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1) The interest factor for the future value of a single sum is equal to (1 + n)i.
2) The most widely used currency in the Eurobond market is the euro.
3) With a dividend reinvestment plan, an investor might receive fractional shares.
4) The ex-rights date usually takes place after the end of the subscription period.
5) Total production costs should be equal to cost of goods sold in the pro forma income
statement.
6) Use of long-term financing and the carrying of highly liquid assets is a high-risk
combination.
7) In paying off a mortgage loan, the amount of the periodic payment that goes toward
the reduction of principal increases over the life of the mortgage.
8) Future stock value is equal to P0 = D1/(Ke - g), assuming a constant growth in
dividends.
9) The cash budget combines the cash receipts and cash payments schedules in
determining cash flow.
10) As finance emerged as a new field, much emphasis was placed on mergers and
acquisitions.
11) A "bear market" (declining stock prices) will tend to exert a depressing effect on the
value of a country's currency.
12) Bond refunding is generally advantageous to the investor because they get a higher
future interest rate.
13) The selection of a mutually exclusive project means that all other projects with a
positive net present value may also be selected.
14) In investment banking, the equity market is larger than the debt market.
15) Most real estate property is depreciated over a 10-year period.
16) Which of the following is NOT an example of a factor that can significantly
influence exchange rates?
A.The cost to purchase a loaf of bread in the U.S. has increased by $.50 while the cost
has remained the same in London
B.The cost of capital has increased by 2% in the U.S. and has decreased by 2% in
Germany
C.Interest rates on short-term investments in the U.S. have decreased to 4% while
interest rates in Japan are at 8%
D.The U.S. has begun to export a higher level of goods to China than the prior year
17) Which of the following financial assets is likely to have the highest required rate of
return based on risk?
A.Corporate bond
B.U.S. Treasury bill
C.Certificate of deposit
D.Common stock
18) International cash management systems are more complex than domestic cash
management systems because of
A.the risk involved in currency fluctuations
B.the changing interest rates across countries
C.varying time zones across countries
D.All of the options
19) The portfolio effect in a merger has to do with
A.increasing EPS
B.reducing risk
C.creating tax advantages
D.writing off goodwill
20) Match the following with the items below:
1>cost of goods sold
2>pro forma income statement
3>percent-of-sales method
4>cash budgets
5>pro forma balance sheet
A. Projection of anticipated sales, expenses, and income.
B. During a given time period, those costs specifically associated with units sold.
C. A series of monthly or quarterly detailed plans that indicate cash receipts, cash
payments, and the necessary borrowing requirements to meet the firm's financial
requirements.
D. A projection of future assets, liabilities, and stockholders' equity levels.
E. The determination of the relationships of various asset and liability accounts to sales
and the corresponding changes that result in the asset and liability accounts when sales
volume changes.
21) Samuelson will produce 20,000 units in January using level production. If each unit
costs $500 to manufacture, what is the dollar value of ending inventory in January if
beginning inventory is 10,000 units and January sales are 15,000?
A.Less than $5,000,000
B.Between $5,000,000 and $10,000,000
C.Greater than $10,000,000
D.There will be a shortage
22) Match the following with the items below:
1>call feature
2>yield to maturity
3>capital lease
4>sinking fund
5>bond ratings
6>operating lease
7>refunding
8>coupon payment
9>Eurobond
10>current yield
A. A long-term lease that has many of the characteristics of debt.
B. A method of retiring bonds in an orderly process over the life of the bond issue.
C. Allows the corporation to retire securities before maturity.
D. The process of retiring an old bond issue before maturity and replacing it on the
balance sheet with a new bond issue.
E. Ratings designated by the degree of risk according to Standard & Poor's and
Moody's Investor Service.
F. Equals the yearly dollar interest payment divided by the current market price.
G. The annualized rate-of-return an investor will receive if he or she holds the bond
until it is redeemed.
H. Indicates the annual dollar amount of income from a bond.
I. A short-term nonbinding obligation that is easily cancelable.
J. Bonds payable or denominated in the borrower's currency, but sold outside the
country of the borrower.
23) If the capital budgeting decision includes a replacement analysis, then
A.a gain from the sale of the old asset will represent a tax savings inflow
B.only incremental cash flows should be considered
C.the sale price and tax savings will increase the cash inflows throughout the asset's life
D.Two of the options
24) Which of the following is NOT a criterion for an efficient market?
