1) The Federal National Mortgage Association buys mortgage loans from local lenders,
bundles them together, and resells them as securities.
2) Forced conversion refers to the corporation calling a convertible bond when the
market price of the stock is above the conversion price by more than a small
percentage.
3) The net present value profile examines the relationship of the discount rate to the net
present value.
4) In the last decade, the U.S. has invested substantially more in foreign countries than
foreign countries have invested back in the U.S.
5) If possible outcomes are D and probabilities are P, the standard deviation is defined
as .
6) Leveraged takeovers occur to firms that have an unusually large cash/total assets
position.
7) There are some serious problems with the financial goal of maximizing the earnings
of the firm.
8) Long-term bond prices are more volatile than short-term bond prices, given an equal
percentage change in the interest rate.
9) A floating rate bond has a reasonably stable price, but actual interest payments
received change often over the life of the bond.
10) The generation of sales and profits ensures that there will be adequate cash on hand
to meet financial obligations as they come due.
11) The highest possible value for positive correlation is +1 .
12) The simplest inventory financing method is a blanket inventory lien where items are
not identified or tagged, and there is no physical transfer of control of the inventory
from the borrower.
13) A fully owned foreign subsidiary is a form of MNC in which
A.a local entrepreneur buys the firm in her own foreign country
B.the MNC owns and operates the firm by itself
C.the foreign government gives its full cooperation
D.None of these options are true
14) How many of the following items are found on the income statement, rather than
the balance sheet?
Sales
Notes payable (six months)
Bonds payable, maturity 2001
Common stock
Depreciation expense
Inventories
Capital in excess of par value
Net income (earnings after taxes)
Income tax payable
A.Two of these items are found on the income statement
B.Three of these items are found on the income statement
C.Four of these items are found on the income statement
D.Five of these items are found on the income statement
15) The primary argument against the “marginal principle of retained earnings” is
A.the uncertainty surrounding capital investment projects
B.the lack of ability to adequately measure corporate investment returns
C.the diversity of stockholders and their potential investment returns
D.its failure to consider stockholder preferences
16) The cost of equity capital in the form of new common stock will be higher than the
cost of retained earnings because of
A.the existence of taxes
B.the existence of flotation costs
C.investors’ unwillingness to purchase additional shares of common stock
D.the existence of financial leverage
17) Match the following to the items below:
1>Eurodollars
2>Eurobonds
3>cross rate
4>Export-Import Bank (Eximbank)
5>International Finance Corporation (IFC)
6>exchange rate
7>London Interbank Offered Rate (LIBOR)
8>Overseas Private Investment Corporation (OPIC)
9>spot rate
10>forward rate
11>Foreign Credit Insurance Association (FCIA)
12>American Depository Receipts (ADRs)
A. A federal government agency that sells insurance to qualified firms against political
risk.
B. The relationship between two foreign currencies expressed in terms of a third
currency.
C. A private association of approximately 60 U.S. firms that provides assurance to
exporters that should the foreign customers default on payments, the insurance firms
will cover the loss.
D. The rate at which the currency is traded for immediate deliveries. It is the existing
cash price.
E. A valuable source of short-term loans in U.S. dollars for many multinational firms
and their foreign affiliates.
F. Long-term debt issues sold simultaneously in several different national capital
markets, but denominated in a currency different from that of the nation in which they
are issued.
G. A rate that reflects the future value of a currency based on expectations.
H. A means of making foreign stock issues available to American investors.
I. An entity owned by members of the World Bank which buys equity shares of
multinational businesses and/or provides long-term loans up to a total of 25% of total
capital.
J. The interest rate for large deposits in the Eurodollar market.
K. An agency of the U.S. government that facilitates the financing of U.S. exports
through one of a number of programs.
L. The relationship between the value of two or more currencies.
18) The degree of financial leverage is concerned with the relationship between
A.changes in volume and changes in EPS
B.changes in volume and changes in EBIT
C.changes in EBIT and changes in EPS
D.changes in EBIT and changes in operating income
19) The intrinsic value of a warrant to buy four shares of Merton stock at $53 per share
is $20. What is the current market price of Merton stock?
