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1) The interest received by individuals on bonds issued by corporations in the United
States is not tax deductible to the investor.
2) ADRs, or American Depository Receipts, which are traded on U.S. exchanges,
represent shares of common stock that trade on foreign exchanges.
3) Speculative motives for holding cash include holding funds to meet unexpected
demands.
4) The U.S. Treasury has primary responsibility for management of the federal debt.
5) Traditionally, the federal government provides services that cannot be provided as
efficiently by the private sector.
6) Holding demand constant, an increase in supply for one currency relative to another
will cause its value to depreciate relative to that currency.
7) The branch of government primarily responsible for the formulation of fiscal policy
is the U.S. Senate.
8) proprietorships are the most widely used form although they are generally the
smallest organizations in terms of assets.
9) The firms optimum debt/equity mix minimizes the firms cost of capital, which in
turn will help the firm to maximize shareholder wealth.
10) Projects favored using payback techniques will be ranked the same using net
present value.
11) Most nondiversifiable risk can be eliminated by creating a portfolio of around 30
stocks.
12) Yankee bonds are U.S. dollar-denominated bonds that are issued in the United
States by a foreign issuer.
13) A factor engages in accounts receivable financing for business by purchasing
accounts outright and assuming all credit risks.
14) A non-optimal capital structure may lead to higher financing costs.
15) Any consistent trend in the same direction as the price change would be evidence of
an efficient market.
16) The conservative financing approach is a strategy that attempts to match the
maturities of assets with the maturities of the liabilities with which they are financed.
17) The larger the budget deficit, the more total spending there will be.
18) All of the following statements are correct except:
a.EBIT/EPS analysis allows managers to see how the same capital structure affects the
earnings and risk levels of their firms
b.EBIT/EPS analysis shows the graphical relationship between a firms after tax net
income and earnings per share (EPS)
c.EBIT/EPS analysis suggests that at some EBIT level, a firm will be indifferent
between the two capital structures, inasmuch as they result in the different earnings per
share
d.EBIT/EPS analysis shows the ranges of sales where a firm may prefer one capital
structure over another so that the firm may decide to increase or decrease its financial
leverage depending on whether its expected Sales is above or below the indifference
EPS level
e.None of the above statements are correct
19) The exchange rate is the rate at which a given unit of foreign currency is quoted in
terms of:
a.commodity prices
b.the domestic currency
c.the foreign currency
d.gold
20) If a company can stretch its accounts payable without damaging its credit rating, it
is effectively ___________ the cost of foregoing the cash discount.
a.increasing
b.reducing
c.not affecting
d.not able to determine
e.none of the above
21) Which of the following statements is most correct?
a.While the dollar amount of imports decreased dramatically in 2006 compared to 2003,
they actually increased in 2009 relative to the 2006 level; this development reflects the
impact of the 2007-09 financial crisis and the weakening of the U.S. dollar relative to
other major currencies as the decade of the 2000s came to a close
b.While the dollar amount of imports increased dramatically in 2006 over 2003, they
actually fell in 2009 relative to the 2006 level; this development reflects the impact of
the 2007-09 financial crisis and the weakening of the U.S. dollar relative to other major
currencies as the decade of the 2000s came to a close
c.While the dollar amount of imports increased dramatically in 2006 over 2003, they
actually fell in 2009 relative to the 2006 level; this development reflects the impact of
the 2007-09 financial crisis and the strengthening of the U.S. dollar relative to other
major currencies as the decade of the 2000s came to a close
d.While the dollar amount of imports decreased dramatically in 2006 compared to
2003, they actually fell in 2009 relative to the 2006 level; this development reflects the
impact of the 2007-09 financial crisis and the strengthening of the U.S. dollar relative to
other major currencies as the decade of the 2000s came to a close
e.none of the above
22) Ningbo Shipping has prepared the coming year's pro forma balance sheet and has
estimated that external financing required would be $230,000. The firm should prepare
to
a.repurchase common stock totaling $230,000
b.arrange for a loan of $230,000
c.do nothing; the balance sheet balances
d.invest in marketable securities totaling $230,000
23) _____________ believe that a change in the money supply first causes a change in
interest rate levels, which, in turn, alters the demand for goods and services.
