1) In terms of organizational costs, which of the following…
1) In terms of organizational...
1) In terms of organizational costs, which of the following sequences is correct, moving from lowest to highest cost? A. Sole proprietorship, general partnership, limited partnership, corporation B. Corporation, limited partnership, general partnership, sole proprietorship C. General partnership, sole proprietorship, limited partnership, corporation D. Sole proprietorship, general partnership, corporation, limited partnership 2) Which of the following best describes the goal of the firm? A. The maximization of the total market value of the firm’s common stock] B. Profit maximization C. Risk minimization D. None of the above 3) Which of the following categories of owners have limited liability? A. General partners B. Sole proprietors C. Shareholders of a corporation D. Both a and b 4) __________ is a method of offering securities to a limited number of investors. A. Private placement B. Public offering C. Initial public offering D. Syndicated underwriting 5) When public corporations decide to raise cash in the capital markets, what type of financing vehicle is most favored? A. Preferred stock B. Common stock C. Retained earnings D. Corporate bonds 6) Which of the following does NOT involve underwriting by an investment banker? A. Negotiated purchases B. Syndicated purchases C. Competitive bid purchases D. Commission basis purchases 7) According to the agency problem, _________ represent the principals of a corporation. A. managers B. employees C. shareholders D. suppliers 8) Difficulty in finding profitable projects is due to: XXXXX XXXXX costs. B. ethical dilemmas. C. social responsibility. D. competitive markets. 9) Which of the following is NOT a principle of basic financial management? A. Profit is king B. Efficient capital markets C. Risk/return tradeoff D. Incremental cash flow counts 10) Which of the following financial ratios is the best measure of the operating effectiveness of a firm’s management? A. Return on investment B. Quick ratio C. Current ratio D. Gross profit margin 11) The accounting rate of return on stockholders’ investments is measured by: A. realized rate of inflation. B. operating income return on investment. C. return on assets. D. return on equity. 12) Marshall Networks, Inc. has a total asset turnover of 2.5% and a net profit margin of 3.5%. The firm has a return on equity of 17.5%. Calculate Marshall’s debt ratio. A. 60% B. 50% C. 30% D. 40% 13) XXXXXX XXXXXXX decided to open up a Roth IRA. He will invest $1,800 per year for the next 35 years. Deposits to the Roth IRA will be made via a $150 payroll deduction at the end of each month. Assume that Edward will earn 8.75% over the life of the IRA. How much will he have at the end of 35 years? A. $414,405 B. $363,000 C. $125,250 D. $250,321 14) Northwest Bank pays a quoted annual (nominal) interest rate of 4.75%. However, it pays interest (compouned) daily using a 365-day year. What is the effective annual rate of return (APY)? A. 4.86% B. 3.61% C. 4.75% D. 5.02% 15) When XXXXXX XXXXXXXXXX was president of the United States in 1797, his salary was $25,000. If you assume an annual rate of inflation of 2.5%, how much would his salary have been in 1997? A. $3,489,097 B. $4,085,920 C. $1,025,000 D. $2,525,548 E. $954,719 16) Which of the following is NOT a basic function of a budget? A. Budgets allow for performance evaluation. B. Budgets compare historical costs of the firm with its current cost performance. C. Budgets indicate the need for future financing. D. Budgets provide the basis for corrective action when actual figures differ from the budgeted figures. 17) All of the following are found in the cash budget EXCEPT: A. new financing needed. B. cash disbursements. C. a net change in cash for the period. D. inventory. 18) Purchases of plant and equipment can be determined from the: A. use of ratio analysis. B. pro forma income statement. C. current cash budget. D. previous period’s balance sheet. 