A.$55.00
B.$59.00
C.$58.00
D.None of these options
20) A corporation may wish to repurchase some of its shares for all of the following
reasons except for which one?
A.The stock may be needed for future mergers
B.The corporation’s executives will financially benefit if the stock is resold later at a
substantial profit
C.It can stabilize or increase the market price of the stock
D.The stock may be needed for an employee compensation plan
21) For a given firm, holding other factors constant, ordering costs per unit generally
A.decline as average inventory increases
B.increase in proportion to increases in inventory
C.are considered fixed costs
D.are negotiated
22) If sales volume exceeds the break-even point, the firm will experience
A.an operating loss
B.an operating profit
C.an increase in plant and equipment
D.an increase in stock price
23)
Refer to the figure above. What is Marni’s after-tax profit margin?
A.7.5%
B.3.75%
C.50%
D.None of the options
24) Which one of the following types of mergers is most likely to lead to diversification
benefits?
A.A horizontal merger
B.A vertical merger
C.A tax-free exchange
D.A conglomerate merger
25)
Refer to the figure above. Marni’s quick ratio is ____.
A.0.79:1
B.0.50:1
C.1.84:1
D.None of the options
26) Kenneth’s Arrows and Bows borrow $15,000 for one year at 8% interest. What is
the effective rate of interest if the loan is discounted?
A.Less than 8.5%
B.More than 8.5% but less than 9.5%
C.More than 9.5% but less than 10.5%
D.More than 10.5%
27) A short-term creditor would be most interested in
A.profitability ratios
B.asset utilization ratios
C.liquidityratios
D.debt utilization ratios
28) The weighted average cost of capital is used as a discount rate because
A.it is an indication of how much the firm is earning overall
B.as long as the cost of capital is earned, the common stock value of the firm will be
maintained
C.it is comparable to the prevailing market interest rates
D.returns below the cost of capital will cover all fixed costs associated with capital and
provide an excess return to stockholders
29) Match the following with the items below:
1>agency securities
2>municipal securities
3>financial intermediary
4>capital markets
5>over-the-counter securities
6>dual trading
7>money markets
8>secondary trading
9>listing requirements
10>internally generated funds
A. A financial institution such as a bank or life insurance company that directs other
peoples’ money into indirect investments like government and corporate securities.
B. Financial standards that corporations must meet before their common stock can be
traded on a stock exchange.
C. Securities listed by various semiautonomous segments of the federal government
such as the Federal Home Loan Bank.
D. The buying and selling of publicly owned securities in markets like the New York
Stock Exchange and the over-the-counter market.
E. Exists when the common stock of one company is traded on more than one stock
exchange.
F. Competitive markets for securities with maturities of one year or less.
G. This fund is composed of retained earnings and non-cash items added back.
H. Competitive markets for securities with maturities of more than one year.
I. Are issued by state and local government units.
J. A market for securities where dealers transact purchases and sales of securities by
trading from their own inventory of securities.
30) Which of the following is not an example of indirect investment by a household?
A.Investment in a mutual fund’s shares
B.Investment in an original offering of corporate securities
C.Investment in life insurance
D.A savings deposit in a commercial bank
31) Elgin Battery Manufacturers had sales of $1,000,000 in 2009 and their cost of
goods sold represented 70 percent of sales. Selling and administrative expenses were 10
percent of sales. Depreciation expense was $100,000 and interest expense for the year
was $10,000. The firm’s tax rate is 30 percent. What is the dollar amount of taxes paid?
A.$30,000
B.$117,800
C.$27,000
D.None of the options
32) Assuming that a firm has no capital rationing constraint and that a firm’s investment
alternatives are not mutually exclusive, the firm should accept all investment proposals
A.for which it can obtain financing
B.that have a positive net present value
C.that have positive cash flows
D.that provide returns greater than the after-tax cost of debt
33) Which of the following actions will provide the shareholders with the most total
wealth when a company conducts a rights offering?
