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1) Foreign exchange markets are electronic communication systems connecting the
major financial centers of the world.
2) Leverage does not affect EPS for most firms.
3) A trust receipt is an instrument through which a bank retains title to goods until they
are paid for.
4) The internal growth rate measures how quickly a firm can increase its asset base over
the next year without raising outside funds.
5) The loanable funds theory states that interest rates are a function of the supply of and
demand for loanable funds.
6) An ordinary annuity exists when the equal payments occur at the beginning of each
time period.
7) Holding demand constant, a decrease in the supply of loanable funds will result in an
increase in interest rates.
8) Under the system of flexible exchange rates that began in 1943, exchange rates are
determined by the actual process of supply and demand in the foreign exchange market.
9) Using the conservative approach for financing a firms assets, long term financing
would be used only to finance fixed assets, while short term financing would be used to
finance current assets including seasonal fluctuations.
10) A dealer is a person who assists in the trading process by buying or selling
securities in the market for an investor.
11) Although unemployment represents a loss of potential output, most economists
agree that the real costs of unemployment to an economy are minimal.
12) The effective annual rate (EAR) is the true opportunity cost measure of the interest
rate.
13) The Dow-Jones Industrial Average is made up of 30 large blue-chip stocks.
14) Political risk is the risk associated with possible actions by a sovereign nation to
interrupt or change the value of cash flows accruing to foreign investors.
15) The interest portion increases and the principal portion decreases over time under a
typical loan amortization schedule.
16) One weakness of the payback period method is that all cash flows beyond the
payback period are ignored.
17) Holding supply constant, a decrease in the demand for loanable funds will result in
a decrease in interest rates.
18) The degree of combined leverage shows us to what degree a percentage change in
sales will cause a percentage change in:
a.earnings before interest and taxes
b.earnings after tax
c.earnings per share
d.gross profit
19) Any positive economic profit or positive net present value may arise from
a.market imperfections or inefficiencies such as a monopoly situation.
b.economies of scale
c.product differentiation
d.government policy
e.all of the above statements are correct
20) The method of calculating return on assets which highlights the importance of sales,
profit margin, and asset turnover is known as:
a.the Gordon model
b.cost-volume profit analysis
c.DuPont analysis
d.break-even analysis
21) 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 sometimes a conflict between NPV and IRR in the case of mutually
exclusive projects
e.all of the above are correct
22) All of the following statements are correct except:
a.A firms business risk is measured by its variability in EBIT over time and is affected
by several factors, including the business cycle, competitive pressures, and the firms
operating leverage or its level of fixed operating costs
b.The degree of financial leverage measures the sensitivity of earnings per share to
changes in EBIT
c.The degree of combined leverage is the percentage change in earnings per share that
results from a 1 percent change in sales volume
d.The degree of combined leverage is simply the product of its degree of operating
leverage and its degree of financial leverage
e.All of the above statements are correct
23) The regulation of new security sales by individual states is referred to as:
a.the registration process
b.a truth-in-securities requirement
c.the rating of security quality
d.Blue-sky laws
24) On the income statement, gross profit is defined as:
a.operating profits minus operating expenses
b.gross profit minus operating expenses
c.sales revenue minus cost of goods sold
d.sales revenue minus operating expenses
e.none of the above
25) Ningbo Shipping, which has an average tax rate of 40 percent, would like to
estimate the after-tax cost of debt for a 15-year, 12 percent, $1,000 par value bond,
selling at $950. Based on this information, the after-tax cost of debt is:
a.7.7%
b.12.0%
c.12.8%
d.15%
e.none of the above
26) 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 always a conflict between NPV and IRR in the case of mutually exclusive
projects
e.all of the above are correct
27) A firm can reduce its cash conversion cycle by
a.increasing its average age of inventory
b.increasing its average collection period
c.decreasing its average payment period
d.none of the above
28) A person who facilitates market transactions by selling (buying) when other
investors wish to buy (sell) is called a:
a.registered trader
b.floor broker
c.market maker
d.commission broker
29) What would be the return on total assets of a firm if net income is $50,000, total
sales are $100,000, and total assets are $175,000?
a.35%
b.28.6%
c.57.14%
d.not enough information available
30) The ________ method of developing a pro forma income statement forecasts sales
and values for the cost of goods sold, operating expenses, and interest expense that are
expressed as a ratio of projected sales.
a.percent of sales
b.accrual
c.judgmental
d.cash
31) The ______________ is a term used to describe the financial system, institutions,
markets, businesses, individuals, and global interactions that help the economy operate
efficiently
a.financial environment
b.regulatory environment
c.international environment
d.operating environment
e. none of the above
32) The effective annual interest rate on a loan in which a company borrows $1000,000
for one year at 8 percent and requires a compensating balance of 10 percent is:
a.7.5%
b.9.5%
c.9.9%
d.7.9%
e.none of the above
33) Most income for the Federal Government comes from:
a.corporate income taxes
b.foreign income taxes
c.government oil revenues
d.military weapon sales
e.none of the above
34) Market stabilization is:
a.disallowed under the Securities Act of 1934
b.permitted for underwriters if the market price falls below the offering price
c.prohibited by the Securities Exchange Commission
d.all the above
e.none of the above
35) Which of the following statements is most correct?
