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1) Treasury stocks held within the corporation do not have voting rights but have a
claim on assets in liquidation.
2) An investment's total return is the sum of any cash distributions minus the change in
the investment's value, divided by the beginning-of-period value.
3) The synergy of mergers is the economies of scale resulting from the merged firm's
lower overhead.
4) An interest rate or a required rate of return represents the cost of money.
5) Paid-in capital in excess of par represents a firm's book value received from the
original sale of common stock.
6) Angel capitalists or angels are wealthy individual investors who do not operate as a
business but invest in early-stage companies in exchange for a portion of equity.
7) Publicly owned corporations are those which are financed by the proceeds from the
treasury securities.
8) When a firm's credit standards is relaxed ________.
A) its sales is expected to decrease with corresponding increase in costs
B) its costs is expected to decrease with corresponding decrease in sales
C) its costs is expected to increase faster than sales if the standards are not relaxed
D) its profit contribution from sales will be greater than the cost contribution
9) An international bond that is sold primarily in countries other than the country of the
currency in which the issue is denominated is called ________.
A) sovereign bond
B) foreign bond
C) Eurobond
D) global bond
10) The cost of common stock equity may be estimated by using the ________.
A) yield curve
B) capital asset pricing model
C) break-even analysis
D) DuPont analysis
11) A firm has annual operating outlays of $1,800,000 and a cash conversion cycle of
60 days. If the firm currently pays 12 percent for financing and reduces its cash
conversion cycle to 50 days, the annual savings is ________. (Assume a 365-day year.)
A) $4,652.19
B) $3,065.86
C) $5,917.81
D) $2,160.23
12) With the existence of fixed operating costs, a decrease in sales will result in
________ in EBIT.
A) a proportional increase
B) an equal increase
C) a less than proportional decrease
D) a more than proportional decrease
13) A(n) ________ yield curve reflects lower expected future rates of interest.
A) upward-sloping
B) flat
C) downward-sloping
D) linear
14) Table 15.7
Fizzy Animators, Inc. currently makes all sales on credit and offers no cash discount.
The firm is considering a 3 percent cash discount for payment within 10 days. The
firm's current average collection period is 90 days, sales are 400 films per year, selling
price is $25,000 per film, variable cost per film is $18,750, and the average cost per
film is $21,000. The firm expects that the change in credit terms will result in a minor
increase in sales of 10 films per year, that 75 percent of the sales will take the discount,
and the average collection period will drop to 30 days. The firm's bad debt expense is
expected to become negligible under the proposed plan. The bad debt expense is
currently 0.5 percent of sales. The firm's required return on equal-risk investments is 20
percent. (Assume a 360-day year.)
What is the marginal investment in accounts receivable under the proposed plan? (See
Table 15.7)
A) $1,234,375
B) $1,382,500
C) $1,567,300
D) $1,841,570
15) War, inflation, and the condition of the foreign markets are all examples of
________.
A) business specific risk
B) nondiversifiable risk
C) internal risk
D) unsystematic risk
16) What would be the cost of new common stock equity for Tangshan Mining if the
firm just paid a dividend of $4.25, the stock price is $55.00, dividends are expected to
grow at 8.5 percent indefinitely, and flotation costs are $6.25 per share?
A) 17.22%
B) 16.88%
C) 9.46%
D) 12.57%
17) Table 3.2
Dana Dairy Products Key Ratios
Income Statement
Dana Dairy Products
For the Year Ended December 31, 2013
Balance Sheet
Dana Dairy Products
December 31, 2013
Dana Dairy Products had a ________ degree of financial leverage than the industry
standard, resulting in ________. (See Table 3.2)
A) lower; lower return on total assets
B) lower; lower return on equity
C) higher; higher return on equity
D) higher; higher return on total assets
18) A lease under which a lessee sells an asset for cash to a prospective lessor and then
leases back the same asset is called a(n) ________.
A) operating lease
B) leveraged lease
C) sale-leaseback arrangement
D) direct lease
19) Xiao Xin is planning to accumulate $40,000 by the end of 5 years by making 5
equal annual deposits. If she plans to make her first deposit today and can earn an
annual compound rate of 9 percent on her investment, how much must each deposit be
in order to accumulate the $40,000?
A) $ 6,132
B) $ 6,684
C) $23,844
D) $ 9,434
20) The present value of $1,000 received at the end of year 1, $1,200 received at the
end of year 2, and $1,300 received at the end of year 3, assuming an opportunity cost of
7 percent, is ________.
A) $2,500
B) $3,044
C) $6,516
D) $2,856
21) Tryst Energy Inc. has an average age of inventory of 65 days, an average collection
period of 60 days and an average payment period of 65 days. The firm's total annual
outlays for operating cycle investments are $3.65 million. Assuming a 365-day year,
how much financing is required to support its cash conversion cycle?
A) $600,000
B) $650,000
C) $700,000
D) $559,000
22) What is the IRR for the following project if its initial after-tax cost is $5,000,000
and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1,
$1,900,000 in year 2, $1,700,000 in year 3, and $1,300,000 in year 4?
A) 15.57%
B) 0.00%
C) 13.57%
D) 12.25%
23) In capital budgeting, risk refers to ________.
A) the degree of variability of the cash inflows
B) the degree of variability of the initial investment
C) the chance that the net present value will be greater than zero
D) the chance that the internal rate of return will exceed the cost of capital
24) Finance is ________.
A) the system of verifying, analyzing, and recording business transactions
B) the science of the production, distribution, and consumption of goods and services
C) the art and science of managing money
D) the art of merchandising products and services
