1) A “risky” financial plan will use long-term financing for fixed assets, permanent
current assets, and a portion of temporary current assets.
2) The NASDAQ market is the primary market for international securities.
3) Risk is not only measured in terms of losses, but also in terms of variability.
4) “Operating leverage” is the use of fixed costs to magnify returns at high levels of
operation.
5) A firm’s cost of preferred stock is equal to the preferred dividend divided by the net
price after flotation costs.
6) The “term structure of interest rates” depicts the competitive cost of funds for the
various short-term sources of funds such as Treasury bills, commercial paper, and bank
CDs.
7) For the most part, companies not directly associated with the financial crisis of
2008-2009 did not cut their dividend payments to stockholders.
8) You hold a long-term bond yielding 10%. If interest rates fall before you sell the
bond, you will sell at a higher price than if interest rates had been constant.
9) The net present value profile allows a firm to examine the project’s net present value
over time.
10) Warrants are often attached to debt securities to increase the debt issue’s
attractiveness to investors.
11) The cost of new common stock is greater than the cost of outstanding common
stock.
12) Conversion premiums are influenced heavily by expectations of future stock
performance.
13) Occasionally, a company will have several classes of common stock, with each
class carrying different rights to dividends and income.
14) Return on investment is the major decision criteria in credit decisions.
15) The future value of an ordinary annuity assumes that the payments are received at
the end of the year and that the last payment does not compound.
16) “Preemptive rights” means that
A.existing shareholders can prevent management from issuing additional common
stock
B.common shareholders can “preempt” preferred shareholders for dividends
C.existing shareholders are guaranteed an opportunity to retain their proportional share
of ownership of the firm
D.management can preempt the right of shareholders to receive dividends if earnings
are down
17) One of the primary factors evaluated when a company is pursuing a leveraged
buyout is
A.Net cash flow
B.Free cash flow
C.Cash flow from financing activities
D.Cash flow from investing activities
18) In a general sense, the value of any asset is the
A.value of the dividends received from the asset
B.present value of the cash flows expected to be received from the asset
C.value of past dividends and price increases for the asset
D.future value of the expected earnings discounted by the asset’s cost of capital
19) Increased productivity due to technology has
A.increased corporations’ reliance on debt for capital expansion needs
B.created larger asset values on the firm’s historical balance sheet
C.made it cheaper (in terms of interest costs) for firms to borrow money
D.helped to keep corporate costs in check
20) A firm is selling an old asset below book value in a replacement decision. As the
firm’s tax rate is raised, the net cash outflow (purchase price less proceeds from the sale
of the old asset) would
A.go up
B.go down
C.remain the same
D.More information is required to determine an answer
21)
Refer to the figure above. The firm’s inventory turnover ratio is ____.
A.10x
B.5x
C.0.4x
D.0.1x
22) The after-tax cost of preferred stock to the issuing corporation
A.is the same as the before-tax cost
B.is usually lower than the cost of debt
C.is dependent on the firm’s tax bracket
D.None of these options
23) Which of the following is not a key role of an investment banker?
A.Market-maker
B.Underwriter
C.Acting as a transfer agent
D.Agent in private placement
24) A convertible bond is currently selling for $970. It is convertible into 15 shares of
common stock that presently sell for $50 per share. The conversion premium is
A.$90
B.$220
C.57 shares
D.13 shares
25) Tricki Corp stock sells for $45 rights-on, and the subscription price is $35. Ten
rights are required to purchase one share. Tomorrow the stock of Tricki will go
ex-rights. What is the price of Tricki expected to be when it begins trading ex-rights?
A.$47.23
B.$44.00
C.$44.09
D.$45.00
26) Agency problems are least likely to arise in which organizational form?
A.Sole proprietorship
B.Limited partnership
C.Corporation
D.Subchapter S corporation
27) Financial managers can accurately predict future interest rates by
A.calculating the anticipated inflation rate
B.gauging the Fed’s decision regarding the target federal funds rate
C.measuring investor sentiment and consumer confidence indices
D.None of the options
28) One of the major cost savings for consumers using automated clearinghouses is
A.saving great amounts of money on postage
B.saving time paying bills through check writing
C.the security of having the payments and deposits directly deposited or deducted from
your account
D.All of the options are true
29) How much must you invest at 8% interest in order to see your investment grow to
$8,000 in 10 years?
A.$3,070
B.$3,704
C.$3,105
D.None of these options
30) The term “risk-averse” means that
A.an individual refuses to take risks
B.most investors and businessmen seek risk
C.an individual will seek to avoid risk or be compensated with a higher return
D.only investment proposals with no risk should be accepted
31) Friedman Roses Inc. needs $65,000 in funds for expansion. With a compensating
balance requirement of 20%, how much will the firm need to borrow?
A.$16,000
B.$81,250
C.$100,000
D.None of these options
32)
Refer to the figure above. The firm’s inventory turnover ratio if calculated using sales is
____.
A.10x
B.8x
C.2.7x
D.0.1x
33) The Securities Exchange Act of 1934 is primarily concerned with
A.a central market system
B.regulation of organized exchanges
C.protecting customers of bankrupt securities firms
D.original issues of securities
34) A financial manager’s goal of maximizing current or short-term earnings may not be
appropriate because
A.it fails to consider the timing of the benefits
B.increased earnings may be accompanied by unacceptably higher levels of risk
C.earnings are subjective; they can be defined in various ways such as accounting or
economic earnings
D.All of the options
35) In computing the cost of common equity, if D1 goes downward and P0 goes up, Ke
will
A.go up
B.go down
C.stay the same
D.slowly increase
36) The use of cash budgeting procedures
A.helps the firm plan its current asset levels for a given production plan
B.makes managing inventory easier under seasonal production
C.illustrates fluctuating levels of current assets for a given production plan
D.All of the options are correct
37) Modigliani and Associates has forecasted the following payoffs from a project:
What is the expected value of the outcomes?
A.$4,000
B.$3,300
C.$3,700
D.Cannot be determined. Depends upon which prediction is correct
38) Required production during a planning period will depend on the
A.beginning inventory of products
B.sales during the period
C.desired level of ending inventory
D.All of the options
39) Which investment bank underwrote the most common stock and bonds in 2012?
A.Merrill Lynch
B.J.P. Morgan
C.Deutsche Bank
D.Citigroup
40) Will an increase in inflation have a larger impact on the price of a bond or preferred
stock?
A.The bond
B.The preferred stock
C.The impact will be the same
D.There is not enough information to determine the relative impact
41) If a forward discount is prevalent in U.S. dollars to Swiss francs,
A.the forward rate is lower than the spot rate
B.the forward rate is higher than the spot rate
C.markets will expect the Swiss Franc to appreciate relative to the dollar
D.the forward rate is lower than the spot rate and markets expect the Swiss franc to
appreciate relative to the dollar
42) The growth rate for the firm’s common stock is 7%. The firm’s preferred stock is
paying an annual dividend of $3. What is the preferred stock price if the required rate of
return is 8%?
A.$3.00
B.$37.50
C.$50.00
D.None of these options