a.Because a specialist is given the monopoly power to make a market on a particular
stock, all trades must pass through the specialist
b.A specialist can also perform the function of a commission broker
c.A floor broker acts as an agent to execute customers orders for securities purchases
and sales
d.Each of the above statements is false
36) A high degree of financial leverage means that a small change in sales will result in:
a.a small change in earnings per share
b.a large change in earnings per share
c.no change in earnings per share
d.none of the above
37) Direct payments to individuals from the Federal government do not include:
a.Social Security payments
b.Medicare payments
c.health expenditures
d.all the above are included
e.none of the above
38) ___________ 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.marketable securities
e. none of above are correct
39) Variations in operating income over time because of variations in unit sales, price,
cost margins, and/or fixed expenses are called:
a.interest rate risk
b.exchange rate risk
c.purchasing power risk
d. financial risk
e. none of the above
40) A firms business risk is affected by:
a.business cycle
b.the firms operating leverage
c.competitive pressures
d.all the above
41) A speculative (junk) bond issue as rated under Standard & Poors would be rated
______ or below:
a.AA-
b.BB+
c.CCC
d.CC
42) The possible conflict between managers and owners is sometimes called the
a.principal-subordinate problem
b.principal-agent problem
c.boss-subordinate problem
d.boss-agent problem
e.none of the above
43) Commercial banks lend unsecured short-term funds in the following three basic
ways:
a.Commercial paper, lines of credit, and revolving credit agreements
b.Single-payment note, revolving credit agreements, and commercial paper
c.Single-payment note, lines of credit, and evolving credit agreements
d.Commercial paper, lines of credit, and revolving credit agreements
e.none of the above
44) The default risk premiums on _______ corporate bonds are generally better
indicators of investor pessimism or optimism about economic expectations than are
those on ______ bonds.
a.Aaa, Baa
b.Baa, Aaa
c.Baa, Caa
d.Caa, Baa
45) ______________ occurs during economic expansions when demand for goods and
services is greater than supply.
a.Administrative inflation
b.Speculative inflation
c.Cost-push inflation
d.Demand-pull inflation
46) The relevant cash flows of a project do not include which one of the following?
a.incremental after-tax cash flows
b.cannibalization effects
c.opportunity costs
d.sunk costs
47) Budgetary deficits always have the effect of:
a.creating inflationary pressures
b.crowding out private borrowers
c.forcing the Federal Reserve to buy government securities
d.creating governmental competition for private investment funds
48) During the latter part of the decade ending in 2010:
a.housing prices bottomed out in 2006
b.stock prices reached a low in 2007
c.individuals and business firms reduced borrowing and default rates declined
d.the U.S. dollar rose rapidly against an index of major currencies
e.none of the above
49) Most bonds pay coupon interest
a.monthly
b.quarterly
c.semi-annually
d.annually
e.none of the above
50) The total risk of a well-diversified portfolio of U.S. stocks appears to be about what
proportion of the risk of an average one-stock portfolio?
a.one-third
b.one-half
c.two-thirds
d.three-fourths
51) The U.S. federal government body that regulates the sale and listing of securities on
U.S. financial markets is the:
a.IRS
b.FRS
c.SEC
d.FBI
e.none of the above
52) 2/10 net 30 EOM translates as
a.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid within
10 days, the net amount is due in 20 days
b.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid
within 10 days, the net amount is due 30 days after the middle of the month
c.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid within
10 days, the net amount is due 30 days after the end of the month
d.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid
within 10 days, the net amount is due in 20 days
e.none of the above
53) Key factors that influence currency exchange rates include all of the following
EXCEPT:
a.supply and demand relationships
b.legal constraints
c.interest rates
d.inflation rates
54) Which of the following is not a basic type of member of the New York Stock
Exchange?
a.commission brokers
b.floor brokers
c.registered traders
d.specialists
e.security regulators
55) A decrease in the demand for loanable funds, holding supply constant, will cause
interest rates to:
a.increase
b.decrease
c. stay the same
d.not enough information to tell
56) Tracey deposits $5,000 in a five-year certificate of deposit paying 6% compounded
semi-annually. How much will Tracey have at the end of the five-year period?
a.$6,720
b.$6,690
c.$6,596
d.$6,910
57) The agency problem may result from a manager's concerns about any of the
following except
a.job security
b.personal wealth
c.embezzlement
d.company provided perquisites
e.none of the above
