1) In the ABC system of inventory management, the two-bin method or system could be
utilized to control C items.
2) For a Eurodollar bond, the interest rate will reflect several different rates, most
notably the U.S. long-term rate, the Eurodollar rate, and long-term rates in other
countries.
3) High-quality (high-rated) bonds provide lower returns than lower-quality (low-rated)
bonds.
4) In the international context, the effective interest rate equals to the nominal rate plus
(or minus) any forecast appreciation (or depreciation) of a foreign currency relative to
the currency of the MNC parent.
5) The output of simulation provides an excellent basis for decision making since it
allows the decision maker to view a continuum of risk-return trade-offs rather than a
single-point estimate.
6) ________ are commonly issued in the reorganization of a failed or failing firm.
A) Floating rate bonds
B) Income bonds
C) Mortgage bonds
D) Equipment trust certificates
7) An increase in nondiversifiable risk would ________.
A) cause an increase in the beta and would lower the required return
B) have no effect on the beta and would, therefore, cause no change in the required
return
C) cause an increase in the beta and would increase the required return
D) cause a decrease in the beta and would, therefore, lower the required rate of return
8) Which of the following is an example of agency costs?
A) cost of labor
B) raw material cost
C) monitoring expenditures cost
D) factory rent
9) The dividend exclusion for corporations receiving dividends from another
corporation has resulted in ________.
A) a lower cost of equity for the corporation paying the dividend
B) a higher relative cost of bond-financing for the corporation paying the dividend
C) stock investments being relatively less attractive, relative to bond investments made
by one corporation in another corporation
D) stock investments being relatively more attractive relative to bond investments made
by one corporation in another corporation
10) The conservative financing strategy results in financing all projected funds
requirements with ________ funds and use of ________ funds in the event of an
unexpected cash outflow.
A) long-term; short-term
B) short-term; long-term
C) permanent; seasonal
D) seasonal; permanent
11) Greater control over the acquisition of raw materials or the distribution of finished
goods is an economic benefit of a ________.
A) congeneric merger
B) conglomerate merger
C) horizontal merger
D) vertical merger
12) The ________ ratio may indicate poor collections procedures or a relaxed credit
policy.
A) average payment period
B) inventory turnover
C) average collection period
D) quick
13) The exercise price or option price of a warrant is normally set ________.
A) below the book value of the firm’s stock at the time of issuance
B) equal to the market price of the firm’s stock at the time of issuance
C) above the market price of the firm’s stock at the time of issuance
D) above the book value of the firm’s stock at the time of issuance
14) Table 12.1
A corporation is assessing the risk of two capital budgeting proposals. The financial
analysts have developed pessimistic, most likely, and optimistic estimates of the annual
cash inflows which are given in the following table. The firm’s cost of capital is 10
percent.
If the projects have five-year lives, the range of the net present value for Project B is
approximately ________. (See Table 12.1)
A) $80,563
B) $201,000
C) $255,444
D) $303,263
15) Table 9.3
Balance Sheet
General Talc Mines
December 31, 2014
Given this after-tax cost of each source of capital, the weighted average cost of capital
using book weights for General Talc Mines is ________. (See Table 9.3)
A) 11.6 percent
B) 15.5 percent
C) 16.6 percent
D) 17.5 percent
16) The tax deductibility of various expenses such as general and administrative
expenses ________.
A) increases their pretax cost
B) reduces their after-tax cost
C) has no effect on their after-tax cost
D) has an unpredictable effect on their after-tax cost
17) The conflict resulting from a manager’s desire to increase a firm’s risk without
increasing current borrowing costs and lenders’ desire to limit lending is one effect of
the ________ problem.
A) agency
B) leverage
C) capital
D) variable cost
18) The stated cost of a pledge of accounts receivable is normally ________ above the
prime rate.
A) 6 to 8 percent
B) 2 to 5 percent
C) 4 to 9 percent
D) 6 to 10 percent
19) The process of pooling mortgages or other types of loans and selling the claims or
securities against that pool in the secondary market is called ________.
A) valuation
B) securitization
C) private placement
D) capital restructuring
20) If an investor buys a 100-share put option for $150 with an exercise price of $38
and the underlying price per share of the stock at expiration is $39, what is the amount
of profit or loss, ignoring brokerage fees?
A) There would be a profit of $250
B) There would be a profit of $150
C) There would be a loss of $250
D) There would be a loss of $150
21) Table 8.1
The correlation of returns between Asset A and Asset B can be characterized as
________. (See Table 8.1)
A) perfectly positively correlated
B) perfectly negatively correlated
C) uncorrelated
D) partially correlated
22) If transportation costs were a huge portion of a firm’s expenses and the firm
expected gas prices to increase greatly in the next year, then in preparing its pro forma
income statement the firm should ________.
A) use the percentage of transportation costs from last year’s sales
B) decrease the percentage of transportation costs from the percentage of last year’s
sales
C) increase the percentage of transportation costs from the percentage of last year’s
sales
D) double the percentage of transportation costs from the percentage of last year’s sales