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Finance is:
a. the study of how individuals, institutions, governments, and businesses acquire,
spend, and manage money and other financial assets
b. the study of how businesses acquire, spend, and manage money and other financial
assets
c. the study of how governments, and businesses acquire, spend, and manage money
and other financial assets
d. none of the above
The flotation costs of an IPO depend on
a. the size of the offering
b. the issuing firm's earnings
c. the condition of the stock market
d. all of the above
e. none of the above
For which of the following are member banks prohibited from borrowing at the Fed€s
discount window?
a. funds to meet reserve requirements
b. funds to meet depositor withdrawal demands
c. to meet business loan demands
d. all the above are permitted
e. none of the above are permitted
BP has an average age of inventory of 70 days, an average collection period of 45 days,
and an average payment period of 30 days. Based on this information, BPs cash
conversion cycle is ________ days.
a. 15
b. 40
c. 55
d. 85
e. none of the above
The basic policy instruments that the Fed uses to execute monetary policy include all of
the following EXCEPT
a. changing reserve requirements
b. changing the discount rate
c. conducting closed market operations
d. all of the above are monetary policy instruments
Of the components shown below, which is least likely to be of value in calculating the
cost of preferred stock?
a. flotation costs per share
b. book value of a preferred share
c. dividends per share
d. market price per share
Which of the following forms of organization has an unlimited life?
a. proprietorship
b. LLC
c. subchapter S corporation
d. corporation
e. corporation and subchapter S corporation
Bank reserves are not affected by:
a. currency in circulation
b. changes in reserve requirements
c. open market operation
d. changes in the level of deposits of foreign banks at the Federal Reserve banks
The Depository Institutions Deregulation and Monetary Control Act:
a. established a system of central banks
b. has resulted in more competition among depository institutions
c. increased federal deposit insurance from $40,000 to $80,000 for each account
d. established minimum capital requirements for banks with federal charters
All of the following statements are correct except:
a. The NPV and IRR methods will only sometimes agree on whether a project enhances
or harms shareholder wealth.
b. If a project has a positive NPV, its IRR will always be less than the cost of capital.
c. If a project has a negative NPV, its IRR will always be greater than the cost of
capital.
d. There is always a conflict between NPV and IRR in the case of mutually exclusive
projects.
e. none of the above are correct
Which of the following statements is false?
a. Thrift institutions are like commercial banks in that retained earnings andcertificates
of deposits add to fund sources.
b. The larger the volume of assets and deposits in relation to the capital contributionof
the stockholders, the larger the margin of safety for depositors.
c. Capital funds include capital stock, surplus, and undivided profits.
d. All the above statements are correct.
Lee wishes to accumulate $1 million by making equal annual end-of-year deposits over
the next 20 years. If he can earn 10 percent on his investments, how much must he
deposit at the end of each year?
a. $14,900
b. $50,000
c. $117,453
d. $17,460
Suppose Ningbo Steel had sales revenue of $10,000 sales revenue, cost of goods sold of
$5,000, operating expenses of $3000, interest expense of $1,000, a tax rate of 20%, and
1,000 shares of common stock outstanding. Based on this information, net profit after
tax was:
a. $1,200
b. $1,000
c. $800
d. $400
e. none of the above
The stage in the capital budgeting process that involves finding potential capital
investment opportunities and determining whether a project involves a replacement
decision and/or revenue expansion is called the _____________ stage.
a. follow-up.
b. selection.
c. identification.
d. development.
e. none of the above are included
All of the following statements are correct except:
a. The tax deductibility of debt becomes more important to firms with large nondebt tax
shields such as foreign tax credits granted by the U.S. government to firms that pay
taxes to foreign governments.
b. As the debt/total asset ratio falls, or as earnings become less volatile, the firm will
face higher borrowing costs, driven upward by bond investors requiring higher yields to
compensate for additional risk.
c. The static tradeoff hypothesis states that firms will balance the advantages of equity
(its lower cost and tax-deductibility of dividends) with its disadvantages (greater
possibility of bankruptcy and the value of explicit and implicit bankruptcy costs).
d. Agency costs increase the optimal level of debt financing for a firm above the level
that would be appropriate if agency costs were zero.
e. None of the above statements are correct.
A bond that does not permit future bond issues to be secured by any of the assets
pledged as security to it is called a (n):
a. first mortgage bond
b. equipment trust certificate
c. closed-end mortgage bond
d. open-end mortgage bond
Stages of the capital budgeting include all of the following except:
a. follow-up.
b. selection.
c. identification.
d. development.
e. all of the above are included
Currently, the international monetary system can best be described as a managed
pegged eXchange rate system.
An indirect exchange rate quotation is simply the reciprocal of a direct exchange rate
quotation.
Credit extended on purchases to a firm's customers is called trade credit.
Because the relative values of currencies may change, firms cannot use the currency
exchange markets to reduce the risk of holding too much of certain currencies.
Fiat money is paper money fully backed by a precious metal such as gold.
Money markets are the markets where generally short-term assets are traded.
Global bonds usually are denominated in U.S. dollars and have offering sizes that
typically exceed $1 billion.
