1) Slow economic growth in investments in another country would be an example of
political risk.
2) The stand-alone principle focuses on the projects own cash flows, uncontaminated by
cash flows from the firms other activities.
3) Short-term financing sources include bank loans, trade credit, and commercial paper.
4) A Dutch auction is an offering process in which investors bid on the price and
quantity of securities they wish to purchase.
5) To compute the effective cost of a revolving agreement, the joint effect of interest on
borrowed funds and commitment fees must be considered.
6) U.S. economic policy actions are directed toward the four general goals of economic
growth, high employment, price stability, and balance in international transactions.
7) Private placements must be approved by the Securities and Exchange Commission
(SEC).
8) The fixed charge coverage ratio is a stricter measure of a firms ability to meet its
fixed payment obligations than the interest coverage ratio.
9) An inverted yield curve is upward sloping.
10) Financial assets include claims in the form of obligations or liabilities issued by
individuals, businesses, financial intermediaries, and governments.
11) The existence of chartists or technicians suggests that some investors believe that
markets are not weak form efficient.
12) The degree of financial leverage measures the sensitivity of earnings per share to
sales.
13) An aggressive financing plan has a higher financing cost, but with lower risk of not
being able to borrow when short-term funds are needed.
14) Underpricing represents the difference between the aftermarket par value and the
offering price.
15) An instrument through which a bank retains title to goods until they are paid for is
called a (n)
a.bill of exchange
b.commercial letter of credit
c.trust receipt
d.documentary draft
16) The capital budgeting process consists of all of the following stages except:
a.follow-up
b.selection
c.refurbishing
d.development
e.all of the above are included
17) All of the following statements are correct except:
a.The internal growth rate measures how quickly a firm can increase its asset base over
the next year without raising outside funds
b.The retention rate represents the proportion of every $1 of earnings per share that is
retained by the firm; in other words, it is equal to one minus the dividend payout ratio
c.The sustainable growth rate measures how quickly the firm can grow when it uses
both internal equity and debt financing to keep its capital structure constant over time
d.The internal and sustainable growth rate relationships suggest that there are three
measurable influences on growth: dividend policy (as reflected in the retention rate),
profitability (as measured by ROA), and the firms capital structure (as measured by the
equity multiplier)
e.All of the above statements are correct
18) Other factors being constant, higher fixed operating costs mean:
a.higher financial leverage
b.higher operating leverage
c.lower combined leverage
d.the degree of financial leverage is equal to 1.0
19) A business loan to Joes Hardware Store by a bank represents which of the
following?
a.a liability of the bank and an asset to Joes
b.a liability of the bank and a liability to Joes
c.liability to the bank and capital to Joes
d.liability to Joes and capital to the bank
e.none of the above
20) Which of the following sources of savings is consistently the largest on an annual
basis?
a.personal savings
b.undistributed corporate profits
c.federal, state, and local government surpluses
d.capital consumption allowances
21) ___________ are short-term money market investments that are extremely safe and
liquid; they can be quickly converted into cash at values very close to their intrinsic
values.
a.preferred stocks
b.treasury bonds
c.corporate bonds
d.common stocks
e. none of above are correct
22) Capital formation refers to the:
a.total accumulation of monetary savings in the nation
b.distribution of savings among thrift institutions
c.total of capital stock accounts with business corporations
d.the construction of buildings in a country’s capital city
e.none of the above
23) If someone were able to earn greater than the average returns for the market on a
consistent basis, which form of market efficiency is violated?
a.weak
b.semi-strong
c.strong
d.both a and b
24) Other factors being constant, higher fixed financial costs mean:
a.higher financial leverage
b.higher operating leverage
c.lower combined leverage
d.the degree of financial leverage is equal to 1.0
25) Government financing of large budgetary deficits:
a.absorbs savings and decreases interest rates
b.may temporarily stimulate economic activity
c.is known as monetizing the deficit
d.reduces total consumer spending and demand
26) The method of evaluating the firms performance over time is known as:
a.trend analysis
b.cross-sectional analysis
c.industry comparative analysis
d.Due Pont analysis
27) The exchange rate is the rate at which a given unit of foreign currency is quoted in
terms of:
a.commodity prices
b.barrels of oil
c.the foreign currency
d.gold
e.none of the above
28) In actual practice, most corporate bonds pay interest:
a.annually
b.semi-annually
c.quarterly
d.monthly
29) ___________________ states that interest rates are a function of the supply and
demand for loanable funds.
a.The expectations theory
b.The market segmentation theory
c.The liquidity preference theory
d.The loanable funds theory
30) The firm that enters into a futures contract with respect to foreign exchange does so:
a.to speculate on the movement in the value of the currency
b.in anticipation of an increase in the value of the currency of the country for which the
contract is established
c.to decrease the cost of their sales transactions
d.to eliminate a loss in the collection process of their accounts receivable in that country
e.none of the above
31) If a firms sales are $2,000,000, its cost of goods sold is $1,500,000, and its total
assets are $1,000,000, what is total asset turnover?
