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Question;1) In terms of;organizational costs, which of the following sequences is correct, moving from;lowest to highest cost?;a. Corporation, limited partnership, general partnership, sole proprietorship;b. Sole proprietorship, general partnership, corporation, limited partnership;c. General partnership, sole proprietorship, limited partnership, corporation;d. Sole proprietorship, general partnership, limited partnership, corporation;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) The true owners of the corporation are the;a. board of directors of the firm.;b. common stockholders.;c. holders of debt issues of the firm.;d. preferred stockholders.;4) When public corporations decide to raise cash in the capital markets, what;type of financing vehicle is most favored?;a. Common stock;b. Retained earnings;c. Preferred stock;d. Corporate bond;5) Money market instruments include;a. corporate bonds.;b. bankers? acceptances;c. preferred stock;d. common stock.;6) __________ is a method of offering securities to a limited number of;investors.;a. Public offering;b. Initial public offering;c. Private placement;d. Syndicated underwriting;7) According to the agency problem, _________ represent the principals of a;corporation.;a. employees;b. shareholders;c. managers;d. suppliers;8) Difficulty in finding profitable projects is due to;a. ethical dilemmas.;b. social responsibility.;c. competitive markets.;d. opportunity costs.;9) Which of the following is NOT a principle of basic financial management?;a. Efficient capital markets;b. Incremental cash flow counts;c. Profit is king;d. Risk/return tradeoff;10) The accounting rate of return on stockholders? investments is measured by;a. operating income return on investment.;b. return on equity.;c. realized rate of inflation.;d. return on assets.;11) Which of the following financial ratios is the best measure of the;operating effectiveness of a firm?s management?;a. Quick ratio;b. Gross profit margin;c. Return on investment;d. Current ratio;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. 50%;b. 40%;c. 60%;d. 30%;13) 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. 3.61%;b. 5.02%;c. 4.86%;d. 4.75%;14) When George Washington 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. $2,525,548;b. $4,085,920;c. $1,025,000;d. $954,719;e. $3,489,097;15) If you are an investor, which of the following would you prefer?;a. Earnings on funds invested would compound monthly.;b. Earnings on funds invested would compound quarterly.;c. Earnings on funds invested would compound annually.;d. Earnings on funds invested would compound daily.;16) All of the following are found in the cash budget EXCEPT;a. cash disbursements.;b. new financing needed.;c. a net change in cash for the period.;d. inventory.;17) Which of the following is NOT a basic function of a budget?;a. Budgets compare historical costs of the firm with its current cost;performance.;b. Budgets allow for performance evaluation.;c. Budgets indicate the need for future financing.;d. Budgets provide the basis for corrective action when actual figures differ;from the budgeted figures;18) The primary purpose of a cash budget is to;a. provide a detailed plan of future cash flows.;b. determine the estimated income tax for the year.;c. determine the level of investment in current and fixed assets;d. determine accounts payable.;19) The break-even model enables the manager of a firm to;a. determine the quantity of output that must be sold to cover all operating;costs.;b. determine the optimal amount of debt financing to use.;c. calculate the minimum price of common stock for certain situations.;d. set appropriate equilibrium thresholds.;20) Which of the following is a non-cash expense?;a. Packaging costs;b. Administrative salaries;c. Depreciation expenses;d. Interest expense;21) A plant can remain operating when sales are depressed;a. in an effort to cover at least some of the variable cost.;b. unless variable costs are zero when production is zero.;c. if the selling price per unit exceeds the variable cost per unit.;d. to help the local economy.;22) At what rate must $400 be compounded annually for it to grow to $716.40 in;10 years?;a. 7%;b. 8%;c. 6%;d. 5%;23) The present value of a single future sum;a. depends upon the number of discount periods.;b. increases as the number of discount periods increase;c. increases as the discount rate increases.;d. is generally larger than the future sum.;24) Which of the following is the formula for compound value?;a. FVn = P/(1+i)n;b. FVn = P(1+i)n;c. FVn = (1+i)/P;d. FVn = P(1+i)-n;25) A toy manufacturer following the hedging principle will generally