Archives: Quiz

Breakeven analysis is widely used to determine the level of activity a firm must achieve to stay in business in the: A.short run. B.long run. C.short and long run. D.None of these are correct. ____ working capital arises from the […]

CNN Corporation needs $750,000 and plans to borrow from its bank under the terms of its line-of-credit arrangement. These terms call for a minimum compensating balance of 12 percent. How much will CNN have to borrow to obtain the needed […]

In merger analysis, a terminal value represents: A.the estimated value of the target company exactly three years in the future. B.the book value of the target’s assets at the end of the period of cash flow estimation. C.the target’s value […]

A recent direct quote for the British pound was $1.6750. How many British pounds can be purchased with $100? A.165.70 B.59.70 C.0.5970 D.16.57 The primary advantage of the proprietor form of business over the corporate form is: A.ease of raising […]

The directors of Almond and Sons met on Friday, February 5. They declared that the first-quarter dividend was to be paid on Friday, April 9, with a record date of Friday, March 12. By what date must you be a […]

The annual effective rate of interest is a function of: A.the annual nominal rate of interest. B.the number of compounding intervals per year. C.the imbedded annuity. D.a and b Large, strong companies frequently resort to commercial paper as a source […]

The standard deviation is: A.the square of the variance. B.the square root of the variance. C.one-half of the variance. D.twice the variance. Consumer savings equals: A.industrial savings. B.industrial investment. C.financial rewards. D.financial risk. Answer: B. Overstated accounts include: A.items that […]

Falcon’s projected 20X5 sales are $678 and its 20X4 year-end retained earnings were $1,385. If Falcon projects a 7 percent return on sale (ROS) and expects to pay $12 in total dividends in 20X5, forecast 20X5 year-end retained earnings. A.$35.46 […]

The overall rationale under which a firm pays dividends is referred to as its: A.dividend practice. B.corporate dividend preference. C.dividend policy. D.payout ratio. The main purpose of a stock split is to: A.give stockholders something that doesn’t cost the company […]

You have borrowed $130,000 to buy a new motor home. Your loan is to be repaid over 15 years at 8% compounded monthly. Calculate the total amount of interest you will pay over the life of the loan. A.$47,451 B.$93,677 […]

Incremental cash flows associated with capital budgeting projects can include: A.reductions in labor costs. B.reductions in fuel and maintenance costs. C.increased profitability. D.All of the above Project A has a payback period of 8 years, while Project B has a […]

The following is a listing of tax considerations for a family. How much is the their taxable income? A.$36,800 B.$23,200 C.$27,300 D.$24,800 If the debt ratio is 40.00%, then the equity multiplier is: A.60.00%. B.1.67:1. C.1:50:1. D.66.67%. Answer: B. Answer: […]

Donoho Corp. issued 20-year, $1,000 par bonds eight years ago with a 10% coupon paying semiannually that are now selling for $1,152.47. Estimate the cost of retained earnings assuming investors generally demand a 5% risk premium on equity over the […]

What entity within the firm has the discretion to issue dividends? A.Board of directors B.CEO C.CFO D.Vice President of Finance If a company has fixed costs of $40,000, a unit selling price of $12, and variable costs of $4 per […]

_____ ratios measure the ability to meet short-term financial obligations. A.Asset B.Liquidity C.Profitability D.Market Consider the following leverage scenarios: If under certain circumstances, financial leverage enhances performance measured by ROE and EPS, why does shifting from equity into debt have […]

A real option’s value may be more than the amount by which its inclusion in a capital budgeting project increases the project’s expected NPV because the real option may: A.reduce the project’s risk. B.increase the amount the firm makes if […]

Which of the following would increase risk to the bondholder? A.A call provision B.Change in bond rating from A to AAA C.Secured by specific assets D.Restrictive covenants When a firm factors its accounts receivable as opposed to pledging them, the […]

Budgets are usually: A.short-run supplements to the strategic plans. B.quarterly updates to the annual operating plans. C.especially important in stable industries. D.usually done in great detail by small businesses. According to the SML, the risk premium for stock X depends […]

Which of the following is correct? A.Beginning equity + Net income – Dividends – Stock = Ending equity B.Beginning equity + Net income – Dividends + Stock = Ending equity C.Net income – Dividends – Stock = Ending equity D.Beginning […]

What is the internal rate of return for a project that requires an initial outlay of $92,000 and generates a single cash inflow of $25,750 in 5 years? A.10% B.12% C.15.3% D.13.1% A bond with a face value of $1,000 […]

Which of the following would not be an appropriate guideline for determining the interest rate to use in discounting project cash flows in capital budgeting? A.For replacement projects, given that their risk is consistent with that of the present business, […]

Which of the following is TRUE? A.A bond’s price moves to par value as it approaches maturity. B.Bond ratings measure the maturity risk associated with a given bond. C.Bonds are referred to as amortized debt due to the fact that […]

Finding the discounted value of $1,000 to be received at the end of each of the next five years requires calculating the: A.future value of an annuity. B.future value of a deferred annuity. C.present value of an annuity. D.present value […]

The ____ the standard deviation, the ____ the investment. A.smaller, larger the expected return on B.larger, riskier C.smaller, riskier D.larger, smaller the expected return on Which of the following is a reason why lenders insist on bond indentures? A.To ensure […]

The cost of capital is the appropriate discount rate in capital budgeting when: A.all the projects are equally risky. B.all the projects have the same risk as the current firm. C.the projects can be ranked from riskiest to least risky. […]