a.Monetarists
b.Supply Siders
c.Neo Classicalists
d.none of the above
24) As a rule, independent projects are accepted if the internal rate of return is greater
than or equal to:
a.1.0
b.zero
c.marginal cost of capital
d.expected rate of return
25) Commercial paper dealers:
a.lend to small and large businesses on the basis of their receivables outstanding
b.restrict their paper dealings to negotiable certificates of commercial banks
c.distribute to investors the promissory notes of successful businesses
d.distribute to investors the promissory notes of small but rapidly developing businesses
26) The basic strategies that should be employed by the business firm in managing cash
include all of the following EXCEPT
a.paying accounts payable as late as possible without damaging the firm's credit rating
b.turning over inventory as quickly as possible while avoiding stock outs
c.collecting accounts receivable as quickly as possible without damaging customer
relationships
d.all of the above
27) The terms or covenants of a bond contract are set out in which of the following
documents?
a.debenture
b.trust indenture
c.mortgage
d.negative pledge clause
28) Exchange-traded options are liquid because they are standardized in terms of:
a.announcement dates
b.future prices
c.timing of the underlying asset
d.location of the underlying asset
e. none of the above
29) 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.$1,200
b.$1,000
c.$800
d.$400
e.none of the above
30) If the reserve requirement is 25% and $5,000 is injected into the banking system,
the maximum expansion in the money supply would be:
a.$1,250
b.$20,000
c.$6,667
d.none of the above
31) ___________________ has the lowest claim on the assets and cash flow of the
firm.
a.A bond
b.A subordinated debenture
c.Preferred stock
d.Common stock
32) Financial functions in the U.S. financial system include:
a.transferring financial assets
b.creating money
c.accumulating savings
d.all of the above
33) An effective financial system must have
a.financial markets that facilitate the transfer of financial assets among individuals,
institutions, businesses, and governments
b.financial institutions or intermediaries that support capital formation either by
channeling savings into investment in physical assets or by fostering direct financial
investments by individuals in financial institutions and businesses
c.an efficient monetary system that is comprised of a central bank and a banking system
that is able to create and transfer a stable medium of exchange called money
d.several sets of policy makers who pass laws and make decisions relating to fiscal and
monetary policies
e. all of the above are required
34) Financing created by an intermediary that involves separate instruments with
lenders and borrowers is called:
a.direct financing
b.indirect financing
c.secondary financing
d.none of the above
35) Finance theory favors the use of ____________ value weights in the calculation of
the weighted average cost of capital.
a.book
b.future
c.market
d.none of the above
36) A company with a DCL of 12 and a DFL of 2 has a DOL of?
a.24
b.14
c.6
d.cannot tell from this information
37) Under required reserves of 20%, the maximum to which the money supply could be
expanded by the banking system is:
a.four times a new primary deposit
b.five times a new primary deposit
c.six times a new primary deposit
d.until all of a new primary deposit has been converted to required reserves
38) What is Ningbo Shippings WACC if its after tax cost of debt is 3.5%, its cost of
retained earnings is 14%, and the firms market value of debt is $40 million while the
market value of its equity is $60 million?
a.1.8%
b.3.5%
c.11.8%
d.14.7%
e.none of the above
39) A stronger U.S. dollar generally
a.results in more imports of foreign merchandise
b.leads to concern about worsening trade deficits
c.results in lower domestic inflation
d.all of the above
40) A bond that does not permit future bond issues to be secured by any of the assets
pledged as security to it is called a (n):
a.first mortgage bond
b.equipment trust certificate
c.closed-end mortgage bond
d.open-end mortgage bond
41) A bankers sight draft differs from an ordinary bank check in that:
a.ordinary bank checks can be used only for domestic transactions
b.ordinary bank checks are not guaranteed
c.they cost more
d.they are drawn by one bank on another bank
42) Which of the following expenditures account for the largest part of the Federal
budget?
