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1) Under a sinking fund provision, money is set aside every year until the bond matures,
and then the money is used to repay the principal.
2) Because of changing economic conditions, it is difficult for companies such as Dun
& Bradstreet to devise models predicting payment problems and the probability of
bankruptcy 12 months in the future.
3) Only the stronger investment bankers are in a position to benefit from the shelf
registration process.
4) If a company has preferred stock, it must pay the dividends on the preferred even if it
shows no profit for the year.
5) Balance sheet items are required to be adjusted for inflation.
6) An example of an adjustment for a cash break-even analysis would be adding back
increases in accounts receivable.
7) Retained earnings accurately portray the liquidity position of the firm.
8) When using level production, inventory will peak in the month where unit sales trend
above the planned production level.
9) Analysts agree that extraordinary gains/losses should be excluded from ratio analysis
because they are one-time events, and can distort annual results from normal
operations.
10) One major disadvantage of commercial paper is that if the company's credit quality
declines, refinancing existing commercial paper might be impossible to achieve through
a new issue of commercial paper.
11) Only the market segmentation theory has any significant impact on interest rates.
12) The cost of debt is equal to the current bond yield on bonds of similar risk class,
adjusted for the corporate tax rate.
13) When a country has a weak currency relative to other countries, visiting that
country is much more expensive for residents of other countries.
14) The valuation of a financial asset is based on the concept of determining the present
value of future cash flows.
15) To the security holder, preferred stock offers the highest risk and the lowest return.
16) The finance department should work independently without input from other
departments because there may be significant biases when creating pro formas.
17) As of 2013, the Federal Reserve intends to maintain low interest rates on U. S.
government securities as long as inflation remains comparatively low and
unemployment remains high.
18) The conversion value is equal to the conversion ratio times the conversion price.
19) Depreciation tends to
A.increase cash flow and decrease income
B.decrease cash flow and increase income
C.affect only cash flow
D.affect only income
20) The market allocates capital to companies based on
A.risk
B.efficiency
C.expected returns
D.All of these options
21) If Crossroads International has $3,000,000 in total sales (75% on credit) and
receivables of $500,000, what is their average collection period?
A.80 days
B.60 days
C.61 days
D.81 days
22) A call feature allows
A.the bondholder to redeem the bond before the maturity date
B.the corporation to redeem the bond before the maturity date
C.the corporation to convert the bond to common stock
D.the bondholder to demand increased collateral
23) Compute the net increase or decrease in cash flows if Star Corporation had
$250,000 in net income, $30,000 in depreciation expense, a decrease of $20,000 in A/R
and an increase in bonds payable of $50,000.
A.$370,000
B.$350,000
C.$280,000
D.$310,000
24) Marginal cost of capital
A.recognizes that cost of capital does not stay constant as more funds are raised
B.usually provides the same capital budgeting choices as the use of weighted average
cost of capital
C.can be defined as the cost of capital when no retained earnings are available for
expansion
D.None of these options apply
25) The underwriting cost on a new bond issue
A.is an immediate outflow and immediate tax write-off
B.is an immediate tax write-off with a deferred outflow
C.is a deferred outflow and deferred tax write-off
D.is an immediate outflow and deferred tax write-off
26) Which would NOT be considered an ADR stock in the U.S.?
A.Heineken
B.Nestle
C.Sony
D.Intel
27)
Refer to the figure above. The firm's receivable turnover is ____.
A.4.4x
B.10x
C.12.5x
D.14.4x
28) The entity that is responsible for establishing the allocation and cost of capital is/are
A.thecorporation
B.the economy
C.investors
D.customers
29) A firm exposed to exchange rate risk can hedge its risk by
A.using the forward exchange market
B.borrowing in international money markets
C.utilizing foreign currency futures markets
D.All of these options
30) Elective expensing has the following characteristic:
A.It is primarily beneficial to large businesses
B.It is exclusively used for financial reporting
C.It allows a more rapid write-off than MACRS depreciation
D.It is primarily beneficial to large businesses and it allows a more rapid write-off than
MACRS depreciation
31)
Refer to the figure above. Tew's current ratio is ____.
A.1.5:1
B.1:1
C.2:1
D.None of the options
32) A stock is said to sell "ex-rights"
A.when the period in which the subscription privilege is to be exercised has expired
B.when transfer of stock ownership no longer carries with it the privilege of
subscription
C.after the rights have all been exercised and the new issue is completely sold
D.after the terms of the subscription have been made public
33) Pro forma financial statements are
A.the most comprehensive means of financial forecasting
B.often required by prospective creditors
C.projections of financial statements for a future period
D.All of the options
34) A firm has $50 million in assets and its optimal capital structure is 60% equity. If
the firm has $12 million in retained earnings, at what asset level will the firm need to
issue additional stock? (Assume no growth in retained earnings.)
