1) Maximization of shareholder wealth is a concept in which
1) Maximization of shareholder wealth is a concept in which | |
| |
|A. |
|[pic] |
|increased earnings is of primary importance. |
| |
| |
|B. |
|[pic] |
|optimally increasing the long-term value of the firm is emphasized. |
| |
| |
|C. |
|[pic] |
|virtually all earnings are paid as dividends to common stockholders. |
| |
| |
|D. |
|[pic] |
|profits are maximized on a quarterly basis. |
| |
| |
|2) Corporate governance is the |
| |
|A. |
|[pic] |
|relationship and exercise of oversight by the board of directors of the company. |
| |
| |
|B. |
|[pic] |
|governance of the company by the board of directors with a focus on social responsibility. |
| |
| |
|C. |
|[pic] |
|operation of a company by the chief executive officer (CEO) and other senior executives on the management team. |
| |
| |
|D. |
|[pic] |
|relationship between the chief financial officer and institutional investors. |
| |
| |
|3) What is the primary goal of financial management? |
| |
|A. |
|[pic] |
|Increased earnings |
| |
| |
|B. |
|[pic] |
|Maximizing shareholder wealth |
| |
| |
|C. |
|[pic] |
|Minimizing risk of the firm |
| |
| |
|D. |
|[pic] |
|Maximizing cash flow |
| |
|4) The statement of cash flows does NOT include which of the following sections? |
| |
|A. |
|[pic] |
|cash flows from operating activities |
| |
| |
|B. |
|[pic] |
|cash flows from investing activities |
| |
| |
|C. |
|[pic] |
|cash flows from financing activities |
| |
| |
|D. |
|[pic] |
|cash flows from sales activities |
| |
| |
|5) Which of the following is an inflow of cash? |
| |
|A. |
|[pic] |
|funds spent in normal business operations |
| |
| |
|B. |
|[pic] |
|the sale of the firm's bonds |
| |
| |
|C. |
|[pic] |
|the purchase of a new factory |
| |
| |
|D. |
|[pic] |
|the retirement of the firm's bonds |
| |
| |
|6) An increase in investments in long-term securities will: |
| |
|A. |
|[pic] |
|increase cash flow from investing activities. |
| |
| |
|B. |
|[pic] |
|increase cash flow from financing activities. |
| |
| |
|C. |
|[pic] |
|decrease cash flow from investing activities. |
| |
| |
|D. |
|[pic] |
|decrease cash flow from financing activities. |
| |
|7) The most rigorous test of a firm's ability to pay its short-term obligations is its |
| |
|A. |
|[pic] |
|current ratio. |
| |
| |
|B. |
|[pic] |
|debt-to-assets ratio. |
| |
| |
|C. |
|[pic] |
|quick ratio. |
| |
| |
|D. |
|[pic] |
|times-interest-earned ratio. |
| |
| |
|8) A quick ratio that is much smaller than the current ratio reflects |
| |
|A. |
|[pic] |
|a small portion of current assets is in inventory. |
| |
| |
|B. |
|[pic] |
|that the firm will have a high inventory turnover. |
| |
| |
|C. |
|[pic] |
|a large portion of current assets is in inventory. |
| |
| |
|D. |
|[pic] |
|that the firm will have a high return on assets. |
| |
| |
|9) In examining the liquidity ratios, the primary emphasis is the firm's |
| |
|A. |
|[pic] |
|ability to effectively employ its resources. |
| |
| |
|B. |
|[pic] |
|ability to pay short-term obligations on time. |
| |
| |
|C. |
|[pic] |
|overall debt position. |
| |
| |
|D. |
|[pic] |
|ability to earn an adequate return. |
| |
|10) A firm has current assets of $75,000 and total assets of $375,000. The firm's sales are $900,000. The firm's fixed asset turnover is |
