1) The presence of contingent securities such as warrants and stock options affects the
reporting of a firm’s earnings per share.
2) The cost of marginal bad debts is found by multiplying a firm’s opportunity cost by
the difference between the level of bad debts before and after the relaxation of credit
standards.
3) Independent projects are projects that compete with one another for a firm’s
resources, so that the acceptance of one eliminates the others from further
consideration.
4) A popular extension of materials requirement planning is manufacturing resource
planning II, which integrates data from numerous areas such as finance, accounting,
marketing, engineering, and manufacturing using a sophisticated computer system.
5) If a bond’s required return always equals its coupon interest rate, the bond’s value
will remain at par until it matures.
6) Stocks are less riskier than either bonds or bills.
7) On a purely theoretical basis, IRR is a better approach when selecting among two
mutually exclusive projects.
8) If a firm pays out a higher percentage of earnings, new equity capital will have to be
raised with common stock, which will result in higher control and earnings for the
existing owners.
9) Firms occasionally repurchase stock in order to alter capital structure or to increase
the returns to the owners.
10) Common stockholders are often referred to as residual claimants.
11) The forward exchange rate is the rate of exchange between two currencies on any
given day.
12) The ex dividend period begins four business days prior to the payment date.
13) Nondiversifiable risk reflects the contribution of an asset to the risk, or standard
deviation, of the portfolio.
14) In a voluntary settlement, composition is an arrangement in which the creditor
committee replaces the firm’s operating management and operates the firm until all
claims have been settled.
15) If a project’s payback period is less than the maximum acceptable payback period,
we would accept it.
16) The financial planning process begins with ________ financial plans that in turn
guide the formation of ________ plans and budgets.
A) short-term; long-term
B) short-term; short-term
C) long-term; long-term
D) long-term; short-term
17) Depository banks holding Eurodollar deposits are ________.
A) generally more closely regulated than U.S. banks and are therefore more risky
B) generally less closely regulated than U.S. banks and are therefore more risky
C) generally more closely regulated than U.S. banks and are therefore less risky
D) largely located outside of the European countries and are therefore more risky
18) Find the present value of the following stream of a firm’s cash flows, assuming that
the firm’s opportunity cost is 25 percent.
A) $27,168
B) $35,200
C) $34,074
D) $32,281
19) A beta coefficient of 0 represents an asset that ________.
A) is more responsive than the market portfolio
B) has the same response as the market portfolio
C) is less responsive than the market portfolio
D) is unrelated to the market portfolio
20) A(n) ________ is a pro rata cash settlement of creditor claims.
A) composition
B) creditor control agreement
C) extension
D) liquidation
21) Tangshan Mining is attempting to acquire Zhengsen Mining. Selected financial data
is presented for both companies in the table below:
Tangshan Mining has sufficient authorized but unissued shares to carry out the
proposed merger. If the ratio of exchange is 1.8, what will be the EPS of the merged
firm?
A) $1.00
B) $1.03
C) $1.08
D) $2.00
22) Unsystematic risk ________.
A) does not change
B) can be eliminated through diversification
C) cannot be estimated
D) affects all firms in a market
23) Jia’s Fashions recently paid a $2 annual dividend. The company is projecting that its
dividends will grow by 20 percent next year, 12 percent annually for the two years after
that, and then at 6 percent annually thereafter. Based on this information, how much
should Jia’s Fashions common stock sell for today if her required return is 10.5%?
A) $54.90
B) $60.80
C) $59.16
D) $69.30
24) In ratio analysis, a comparison to a standard industry ratio is made to isolate
________ deviations from the norm.
A) greater than average
B) negative
C) marginal
D) standard
25) One of the primary motives for adding fixed assets to a firm is ________.
A) expansion
B) replacement
C) renewal
D) transformation
26) Which of the following represents a cash flow from operating activities?
A) dividends paid
B) increase or decrease in current liabilities
C) increase or decrease in fixed assets
D) repurchasing stock
27) Pledges of accounts receivable are made on ________ basis, respectively.
A) a nonrecourse and a notification
B) a nonnotification and a notification
C) a notification and a recourse
D) a notification and a nonrecourse
28) MACRS RATE
Under MACRS, an asset which originally cost $10,000 is being depreciated using a
5-year normal recovery period. What is the depreciation expense in year 3?
A) $1,900
B) $1,200
C) $1,500
D) $2,100
29) A machine was purchased two years ago for $120,000 and can be sold for $50,000
today. The machine has been depreciated using the MACRS 5-year recovery period and
the firm pays 40 percent taxes on both ordinary income and capital gains.
(a)Compute recaptured depreciation and capital gain (loss), if any.
(b)Find the firm’s tax liability.
30) Accounting practices and procedures used to prepare financial statements are called
________.
A) SEC
B) IFRS
C) GAAP
D) IRB
31) If an investor buys a 100-share put option for $400 with an exercise price of $40
and the underlying price per share of the stock at expiration is $32, what is the amount
of profit or loss, ignoring brokerage fees?
A) There would be a profit of $800
B) There would be a profit of $400
C) There would be a loss of $400
D) There would be a loss of $800
32) A(n)________ is hired by a firm to find prospective buyers for its new stock or
bond issue.
A) securities analyst
B) trust officer
C) commercial loan officer
D) investment banker
33) In the EOQ model, if the size of order increases, the ________.
A) carrying cost will increase
B) order cost will remain unchanged
C) order cost will increase
D) storage cost will decrease
34) ________ indicates the percentage of each sales dollar remaining after the firm has
paid for its goods.
A) Net profit margin
B) Operating profit margin
C) Gross profit margin
D) Earnings available to common shareholders