A.The firm should have already issued additional stock
B.The firm can increase assets to $30 million
C.The firm can increase assets to $20 million
D.There is insufficient information to determine an answer
35) In the construction of the cash payments schedule, the major cash payment is
generally
A.the general and administrative expense
B.costs associated with inventory manufactured
C.interest and dividends
D.payments for new plant and equipment
36) Which one of the following statements is NOT true?
A.Poison pills discourage hostile takeovers
B.Poison pills discourage potential high takeover bids
C.Stockholders have to approve the acceptance of poison pill strategies before a
corporation can use them
D.Many institutional investors are opposed to the poison pill
37) A debenture represents
A.unsecured debt
B.secured debt
C.a long document covering every detail of a bond issue
D.debt that is subordinate to preferred stock
38) In general, when interest rates are expected to rise, financial managers
A.try to lock in long-term financing at low cost
B.balance the company's debt structure with more short-term debt and less long-term
debt
C.accept more risk
D.rely more on internal sources of funds rather than external sources
39) Mr. Darden is selling his house for $200,000. He bought it for $164,000 10 years
ago. What is the annual return on his investment?
A.2%
B.Between 3% and 5%
C.10%
D.None of these options
40) Stockholders may prefer dividends to reinvestment by the firm
A.because dividends may resolve some uncertainty
B.because dividend payments have an information content
C.because investors may prefer current cash to future cash
D.All of these options
41) Which of the following activities is not a service provided by investment bankers?
A.Underwriting initial public offerings
B.Raising capital via mutual fund offerings
C.Advising in mergers
D.Advising on restructurings
42) Which of the following statements about Hambrecht's Open IPO auctions is false?
A.The auctions are built on the principles of Dutch tulip auctions
B.Auctions give small investors a chance to participate in IPOs
C.Google Inc. and Morningstar Inc. have utilized the auction format in recent years
D.Auctions are popular with institutional investors
43) An indenture is
A.the section of a corporation's bylaws pertaining to bond issues
B.the summary of the essential features of a stock issue
C.the contract between a corporation and a trustee acting for bondholders
D.the underwriting contract
44) An aggressive, risk-oriented firm will likely
A.borrow long-term and carry low levels of liquidity
B.borrow short-term and carry low levels of liquidity
C.borrow long-term and carry high levels of liquidity
D.borrow short-term and carry high levels of liquidity
45) Given an optimal capital structure that is 50% debt and 50% common stock,
calculate the weighted average cost of capital for Stone Corp. given the following
additional information:
Bond coupon rate..8%
Bond yield to maturity..6%
Dividend, expected..$5
Price, common.$80
Growth rate.5%
Corporate tax rate30%
A.Less than 5.0%
B.More than 5.0% and less than 6.25%
C.More than 6.25% and less than 7.5%
D.More than 7.5%
46) The increasing percentage ownership of public corporations by institutional
investors has
A.had no effect on corporate management
B.created higher returns for the stock market in general
C.created more pressure on public companies to manage their firms more efficiently
D.taken away the voice of the individual investor
47) From the corporate issuer viewpoint, a zero-coupon bond allows the firm to
A.receive deferred income for tax purposes
B.reduce the multiplier of the initial investment
C.defer payment obligations
D.take advantage of low volatility
48) Money market funds are
A.accounts that allow small investors to participate in buying large-denomination
securities
B.extremely risky but high-yielding accounts used by large corporations to finance
operations
C.accounts that allow small investors to buy shares in companies that then buy shares of
common stock
D.pools of bonds held by large utility companies
49) Long-term financing leases currently
A.appear both on the balance sheet and in the footnotes to the annual report
B.appear only in the footnotes to the annual report
C.appear on the company's statement of retained earnings
D.do not appear on any financial statements
50) The term structure of interest rates is influenced by
A.inflation
B.the money supply
C.Federal Reserve activities
D.All of the options
51) Conservatively leveraged Firm C and highly leveraged Firm H operate at the same
level of earnings before interest and taxes where the return on assets is greater than the
cost of debt.
A.Firm C will have a higher return on equity than H
B.Firm H will have a higher return on equity than C
C.The return on equity will not be affected by financial leverage
D.The return on equity will be the same at an equal level of earnings