| |
|A. |
|[pic] |
|3.0x |
| |
| |
|B. |
|[pic] |
|2.4x |
| |
| |
|C. |
|[pic] |
|12.0x |
| |
| |
|D. |
|[pic] |
|5.0x |
| |
| |
|11) [pic] |
| |
|Refer to the figure above. The firm's debt to asset ratio is |
| |
|A. |
|[pic] |
|58%. |
| |
| |
|B. |
|[pic] |
|25%. |
| |
| |
|C. |
|[pic] |
|33%. |
| |
| |
|D. |
|[pic] |
|48%. |
| |
| |
|12) [pic] |
| |
|Refer to the figure above. The firm's inventory turnover ratio is |
| |
|A. |
|[pic] |
|10x. |
| |
| |
|B. |
|[pic] |
|2.7x. |
| |
| |
|C. |
|[pic] |
|8x. |
| |
| |
|D. |
|[pic] |
|0.1x. |
| |
|13) The percent-of-sales method of financial forecasting |
| |
|A. |
|[pic] |
|is more detailed than a cash budget approach. |
| |
| |
|B. |
|[pic] |
|assumes that balance sheet accounts maintain a constant relationship to sales. |
| |
| |
|C. |
|[pic] |
|requires more time than a cash budget approach. |
| |
| |
|D. |
|[pic] |
|provides a month-to-month breakdown of data. |
| |
| |
|14) In the percent-of-sales method, an increase in dividends |
| |
|A. |
|[pic] |
|will increase required new funds. |
| |
| |
|B. |
|[pic] |
|has no effect on required new funds. |
| |
| |
|C. |
|[pic] |
|will decrease required new funds. |
| |
| |
|D. |
|[pic] |
|more information is needed. |
| |
| |
|15) In general, the larger the portion of a firm's sales that are on credit, the |
| |
|A. |
|[pic] |
|lower will be the firm's need to borrow. |
| |
| |
|B. |
|[pic] |
|more rapidly credit sales will be paid off. |
| |
| |
|C. |
|[pic] |
|higher will be the firm's need to borrow. |
| |
| |
|D. |
|[pic] |
|more the firm can buy raw materials on credit. |
| |
|16) The pro forma income statement is important to the overall process of constructing pro forma statements because it allows us to determine a value for: |
| |
|A. |
|[pic] |
|change in retained earnings. |
| |
| |
|B. |
|[pic] |
|interest expense. |
| |
| |
|C. |
|[pic] |
|gross profit. |
| |
| |
|D. |
|[pic] |
|prepaid expenses. |
| |
| |
|17) The key initial element in developing pro forma statements is |
| |
|A. |
|[pic] |
|a cash budget. |
| |
| |
|B. |
|[pic] |
|a sales forecast. |
| |
| |
|C. |
|[pic] |
|an income statement. |
| |
| |
|D. |
|[pic] |
|a collections schedule. |
| |
| |
|18) A firm has beginning inventory of 300 units at a cost of $11 each. Production during the period was 650 units at $12 each. If sales were 700 units, what is the|
|cost of goods sold (assume FIFO)? |
| |
|A. |
|[pic] |
|$9,000 |
| |
| |
|B. |
|[pic] |
|$7,700 |
| |
| |
|C. |
|[pic] |
|$8,000 |
| |
| |
|D. |
|[pic] |
|$8,100 |
| |
|19) The degree of operating leverage is computed as |
| |
|A. |
|[pic] |
|percent change in operating profit divided by percent change in net income. |
| |
| |
|B. |
|[pic] |
|percent change in volume divided by percent change in operating profit. |
| |
| |
|C. |
|[pic] |
|percent change in EPS divided by percent change in operating income. |
| |
| |
|D. |
|[pic] |
|percent change in operating income divided by percent change in volume. |
| |
| |
|20) When a firm employs no debt |
| |
|A. |
|[pic] |
|it has a financial leverage of one. |
| |
| |
|B. |
|[pic] |
|it has a financial leverage of zero. |
| |
| |
|C. |
|[pic] |
|its operating leverage is equal to its financial leverage. |
| |
| |
|D. |
|[pic] |
