1) A treasurer is responsible for the firm’s accounting activities, such as corporate
accounting, tax management, financial accounting, and cost accounting.
2) An increase in cost (fixed cost or variable cost) tends to increase the operating
breakeven point, whereas an increase in the sales price per unit will decrease the
operating breakeven point.
3) A yield curve that reflects relatively similar borrowing costs for both short- and
long-term loans is called a normal yield curve.
4) The level of dividends a firm expects to pay is generally unrelated to how rapidly it
expects to grow as well as the level of asset investments required.
5) Managerial finance is concerned with design and delivery of advice and financial
products to individuals, businesses, and governments.
6) An operating lease is noncancellable and obligates the lessee to make payments for
the use of an asset over a predefined period of time.
7) Convertible bonds are normally ________.
A) debentures
B) income bonds
C) zero coupon bonds
D) mortgage bonds
8) Operating profit is ________.
A) gross profit minus operating expenses
B) sales revenue minus cost of goods sold
C) earnings before depreciation and taxes
D) sales revenue minus depreciation expense
9) Table 15.2
The company earns 5 percent on current assets and 15 percent on fixed assets. The
firm’s current liabilities cost 7 percent to maintain and the average annual cost of
long-term funds is 20 percent.
If the firm was to shift $7,000 of fixed assets to current assets, the firm’s net working
capital would ________, and the risk of not being able to meet current obligations
would ________, respectively. (See Table 15.2)
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
10) ________ is an international body that polices world commercial trading practices
and mediates disputes among two or more member countries.
A) NAFTA
B) GATT
C) WTO
D) CAFTA
11) The new financial analyst does not like the payback approach (Table 10.3) and
determines that the firm’s required rate of return is 15 percent. Based on IRR, his
recommendation would be to ________.
A) accept both the projects
B) accept Project A and reject Project B
C) reject Project A and accept Project B
D) reject both the projects
12) The motive for divestiture includes ________.
A) employee stock option
B) additional debt by the parent company
C) cash generation for expansion
D) additional stock to the parent company
13) The weights used in weighted average cost of capital must be ________.
A) greater than 50%
B) nonnegative
C) less than zero
D) zero
14) The Modified Accelerated Cost Recovery System (MACRS) is a depreciation
method used for ________ purposes.
A) tax
B) financial reporting
C) budget
D) cost accounting
15) Table 12.3
Tangshan Mining Company is considering investment in one of two mutually exclusive
projects M and N which are described below. Tangshan Mining’s overall cost of capital
is 15 percent, the market return is 15 percent and the risk-free rate is 5 percent.
Tangshan estimates that the beta for project M is 1.20 and the beta for project N is 1.40.
Using the risk-adjusted discount rate method of project evaluation, the NPV for Project
N is ________. (See Table 12.3)
A) $166,132
B) $122,970
C) $85,732
D) $600,000
16) The ________ is the length of time from the point when raw materials are
purchased on account to the point when payment is made to the supplier of the goods.
A) cash conversion cycle
B) average payment period
C) average age of inventory
D) average collection period
17) As fixed operating costs increase and all other factors are held constant, ________.
A) the degree of operating leverage will increase
B) the degree of operating leverage will decrease
C) the degree of total leverage will decrease
D) the degree of total leverage will increase