If a firm can buy an item in one market, then sell it later for a profit in another market,
the firm has engaged in arbitrage.
Although percentage of sales methods (modified and unmodified) give results that are
“in the ballpark,” they are rarely used in more formal planning, because they gloss over
too much detail.
Profitability ratios give an indication of how investors feel about the company’s
financial future.
It is typical to expect the first increase in the marginal cost of capital to occur when the
firm exhausts its retained earnings and proceeds to raise capital by issuing debt.
The treasurer is the person primarily responsible for raising money, analyzing results,
and handling relationships with outside investors.
The theory of comparative advantage is a powerful argument for protectionism.
The current ratio concept suggests that it is a measure of the cash required to fund all
debt coming due within 12 months with consideration of all of the firm’s existing
economic resources.
Trust receipts identify the specific units of inventory pledged as collateral for a loan.
Debentures, also known as secured bonds, rely on the value of specific assets owned by
the issuing company.
There are more IPOs for stocks than for bonds because bonds are almost always issued
to replace older, maturing debt.
The liquidity measure provided by the current ratio depends on the conversion of
inventory to cash in a reasonable time.
Companies that anticipate high growth in their early years are likely to retain earnings
to finance that growth rather than pay dividends and then borrow or issue stock to
support the growth.
The IRS accepts stock repurchases as a legitimate corporate action completely
independent of the payment of dividends.
The dividend preference theory is a relevant and rationally arguable position because:
A.”a bird in hand is worth two in the bush.”
B.something paid today is more certain than something expected in the future.
C.shareholders are cynical about management’s capacity to grow cash on hand today
into something greater in the future.
D.All of the above
Asset management ratios indicate:
A.how well a firm is using its assets to support sales.
B.how efficiently a firm is allocating its liabilities.
C.the return on assets.
D.the profitability of the firm.
The effect of a change in a firm’s credit terms from “net 30” to “2/10, net 30” on its
customer’s balance sheets is likely to be:
A.decreased accounts receivable.
B.increased accounts receivable.
C.decreased accounts payable.
D.increased accounts payable.
Which of the following is correct?
A.The variation in ROE and EPS for an unleveraged firm is identical to variation in
EBIT.
B.In a leveraged firm, the variation in ROE and EPS is always greater than the variation
in EBIT.
C.Financial risk is the additional variation in ROE and EPS arising from the use of debt.
D.All of the above
When using a present value of an annuity table:
A.payments are assumed to be made at the beginning of each period.
B.PVFA factors decrease with an increase in the interest rate.
C.PVFA factors increase with an increase in the number of periods.
D.b and c only
The following position(s) and/or department(s) is/are in the finance department under
the CFO:
A.Treasurer
B.Controller
C.Accounting department
D.All of these are correct.
Computers:
A.enable just about anyone to be a competent business/financial planner.
B.have not replaced the need for experience and judgment in formulating planning
assumptions.
C.make it easier to assess the risk in planning through scenario analysis.
D.b and c
Suppose a firm builds a plant with more space than the firm currently needs. What type
of real option best describes the firm€s behavior?
A.An abandonment option
B.An expansion option
C.A land option contract
D.A contraction option
All other things being equal, what is the major impact that an increase in the expected
inflation rate would be expected to have on the security market line?
A.Reduce its slope
B.Shift it down
C.Shift it up
D.Reduce required returns for investors in any individual asset
If you deposit $3500 in a bank account paying 6% interest and leave it there for fifteen
years, how much will you have?
A.$1,460.55
B.$3,399.27
C.$8,388.10
D.$81,466.00
In addition to raising money, the government uses the tax system to:
A.promote a larger and more comprehensive government authority.
B.incentivize desirable behavior on the part of taxpayers.
C.support our position as the world’s strongest nation.
D.keep the nation growing as rapidly as possible.
If the Lamy Company has a return on sales of 10% and its inventory turnover is 9, what
is its annual cost of goods sold (COGS)? Also assume that Lamy’s average inventory is
$96,700 and its annual sales are $1,000,000.
A.$870,000
B.$850,000
C.$870,300
D.$790,000
The ____ says the term of financing should match the duration of the item or project
supported.
A.time value principle
B.Peter principle
C.working capital principle
D.maturity matching principle
The degree of financial leverage is measured by relating the percentage change in
earnings per share to the percentage change in:
A.sales.
B.EBIT.
C.debt ratio.
D.share price.
The major types of financial ratios include all of the following except:
A.activity.
B.liquidity.
C.financial leverage.
D.equity.
What is the effective rate of interest on a CD that has a nominal rate of 9.5 percent with
interest compounded monthly?
A.9.92%
B.9.74%
C.10.02%
D.9.86%
In estimating the cost of a new project, the firm should include:
A.fixed costs.
B.sunk costs.
C.opportunity costs.
D.a and b
E.a and c