|it will not be profitable. |
| |
| |
|21) Financial leverage deals with: |
| |
|A. |
|[pic] |
|the relationship of fixed and variable costs. |
| |
| |
|B. |
|[pic] |
|the relationship of debt and equity in the capital structure. |
| |
| |
|C. |
|[pic] |
|the entire income statement. |
| |
| |
|D. |
|[pic] |
|the entire balance sheet. |
| |
|22) The break-even point can be calculated as |
| |
|A. |
|[pic] |
|variable costs divided by contribution margin. |
| |
| |
|B. |
|[pic] |
|total costs divided by contribution margin. |
| |
| |
|C. |
|[pic] |
|variable cost times contribution margin. |
| |
| |
|D. |
|[pic] |
|fixed cost divided by contribution margin. |
| |
| |
|23) [pic] |
| |
|Refer to the figure above. This firm's break-even point is |
| |
|A. |
|[pic] |
|4,800 units |
| |
| |
|B. |
|[pic] |
|14,634 units |
| |
| |
|C. |
|[pic] |
|7,142 units |
| |
| |
|D. |
|[pic] |
|18,000 units |
| |
| |
|24) A firm's break-even point will rise if |
| |
|A. |
|[pic] |
|fixed costs decrease |
| |
| |
|B. |
|[pic] |
|contribution margins increase |
| |
| |
|C. |
|[pic] |
|price per unit rises |
| |
| |
|D. |
|[pic] |
|variable cost per unit rises |
| |
|25) Normally, permanent current assets should be financed by |
| |
|A. |
|[pic] |
|long-term funds. |
| |
| |
|B. |
|[pic] |
|short-term funds. |
| |
| |
|C. |
|[pic] |
|borrowed funds. |
| |
| |
|D. |
|[pic] |
|internally generated funds. |
| |
| |
|26) A conservatively financed firm would |
| |
|A. |
|[pic] |
|use long-term financing for all fixed assets and short-term financing for all other assets. |
| |
| |
|B. |
|[pic] |
|finance a portion of permanent assets and short-term assets with short-term debt. |
| |
| |
|C. |
|[pic] |
|use equity to finance fixed assets, long-term debt to finance permanent assets, and short-term debt to finance fluctuating current assets. |
| |
| |
|D. |
|[pic] |
|use long-term financing for permanent current assets and fixed assets and a portion of the short-term fluctuating assets and use short-term financing for all other|
|short-term assets |
| |
| |
|27) During tight money periods |
| |
|A. |
|[pic] |
|long-term rates are higher than short-term rates. |
| |
| |
|B. |
|[pic] |
|short-term rates are higher than long-term rates. |
| |
| |
|C. |
|[pic] |
|short-term rates are equal to long-term rates. |
| |
| |
|D. |
|[pic] |
|the relationship between short and long-term rates remains unchanged. |
| |
|28) An aggressive working capital policy would have which of following characteristics? |
| |
|A. |
|[pic] |
|A high ratio of long-term debt to fixed assets. |
| |
| |
|B. |
|[pic] |
|A low ratio of short-term debt to fixed assets. |
| |
| |
|C. |
|[pic] |
|A high ratio of short-term debt to long-term sources of funds. |
| |
| |
|D. |
|[pic] |
|A short average collection period. |
| |
| |
|29) Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings? |
| |
|A. |
|[pic] |
|Illiquid assets and heavy short-term borrowing |
| |
| |
|B. |
|[pic] |
|Illiquid assets and heavy long-term borrowing |
| |
| |
|C. |
|[pic] |
|Liquid assets and heavy long-term borrowing |
| |
| |
|D. |
|[pic] |
|Liquid assets and heavy short-term borrowing |
| |
| |
|30) An aggressive, risk-oriented firm will likely |
| |
|A. |
|[pic] |
|borrow long-term and carry low levels of liquidity. |
