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08171700;1. A current ratio is presently 2: 1 for a corporation that sells;sporting goods. Which of the following statements about;the ratio is correct?;A. The quick ratio is smaller than the current ratio.;B. The current ratio is unaffected by exchanging bonds;for stock.;C. The current ratio is increased by purchasing a store with;cash, with potential to increase corporate sales.;D. The current ratio is unchanged by using cash to retire;accounts payable.;2. Accountants suggest that assets should be valued at;A. cost.;B. the lower of market or cost.;C. market.;D. the higher of market or cost.;3. If annual interest rates are 10 percent, which of the following values will be the lowest?;A. The future value of a $100 investment after 3 years;B. The future value of an investment after 4 years, if $100 is deposited annually;C. The present value of an investment that will be worth $100 after 2 years;D. The present value of an annuity that will pay $200 a year, at the end of each of the;next 4 years;4. If $800 is deposited in a savings account that pays an interest rate of 5 percent;annually, how much money will be in the account after 15 years?;A. $1,663 C. $384;B. $1,609 D. $238;5. Profitability ratios are used to measure;A. liquidity. C. performance.;B. leverage. D. turnover.;6. If the interest rate on an account is 8 percent annually, what is the present value of;$40,000 to be received 5 years from today?;A. $6,188 C. $22,073;B. $10,018 D. $27,223;7. Which of the following is calculated by adding total liabilities plus equity?;A. Total assets C. Inventory;B. Hidden assets D. Operating income;8. What is the future value of an ordinary annuity if you deposit $500 per year for the;next 10 years in an account that earns an interest rate of 13 percent annually?;A. $1,700 C. $9,210;B. $5,000 D. $14,990;9. At an interest rate of 20 percent compounded annually, how many years will it take for;an investment of $6,000 to grow to $10,000?;A. 1 year C. 5 years;B. 3 years D. 7 years;10. Which of the following types of ratio is used to measure activity?;A. A leverage ratio C. A profitability ratio;B. A turnover ratio D. A liquidity ratio;11. If you deposit $700 in an account today, and the money grows to $1,800 in 14 years;what rate of annual interest have you earned?;A. 4 percent C. 10 percent;B. 7 percent D. 50 percent;12. Which of the following is considered to be a current liability?;A. Work-in-process;B. Raw materials;C. Accounts payable;D. Short-term money market instruments;13. Which of the following would be the most likely cause of an increase in;inventory turnover?;A. The faster collection of accounts receivable;B. Lowered sales;C. An increase in the inventory level;D. A reduction in the price of the product;14. What is the future value of an ordinary annuity if you deposit $1,500 per year for the;next 5 years into an account that earns an interest rate of 5 percent annually?;A. $8,288 C. $6,322;B. $7,500 D. $1,914;15. Which of the following is calculated by subtracting the cost of goods sold and administrative;expense from net sales?;A. Operating income C. Total liabilities;B. Accounts receivable D. Inventory cost;16. If an account has an annual interest rate of 12 percent, what is the present value of;$1,000,000 to be received 10 years from today?;A. $3,105,848 C. $321,973;B. $789,633 D. $56,984;17. If an account currently has a value of $84,000 and earns an interest rate of 4 percent;annually, for how many years can you withdraw $10,000 from the account?;A. 8 C. 12;B. 10 D. 20;18. If you deposit $10,000 in an investment that yields 6 percent annually, how many;years will it take for your investment to double in value?;A. 12 years C. 18 years;B. 15 years D. 20 years;19. Discounting determines the worth of funds to be received in the future in terms of their;A. present value.;B. future value.;C. cost factor.;D. time factor.;20. If annual interest rates are 10 percent, which of the following values will be;the greatest?;A. The future value of an annuity after 4 years, if $100 is deposited annually;B. The future value of a $100 investment after 3 years;C. The present value of an investment that will be worth $100 after 2 years;D. The present value of an annuity that will pay $200 a year, at the end of each;of the next 4 years;08171800;1. A financial intermediary transfers;A. savings to households.;B. savings to borrowers.;C. stocks to brokers.;D. new stock issues to buyers.;2. If an individual buys stock on margin and its price rises;the investor;A. must put up additional collateral.;B. must pay tax on the unrealized gain.;C. must pay interest on the borrowed funds.;D. may take delivery of the stock.;3. Which of the following best explains why commercial banks assume significant liabilities?;A. All commercial bank deposits are liabilities.;B. The loans commercial banks write can be risky.;C. Banks may pay too much interest on their deposits.;D. Banks may not charge enough interest on their loans to fund;operations and loan default risk.;4. Which