a.2.0 times
b.1.5 times
c.0.5 times
d.67 times
32) Which of the following statements is false?
a.The difference between total reserves and the monetary base is currency held by the
nonbank public
b.The ability to alter the money supply and credit is based on the fact that our banking
system does not utilize a fractional reserve system
c.The ability to predict M1 velocity, in addition to money supply changes, is important
in achieving successful monetary policy making
d.A derivative deposit arising out of a loan from Bank A is transferred by check to Bank
B, where reserve requirement are again imposed
33) Shanghai Shipping is considering investing in a project that requires an after-tax
initial investment of 156 million and is expected to produce after-tax cash inflows of
$40 million for each of the next five years. The firms cost of capital is 8%. Based on
this information, the NPV of the project is _________ million and the firm should
_________ the project.
a.$3.7; accept
b.-$3.7, reject
c.$159.37, accept
d.-$159.37, reject
e.none of the above
34) All of the following accounts are considered to be current liabilities on the balance
sheet except:
a.accounts receivable
b.accounts payable
c.accruals
d.notes payable
e.all of the above are current liabilities
35) What is the value of GM which currently has a dividend of $2 and is growing at
7%? The investors required rate of return is 11%.
a.$46
b.$50
c.$52
d.none of the above
36) When the market interest rate is below the coupon rate for a particular quality of
bond, the bond will be priced:
a.below its par value
b.at its par value
c.above its par value
d.The bond price cannot be determined
37) Which of the following is not a variable cost?
a.direct materials
b.direct labor
c.delivery costs
d.rent
e.all of the above are variable costs
38) If a firm pays out 30% of its earnings as dividends and has averaged a 20 percent
return on equity, how quickly can the firm grow while maintaining a constant debt to
equity mix?
a.6.4%
b.10.2%
c.14.3%
d.20.0%
e.none of the above
39) Interest on obligations of the federal government:
a.is not taxable by state or local government
b.is not taxable by the federal government
c.is taxable by both the federal and state governments
d.except for Treasury notes is taxable by the federal government
40) Which of the following represent the most important instrument used to raise funds
in the credit markets?
a.corporate bonds
b.tax-exempt obligations
c.consumer debt
d.mortgages
41) The government entity responsible for fiscal policy is:
a.the U.S. Treasury
b.the Federal Reserve
c.the Congress
d.the Commerce Department
42) The objective of managing current assets and liabilities is to
a.achieve as low a level of current assets as possible
b.achieve as low a level of current liabilities as possible
c.achieve a balance between profitability and risk that contributes to the firm’s value
d.achieve as high a level of current liabilities as possible
e.none of the above
43) A draft that is not accompanied by any special documents and generally used when
the exporter has confidence in the importers ability to meet the draft when presented is
known as:
a.an order bill of lading
b.a clean draft
c.a documentary sight draft
d.none of the above
44) If a firm purchases materials on credit and thus has accounts payable, its cash
conversion cycle will be:
a.longer than its operating cycle
b.the same length as its operating cycle
c.shorter than its operating cycle
d.the same length as its sales turnover cycle
45) In cash budgeting, the ________ seasonal and uncertain a firm’s cash flows, the
________ the number of budgeting intervals it should use
a.more; greater
b.more; fewer
c.less; greater
d.less; fewer
46) Which of the following statements is most correct?
a.higher levels of fixed costs result in lower levels of operating leverage
b.higher variable costs result in larger contribution margin
c.higher fixed costs result in larger break-even quantity
d.each of the above statements is false
47) Which of the following factors usually influence a persons choice of savings
medium?
a.liquidity
b.degree of safety
c.return
d.all of the above
48) In reality, an options value will equal its intrinsic value only at expiration. At all
other times, the options premium or price will exceed its intrinsic value. A major reason
for this is/are _____________.
a.marketability
b.price
c.trade restrictions
d.time
e. none of the above
49) Finance has its origins in:
economics and statistics
accounting and sociology
accounting and economics
psychology and mathematics
50) Finance at the macro level is the study of financial institutions and financial
markets and how they operate within the financial system in both the U.S. and global
economies.
51) A credit score is a number that indicates the creditworthiness or likelihood that a
borrower will make loan payments when due
52) Financial markets encourage investment by:
providing capital at lower rates than provided by banks
providing electronic execution of transactions which are faster and cheaper than other
methods
providing the means for savers to easily and quickly convert financial assets into cash
when needed
none of the above
53) The principle of finance that “management objectives may differ from owner
objectives” implies that owner returns may suffer as a result of manager objectives.
54) Money markets are markets where equity securities and debt securities with
maturities of greater than one year are traded.
55) Money markets are the markets where generally short-term assets are traded.
56) Overly strict regulation of financial institutions and tight oversight by government
regulatory agencies and private debt rating agencies contributed to the severity of the
2007-2009 financial crisis.
57) A sub-prime mortgage is a home loan made to a borrower with a relatively high
credit score indicating the likelihood that loan payments might be missed when due.
58) A credit score measures the number of times a debtor has paid on time.