Chapter 1  Financial Institutions And Markets
1.

Tax planning for a company can not include: 7


Depreciation


Contributions


Entertainment


Personal business




2.

Financial managers influence all except: 9


Present and future earnings per share


Pricing


Timing, duration, and risk of earnings


Dividend policy




3.

The controller is not concerned with internal matters that include: 9


Financial and cost accounting


Market strategies


Taxes


Budgeting




4.

Which one of the following is not a depreciation method? 13


Straightline


Doubledeclining


Accelerated cost recovery


Sumoftheyear’s digit




5.

________ is not one of tax deductions: 14


Pension expense


Capital gains or losses


Actual bad debts


Interest





Chapter 2  Solvency And Debt Service Ratios
6.

________ is not a balance sheets item: 16


Assets


Liabilities


Stockholder’s equity


Revenue




7.

Stockholder’s equity section does not show: 17


Capital stock


Portfolio diversification


Retained earnings


Treasury stock




8.

Cash outflows fro investing activities include: 17


Repurchasing of stock


Payments to buy fixed assets


Payment of dividends


Cash paid for inventory or on accounts payable




9.

Some questions answered by the statement of cash flows include all except: 18


Where did the earnings go


How was prime rate secured


How was debt retired


What became of the proceeds of a bond




10.

_______________ is not a liquidity ratio: 19


Quick ratio


Net working capital


Cash coverage ratio


Current ratio




11.

Net working capital is the difference between: 19


Current assets and current liabilities


Fixed assets and fixed liabilities


Total assets and total liabilities


Shareholders’ investment and cash




12.

Free cash flow (FCF) is cash flow from operations minus cash used to purchase fixed assets minus ____________________. 21


Stock dividends


Share repurchase


Cash dividends


Debt payment




13.

The following information pertains to Como Co. for the year ended December 31, 20x7: Sales $600,000 Operating income 100,000 Operating assets 400,000 Which of the following equations should be used to compute Como's return on investment? 24


(4/6) x (6/1) = ROI


(4/6) x (1/6) = ROI


(6/4) x (1/6) = ROI


(6/4) x (6/1) = ROI




14.

Market value added (MVA) is ___________________ minus equity capital supplied by shareholders. 25


Economic value added


Priceearnings ratio (multiple)


Market value


Book value per share





Chapter 3  Cash Budgeting
15.

Steps in the budgeting process include all except: 29


Prepare a sales forecast


Determine expected production volume


Estimate manufacturing costs and operating expenses


Ignore external data




16.

Which one of the following is not a type of budget? 29


Shortfall budgets


Sales budget


Direct labor budget


Factory overhead budget




17.

Basic steps in projecting external financial needs do not include: 31


Project the firm’s sales


Project competition’s market share


Estimate level of investment


Calculate the firm’s financial needs.





Chapter 4  Market Index Models
18.

The most direct way to prepare a cash budget is to include: 31


Projected sales, credit terms, and net income


Sales projections and credit terms, collection percentages, estimated purchases and payment terms, and other cash receipts and disbursements


Projected purchases, percentages of purchases paid, and net income


Projected sales and percentages of collections




19.

A popular cash management model is: 36


Baumol model


MillerMiller model


Analog model


Discount model





Chapter 5  Capital Budgeting
20.

The relative risk is measured by ___________________: 42


Risk premium.


Coefficient of variation.


Standard deviation.


Beta coefficient.




21.

A measure that describes the risk of an investment project relative to other investments in general is the: 48


Coefficient of variation


Standard deviation


Beta coefficient


Expected return




22.

Bond prices and interest rates are: 51


Inversely related


Directly related


Unrelated


Forces in bond valuation




23.

the term structure of interest rates is also known as: 55


Learning curve


Riskreturn tradeoff curve


Market curve


Yield curve





Chapter 6  Theory Of Capital Structure
24.

When making an investment one should consider: 59


The time value of money


The current value of money


The future value of money


The intrinsic value of money




25.

Capital budgeting techniques do not include: 62


Internal rate of return


Net present value


Adjusted rate of return


Payback period




26.

The payback period is: 64


Time required to recoup the initial investment


Time to recover average capital investment


Time to develop market strategies


Time to make initial investment payments




27.