of the following best explains a potential disadvantage of leaving securities in;street name?;A. Securities held in street name become the property of the custodian and the;customer is only beneficiary of the securities.;B. Correspondence sent by securities issuers may not be forwarded to brokerage;clients who own securities held in street name.;C. Securities held in street name can?t be quickly purchased or sold.;D. In the event of class action suits against securities issuers, the custodian, not the;beneficial owner (customer), is the only party that may benefit from court orders.;5. Which of the following assets is the most liquid?;A. Money and antiques;B. Bonds and real estate;C. Savings accounts and checking accounts;D. Stocks and bonds;6. When investing in securities, an investor may place a limit order that;A. limits the amount of commissions.;B. specifies when the stock will be purchased.;C. establishes the exchange on which the security is to be bought or sold.;D. states a price at which the investor seeks to buy or sell the stock.;7. Terry buys 100 shares of XYZ stock on margin at $20 per share. If the margin requirement;is 45 percent, the interest rate is 10 percent, and he holds the security for 1;year, how much interest must he pay?;A. $2,000 C. $110;B. $200 D. $90;8. The reserves of commercial banks must be held against;A. the bank as equity. C. savings deposits.;B. losses. D. commercial loans.;9. Which of the following statements about specialists is correct?;A. A specialist stresses one type of investment.;B. A specialist buys only stock.;C. A specialist analyzes corporate securities.;D. A specialist makes a market in securities.;10. The term structure of interest rates involves the relationship between;A. risk and yields. C. term and yields.;B. yields and bond ratings. D. stock and bond yields.;11. A stock is currently selling for $36 a share. What is your gain/loss if you sell the stock;short and the price rises to $62?;A. You would lose $26 per share. C. You would gain $13 per share.;B. You would gain $26 per share. D. You would lose $6 per share.;12. Which of the following is indicated by an upward-sloping yield curve?;A. Lower prices for short-term maturity;B. Higher prices for long-term maturity;C. Lower interest rates for long-term maturity;D. Higher interest rates for long-term maturity;13. Which of these statements best describes the function of a preliminary prospectus?;A. A preliminary prospectus is the document that registers a new security issue with;the Securities and Exchange Commission (SEC) and on which the SEC bases its;approval or disapproval of the issue for the general investing public.;B. A preliminary prospectus informs the investing public about many of the terms of a;proposed new security offering.;C. A preliminary prospectus announces to the SEC and the investing public the terms;of a new public issue, including the issuer?s planned use of the proceeds of the sale;and the proposed price of the issue.;D. A preliminary prospectus, or ?red herring,? serves to provide both valid information;about the proposed issue and conflicting information designed to confuse potential;purchasers of the issue.;14. Which of the following statements about pension plans is correct?;A. A pension plan that grants mortgage loans is an example of a;financial intermediary.;B. A pension plan that grants mortgage loans can?t suffer losses.;C. A pension plan that grants mortgage loans is called a savings and loan association.;D. A pension plan that grants mortgage loans isn?t an example of a;financial intermediary.;15. Money market mutual funds invest in;A. corporate bonds.;B. corporate stock.;C. federal government treasury bills.;D. federal government bonds.;16. Entering an order to sell stock at $17 when the bid is $18?$19 is an example of a;A. market order. C. margin payment.;B. short sale. D. limit order.;17. Which of the following statements about organized security markets is correct?;A. Organized security markets are examples of financial intermediaries.;B. Organized security markets transfer resources from savers to borrowers.;C. Organized security markets provide secondary markets.;D. Organized security markets aren?t subject to regulation.;18. The minimum margin requirement is established by;A. brokerage firms. C. the SEC.;B. Congress. D. the Federal Reserve.;19. If an investor sells short, then he or she;A. buys an odd lot of a security. C. anticipates a price increase.;B. sells securities from his or her portfolio. D. anticipates a price decrease.;20. Which of the following is a federally insured investment?;A. A savings account in a national commercial bank;B. A certificate of deposit in excess of $100,000;C. A life insurance policy;D. Commercial bank assets;08171900;1. What is the value of a common stock if the growth rate;is 8 percent, the most recent dividend was $2, and investors;require a 15 percent return on similar investments?;A. $25.78 C. $28.57;B. $27.34 D. $30.85;2. Which of the following preferred stock properties would;provide the best argument