Policy decisions regarding inventories, accounts receivable, cash balances, and
marketable securities can control the amount invested in these assets.
A firm’s net working capital reflects the amount of funds required to support its
day-to-day routine operations. The word net reflects the fact that the requirement is net
of spontaneous financing.
Investing means using a resource to benefit the future rather than for current
satisfaction.
A security’s value is equal to the future value of its past cash flows.
A budget is a longer term bridge between an annual operating plan and the five-year
strategic plan.
A record of owners of bearer bonds is kept by a transfer agent.
A major responsibility of the financial analyst is to gather information about a firm in
order to predict its performance.
The finance function and the accounting function look at the sale of product to a
customer on credit in different ways. Which of the following best describes that
difference?
A.Accounting views the sale as a completed transaction to be recorded as revenue while
finance views it as incomplete until the cash is received.
B.Finance views the sale as a completed transaction to be recorded as revenue while
accounting views it as incomplete until the cash is received.
C.Accounting is more interested in the cash inflows and outflows than finance.
D.Finance is more interested in reporting the appropriate transactions in the proper time
period than accounting.
Next year, a cash flow is expected to be $1,000.00 (40% probability) or $2,000.00 (60%
probability). The following year, the same cash flow possibilities exist in the same
manner as the previous year. What is the probability of the cash flow in the second year
being $2,000.00?
A.36%
B.60%
C.24%
D.16%
Interest rates are set by:
A.the forces of supply and demand in the market for debt.
B.the Federal Reserve, the nation’s central bank which regulates the banking industry.
C.senior banking executives on the basis of the funds banks have available to lend.
D.the president and his council of economic advisors.
Dividends can’t be paid by a(n) _____firm and must come from current or prior
earnings.
A.insolvent
B.very rapidly growing
C.inequitable
D.stable
LISP Inc. is planning to purchase a new mixer/dubber for $50,000. The new equipment
will replace an older mixer that has been fully depreciated but has a salvage value of
$5,000. Compute the net investment required for this project. Assume a marginal tax
rate of 40 percent.
A.$47,000
B.$45,000
C.$48,000
D.None of the above
The constant growth model is also known as the:
A.Gordon model.
B.next dividend model.
C.normal growth model.
D.both a and c above.
E.All of the above
A stock dividend will not affect which of the following balance sheet items?
A.Total assets
B.Retained earnings
C.Paid in excess
D.Common stock
The money needed to get a project started is generally referred to as the initial outlay. It
includes all cash outflows:
A.before the start of the project and in its first year.
B.throughout the life of the project.
C.before or at the start of the project, generally referred to as at time zero.
D.already spent.
The following is true of financial assets:
A.companies issue financial assets in order to raise capital (money).
B.investors purchase financial assets in order to earn a return on funds they don’t
currently need.
C.they differ from real assets in that they are pieces of paper as opposed to physical
objects.
D.All of these are true.
The acquisition of a company in which the buyer borrows most of the purchase price
using the firm’s own assets as collateral is a:
A.consolidation.
B.leveraged buyout.
C.conglomerate merger.
D.tender offer.
As interest rates move up or down and the longer is a bond’s term:
A.the bond’s price moves in the same direction.
B.the more drastic is the movement of the bond’s price in the same direction.
C.the more drastic is the movement of the bond’s price in the opposite direction.
D.a and b
If a firm is afraid of being prevented from using a certain supplier due to a proposed
merger, what type of merger is the proposed merger likely to be?
A.A consolidation
B.A horizontal merger
C.A conglomerate merger
D.A vertical merger
Equity is historically:
A.safer than debt.
B.risker than debt.
C.risk averse.
D.safer than other investments.
The process of evaluating a firm’s operations to determine the minimum volume it must
sell to avoid losing money is referred to as:
A.operating leverage analysis.
B.direct analysis of operations.
C.breakeven analysis.
D.cost, volume, and profit analysis.