Chapter 1 - Financial Institutions And Markets
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1.
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Tax planning for a company can not include: 7
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  Depreciation
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Contributions
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Entertainment
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Personal business
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2.
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Financial managers influence all except: 9
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Present and future earnings per share
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Pricing
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Timing, duration, and risk of earnings
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Dividend policy
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3.
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The controller is not concerned with internal matters that include: 9
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Financial and cost accounting
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Market strategies
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Taxes
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Budgeting
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4.
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Which one of the following is not a depreciation method? 13
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Straight-line
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Double-declining
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Accelerated cost recovery
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Sum-of-the-year's digit
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5.
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________ is not one of tax deductions: 14
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Pension expense
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Capital gains or losses
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Actual bad debts
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Interest
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Chapter 2 - Solvency And Debt Service Ratios
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6.
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________ is not a balance sheets item: 16
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Assets
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Liabilities
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Stockholder's equity
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Revenue
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7.
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Stockholder’s equity section does not show: 17
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Capital stock
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Portfolio diversification
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Retained earnings
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Treasury stock
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8.
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Cash outflows fro investing activities include: 17
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Repurchasing of stock
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Payments to buy fixed assets
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Payment of dividends
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Cash paid for inventory or on accounts payable
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9.
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Some questions answered by the statement of cash flows include all except: 18
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Where did the earnings go
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How was prime rate secured
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How was debt retired
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What became of the proceeds of a bond
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10.
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_______________ is not a liquidity ratio: 19
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Quick ratio
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Net working capital
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Cash coverage ratio
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Current ratio
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11.
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Net working capital is the difference between: 19
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Current assets and current liabilities
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Fixed assets and fixed liabilities
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Total assets and total liabilities
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Shareholders' investment and cash
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12.
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Free cash flow (FCF) is cash flow from operations minus cash used to purchase fixed assets minus ____________________. 21
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Stock dividends
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Share repurchase
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Cash dividends
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Debt payment
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13.
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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
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(4/6) x (6/1) = ROI
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(4/6) x (1/6) = ROI
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(6/4) x (1/6) = ROI
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(6/4) x (6/1) = ROI
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14.
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Market value added (MVA) is ___________________ minus equity capital supplied by shareholders. 25
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Economic value added
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Price-earnings ratio (multiple)
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Market value
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Book value per share
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Chapter 3 - Cash Budgeting
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15.
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Steps in the budgeting process include all except: 29
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Prepare a sales forecast
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Determine expected production volume
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Estimate manufacturing costs and operating expenses
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Ignore external data
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16.
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Which one of the following is not a type of budget? 29
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Short-fall budgets
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Sales budget
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Direct labor budget
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Factory overhead budget
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17.
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Basic steps in projecting external financial needs do not include: 31
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Project the firm's sales
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Project competition's market share
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Estimate level of investment
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Calculate the firm's financial needs.
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Chapter 4 - Market Index Models
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18.
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The most direct way to prepare a cash budget is to include: 31
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Projected sales, credit terms, and net income
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Sales projections and credit terms, collection percentages, estimated purchases and payment terms, and other cash receipts and disbursements
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Projected purchases, percentages of purchases paid, and net income
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Projected sales and percentages of collections
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19.
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A popular cash management model is: 36
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Baumol model
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Miller-Miller model
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Analog model
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Discount model
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Chapter 5 - Capital Budgeting
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20.
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The relative risk is measured by ___________________: 42
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Risk premium.
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Coefficient of variation.
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Standard deviation.
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Beta coefficient.
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21.
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A measure that describes the risk of an investment project relative to other investments in general is the: 48
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Coefficient of variation
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Standard deviation
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Beta coefficient
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Expected return
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22.
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Bond prices and interest rates are: 51
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Inversely related
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Directly related
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Unrelated
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Forces in bond valuation
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23.
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the term structure of interest rates is also known as: 55
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Learning curve
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Risk-return tradeoff curve
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Market curve
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Yield curve
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Chapter 6 - Theory Of Capital Structure
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24.
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When making an investment one should consider: 59
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The time value of money
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The current value of money
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The future value of money
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The intrinsic value of money
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25.
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Capital budgeting techniques do not include: 62
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Internal rate of return
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Net present value
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Adjusted rate of return
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Payback period
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26.