favoring purchase of preferred;stock by an investor?;A. When long-term bond yields decline, the value of preferred;stock can potentially rise.;B. Because preferred stock trading volume is lower than;common stock trading volume, preferred stock prices are;less volatile than common stock prices.;C. The yield differential between preferred stock and;bonds is smaller than would be expected on the basis;of risk differentials.;D. Preferred stockholders receive preferential treatment over;lower-class, common stockholders when the corporation;earns sufficient profit to pay creditors and shareholders.;3. If a company fails to meet the terms of indenture, the company is;A. bankrupt. C. profitable.;B. in default. D. in registration.;4. Which of the following is the best conclusion, given only the following information;ZYX Corporation?s earnings after taxes have declined by 3.13% from the year earlier.;During the past three months, ZYX purchased from investors (retired) 7.5% of the;corporation?s outstanding preferred stock shares, which pay dividends at 5% of par.;A. ZYX Corporation?s net income decline is largely attributable to the expense it;incurred to purchase its preferred stock.;B. ZYX Corporation?s preferred stock purchase should enhance earnings after taxes next;year because it will earn 5% dividend income from its new preferred stock holdings.;C. ZYX Corporation?s purchase of preferred stock had no effect on the firm?s asset balance.;D. ZYX Corporation?s purchase of preferred stock improved its capacity to pay preferred;stock dividends.;5. A 20-year $1,000 bond has a coupon of 8 percent. What would be the price if the;coupon is paid semiannually and comparable bonds yield 10 percent?;A. $1,000 C. $828;B. $895 D. $624;6. What is the value of a preferred stock that pays an annual dividend of $4 a share if;competitive yields are 5 percent?;A. $80 C. $40;B. $60 D. $20;7. Which of the following bonds is supported by collateral?;A. Convertible bonds C. Equipment trust certificates;B. Income bonds D. Debentures;8. If a perpetual preferred stock pays a dividend of $5 a year, and yields rise;from 10 percent to 12 percent, the price of the stock will;A. rise from $50 to $60. C. rise from $41.67 to $50.;B. fall from $50 to $41.67. D. fall from $60 to $50.;9. Interest is exempt from federal income taxation on;A. equipment trust certificates.;B. zero coupon bonds.;C. federal bonds such as savings bonds.;D. state of Florida bonds.;10. A 30-year $1,000 bond has an annual coupon of 6 percent. What would be the current;yield if the bond sells for $622?;A. 9.6 percent C. 5.6 percent;B. 6 percent D. 5 percent;11. Dividends come at the expense of;A. interest. C. liabilities.;B. retained earnings. D. stock.;12. A 10-year $1,000 bond has a coupon of 9 percent. What would be the price if the;coupon is paid annually and comparable bonds yield 10 percent?;A. $1,900 C. $1,000;B. $1,159 D. $938;13. An increase in investors? required return will cause the value of a common stock to;A. rise. C. remain unchanged.;B. fall. D. remain stable or rise slightly.;14. If investors require a rate of return of 8 percent, what is the value of a perpetual;preferred stock that pays a fixed dividend of $2?;A. $16 C. $32;B. $25 D. $50;15. A $1,000 bond has an annual coupon of 5 percent and a price of $692. Find the;number of years to maturity if comparable bonds yield 10 percent.;A. 5 years C. 20 years;B. 10 years D. 30 years;16. A common stock costs $40.50, the current dividend is $1.50, and the growth in the;value of the shares and the dividend is 8 percent. What is the annual rate of return;on an investment in this stock?;A. 4.5 percent C. 10 percent;B. 8 percent D. 12 percent;17. Preferred stock and bonds are similar because;A. they both have voting power.;B. interest and dividend payments are legal obligations.;C. neither interest nor dividends are tax deductible.;D. both may be subject to a call option.;18. What is the value of a $100 par preferred stock that must be retired after 10 years if it;pays a dividend of $5 annually and the investor requires a 6 percent rate of return?;A. $92 C. $110;B. $100 D. $122;19. A perpetual preferred stock pays a fixed dividend of $9 and sells for $100. What is the;stock?s rate of return?;A. 6.5 percent C. 11 percent;B. 9 percent D. 12.5 percent;20. The value of common stock depends on the;A. price of the stock.;B. retirement date.;C. present value of cash flows.;D. coupon rate.;08172000;1. A firm?s sales increase by 50 percent and inventory was;$100,000. According to the percent of sales method of;forecasting, what will the new inventory be?;A. $100,000 C. $150,000;B. $120,000 D. $175,000;2. If a firm produces 50,000 widgets and sells each unit for $20.50;what is the total revenue generated by this production?;A. $10,250 C. $1,025,000;B. $100,250 D. $10,250,000;3. If investors want to limit financial risk and maximize their;control of the business, which of the following forms of;business would they prefer?;A. A sole proprietorship C. An S corporation;B. A limited partnership D. A