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1) The par value of a common stock is an accounting and legal concept that bears no
relationship to a firms stock price or book value.
2) Interest rate parity (IRP) states that the currency of a country with relatively higher
interest rate will appreciate relative to the currency of a country with a relatively lower
interest rate.
3) Currency in the form of Federal Reserve notes are primarily backed by gold
certificates and eligible paper.
4) The accounts payable period would be added to the operating cycle to get the cash
conversion cycle.
5) Standard deviation is the square root of the variance.
6) Higher levels of fixed costs result in lower levels of operating leverage.
7) The aggressive financing approach is a strategy that attempts to match the maturities
of assets with the maturities of the liabilities with which they are financed.
8) The 1992 Maastricht Treaty formally committed the countries of the European Union
to economic and monetary union.
9) Profits from a proprietorship are taxed at the corporate income tax rates.
10) Real assets include direct ownership of land, buildings, machinery, inventory,
commodities and precious metals.
11) The account receivable period may be calculated as accounts receivable divided by
daily sales.
12) A firms cost of capital represents a firms weighted average cost of financing.
13) The majority of marketable interest-bearing government obligations have a maturity
of more than 5 years.
14) A firms degree of combined leverage is the product of its degree of operating
leverage and its degree of financial leverage
15) When the interest expense is zero, the percentage change in earnings per share will
be the same as the percentage change in EBIT.
16) The inventory period may be calculated as sales divided by inventories.
17) Deposits placed in foreign banks that remain denominated in U.S. dollars are called:
a.bankers acceptances
b.Eurodollars
c.federal funds
d.commercial paper
18) The federal debt is owned primarily by:
a.foreign and international investors
b.commercial banks
c.insurance companies
d.the sum of all private investors
19) If an individual supplies funds to a business firm by purchasing bonds issued by the
firm, the transaction:
a.creates two types of financial assets and two types of financial liabilities
b.increases the liquidity and safety of principal for the individual
c.initially occurs in the primary market
d.limits the ability of the security to be sold in the secondary market
20) A firm with total asset turnover lower than the industry average may have
a.excessive debt
b.excessive cost of goods sold
c.insufficient sales
d.insufficient fixed assets
e.none of the above
21) Which one of the following types of financial ratios does not get all of its
information from a firms income statements and balance sheets?
a.liquidity ratios
b.asset management ratios
c.capital structure ratios
d.profitability ratios
e.market value ratios
22) Price inflation has been characteristic of:
a.modern industrial society
b.our post gold-standard period
c.the history of prices since earliest recorded history
d.only modern industrialized societies
23) A limited partnership is comprised of:
a.only limited partners
b.only general partners
c.both general and limited partners
d.both partners and proprietors
24) Higher financing cost and lower risk of not being able to borrow when short-term
funds are needed are characteristics of:
a.aggressive financing
b.conservative financing
c.maturity matching
d.none of the above
25) Assume that Ningbo Steel borrows $1,000,000 for one year under a line of credit
with a stated interest rate of 7.5 percent and a 15 percent compensating balance and that
the firm keeps no money on deposit in its checking account. Based on this information,
the effective annual interest rate on the loan is
a.8.8%
b.8.6%
c.8.4%
d.8.2%
e.none of the above
26) Exchange-traded options are liquid because they are standardized in terms of:
a.expiration dates
b.exercise prices
c.quantity of the underlying asset
d.quality of the underlying asset
e. all of the above
27) Which of the following statements is most correct?
a.A weaker dollar results in more imports of foreign merchandise since it requires fewer
dollars for purchase
b.A stronger dollar results in fewer imports of foreign merchandise since it requires
fewer dollars for purchase
c.A stronger dollar results in more imports of foreign merchandise since it requires
fewer dollars for purchase
d.A weaker dollar results in more imports of foreign merchandise since it requires more
dollars for purchase
e.none of the above
28) Which of the following ratios is not a component in the return on equity using Due
Pont analysis?
a.asset turnover
b.profit margin
c.equity multiplier
d.current ratio
29) Smith Company has a degree of operating leverage of 5, while Johnson Company
has a degree of operating leverage of 2. Supplied with this knowledge, pick the
response below that is most typical of Johnson Company.
a.high fixed costs
b.conservative
c.large commitment to plant facilities
d.greater sales.