An investment banker’s role in a merger might include: A.counseling reluctant targets on defensive measures. B.assisting the acquiring company in raising the capital necessary to pay for the target. C.assisting the acquiring company in establishing a value for the target. […]

Since a firm can be viewed as a collection of projects, taking on projects without consideration of their risk can in the long term: A.change the firm’s risk character. B.systematically degrade the firm’s profitability. C.make the firm’s financial results more […]

Which of the following are not financial intermediaries? A.Bank B.Insurance company C.Securities broker D.All are financial intermediaries Which of the following types of mergers would expand the acquiring firm’s market share in its own industry? A.Vertical B.Horizontal C.Conglomerate D.a and […]

An Allied Northern preferred stock pays a $3.84 annual dividend. What is the value of the stock at a 9.5 percent return? A.$40.42 B.$42.67 C.$38.40 D.none of the above Financial markets have the basic function of: A.providing liquidity. B.providing signaling […]

A bond with an annual coupon payment of $100 originally sold at par for $1,000. Market interest rates are currently 12%. This bond would be selling at a ____ in order to compensate ____. A.premium; the purchaser for the below […]

The following financial information is available on Rawls Manufacturing Company: Rawls can issue new common stock to net the company $44 per share. Determine the cost of retained earnings using the dividend growth model approach. (Compute answer to the nearest […]

The over-the-counter market differs from the New York Stock Exchange in that: A.the stocks, although publicly traded, are not listed on an exchange. B.only relatively small companies are traded because larger companies are required to be traded on exchanges. C.NASDAQ […]

Capital budgeting involves how companies spend: A.day to day resources. B.money raised in capital markets. C.expenses only. D.large sums on infrequent projects. A combination of companies that compete directly is a: A.conglomerate merger. B.vertical merger. C.horizontal merger. D.takeover. Answer: C. […]

Which of the following is (are) effective in controlling the agency problem? A.Tie a large part of managements’ compensation to company profit B.Offer numerous perquisites C.Employ auditors to periodically review company books D.Both a and c Subordinated debt means debt […]

Aurand Inc. has outstanding bonds with an 8% coupon paid semiannually. The bonds have a par value of $1,000, a current price of $904, and will mature in 14 years. What is their yield? A.15.80% B.10.47% C.9.24% D.7.90% E.4.62% A […]

Business projects virtually always involve: A.capital budgets. B.early cash inflows and later outflows. C.early cash outflows and later inflows. D.quick payback periods. Anti-trust legislation: A.is enforced by the Justice Department as well as the Federal Trade Commission. B.no longer applies […]

If a product has a contribution margin of 40% and has a price of $5.00 per unit, how many units must be sold to breakeven assuming a fixed cost of $800,000.00? A.1.6 million B.0.4 million C.0.6 million D.0.9 million A […]

Don has $3,000 invested in AT&T with an expected return of 11.6 percent; $10,000 in IBM with an expected return of 12.8 percent; and $6,000 in GM with an expected return of 12.2 percent. What is Don’s expected return on […]

Match the following: 1>Debentures A. Bonds that are backed by the value of specific assets 2>Subordinated Debt B. Bonds that are not backed by the value of specific assets 3>Secured Bonds C. Bonds having a “junior” position relative to more […]

Which of the following represents a real asset? A.Land B.Bonds C.Stocks D.Both a & c E.All of the above Economic Order Quantity (EOQ) increases with an increase in ____. A.carrying cost per unit B.fixed cost per order C.annual demand D.Both […]

Common stock is considered to be a: A.real Asset. B.financial Asset. C.debt Instrument. D.Both b & c Management’s propensity to overestimate the value of the target company in a merger can lead to: A.financial disaster for the acquiring company. B.a […]

Total return for preferred stock consists of: A.capital gains yield. B.dividend yield. C.dividend yield and the present dividend. D.capital gains yield and dividend yield. It is difficult to trade with a country that has a nonconvertible currency because: A.it is […]

Strategic planning involves broad thinking about a firm’s mission, and goals. It usually has a time frame or planning horizon of: A.10 to 20 years. B.one to three years. C.five years. D.Any of the above If the Canadian dollar strengthens […]

The term of an investment can be described as either: A.long or short, long-term meaning any duration longer than five years. B.intermediate or short, intermediate being any duration longer than one year. C.long, intermediate, or short, intermediate being any duration […]

The federal government can always avoid default on its issues because of its unique right to: A.change Treasury bond yields to zero at its discretion. B.print money. C.tax. D.wage war. Pace Enterprises’ common stock sells for $29, and its dividends […]

According to portfolio theory, the most relevant risk for any widely traded individual security is its: A.unsystematic risk. B.standard deviation. C.covariance risk. D.systematic risk. A four-year annuity of $1,000 annual payments at the beginning of each year, with a 10% […]

Match the following: 1>Retained earnings A. The accumulated earnings of a company that have not been distributed to shareholders as dividends. 2>Dividends B. Earnings distributed to a firm’s owners 3>Paid in excess C. The amount paid for stock above its […]

The term ____ refers to the assets and liabilities required to operate a business on a day-to-day basis. A.capital management B.working capital C.operating capital D.operating management Braebner Corp. orders 500,000 microchips per year at an average cost of $130. The […]

The interest rates we observe in the economy differ from the risk-free rate because of: A.the real rate of interest. B.diversification. C.risk premiums. D.all the above Zeta Inc.€s cost of capital is 12% and the risk-free rate is 5%. It […]

An investment project requires an initial outlay of $100,000, and is expected to generate annual cash inflows of $28,000 for the next 5 years. The cost of capital is 12 percent. Determine the internal rate of return for the project […]