finance;seasonal inventory build-up prior to the Christmas season with;a. trade credit.;b. common stock.;c. preferred stock.;d. selling equipment.;26) Which of the following is NOT considered a permanent source of financing?;a. Preferred stock;b. Corporate bonds;c. Commercial paper;d. Common stock;27) Which of the following is considered to be a spontaneous source of;financing?;a. Inventory;b. Operating leases;c. Accounts payable;d. Accounts receivable;28) Artie?s Soccer Ball Company is considering a project with the following;cash flows: Initial outlay = $750,000 Incremental after-tax cash flows from;operations Years 1?4 = $250,000 per year Compute the NPV of this project if the;company?s discount rate is 12%.;a. $4,337;b. $7,758;c. $2,534;d. $9,337;29) 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. 18%;b. 11%;c. 24%;d. 9%;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 is considered to be a deficiency of the IRR?;a. It fails to utilize the time value of money.;b. It could produce more than one rate of return.;c. It is not useful in accounting for risk in capital budgeting.;d. It fails to properly rank capital projects.;32) Most firms use the payback period as a secondary capital-budgeting;technique, which, in a sense, allows them to control for risk.;A. True;B. False;33) 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%;34) 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. $6,577;C. $1,056;D. $4,568;35) The NPV assumes cash flows are reinvested at the;A. real rate of return.;B. cost of capital.;C. IRR.;D. NPV.;36) The firm should accept independent projects if;A. the IRR is positive.;B. the NPV is greater than the discounted payback.;C. the payback is less than the IRR.;D. the profitability index is greater than 1.0.;37) Cost of capital is;A. the rate of return that must be earned on additional investment if firm;value is to remain unchanged.;B. the average cost of the firm?s assets.;C. the coupon rate of debt.;D. a hurdle rate set by the board of directors.;38) PepsiCo uses 30-year Treasury bonds to measure the risk-free rate because;A. these bonds are essentially free of business risk.;B. they capture the long-term inflation expectations of investors associated;with investments in long-term assets.;C. these bonds are essentially free of interest rate risk.;D. none of the above.;39) The average cost associated with each additional dollar of financing for;investment projects is;A. risk-free rate.;B. beta.;C. the incremental return.;D. the marginal cost of capital.;40) The expected dividend is $2.50 for a share of stock priced at $25. What is;the cost of retained earnings if the long-term growth in dividends is projected;to be 8%?;A. 25%;B. 18%;C. 10%;D. 8%;41) 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. 10.6%;B. 11.5%;C. 14.0%;D. 9.0%;42) Given the following information, determine the risk-free rate.;Cost of equity = 12%;Beta = 1.50;Market risk premium = 3%;A. 7.0%;B. 6.5%;C. 8.0%;D. 7.5%;43) 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 projected;EPS be next year?;A. $2.33;B. $1.67;C. $2.10;D. $2.96;44) 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. $1.16;B. $2.12;C. $0.88;D. $1.95;45) 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. $3.25;B. $1.75;C. $4.50;D. $2.00;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. floating bond.;B. world bond.;C. Eurobond.;D. international capital bond.;47) _________ risk is generally considered only a paper gain or loss.;A. Economic;B. Transaction;C. Financial;D. Translation;48) 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.;49) A spot transaction occurs when one currency is;A. exchanged for another currency at a specified price.;B. immediately exchanged for another currency.;C. traded for another at an agreed-upon future price.;D. deposited in a foreign bank.;50) 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. interest rate parity theory.;B. balance of payments quantum theory.;C. arbitrage markets theory.;D. purchasing power parity theory.;51) If the quote for a forward exchange contract is greater than the computed;price, the forward contract is;A. a good buy.;B. undervalued.;C. at equilibrium.;D. overvalued.;52) Buying and selling in more than one market to make a riskless profit is;called;A. international trading.;B. arbitrage.;C. cannot be determined from the above information.;D. profit maximization.;53) One reason for international investment is to reduce;A. advantages in a foreign country.;B. beta risk.;C. portfolio risk.;D. price-earnings (P/E) ratios.;54) 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


Paper#51729 | Written in 18-Jul-2015

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