The internal and sustainable growth rate relationships suggest that there are three
measurable influences on growth. These include all of the following except:
a. asset policy
b. dividend policy
c. profitability
d. the firm’s capital structure
The benefits of diversification are greatest when asset returns have:
a. negative correlations
b. positive correlations
c. zero correlations
d. low positive covariances
The U.S Balance of Payments involves all of the following except:
a. Foreign investment,
b. Private grants
c. Government grants
d. U.S. military spending overseas
e. Commercial bank deposits in dollars from foreigners
56. The interest rate that measures the true interest rate when compounding occurs more
frequently than once a year is called the:
a. annual percentage rate
b. compound rate of interest
c. stated rate of interest
d. effective annual rate
If a firm’s sales are $2,000,000, its cost of goods sold is $1,500,000, and its fixed assets
are $1,000,000, what is fixed asset turnover?
a. 2.0 times
b. 1.5 times
c. 0.5 times
d. .67 times
All of the following statements are correct except:
a. The firm’s optimum debt/equity mix maximizes the firm’s cost of capital, which in
turn helps the firm to maximize shareholder wealth
b. A firm’s mix of debt and equity used to finance its assets defines the firm’s capital
structure.
c. A nonoptimal capital structure with either too much or too little debt leads to higher
financing costs, and the firm will likely reject some capital budgeting projects that
could have increased shareholder wealth with an optimal financing mix.
d. A project’s NPV represents the increase in shareholders’ wealth from undertaking a
project; thus, a lower weighted average cost of capital gives higher project net present
values and results in higher levels of shareholder wealth.
e. All of the above statements are correct.
_______________ is the study of how individuals prepare for financial emergencies,
protect against premature death and the loss of property, and accumulate wealth over
time.
a. Personal finance
b. Corporate finance
c. Entrepreneurial finance
d. Investment banking
e. none of the above
Current liabilities would not include:
a. accounts payable
b. notes payable
c. bonds
d. accruals
A(n) _______________ mortgage is a home loan made to a borrower with a relatively
low credit score indicating the likelihood that loan payments might be missed when
due.
a. adjustable rate
b. subprime
c. credit swap
d. high performance
e. none of the above
A commercial finance company:
a. has a bank charter
b. may not discount accounts receivable
c. may make loans secured by chattel mortgages
d. none of the above
Between 1928 and 2008, the average annual return on Treasury Bills averaged _____%,
while the average annual inflation rate averaged _____%.
a. 5.4, 3.8
b. 3.8, 3.2
c. 3.8, 5.4
d. none of the above
In recent years, the United States has been running large trade deficits with both Japan
and China.
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 customer’s orders for securities purchases
and sales.
d. Each of the above statements is false.
The maturity premium is the compensation that investors demand for holding securities
that cannot easily be converted to cash without major price discounts.
The balance of payments is a summary of all economic transactions between one
country and the rest of the world.
Trade credit is the single most important form of short-term business financing.
A net present value profile is a useful tool for evaluating the sensitivity of a project’s
NPV to changes in required return.
Long term business funds are obtained by issuing commercial paper and corporate
bonds.
When accounts receivable are factored: money is advanced to the borrower as a loan
against accounts receivable; accounts receivable balances remain on the balance sheet;
the customer payment is made to the firm, which then submits the payment to the bank;
and interest is charged on the loan.
With generally accepted accounting practices, there is one “right way” of accounting for
business transactions.
Holding demand constant, an increase in supply for one currency relative to another
will cause its value to depreciate relative to that currency.
An aggressive financing plan has a higher financing cost, but with lower risk of not
being able to borrow when short-term funds are needed.
The account receivable period may be calculated as accounts receivable divided by
daily sales.