A.Prices adjust rapidly to new information
B.Large dollar amounts of securities can be absorbed without price destabilization
C.Each successive trade is made at a price close to the previous trade
D.Computerized handling of transactions is necessary
25) In order to avoid long-term dilution, a corporation should determine whether the
necessary additional earnings from the issue are realistic relative to their historic
A.profit margin
B.times interest earned
C.total asset turnover
D.return on assets
26) One advantage to the corporation in selling a convertible bond is
A.the interest rate on a convertible is lower than a straight debt issue of equal risk
B.the bond may never get converted into common stock and create dilution
C.if interest rates fall, the bond is likely to be refunded
D.All of these options
27) If government bonds pay 7.0% interest and insured savings accounts pay 5.0%
interest, stockholders in a moderately risky firm would expect return-on-equity values
of
A.5.0%
B.7.0%
C.9.0%
D.above 7.0%, but the exact amount is uncertain
28) Using the constant dividend growth model for common stock, if P0 goes up,
A.the assumed cost goes up
B.the assumed cost goes down
C.the assumed cost remains unchanged
D.Further information is needed to answer the question
29) If Excel Inc. has projected sales of $30,000 in January, $20,000 in February, and
$20,000 in March, where 80% of sales are on credit, 20% are collected in the month of
sale, and 80% are collected the month after, what are the cash receipts in March?
A.$20,000
B.$16,200
C.$21,400
D.$10,300
30) Recent problems facing the U.S. financial system were the result of all but which
one of the following?
A.A huge increase in the amount of mortgage-backed securities being bundled up and
sold in the markets
B.A huge drop in the value of mortgage-backed securities
C.An increase in the use of commercial paper for short-term financing
D.The government permitting commercial and investment banks to merge
31) What is generally the largest source of short-term credit for small firms?
A.Bank loans
B.Commercial paper
C.Installment loans
D.Trade credit
32) Match the following with the items below:
1>founders' shares
2>convertible exchangeable preferreds
3>cumulative preferred stock
4>residual claim to income
5>floating rate preferred stock
6>proxy
7>Dutch auction preferred stock
8>poison pill
9>participating preferreds
A. Assigning voting rights to management, directors, or another outside group.
B. All income that is not paid out to creditors or preferred stockholders automatically
belongs to common stockholders.
C. These allow a company to force conversion from convertible preferred stock into
convertible debt.
D. Type of equity security with an obligatory dividend paid at a rate that is adjusted
periodically to reflect current market conditions.
E. Rights offering made to existing shareholders for the sole purpose of making it more
difficult for an outside firm to acquire the company.
F. Refers to the possibility of receiving additional dividend payments over and above
the stated amount to be paid on this type of security.
G. Stock issued to original owners of the company that often carry special voting
privileges in excess of their proportionate ownership.
H. Assures holders of this security that they will receive all dividends due to them
before dividends are paid to other types of dividend-paying security holders.
I. This is similar to floating rate preferred stock but is a short-term instrument that
matures every seven weeks and is sold at a subsequent bidding.
33) The dividend valuation model stresses the
A.importance of earnings per share
B.importance of dividends and legal rules for maximum payment
C.relationship of dividends to market prices
D.relationship of dividends to earnings per share
34) Market stabilization
A.is the action by the managing investment banker to keep the price of newly issued
securities from falling below the issue price to the public
B.usually lasts 2 to 3 days, but can last up to 30 days if a security is difficult to
distribute
C.cannot always maintain high initial pricesa case in point being the Facebook issue,
sold in May of 2012
D.All of these options
35) An increasing average collection period indicates
A.the firm is generating more income
B.accounts receivable are going down
C.the company is becoming more efficient in its collection policy
D.the company is becoming less efficient in its collection policy
36) A 15-year bond pays 9% on a face value of $1,000. If similar bonds are currently
yielding 6%, what is the market value of the bond? Use annual analysis.
A.Over $1,000
B.Under $1,000
C.Over $1,200
D.Not enough information is given to tell
37) An example of negative correlation may exist between the
A.forest products and housing industries
B.jewelry and discount furniture industries
C.steel and aluminum industries
D.oil and auto industries
The jewelry and furniture industries are essentially unrelated, unlike the other
alternatives above. The more diverse and unrelated two industries are, the greater the
likelihood of approaching negative correlation.
38) Credit swaps are
A.an insurance product designed to protect financial institutions from customers who
default on their loans
B.securities with a maturity of less than one year
C.the result of a leveling off or slowing down of price increases
D.market trades in previously issued securities
39) The _______ method of inventory costing is least likely to lead to inflation-induced
profits.