a.national defense
b.interest on debt
c.infrastructure investment
d.government salaries
e.none of the above
43) A stronger U.S. dollar generally
a.results in more imports of foreign merchandise
b.leads to concern about worsening trade deficits
c.results in lower domestic inflation
d.all of the above
e.none of the above
44) The future value of $2,000 invested at 6% in 3 years would result in a value of:
a.$2,000
b.$2,382
c.$6,362
none of the above
45) If a Microsoft January 20 put option with a strike price of $20 were about to expire
and the market price of the underlying Microsoft stock was $15.00, the price of the put
option would have to be __________ to eliminate arbitrage opportunities.
a.$1.00
b.$2.00
c.$4.00
d.$6.00
e. none of the above
46) A countrys economic policy actions are directed toward all of the following goals
EXCEPT:
a.balance in the federal budget
b.high employment
c.price stability
d.all of the above are primary policy goals
47) If a person requires greater return when risk increases, that person is said to be:
a.risk seeking
b.risk diverse
c.risk aware
d. risk indifferent
e. none of the above
48) The life stages of an individual saver include all of the following EXCEPT:
a.the formative/education developing stage
b.the career earning/family creating stage
c.the wealth building stage
d.all are included
49) The estimate of how quickly a firm may grow by maintaining a constant mix of
debt and equity is called:
a.the retention growth rate
b.dividend growth rate
c.sustainable growth rate
d.the internal growth rate
50) Who made the following famous statement: "The governments view of the
economy could be summed up in a few short phrases: If it moves, tax it. If it keeps
moving, regulate it. And if it stops moving, subsidize it."
a.Alan Greenspan
b.Bill Clinton
c.Jimmy Carter
d.George Herbert Walker Bush
e.none of the above
51) The factoring of receivables:
a.had its origins in the textile industry but now extends over a wide range of industries
b.is especially suited to the heavy durable goods industries
c.has now been largely replaced with other types of financing
d.places special risk on the firm whose receivables are being factored
52) On the balance sheet, total assets minus net fixed assets equals:
a.current assets
b.current liabilities
c.gross fixed assets
d.total assets
e.none of the above
53) A survey of financial managers found they spend nearly what percent of their time
dealing with financial planning, budgeting, and working capital issues?
a.10 percent
b.30 percent
c.50 percent
d.70 percent
54) In the case of mutually exclusive projects:
a.the financial manager is responsible for choosing the average of these alternatives
since only one can be chosen; selecting one project requires the selection of the other
b.they are to be evaluated based on their expected effect on shareholder wealth; all such
projects that enhance shareholder wealth should be included in the firms capital budget
c.the financial manager is responsible for choosing the top three of these alternatives
since only three can be chosen
d.they are to be evaluated based on their past effect on shareholder wealth; all such
projects that enhance shareholder wealth should be included in the firms capital budget
e.none of the above statements are correct
55) Firms issue more equities than bonds for the following reason(s).
a.it is cheaper to raise equity than to borrow
b.bonds have a maturity date making them pricier
c.both a and b are true
d.none of the above are true
56) Which of the following is not required to compute the expected return of a
three-asset portfolio?
a.the amount invested in each stock
b.the correlation between the returns on each stock
c.the expected return on each stock
d.all of the above are required
57) All of the following statements are correct except:
a.The tax deductibility of debt becomes less important to firms with large nondebt tax
shields such as foreign tax credits granted by the U.S. government to firms that pay
taxes to foreign governments
b.As the debt/total asset ratio falls, or as earnings become less volatile, the firm will
face higher borrowing costs, driven upward by bond investors requiring higher yields to
compensate for additional risk
c.The static tradeoff hypothesis states that firms will balance the advantages of debt (its
lower cost and tax-deductibility of interest) with its disadvantages (greater possibility of
bankruptcy and the value of explicit and implicit bankruptcy costs)
d.Agency costs reduce the optimal level of debt financing for a firm below the level that
would be appropriate if agency costs were zero
e.All of the above statements are correct
