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Financial Planning mcqs




Question;1) The goal;of the firm should be.;A. maximization of profits;B. maximization of shareholder wealth;C. maximization of consumer satisfaction;D. maximization of sales;2) An example of a primary market transaction is;A. a new issue of common stock by AT&T;B. a sale of some outstanding common stock of AT&T;C. AT&T repurchasing its own stock from a stockholder;D. one stockholder selling shares of common stock to another;individual;3) According to the agency problem, _________ represent the;principals of a corporation.;A. shareholders;B. managers;C. employees;D. suppliers;Some;textbook specify Shareholder as answer.;4) Which of the following is a principle of basic financial;management?;A. Risk/return tradeoff;B. Derivatives;C. Stock warrants;D. Profit is king;5) Another name for the acid test ratio is the;A. current ratio;B. quick ratio;C. inventory turnover ratio;D. average collection period;6) The accounting rate of return on stockholders?;investments is measured by;A. return on assets;B. return on equity;C. operating income return on investment;D. realized rate of inflation;Some textbook specify Return in Equity as answer;7) If you are an investor, which of the following would you;prefer?;A. Earnings on funds invested compound annually;B. Earnings on funds invested compound daily;C. Earnings on funds invested would compound monthly;D. Earnings on funds invested would compound quarterly;8) The primary purpose of a cash budget is to;A. determine the level of investment in current and fixed;assets;B. determine accounts payable;C. provide a detailed plan of future cash flows;D. determine the estimated income tax for the year;9) Which of the following is a non-cash expense?;A. Depreciation expenses;B. Interest expense;C. Packaging costs;D. Administrative salaries;10) The break-even model enables the manager of a firm to;A. calculate the minimum price of common stock for certain;situations;B. set appropriate equilibrium thresholds;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;11) A zero-coupon bond;A. pays no interest;B. pays interest at a rate less than the market rate;C. is a junk bond;D. is sold at a deep discount at less than the par value;12) 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 5 years?;A. $3,525.62;B. $5,008.76;C. $3,408.88;D. $2,465.78;13) At what rate must $400 be compounded annually for it to;grow to $716.40 in 10 years?;A. 6%;B. 5%;C. 7%;D. 8%;14) The present value of a single future sum;A. increases as the number of discount periods increase;B. is generally larger than the future sum;C. depends upon the number of discount periods;D. increases as the discount rate increases;15) Which of the following is considered to be a spontaneous;source of financing?;A. Operating leases;B. Accounts receivable;C. Inventory;D. Accounts payable;16) 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. 3.43 years;B. 3.17 years;C. 2.88 years;D. 2.6 years;17) For the NPV criteria, a project is acceptable if the NPV;is __________, while for the profitability index, a project is acceptable if;the profitability index is __________.;A. less than zero, greater than the required return;B. greater than zero, greater than one;C. greater than one, greater than zero;D. greater than zero, less than one;18) Which of the following is considered to be a deficiency;of the IRR?;A. It fails to properly rank capital projects.;B. It could produce more than one rate of return.;C. It fails to utilize the time value of money.;D. It is not useful in accounting for risk in capital;budgeting.;19) The firm should accept independent projects if;A. the payback is less than the IRR;B. the profitability index is greater than 1.0;C. the IRR is positive;D. the NPV is greater than the discounted payback;20) The most expensive source of capital is;A. preferred stock;B. new common stock;C. debt;D. retained earnings;21) The cost associated with each additional dollar of;financing for investment projects is;A. the incremental return;B. the marginal cost of capital;C. risk-free rate;D. beta;22) The XYZ Company is planning a $50 million expansion. The;expansion is to be financed by selling $20 million in new debt and $30 million;in new common stock. The before-tax required rate of return on debt is 9%, and;the required rate of return on equity is 14%. If the company is in the 40% tax;bracket, what is the marginal cost of capital?;A. 14.0%;B. 9.0%;C. 10.6%;D. 11.5%;23) 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. 18.0%;B. 13.0%;C. 10.0%;D. 14.2%;24) Lever Brothers has a debt ratio (debt to assets) of 40%.;Management is wondering if its current capital structure is too conservative.;Lever Brothers? 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. $2.00;C. $3.25;D. $4.50;25) Zybeck Corp. projects operating income of $4 million;next year. The firm?s income tax rate is 40%. Zybeck presently has 750,000;shares of common stock which have a market value of $10 per share, no preferred;stock, and no debt. The firm is considering two alternatives to finance a new;product: (a) the issuance of $6 million of 10% bonds, or (b) the issuance of;60,000 new shares of common stock. If Zybeck issues common stock this year;what will be the projected EPS next year?;A. $4.94;B. $2.96;C. $5.33;D. $3.20;26) _________ risk is generally considered only a paper gain;or loss.;A. Transaction;B. Translation;C. Economic;D. Financial;27) 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. have been getting smaller in the past decade;28) Buying and selling in more than one market to make a;riskless profit is called;A. profit maximization;B. arbitrage;C. international trading;D. an efficient market;29) What keeps foreign exchange quotes in two different countries;in line with each other?;A. Cross rates;B. Forward rates;C. Arbitrage;D. Spot rates;30) One reason for international investment is to reduce;A. portfolio risk;B. price-earnings (P/E) ratios;C. advantages in a foreign country;D. exchange rate risk..


Paper#50687 | Written in 18-Jul-2015

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