corporation;4. Break-even analysis is concerned with the relationship between;A. financial leverage and risk. C. debt and equity.;B. total costs and revenues. D. dividends and retained earnings.;5. A union contract suggests that labor costs may be;A. variable. C. a noncash expense.;B. fixed. D. undetermined.;6. A product sells for $5 per unit. If fixed costs are $1,000 and variable costs are $2 per;unit, what is the degree of operating leverage at 2,000 units?;A. 0.83 C. 1.2;B. 1.0 D. 2.0;7. Which of the following situations would provide corporate management with the;strongest rationale to carry forward current-year losses?;A. Management projects taxable income to remain unchanged over the next five years.;B. Early in his first term this year, the President of the United States initiated legislation;and signed into law a significant increase in income tax rates.;C. Management projects pre-tax losses over the next two years, and possibly even;four years into the future.;D. Congress just passed a very popular bill that reduces marginal federal income;tax rates.;8. Which of these situations offers the best rationale for organizing a business as a;limited partnership?;A. You?re an entrepreneur and you want two others? expertise, former business;partners, to help execute your business plan.;B. You want your small new business, which is operating out of your garage, to pay;you and your partner (your spouse) dividends for which income tax will only be;paid by you or your business, not both.;C. Management needs to raise money through a stock offering, but does not want to;relinquish control of the business to stockholders.;D. Management rejects the idea of personally assuming liability for the business.;9. Airlines have a high degree of operating leverage because of;A. a large investment in fixed assets.;B. small fixed expenses.;C. insufficient government regulation.;D. a large use of debt financing.;10. Currently, a firm?s accounts payable is 5 percent of sales. If the level of sales is anticipated;to increase from $10,000 to $20,000, what is the level of accounts payable;forecasted by the percent of sales method?;A. $250 C. $750;B. $500 D. $1,000;11. Which of the following statements about fixed costs is correct?;A. Fixed costs don?t change with the level of output.;B. Fixed costs don?t change with the size of the firm.;C. Fixed costs are greater than variable costs.;D. Fixed costs are paid before variable costs.;12. If ABC, Inc. has $650,000 in sales and $230,000 in expenses, what are the firm?s;earnings before interest and taxes (EBIT)?;A. $850,000 C. $420,000;B. $650,000 D. $325,000;13. Which of the following is an advantage of the sole proprietorship?;A. Ease of formation C. Limited liability;B. Joint ownership D. Ease of transfer of ownership;14. A product sells for $2 per unit. If fixed costs are $200 and variable costs are $1 per;unit, what is the break-even level of output?;A. 200 units C. 100 units;B. 150 units D. 50 units;15. Which of the following tends to vary spontaneously with changes in the level of sales?;A. Long-term debt C. Plant;B. Accounts payable D. Paid-in capital;16. If Sam?s Diner has an EBIT of $350,000, what are the diner?s net earnings after paying;$50,000 in taxes and $34,000 in interest?;A. $434,000 C. $311,000;B. $334,000 D. $266,000;17. Which of the following is usually a variable expense?;A. Salaries C. Wages;B. Rent D. Insurance premiums;18. If a firm substitutes fixed for variable costs, which of the following will occur?;A. The use of financial leverage will be increased.;B. The degree of operating leverage will be increased.;C. The break-even level of output will be reduced.;D. The profits will always be higher.;19. Which of the following events would be most likely to increase the quantity breakeven;point, assuming other factors remain constant?;A. Reduced marketplace competition enables LMN Corporation to raise its selling;price for finance textbooks.;B. The pressure has subsided: The property owner, who rents space to your;small manufacturing plant, has agreed to blacktop the employee and customer;parking lot.;C. The city council has finally been persuaded: Your taxi business will pay lower water;and sewer rates.;D. XYZ Corp agrees to increase its sales-commissions paid to employees by 12 percent.;20. Which of the following is an advantage of a corporation?;A. Permanence C. Elimination of double taxation;B. Ease of formation D. Dilution of ownership;08172100;1. Which of the following statements best explains why a rising;ratio of debt-to-total assets increases the cost of debt?;A. As the ratio increases, creditors require higher interest;rates to compensate them for higher default risk.;B. As total assets decline in relation to a stable debt level;equity declines.;C. As debt increases, the contribution of more expensive;equity financing decreases.;D. If debt remains constant while the ratio increases;rising assets must be finance with more expensive;equity financing.;2. The flotation costs of issuing new securities;A. decrease the cost of capital.;B. encourage