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The payback period is: 64
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Time required to recoup the initial investment
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Time to recover average capital investment
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Time to develop market strategies
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Time to make initial investment payments
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27.
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Profitability index (PI) is used to: 66
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Rank investments
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Rank assets
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Rank competition
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Rank risks
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28.
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Which of the following is not an example of mutually exclusive proposal: 68
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Selecting one geographic location over another
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Projects involved in capital rationing situations
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Deciding which machine to buy
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Deciding whether to produce product x or y
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29.
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Steps to take when considering a purchase (rather than a lease) do not include: 69
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Find the annual loan amortization
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Calculate interest
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Calculate the loss ratio
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Find the cash outflows
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Chapter 7 - Financing Strategy
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30.
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Which of the following is directly applied in determining the value of a stock when using the dividend growth model? 77
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The firm's capital structure
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The firm's cash flows
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The firm's liquidity
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The investor's required rate of return on the firm's stock
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31.
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When calculating the cost of capital, the cost assigned to retained earnings should be 76
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Zero
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Lower than the cost of external common equity
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Equal to the cost of external common equity
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Higher than the cost of external common equity
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Chapter 8 - Public Versus Private Placement Of Securities
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32.
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In dividend policy the dividends should fulfill the objectives of: 91
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The company
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The stockholders and company
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The employees
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The investors
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Chapter 9 - Mergers And Acquisitions
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33.
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Using a 360-day year, what is the opportunity cost to a buyer of not accepting terms 3/15, net 60? 94
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0.247
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0.3181
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0.2227
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1.0173
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34.
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Commercial paper: 97
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Has a maturity date greater than 1 year
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Is usually sold only through investment banking dealers
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Ordinarily does not have an active secondary market
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Has an interest rate lower than Treasury bills
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Chapter 10 - Bankruptcy And Reorganization
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35.
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Intermediate-term bank loans have a maturity of: 101
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One month
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Over one year
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Under two months
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Over five years
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Chapter 11 - Long Term Debt
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36.
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From the viewpoint of the investor, which of the following securities provides the least risk? 106
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Mortgage bond
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Subordinated debenture
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Income bond
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Debentures
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37.
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Zero-coupon bonds 106
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Sell for a small fraction of their face value because their yield is much lower than the market rate.
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Increase in value each year as they approach maturity, providing the owner with the total payoff at maturity.
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Are redeemable in measures of a commodity such as barrels of oil, tons of coal, or ounces of rare metal (e.g., silver).
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Are high-interest-rate, high-risk, unsecured bonds that have been used extensively to finance leveraged buyouts.
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Chapter 12 - Stock, Convertibles, and Warrants
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38.
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” Short selling” is the 119
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Buying securities on credit.
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Selling of all your shares in anticipation that the price will decline.
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A security that is not owned by the seller.
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Betting that a stock will increase by a certain amount.
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Chapter 13 - Mergers and acquisitions
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39.
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The merger of United and Delta would be categorized as a 127
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Horizontal merger
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Conglomerate merger
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White knight
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Vertical merger
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40.
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A candy manufacturing company merging with a sugar processing company would be an example of a 127
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Horizontal merger.
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Vertical merger.
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Diagonal merger.
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Conglomerate merger.
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41.
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The merger of General Motors and Ford would be categorized as a 127
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Diversifying merger.
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Conglomerate merger.
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Horizontal merger.
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Vertical merger.
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42.
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What benefit(s) might a merger bring? 127
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Growth.
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Reduction of risk.
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Growth and reduction of risk.
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Anti-trust action.
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43.
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The advantage of a tender offer in a corporate takeover is that 129
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Target shareholders have less time to evaluate the offer.
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Stockholders are induced to sell when the tender price significantly exceeds the current market price of the target common stock.
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The failing company doctrine might otherwise prohibit the combination.
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It is exempt from the Clayton Act.
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Chapter 14 - Options and Option pricing, Derivatives and Risk Management
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44.
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A foreign exchange rate is: 168
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The ratio of one country's cost-of-living index to that of another country
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The price of one country's currency in units of another country's currency
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The ratio of one country's imports to its exports
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The difference obtained by subtracting a country's exports from its imports
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45.
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An investor has calculated Altman's Z-Score 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
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Z is least risky and W is most risky.
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W is least risky and Z is most risky.
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Y is least risky and W is most risky.
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X is least risky and W is most risky.
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