A.FIFO
B.LIFO
C.Weighted average
D.Lower of cost or market
40) The emergence of trading via ECNs has
A.provided a unique advantage not offered by the NYSE
B.lowered the cost of trading
C.made trading more difficult for small investors
D.All of these options are true
41) Each project should be judged against
A.the specific means of financing used to support its implementation
B.the exiting interest rate at that point in time
C.the cost of new common stock equity
D.None of these options
42) A firm's purchase of plant and equipment would be considered a
A.use of cash for financing activities
B.use of cash for operating activities
C.source of cash for investment activities
D.use of cash for investment activities
43) Which of the following statements is true with respect to cumulative voting?
A.Cumulative voting permits multiple votes for a single director
B.Cumulative voting gives minority shareholders a better chance of being represented
on the board of directors
C.If six directors are to be elected and you own 100 shares, you may vote all 600 votes
for one director and none for the others
D.All of these options are true
44) In countries where stocks are publicly traded, IPOs are underpriced
A.in very few countries
B.in less than half the countries
C.in every country
D.None of these options
45) If a firm is experiencing no capital rationing, it should accept all investment
proposals
A.as long as it has available funds
B.that return an amount equal to or greater than the cost of capital
C.that return an amount greater than the cost of equity
D.that are available, regardless of return
46) Synergy is
A.the 2 + 2 = 3 effect
B.the 2 + 2 = 4 effect
C.the 2 + 2 = 5 effect
D.always present in a merger
47) Match the following with the items below:
1>business risk
2>super-normal growth
3>dividend valuation model
4>perpetuity
5>financial risk
6>risk premium
7>dividend yield
8>real rate of return
9>risk-free rate of return
10>yield to maturity
11>required rate of return
12>price-earnings ratio (P/E)
13>inflation premium
A. This is the discount rate used in present-valuing future interest payments and the
principal payment at maturity.
B. This is the payment for forgoing current consumption on a noninflation-adjusted
basis.
C. An adjustment to the real rate of return to compensate the investor for a potential loss
of purchasing power.
D. The potential inability to meet debt obligations as they come due.
E. An investment without a maturity date that pays a constant return.
F. A method used to determine the value of a share of common stock based on expected
future cash flows.
G. Dividends per share divided by market price per share.
H. A multiplier applied to earnings per share to determine the current value of a share of
common stock.
I. An extra return demanded based on a firm's business risk and financial risk.
J. A variable growth model characteristic of emerging industries where rapid growth is
experienced for a certain number of years followed by more historic, constant growth
levels.
K. The inability to hold a competitive position and maintain stable growth and earnings.
L. The total return demanded by investors to compensate them for all forms of risk
involved.
M. The interest rate that compensates the investor for the current use of funds and a loss
of purchasing power due to inflation, but not for taking risks.
48) Which of the following is not true about preferred stock?
A.70% of dividends are nontaxable to other corporations that hold preferred stock
B.The after-tax cost is higher than debt with the same yield
C.Dividends are legal obligations of the firm
D.Preferred stocks are typically cumulative with respect to dividends
49) The concept of a self-liquidating asset implies that
A.the working capital associated with a product will be liquidated within a one-year
period
B.all the product will be sold, receivables collected, and bills paid over the time period
specified
C.assets associated with the production of a product will be liquidated over the
depreciable life of the assets
D.self-liquidating assets will be financed by long-term sources of capital
50) The concept of operating leverage involves the use of __________ to magnify
returns at high levels of operation.
A.fixed costs
B.variable costs
C.marginal costs
D.semi-variable costs
51) The net worth of a firm
A.is usually the same as the firm's market value
B.is based on current asset costs
C.is based on current liabilities
D.None of the options
52) Historical cost-based depreciation tends to _________ when there is inflation.
A.lower taxes
B.decrease profits
C.increase profits
D.increase assets
53) Future financial managers will need to understand
A.international cash flows
B.computerized funds transfers
C.international currency hedging strategies
D.All of the options
54) A characteristic of capital budgeting is that
A.a large amount of money is always involved
B.the internal rate of return must be less than the cost of capital
C.the internal rate of return must be greater than the cost of capital
D.the time horizon is at least five years
55) In order to reduce risk in a firm, the firm would seek to enter a business that
A.has a high positive correlation with its present business
B.has a zero correlation with its present business
C.has a high negative correlation with its present business
D.has a high negative variation with its present business