the retention of earnings.;C. encourage external financing.;D. don?t affect the cost of capital.;3. If the net present values of two mutually exclusive investments are positive, a firm;should select;A. both investments.;B. neither investment.;C. the investment with the higher present value.;D. the investment with the higher net present value.;4. Which of the following statements about the cost of debt is correct?;A. The cost of debt is equal to the firm?s interest rate.;B. The cost of debt is greater than the cost of equity.;C. The cost of debt is less than the cost of equity.;D. The cost of debt is greater than the cost of preferred stock.;5. The internal rate of return and net present value methods of capital budgeting assume;that the cash flows are reinvested at the;A. cost of capital.;B. internal rate of return.;C. cost of capital for IRR and the internal rate of return for NPV.;D. cost of capital for NPV and the internal rate of return for IRR.;6. The optimal capital structure involves;A. minimizing the cost of all funds.;B. maximizing the cost of all funds.;C. minimizing the weighted average of the cost of funds.;D. maximizing the weighted average of the cost of funds.;Use the information in the following table to answer Questions 7, 8, 9, 10, and 11.;Coupon rate = 7 percent Marginal tax rate = 35 percent;Average tax rate = 32 percent Common stock dividend (D0) = $6;Price of common stock = $80 Preferred stock dividend = $4;Price of preferred stock = $50 Growth rate of common stock;dividend = 6 percent;Bond yield risk premium = 7;percent;Risk-free rate of return = 6;percent;Return on the market = 12 percent Beta = 1.2;7. According to the information provided in the table, what is the cost of debt?;A. 2.45 percent C. 6.25 percent;B. 4.55 percent D. 7.0 percent;8. According to the information in the table, what is the cost of preferred stock?;A. 8 percent C. 10 percent;B. 9 percent D. 12 percent;9. According to the information in the table, what is the cost of equity using the capital;asset pricing model (CAPM)?;A. 12 percent C. 13.95 percent;B. 13.2 percent D. 14.4 percent;10. According to the information in the table, what is the cost of equity using the bond;yield plus risk premium method?;A. 12 percent C. 13.95 percent;B. 13.2 percent D. 14 percent;11. According to the information in the table, what is the cost of equity using the expected;growth method?;A. 12 percent C. 13.95 percent;B. 13.2 percent D. 14.4 percent;12. A firm should make an investment if the present value of the cash inflows on the;investment is;A. less than zero.;B. greater than zero.;C. less than the cost of the investment.;D. greater than the cost of the investment.;13. Which of the following statements about retained earnings is correct?;A. Retained earnings have no cost.;B. Retained earnings are the firm?s cheapest source of funds.;C. Retained earnings have the same cost as new shares of stock.;D. Retained earnings are cheaper than the cost of new shares.;Use the following information to complete Questions 14, 15, 16, and 17.;A firm has two investment opportunities. Each investment costs $2,000, and the firm?s cost;of capital is 8 percent. The cash flows of each investment are shown in the following table;Cash Flow of;Investment A;Cash Flow of;Investment B;Year 1 $1,800 $900;Year 2 $600 $900;Year 3 $500 $900;Year 4 $400 $900;14. According to the information in the table, the NPV for Investment A is;A. $871. C. $2,871.;B. $1,300. D. $3,300.;15. According to the information in the table, the NPV for Investment B is;A. $980. C. $2,980.;B. $1,600. D. $3,600.;16. Based on the information in the table, if the investments are mutually exclusive;the firm should select;A. neither investment.;B. both investments.;C. the higher-NPV investment.;D. the higher-payback investment.;17. Based on the information in the table, if the investments are independent, the firm;should select;A. the higher IRR investment.;B. all investments with an IRR that?s greater than 8 percent.;C. all investments with an IRR that?s less than 8 percent.;D. only one investment if the IRR is greater than 8 percent.;18. A firm should reject an investment if the internal rate of return (IRR) on the investment is;A. greater than the cost of capital. C. greater than the interest rate.;B. less than the cost of capital. D. less than the interest rate.;19. The net present value of an investment will be higher if;A. the cost of capital is higher.;B. there?s no salvage value.;C. the cost of the investment is lower.;D. a firm uses straight-line depreciation.;20. Which of the following statements about the marginal cost of capital is correct?;A. The marginal cost of capital is a firm?s cost of debt and equity finance.;B. The marginal cost of capital is constant once the optimal capital structure;is determined.;C. The marginal cost of capital declines as flotation costs alter equity financing.;D. The marginal cost of capital refers to the cost of additional funds.

 

Paper#79405 | Written in 18-Jul-2015

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