30) The largest category of federal budget outlays is from
a.national defense
b.Medicare and social security
c.Interest on the federal debt
d.international affairs
31) If the U.S. inflation rate is expected to be 3 percent next year, the European
inflation rate is expected to be 4% next year, and the spot rate between the euro and
dollar is $1.30, then according to purchasing power parity, we would expect the dollar
to _________ against the euro from $1.30 to __________:
a.appreciate, $1.2875
b.appreciate, $1.3126
c.depreciate, $1.2875
d.depreciate, $1.3126
32) An analyst should be careful when conducting ratio analysis to ensure that
a.the overall performance of the firm is not judged on a single ratio
b.the dates of the financial statements being compared are the same
c.audited statements are being used
d.the same accounting procedures were used
e.all of the above
33) Reasons for stock repurchases include all of the following EXCEPT:
a.to acquire shares used in management stock option incentive programs, in which
managers can purchase shares of stock at pre-specified prices
b.to use in stock-based acquisitions of other firms
c.the firm has the cash and sees its own stock as one of its most attractive investment
alternatives
d.all of the above
e.none of the above
34) Federal Reserve open market operations, setting reserve requirement, and lending to
depositories are:
a.usually conducted simultaneously
b.all designed to have their effect by influencing the reserves of depository institutions
c.of equal importance in their effort
d.functions shared with the U.S. Treasury
35) The least costly form of claim in foreign exchange is a:
a.bankers sight draft
b.cable order
c.time draft
d.bill of exchange
36) U.S. firms are continuing to raise more funds overseas include all of the following
EXCEPT:
a.it makes sense to raise funds in the county where a firm has a facility
b.financing costs are sometimes lower overseas
c.foreign underwriters often have more experience than U.S. underwriters
d.issuers avoid the costly SEC approval process
37) 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.MNCs
c.SWOTs
d.LTDs
e.none of the above
38) When the market interest rate is above 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
39) The document which details the issuers finances and must be provided to each
buyer of the security is called the:
a.indenture
b.prospectus
c.tombstone
d.all the above
40) Economists have estimated that the real rate of interest in the United States and
other countries has averaged in the ________________ range in recent years.
a.2 to 4 percent
b.3 to 5 percent
c.4 to 6 percent
d.5 to 7 percent
e. none of the above
41) RJR Nabisco recently experienced a market reevaluation due to a number of
tobacco lawsuits. The firm has a bond outstanding with 15 years to maturity, and a
coupon rate of 8%, with interest being paid semiannually. The required yield to
maturity has risen to 16%. What is the price of the RJR Nabisco bond?
a.$1,000
b.$804
c.$767
d.$550
42) The after-tax cash flows without the project are referred to as:
a.the net investment
b.incremental cash flows
c.the base case
d.none of the above
43) In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually
have to borrow:
a.$110,000
b.$111,111
c.$100,000
d.$90,000
44) Price inflation:
a.is relatively unimportant to individuals
b.is considered to be acceptable in the nations quest for high levels of employment
c.causes inequities and discourages investment by increasing the uncertainty about
future returns
d.is almost always due to financing wars
45) A decrease in the supply for loanable funds, holding demand constant, will cause
interest rates to:
a.increase
b.decrease
c. stay the same
d.not enough information to tell
46) In the case of independent 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 net income; all such
projects that enhance net income should be included in the firms capital budget
c.the financial manager is responsible for choosing the best of these alternatives since
only one can be chosen; selecting one project precludes the other from being
undertaken
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
47) If a firm has an operating cycle of 120 days and an average payment period of 20
days, its cash conversion cycle would be:
a.100 days
b.140 days
c.18 days
d.cannot be determined from this information
48) Flotation costs include:
a.cost of printing shares
b.legal and accounting costs
c.investment banker fees
d.all the above
49) The _______________ established the Public Company Accounting Oversight
Board (PCAOB).
a.Smoot-Hawley Act
b.Sarbanes-Oakley Act
c.Gram-Harkins Act
d.McKean-Obama Act
e.none of the above
50) All of the following statements are correct except:
a.The NPV and IRR methods will always agree on whether a project enhances or harms
shareholder wealth
b.If a project has a positive NPV, its IRR will always be greater than the cost of capital
c.If a project has a negative NPV, its IRR will always be less than the cost of capital
d.There is never a conflict between NPV and IRR in the case of mutually exclusive
projects
e.all of the above are correct
51) Over-the-counter (OTC) trades must take place:
a.on the floor of the New York Stock Exchange
b.on the floor of the American Stock Exchange
c.on the floor of the NASDAQ Stock Exchange
none of the above
52) An economys _____________________ is the interaction of policy makers, a
monetary system, financial institutions, and financial markets to expedite the flow of
financial capital from savings into investment:
a.banking system
b.stock market
c.capital market
d.financial system
