital to the business
d.liability to Joes and capital to the business
39) Examples of non-financial data required for project analysis include all of the
following except:
a.financing costs
b.quantity and quality of labor force in different locations
c.labor-management relations
d.status of technological change in the industry
e.all of the above are included
40) Which war led to no inflationary price movements?
a.The Revolutionary War
b.The War of 1812
c.The Civil War
d.World War I
41) Suppose Ningbo Steel had sales revenue of $10,000 sales revenue, cost of goods
sold of $5,000, operating expenses of $3000, interest expense of $1,000, a tax rate of
20%, and 1,000 shares of common stock outstanding. Based on this information, net
profit after tax was:
a.$1,500
b.$1,000
c.$500
d.$0
e.none of the above
42) A firm with a DOL of 2, and no preferred stock, and no long-term debt will have a
DCL of:
a.0
b.2
c.1
d.cannot tell from this information
43) Which of the following statements is most correct?
a.the U.S. stock market appears to be a fairly good example of a semi-strong form
efficient market
b.a market in which prices reflect all past and current publicly known information is a
strong form efficient market
c.a weak-form efficient market implies that technical analysis can be used to predict
future price movements
All of the above statements are correct
44) Purchasing commodities, securities, or bills of exchange in one market and
immediately selling them in another to make a profit from price differences in the two
markets is called:
a.profiteering
b.skimming
c.arbitrage
d.all of the above
45) The future value of an ordinary annuity of $5,000 invested at 8% in 5 years would
result in a value of:
a.$25,000
b.$7,345
c.$29,335
d.none of the above
46) In comparing the deviations of returns, which one of the following assets has
historically had the largest standard deviation of annual returns?
a.large company stocks
b.long-term corporate bonds
c.long-term government bonds
U.S. Treasury bills
47) If we assume that asset X has an expected return of 10 percent and a variance of 10
percent squared, then its coefficient of variation is:
a.3.162
b.1.000
c.0.316
d. none of the above
48) Business finance is concerned with:
a.financial planning
b.asset management
c.fund raising
d.all the above
e.none of the above
49) Nestle, IBM, and Coca-Cola are examples of:
a.U.S. corporations
b.corporations with mainly domestic revenues
c.stateless corporations
d.multinational corporations based in the U.S.
50) Index arbitrage refers to:
a.selling securities you dont own
b.buying and selling stocks with offsetting trades to lock in profits from price
differences between different markets
c.buying IPOs
d.all the above
e.none of the above
51) The future value of $100 received today and deposited at 6 percent for four years is
a.$126
b.$ 79
c.$124
d.$116
52) Which of the following factors is most correct?
a.Cost-push inflation traditionally exists during periods of economic expansion when
the demand for goods and services exceeds the available supply of such goods and
services
b.Speculative inflation occurs when prices are raised to cover rising production costs,
such as wages
c.Demand-pull inflation is caused by the expectation that prices will continue to rise,
resulting in increased buying to avoid even higher future prices
d.All of the above are correct
e. none of the above are correct