| |
| |
|B. |
|[pic] |
|borrow short-term and carry low levels of liquidity. |
| |
| |
|C. |
|[pic] |
|borrow long-term and carry high levels of liquidity. |
| |
| |
|D. |
|[pic] |
|borrow short-term and carry high levels of liquidity. |
| |
|31) In managing cash and marketable securities, what should be the manager's primary concern? |
| |
|A. |
|[pic] |
|Maximization of profit |
| |
| |
|B. |
|[pic] |
|Maximization of liquid assets |
| |
| |
|C. |
|[pic] |
|Acceptable return on investment |
| |
| |
|D. |
|[pic] |
|Liquidity and safety |
| |
| |
|32) Which of the following is not a valid reason for holding cash? |
| |
|A. |
|[pic] |
|to meet transaction requirements |
| |
| |
|B. |
|[pic] |
|to earn the highest return possible |
| |
| |
|C. |
|[pic] |
|to satisfy emergency needs for funds |
| |
| |
|D. |
|[pic] |
|to provide a compensating balance for a bank |
| |
| |
|33) How would electronic funds transfer affect the use of "float"? |
| |
|A. |
|[pic] |
|Increase its use somewhat |
| |
| |
|B. |
|[pic] |
|Have no effect on its use |
| |
| |
|C. |
|[pic] |
|Virtually eliminate its use |
| |
| |
|D. |
|[pic] |
|Decrease its use somewhat |
| |
|34) Variables important to credit scoring models include |
| |
|A. |
|[pic] |
|age of company in years. |
| |
| |
|B. |
|[pic] |
|facility ownership. |
| |
| |
|C. |
|[pic] |
|all of these variables apply. |
| |
| |
|D. |
|[pic] |
|negative public records. |
| |
| |
|35) Which of the following is not a valid quantitative measure for accounts receivable collection policies? |
| |
|A. |
|[pic] |
|average collection period |
| |
| |
|B. |
|[pic] |
|ratio of debt to equity |
| |
| |
|C. |
|[pic] |
|ratio of bad debts to credit sales |
| |
| |
|D. |
|[pic] |
|aging of accounts receivables |
| |
| |
|36) When developing a credit scoring report, many variables would be considered. Which of the following best represent the major factors Dun & Bradstreet would |
|examine? |
| |
|A. |
|[pic] |
|The age of the management team, the dollar amount of sales, net profits, and long-term debt. |
| |
| |
|B. |
|[pic] |
|The financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies). |
| |
| |
|C. |
|[pic] |
|The company's cash balances, return on equity, and its average tax rates. |
| |
| |
|D. |
|[pic] |
|The age of the company, the number of employees, the level of current assets. |
| |
|37) Large firms tend to be |
| |
|A. |
|[pic] |
|net users of trade credit. |
| |
| |
|B. |
|[pic] |
|firms with high levels of profitability. |
| |
| |
|C. |
|[pic] |
|net suppliers of trade credit. |
| |
| |
|D. |
|[pic] |
|firms with low levels of inventory turnover and accounts receivable turnover. |
| |
| |
|38) Which of the following is not a true statement about commercial paper? |
| |
|A. |
|[pic] |
|Finance paper is sold directly to the lender by the finance company. |
| |
| |
|B. |
|[pic] |
|Dealer paper is sold directly to the lender by a finance company. |
| |
| |
|C. |
|[pic] |
|Finance paper is also referred to as direct paper. |
| |
| |
|D. |
|[pic] |
|Industrial companies, utility firms or finance companies too small to sell direct paper sell dealer paper. |
| |
| |
|39) What is generally the largest source of short-term credit small firms? |
| |
|A. |
|[pic] |
|Bank loans |
| |
| |
|B. |
|[pic] |
