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finance mcq with solution




Question;1. An;increase in financial leverage generally results in a higher return on equity;(ROE).;o True;o False;Reasoning: It may or may not increase ROE, depending upon;the level of leverage and the interest cost of debt.;2. Leverage;and liquidity generally rise or fall together.;o True;o False;3. It is;possible for a company to grow faster than its sustainable growth rate.;o True;o False;4. Which of;the following ratios uses sales in the denominator?;o Days in;inventory;o Receivables;turnover;o Cash;ratio;o Average;collection period;5. For a;levered firm, EBIT is equivalent to;o Net;income;o Pro forma;earnings;o Operating;profit;o Net;income before taxes;6. Common-size;financial statements are constructed in order to;o Adjust;for inflation and risk;o Facilitate;comparisons of different-sized companies;o To comply;with SEC requirements;o All of;the above;7. A firm has $100 of average inventory, operating profit of;$500 and sales of $1,500. Its days in inventory is;o 36.5 days;o 24.3 days;o 73.0 days;o Not;enough information;8. For which of the;following generic businesses would you expect a combination of high asset;turnover and low profit margins?;o Supermarkets;o Banks;o Software;developers;o Airlines;9. Analysis of a company's financial statements: Below are;simplified versions of the balance sheet and income statement for Toys by Tom;Inc. Use this information to answer question 9.;Toys by Tom, Inc. has a current ratio of ____, suggesting;o 9.6;reasonable ability to cover interest expense;o 0.57;potential illiquidity;o 0.21;potential collection problems;o 1.75;reasonable liquidity;10. Analysis of a company's financial statements: Below are;simplified versions of the balance sheet and income statement for Toys by Tom;Inc. Use this information to answer question 10.;What is Toys by Tom, Inc. return on assets (ROA)?;o 6.9%;o 0.86;o 18%;o 1.2;o ANSWER;NONE- OF THE ABOVE (EXPLANATION GIVEN BELOW);11. Operating cash flow is generated by a company's daily;operations related to production and sales of goods and/or services.;o True;o False;12. In general, the reduction of an asset is a source of;funds.;o True;o False;13. The sustainable growth rate is the maximum growth rate;achievable over an extended period of time.;o True;o False;14. The cash conversion cycle is calculated as;o Days in;Inventory + Collection Period;o Days in;Inventory - Payables Period;o Days in;Inventory + Collection Period - Payables Period;o None of;the above;15. A company can shorten its cash cycle by;o Reducing;inventory turnover;o Reducing;account payables;o Reducing;days receivable;o None of;the above;16. A company has a retention rate of 50%, sales of $25,000;beginning equity of $50,000 and profit margins of 10%, an asset turnover ratio;of.75 and debt of $10,000. What is its sustainable growth rate?;o 2.5%;o 1.7%;o 3.75%;o Not;enough information given;17. Scenario analysis is a way of testing forecasts by;changing one assumption at a time.;o True;o False;18. Biases can and should always be eliminated in financial;forecasts.;o True;o False;19. Which of the following is commonly used in preparing pro;forma statements;o Historical;financial statements;o Projected;sales;o Efficiency;ratios;o All of;the above;20. Pro forma statements are;o Summaries;of historical financial statements;o Government-mandated;analyses of financial statements;o Projected;statements used in financial planning;o Estimated;tax liabilities;21. Selecting investment projects according to rules based;either on project NPV or IRR results in maximizing firm value.;o True;o False;22. A dollar today is worth more than a dollar tomorrow.;o True;o False;23. The NPV rule, which says companies should invest in;projects for which NPV is greater than 0, depends on the assumption of value;maximization.;o True;o False;24. If you invest $2,000 today for three years at 5%;interest paid annually, you will earn a total of $______ in interest. Assume;you re-invest all interest.;o 205.00;o 300.00;o 315.25;o 500.00;25. The amount by which a project increases the value of the;firm is given by which of the following?;o The;project's accounting rate of return;o The;project's net present value (NPV).;o The;project's internal rate of return (IRR).;o The;project's present value;26. Which items are necessary in calculating the net present;value of a project?;I. Investment;outlays;II. Discount rate;III. Incremental;cash flow;IV. Time period;for the project;o I, II and;IV;o I, II and;III;o II, III;and IV;o All of;the above;27. Compute the net present value of an investment with 5;years of annual cash inflows of $100 and two cash outflows, one today of $100;and one at the beginning of the second year of $50. Use a discount rate of 10;percent.;o $229.08;o $287.60;o $233.62;o $271.53;Year PV factor Cash PV of cash;at 10% flows flows;0 1 -100 -100.00;1 0.909091 -50 -45.45;1 0.909091 100 90.91;2 0.826446 100 82.64;3 0.751315 100 75.13;4 0.683013 100 68.30;5 0.620921 100 62.09;PV of cash flows =;233.62;28. Suppose a riskless project requires an initial;investment of $10 and will generate a one-time cash inflow of $30 two years;later. Assuming a risk-free interest rate of 5%, which of the following;statements about the project is NOT true?;o The net;present value of the project is positive;o The IRR;is greater than 50 percent.;o The;accounting rate of return on the project is positive.;o The;payback period is less than 2 years.;29. What is the present value of a perpetuity of $100 given;a discount rate of 5%?;o $ 2,000;o $ 3,000;o $ 1,500;o $ 500


Paper#47623 | Written in 18-Jul-2015

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