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1) Fixed capital would be defined as the firms fixed assets, which include plant,
equipment and property.
2) The minimum required rate of return is a weighted average of the firms cost of
various sources of capital.
3) The Treasurys primary checkable deposit accounts for day-to-day operations are kept
at several commercial banks in large cities.
4) The international monetary system consists of institutions and mechanisms that
foster oversees the World Bank, sets international trade policy, and determines the
exchange rate regime for all participating countries.
5) Stocks and bonds are rarely used as collateral for short-term loans.
6) Capital consumption allowances are estimates of depreciation of plant and equipment
assets for business purposes.
7) An underwriting agreement is a contract in which the investment banker agrees to
buy securities at a predetermined price and then resell them to investors.
8) When the annual interest rate stays the same, more frequent interest compounding
helps savers earn more interest over the course of the year.
9) The travelers letter of credit is issued by a bank to banks in other countries
authorizing foreign banks to cash checks or purchase drafts presented by the bearer.
10) The inventory conversion period is calculated by inventory divided by costs of
goods sold.
11) Governmental agencies may not issue debenture bonds.
12) The total asset turnover is computed as net sales divided by total assets.
13) Shelf registration allows firms to register only debt issues with the SEC, and have
them available to sell for two years.
14) The effective annual rate (EAR) is sometimes called the annual effective yield.
15) Gross private domestic investment measures a nations output of goods and services
for a specified period of time.
16) A greater percentage of European multinational firms use weighted average costs of
capital as their project discount rates than U.S. firms.
17) The liquidity preference theory holds that securities of different maturities are not
perfect substitutes for each other.
18) The term structure of interest rates indicates the relation between interest rates and
the maturity of comparable quality debt instruments.
19) The market value added measures the value created by the firms managers.
20) Agency costs are the tangible and intangible expenses borne by shareholders
because of the actual or potential self-serving actions of managers; and agency costs
include explicit, out-of-pocket expenses.
21) Variations in a firms tax rate and tax-related charges over time due to changing tax
laws and regulations is called:
a.interest rate risk
b.business risk
c.exchange rate risk
d. purchasing power risk
e. none of the above
22) The current liabilities of a business may include:
a.notes payable
b.accounts receivable
c.prepaid expenses
d.depreciation reserves
23) A series of equal payments or receipts that occur at the beginning of each of a
number of time periods is referred to as:
a.an ordinary annuity
b.a deferred annuity
c.an annuity due
d.an extraordinary annuity
24) Cost-volume-profit analysis can be used to estimate the firms operating profits at
different levels of:
a.dollar sales
b.unit sales
c.dollar fixed costs
d.unit variable costs
25) ___________________ is often called a hybrid security.
a.A bond
b.A subordinated debenture
c.Preferred stock
d.Common stock
26) The statement of retained earnings includes all of the following accounts within the
statement except:
a.interest expense
b.net profits after taxes
c.preferred stock dividends
d.stock repurchases
e.all of the above are included
27) The IRR
a.shows the graphical relationship between a projects NPV and cost of capital
b.is the return that causes the NPV to be negative
c.is the return that causes the NPV to be positive
d.measures the firm and projects required rate of return
e.none of the above
28) Which of the following risks would not be faced by investors in domestic bonds?