|Installment loans |
| |
| |
|C. |
|[pic] |
|Commercial paper |
| |
| |
|D. |
|[pic] |
|Trade credit |
| |
|40) Trade credit may be used to finance a major part of the firm's working capital when |
| |
|A. |
|[pic] |
|the firm extends less liberal credit terms than the supplier. |
| |
| |
|B. |
|[pic] |
|the firm and the supplier both extend the same credit terms. |
| |
| |
|C. |
|[pic] |
|the firm extends more liberal credit terms than the supplier. |
| |
| |
|D. |
|[pic] |
|neither the firm nor the supplier extends credit. |
| |
| |
|41) Which method of controlling pledged inventory provides the greatest degree of security to the lender? |
| |
|A. |
|[pic] |
|Blanket inventory liens |
| |
| |
|B. |
|[pic] |
|Trust receipts |
| |
| |
|C. |
|[pic] |
|Overall inventory liens |
| |
| |
|D. |
|[pic] |
|Warehousing |
| |
| |
|42) Firms exposed to the risk of interest rate changes may reduce that risk by |
| |
|A. |
|[pic] |
|obtaining a Eurodollar loan. |
| |
| |
|B. |
|[pic] |
|hedging in the commodities market. |
| |
| |
|C. |
|[pic] |
|hedging in the financial futures market. |
| |
| |
|D. |
|[pic] |
|pledging or factoring accounts receivable. |
| |
|43) In determining the future value of a single amount, one measures |
| |
|A. |
|[pic] |
|the future value of periodic payments at a given interest rate. |
| |
| |
|B. |
|[pic] |
|the future value of an amount allowed to grow at a given interest rate. |
| |
| |
|C. |
|[pic] |
|the present value of an amount discounted at a given interest rate. |
| |
| |
|D. |
|[pic] |
|the present value of periodic payments at a given interest rate. |
| |
| |
|44) An annuity may be defined as |
| |
|A. |
|[pic] |
|a payment at a fixed interest rate. |
| |
| |
|B. |
|[pic] |
|a series of yearly payments. |
| |
| |
|C. |
|[pic] |
|a series of payments of unequal amount. |
| |
| |
|D. |
|[pic] |
|a series of consecutive payments of equal amounts. |
| |
| |
|45) As the discount rate becomes higher and higher, the present value of inflows approaches |
| |
|A. |
|[pic] |
|0 |
| |
| |
|B. |
|[pic] |
|plus infinity |
| |
| |
|C. |
|[pic] |
|minus infinity |
| |
| |
|D. |
|[pic] |
|need more information |
| |
|46) Mr. Blochirt is creating a college investment fund for his daughter. He will put in $850 per year for the next 15 years and expects to earn an 8% annual rate |
|of return. How much money will his daughter have when she starts college? |
| |
|A. |
|[pic] |
|$11,250 |
| |
| |
|B. |
|[pic] |
|$24,003 |
| |
| |
|C. |
|[pic] |
|$12,263 |
| |
| |
|D. |
|[pic] |
|$23,079 |
| |
| |
|47) If you were to put $1,000 in the bank at 6% interest each year for the next ten years, which table would you use to find the ending balance in your account? |
| |
|A. |
|[pic] |
|Present value of $1 |
| |
| |
|B. |
|[pic] |
|Present value of an annuity of $1 |
| |
| |
|C. |
|[pic] |
|Future value of $1 |
| |
| |
|D. |
|[pic] |
|Future value of an annuity of $1 |
| |
| |
|48) John Doeber borrowed $125,000 to buy a house. His loan cost was 11% and he promised to repay the loan in 15 equal annual payments. How much are the annual |
|payments? |
| |
|A. |
|[pic] |
|$3,633 |
| |
| |
|B. |
|[pic] |
|$13,113 |
| |
| |
|C. |
|[pic] |
|$9,250 |
| |
| |
|D. |
|[pic] |
|$17,383 |
| |
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