A.Exercise the rights for new shares
B.Sell the rights themselves and hold existing shares and cash
C.Exercise the rights and sell the shares
D.None of these options
34) The dividend on preferred stock is most similar to
A.a common stock with no growth in dividends
B.a common stock with a constant growth in dividends
C.acommon stock with a variable growth in dividends
D.a certificate of deposit
35) In issuing stock, the term ‘spread” refers to
A.the profit the managing investment banker gets for an issue of stock
B.the disparity between the initial asking price and the average price for the stock
issued some months later
C.the difference between what the corporation gets for new issues of stock and what the
public pays for the stock
D.the total cost to the corporation for issuing new stock
36) In the development of the pro forma financial statements, the last step in the process
is the development of the
A.cash budget
B.pro forma balance sheet
C.pro forma income statement
D.capital budget
37) Institutional investors are important in today’s business world because
A.as large investors, they have more say in how businesses are managed
B.they have a fiduciary responsibility to the workers and investors that they represent to
see that the firms they own are managed in an ethical way
C.as a group they can vote large blocks of stock for the election of board members
D.All of the options
38) The net present value method is a more conservative technique for selecting
investment projects than the internal rate of return method because the NPV method
A.assumes that cash flows are reinvested at the project’s internal rate of return
B.concentrates on the liquidity aspects of investment projects
C.assumes that cash flows are reinvested at the firm’s weighted average cost of capital
D.None of these options
39) Match the following with the items below:
1>dividend reinvestment plans
2>marginal principle of retained earnings
3>dividend payment date
4>dividend yield
5>life cycle
6>dividend payout
7>holder-of-record date
8>capital gains taxes
9>ex-dividend date
10>dividend information content
A. Stockholders owning the stock on this date are entitled to receive a dividend.
B. The date a stockholder will receive a dividend.
C. Dividends per share divided by market price per share.
D. The percentage of dividends to earnings after taxes.
E. Presumes that companies undertake projects which earn more than investors can earn
elsewhere, with the remainder distributed as dividends.
F. Assumes that dividends provide valuable data as to economic expectations for the
company.
G. On this date, the purchase of the stock no longer carries with it the right to receive
the dividend previously declared.
H. Taxes on increases in value from holding assets.
I. A determinant of dividend policy that changes in a relatively predictable way over
time.
J. Plans that provide the investor with an opportunity to buy additional shares of stock
with the cash dividends paid by the company.
40) The coefficient of correlation
A.takes on values anywhere from 0 to +1
B.takes on values anywhere from -1 to 0
C.takes on values anywhere from -1 to +1
D.takes on values of 0 or larger
41) Management may repurchase shares of its own stock in the market
A.tobuy stock they feel is considerably underpriced
B.for employee stock options
C.to use in a merger
D.All of these options
42) The Dammon Corp. has the following investment opportunities:
Under the payback method and assuming these machines are mutually exclusive, which
machine(s) would Dammon Corp. choose?
A.Machine A
B.Machine B
C.Machine C
D.Machine A and B
43) Yield curves change daily to reflect
A.changing conditions in the money and capital markets
B.new inflation expectations
C.changing conditions in the overall economy
D.All of the options
44) Under which of the following conditions could the overuse of financial leverage be
detrimental to the firm?
A.In a stable industry
B.When there is cyclical demand for the firm’s products
C.During an upswing in the business cycle
D.When there is low interest cost compared to return on assets
45) The direct financial motives for merger activity include all of the following except
for which one?
A.The portfolio effect
B.An improved financial posture and greater debt
C.The utilization of tax loss carryforwards
D.Vertical integration
46) You are leaving Mexico and have 290 pesos to change into dollars. The exchange
rate is now 12 pesos to the dollar. Approximately how many dollars will you receive?
A.$3025.00
B.$24.16
C.$264.00
D.Not enough information is given to determine an answer