19) Which of the following is a non-cash expense? A. Interest expense B. Depreciation expenses C. Packaging costs D. Administrative salaries 20) A plant can remain operating when sales are depressed: A. to help the local economy. B. if the selling price per unit exceeds the variable cost per unit. C. in an effort to cover at least some of the variable cost. D. unless variable costs are zero when production is zero. 21) The break-even model enables the manager of a firm to: XXXXX XXXXX appropriate equilibrium thresholds. B. calculate the minimum price of common stock for certain situations. C. determine the quantity of output that must be sold to cover all operating costs. D. determine the optimal amount of debt financing to use. 22) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of five years? A. $5,008.76 B. $3,525.62 C. $3,408.88 D. $2,465.78 23) The present value of a single future sum: A. is generally larger than the future sum. B. increases as the number of discount periods increas. C. depends upon the number of discount periods. D. increases as the discount rate increases. 24) How long will it take $750 to double at 8% compounded annually? A. 48 months B. 6.5 years C. 9 years D. 12 years 25) Which of the following is considered to be a spontaneous source of financing? A. Accounts receivable B. Operating leases C. Inventory D. Accounts payable 26) A toy manufacturer following the hedging principle will generally finance seasonal inventory build-up prior to the Christmas season with: A. selling equipment. B. common stock. C. trade credit. D. preferred stock. 27) Which of the following is NOT considered a permanent source of financing? A. Common stock B. Corporate bonds C. Preferred stock D. Commercial paper 28) Your company is considering a project with the following cash flows: Initial outlay = $1,748.80 Cash flows Years 1–6 = $500 Compute the IRR on the project. A. 11% B. 9% C. 18% D. 24% 29) We compute the profitability index of a capital-budgeting proposal by: A. dividing the present value of the annual after-tax cash flows by the cost of capital. B. multiplying the IRR by the cost of capital. C. dividing the present value of the annual after-tax cash flows by the cost of the project. D. multiplying the cash inflow by the IRR. 30) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%. Initial outlay = $450 Cash flows: Year 1 = $325 Year 2 = $ 65 Year 3 = $100 A. 2.88 years B. 3.17 years C. 2.6 years D. 3.43 years 31) Which of the following statements about the MIRR is false? A. The MIRR has the same reinvestment assumption as the NPV. B. If a project’s MIRR exceeds the firm’s discount rate, the project is acceptable. C. A project’s MIRR could be lower than a project’s IRR. D. The MIRR has the same reinvestment assumption as the IRR. 32) You have been asked to analyze a capital investment proposal. The project’s cost is $2,775,000. Cash inflows are projected to be $925,000 in Year 1; $1,000,000 in Year 2; $1,000,000 in Year 3; $1,000,000 in Year 4; and $1,225,000 in Year 5. Assume that your firm discounts capital projects at 15.5%. What is the project’s MIRR? A. 16.73% B. 10.44% C. 19.99% D. 12.62% 33) Many firms today continue to use the payback method but employ the NPV or IRR methods as secondary decision methods of control for risk. A. True B. False 34) The firm should accept independent projects if: A. the IRR is positive. B. the profitability index is greater than 1.0. C. the NPV is greater than the discounted payback. D. the payback is less than the IRR. 35) The NPV assumes cash flows are reinvested at the: A. real rate of return. B. NPV. C. cost of capital. D. IRR. 36) ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. (Round your answer to the nearest $1.) A. $7,621 B. $4,568 C. $6,577 D. $1,056 average cost associated with each additional dollar of financing for investment projects is: A. risk-free rate. B. the marginal cost of capital. C. beta. D. the incremental return. 38) The marginal cost of preferred stock is equal to: A. (1 - tax rate) times the preferred stock dividend divided by net price. B. the preferred stock dividend divided by its par value. C. the preferred stock dividend divided by the net market price. D. the preferred stock dividend divided by market price. 39) The most expensive source of capital is: A. debt. B. new common stock. C. retained earnings. D. preferred stock. 40) Bender and Co. is issuing a $1,000 par value bond that pays 9% interest annually. Investors are expected to pay $918 for the 10-year bond. Bender will have to pay $33 per bond in flotation costs. What is the cost of debt if the firm is in the 34% tax bracket? A. 9.23% B. 9.01% C. 11.95% D. 7.23% 41) Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt–10%; preferred stock–11%; and common stock–18%. Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged? A. 10.0% B. 13.0% C. 14.2% D. 18.0% 42) J & B, Inc. has $5 million of debt outstanding with a coupon rate of 12%. Currently, the yield to maturity on these bonds is 14%. If the firm’s tax rate is 40%, what is the cost of debt to J & B? A. 12.0% B. 5.6% C. 8.4% D. 14.0% 43) Lever Brothers has a debt ratio (debt to assets) of 20%. Management is wondering if its current capital structure is too conservative. Lever Brothers’s present EBIT is $3 million, and profits available to common shareholders are $1,680,000, with 457,143 shares of common stock outstanding. If the firm were to instead have a debt ratio of 40%, additional interest expense would cause profits available to stockholders to decline to $1,560,000, but only 342,857 common shares would be outstanding. What is the difference in EPS at a debt ratio of 40% versus 20%? A. $2.12 B. $0.88 C. $1.16 D. $1.95 44) Lever Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if its current capital structure is too conservative. Lever Brothers’s present EBIT is $3 million, and profits available to common shareholders are $1,560,000, with 342,857 shares of common stock outstanding. If the firm were to instead have a debt ratio of 60%, additional interest expense would cause profits available to stockholders to decline to $1,440,000, but only 228,571 common shares would be outstanding. What is the difference in EPS at a debt ratio of 60% versus 40%? A. $1.75 B. $4.50 C. $3.25 D. $2.00 45) Farar, Inc. projects operating income of $4 million next year. The firm’s income tax rate is 40%. Farar presently has 750,000 shares of common stock, no preferred stock, and no debt. The firm is considering the issuance of $6 million of 10% bonds to finance a new product that is not expected to generate an increase in income for two years. If Farar issues the bonds this year, what will projected EPS be next year? A. $1.53 B. $3.12 C. $2.72 D. $2.33 E. $1.98 46) A bond sold simultaneously in several different foreign capital markets, but denominated in a currency different from the country in which the bond is issued, is called a(n): A. world bond. B. Eurobond. C. floating bond. D. international capital bond. 47) Which of the following statements about exchange rates is true? A. Exchange rates were fixed prior to establishing a floating-rate international currency system, and all countries set a specific parity rate for their currency relative either to the Canadian or to the U.S. dollar. B. Day-to-day fluctuations in exchange rates currently are caused by changes in parity rates. C. A floating-rate international currency system has been operating since 1973. D. All of the choices. 48) Capital markets in foreign countries: A. offer lower returns than those obtainable in the domestic capital markets. B. provide international diversification. C. in general are becoming less integrated due to the widespread availability of interest rate and currency swaps. D. all of the choices. 49) If the quote for a forward exchange contract is greater than the computed price, the forward contract is: A. overvalued. B. at equilibrium. C. a good buy. D. undervalued. 50) A spot transaction occurs when one currency is: A. deposited in a foreign bank. B. traded for another at an agreed-upon future price. C. exchanged for another currency at a specified price. D. immediately exchanged for another currency. 51) The interplay between interest rate differentials and exchange rates such that both adjust until the foreign exchange market and the money market reach equilibrium is called the: A. purchasing power parity theory. B. arbitrage markets theory. C. interest rate parity theory. D. balance of payments quantum theory. 52) An important (additional) consideration for a direct foreign investment is: A. political risk. B. maximizing the firm’s profits. C. attaining a high international P/E ratio. D. all of the above. 53) The purchasing power parity theory states that currency exchange rates tend to vary ____________ with their respective purchasing powers in order to provide _________ purchasing powers. A. inversely; similar B. directly; greater C. inversely; greater D. directly; similar 54) Buying and selling in more than one market to make a riskless profit is called: A. profit maximization. B. cannot be determined from the above information. C. international trading. D. arbitrage. Submitted: 8 years ago.Category: Finance
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