Profitability index (PI) is used to: 66


Rank investments


Rank assets


Rank competition


Rank risks




28.

Which of the following is not an example of mutually exclusive proposal: 68


Selecting one geographic location over another


Projects involved in capital rationing situations


Deciding which machine to buy


Deciding whether to produce product x or y




29.

Steps to take when considering a purchase (rather than a lease) do not include: 69


Find the annual loan amortization


Calculate interest


Calculate the loss ratio


Find the cash outflows





Chapter 7  Financing Strategy
30.

Which of the following is directly applied in determining the value of a stock when using the dividend growth model? 77


The firm’s capital structure


The firm’s cash flows


The firm’s liquidity


The investor’s required rate of return on the firm’s stock




31.

When calculating the cost of capital, the cost assigned to retained earnings should be 76


Zero


Lower than the cost of external common equity


Equal to the cost of external common equity


Higher than the cost of external common equity





Chapter 8  Public Versus Private Placement Of Securities
32.

In dividend policy the dividends should fulfill the objectives of: 91


The company


The stockholders and company


The employees


The investors





Chapter 9  Mergers And Acquisitions
33.

Using a 360day year, what is the opportunity cost to a buyer of not accepting terms 3/15, net 60? 94


0.247


0.3181


0.2227


1.0173




34.

Commercial paper: 97


Has a maturity date greater than 1 year


Is usually sold only through investment banking dealers


Ordinarily does not have an active secondary market


Has an interest rate lower than Treasury bills





Chapter 10  Bankruptcy And Reorganization
35.

Intermediateterm bank loans have a maturity of: 101


One month


Over one year


Under two months


Over five years





Chapter 11  Long Term Debt
36.

From the viewpoint of the investor, which of the following securities provides the least risk? 106


Mortgage bond


Subordinated debenture


Income bond


Debentures




37.

Zerocoupon bonds 106


Sell for a small fraction of their face value because their yield is much lower than the market rate.


Increase in value each year as they approach maturity, providing the owner with the total payoff at maturity.


Are redeemable in measures of a commodity such as barrels of oil, tons of coal, or ounces of rare metal (e.g., silver).


Are highinterestrate, highrisk, unsecured bonds that have been used extensively to finance leveraged buyouts.





Chapter 12  Stock, Convertibles, and Warrants
38.

” Short selling” is the 119


Buying securities on credit.


Selling of all your shares in anticipation that the price will decline.


A security that is not owned by the seller.


Betting that a stock will increase by a certain amount.





Chapter 13  Mergers and acquisitions
39.

The merger of United and Delta would be categorized as a 127


Horizontal merger


Conglomerate merger


White knight


Vertical merger




40.

A candy manufacturing company merging with a sugar processing company would be an example of a 127


Horizontal merger.


Vertical merger.


Diagonal merger.


Conglomerate merger.




41.

The merger of General Motors and Ford would be categorized as a 127


Diversifying merger.


Conglomerate merger.


Horizontal merger.


Vertical merger.




42.

What benefit(s) might a merger bring? 127


Growth.


Reduction of risk.


Growth and reduction of risk.


Antitrust action.




43.

The advantage of a tender offer in a corporate takeover is that 129


Target shareholders have less time to evaluate the offer.


Stockholders are induced to sell when the tender price significantly exceeds the current market price of the target common stock.


The failing company doctrine might otherwise prohibit the combination.


It is exempt from the Clayton Act.





Chapter 14  Options and Option pricing, Derivatives and Risk Management
44.

A foreign exchange rate is: 168


The ratio of one country's costofliving index to that of another country


The price of one country's currency in units of another country's currency


The ratio of one country's imports to its exports


The difference obtained by subtracting a country's exports from its imports




45.

An investor has calculated Altman's ZScore for each of four possible investment alternatives. Each firm is a public industrial firm. The calculated scores for the four investments were as follows: Firm W = 3.89 Firm X = 2.48 Firm Y = 2.00 Firm Z = 1.10 Which statement is true? 133


Z is least risky and W is most risky.


W is least risky and Z is most risky.


Y is least risky and W is most risky.


X is least risky and W is most risky.