a.credit (or default) risk
b.interest rate risk
c.reinvestment rate (or rollover) risk
d.exchange rate risk
29) An over-the-counter market trade occurs in the:
a.primary market
b.secondary market
c.third market
d.fourth market
30) The life stages of an individual saver include all of the following EXCEPT:
a.the formative/education developing stage
b.the career earning/family creating stage
c.the wealth building stage
d.the tax minimizing stage
31) A risk which results from a firms inability to meet currently maturing obligations is
often referred to as:
a.liquidity risk
b.purchasing power risk
c.interest rate risk
d.financial leverage risk
32) The profitability ratio that measures the return that shareholders earned on the
equity they invested in the firm is the:
a.operating profit margin
b.return on equity
c.net profit margin
d.return on assets
33) A domestic importer ordering foreign merchandise from a specific supplier would
probably obtain from a Bank A:
a.a bankers acceptance
b.a travelers letter of credit
c.a commercial letter of credit
d.travelers checks
34) As a general rule, the capital structure that:
a.minimizes the cost of equity also maximizes the stock price
b.maximizes the stock price also minimizes the weighted average cost of capital
c.minimizes the cost of debt also maximizes the expected earnings per share
d.none of the above is a true statement
35) Cash receipts may include all of the following except
a.dividends received from other firms
b.collections of accounts receivable
c.cash sales
d.interest income
e.all of the above
36) An analyst should be careful when conducting ratio analysis to ensure that
a.the overall performance of the firm is judged on a single ratio
b.the dates of the financial statements being compared are different
c.audited statements are not being used
d.different accounting procedures are used
e.none of the above
37) When the United States Treasury makes a payment to an individual or business, it
usually takes the form of a:
a.check drawn on the Central Bank of China
b.check drawn directly against the U.S. Treasury
c.special Treasury voucher
d.check drawn against a bank in which tax balances are held
e. none of the above
38) Using the DuPont system of analysis and holding other factors constant, an increase
in the net profit margin will result in ________ in the return on equity.
a.an increase
b.a decrease
c.no change
d.an undetermined change
39) Which of the following is not an advantage of owning debt securities?
a.high claim on cash flows of a firm
b.highest return of corporate securities
c.high claim on assets of in liquidation
d.none of the above
40) Two sources of risk that investors in nondomestic securities face beyond those of
domestic securities include:
a.purchasing power risk
b.inflation rate risk
c.corruption risk
d.two of the above
e.none of the above
41) The theory of ___________________ implies that information is quickly embedded
in prices making it difficult for investors to "beat the market."
a.stock investing
b.inefficient markets
c.portfolio management
d.asset allocation
e.none of the above
42) The stage in the capital budgeting process that requires estimating relevant cash
inflows and outflows and discussing the pros and cons of each project is called the
_____________ stage.
a.follow-up
b.selection
c.identification
d.development
e.none of the above are included
43) Which one of the following types of ratios indicates the ability to meet short-term
obligations to creditors as they come due?
a.liquidity ratios
b.asset management ratios
c.capital structure ratios
d.profitability ratios
e.market value ratios
44) Which of the following would not be holders of financial assets?
a.state governments
b.U.S. government
c.local governments
d.all might hold financial assets
e.none of the above hold financial assets
45) A business that needs short-term credit in excess of its regular line of bank credit
may:
a.sell common stock to the bank with a repurchase agreement
b.subordinate the interests of the owners to the banks additional loans
c.make limited use of overdrafts
d.pledge accounts receivable as specific collateral for an additional loan
46) 2/10 net 30 translates as
a.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid within
10 days, the net amount is due in 20 days
b.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid
within 10 days, the net amount is due 30 days after the middle of the month
c.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid within
10 days, the net amount is due 30 days after the end of the month
d.2 percent cash discount may be taken if paid in 10 days of shipment; if not paid
within 10 days, the net amount is due in 20 days
e.none of the above
47) Which of the following statements is false?
a.time series analysis evaluates a firms performance over time
b.industry comparative analysis compares a firms ratios against average ratios against
average ratios for other companies in the industry
c.the average collection period is calculated as the year-end accounts receivable divided
by the net sales
d.all the above statements are correct
48) Travelers letters of credit are:
a.issued by a bank and addressed to a list of banks in other countries
b.especially popular with tourists
c.convertible into cash at most large banks
d.of special value to exporters
49) If life insurance is pledged as collateral for a loan, how much can be borrowed?
a.face value of the policy
b.cash surrender of the policy
c.an amount equal to the annual premium
d.none of the above
50) Which one of the following financial statements reports a firms assets and the
claims on assets?
a.balance sheet
b.income statement
c.statement of changes in financial position
d.cash flow statement
51) Which of the following might be a source of industry information?
a.Dun and Bradstreet
b.Risk Management Association
c.the Federal Trade Commission
d.none of the above
