Applied Finance for Business Reading Quiz

ADM474 - Applied Finance for Business

Reading quizzes: questions and answers

Wrong answers highlighted in red

ADM 474 Reading Quizzes

Workshop 1

Question 1

2 out of 2 points

Which of the following is not a primary source of capital to the firm?

Answer

Selected Answer:

assets

Question 2

2 out of 2 points

The statement of cash flows does not include which of the following sections?

Answer

Selected Answer:

cash flows from sales activities

Question 3

2 out of 2 points

A statement of cash flows allows a financial analyst to determine

Answer

Selected Answer:

all of the above

Question 4

2 out of 2 points

The partnership form of organization

Answer

Selected

Answer:

avoids the double taxation of earnings and dividends found in the corporate form of

organization.

Question 5

2 out of 2 points

Total asset turnover indicates the firm's

Answer

Selected Answer:

ability to use its assets to generate sales.

Question 6

2 out of 2 points

A short-term creditor would be most interested in

Answer

Selected Answer:

liquidity ratios.

Question 7

2 out of 2 points

Depreciation tends to

Answer

Selected Answer:

increase cash flow and decrease income.

Question 8

2 out of 2 points

Disinflation may cause

Answer

Selected Answer:

a reduced required return demanded by investors on financial assets.

Question 9

2 out of 2 points

The most rigorous test of a firm's ability to pay its short-term obligations is its

Answer

Selected Answer:

quick ratio.

Question 10

2 out of 2 points

Agency theory examines the relationship between the

Answer

Selected Answer:

owners of the firm and the managers of the firm.

Question 11

2 out of 2 points

If accounts receivable stays the same, and credit sales go up

Answer

Selected Answer:

the average collection period will go down.

Question 12

2 out of 2 points

Companies that have higher risk than a competitor in the same industry will generally have

Answer

Selected Answer:

all of the above.

Question 13

2 out of 2 points

Which of the following is not one of the three basic financial statements?

Answer

Selected Answer:

Statement of Retained Earnings

Question 14

2 out of 2 points

The best indication of the operational efficiency of management is

Answer

Selected Answer:

earnings before interest and taxes (EBIT).

Question 15

2 out of 2 points

In addition to comparison with industry ratios, it is also helpful to analyze ratios using

Answer

Selected Answer:

both a and b.

Question 16

2 out of 2 points

Disinflation as compared to inflation would normally be good for investments in

Answer

Selected Answer:

bonds.

Question 17

2 out of 2 points

The firm's price-earnings (P/E) ratio is influenced by its

Answer

Selected Answer:

all of the above

Question 18

2 out of 2 points

The financial markets allocate capital to corporations by

Answer

Selected Answer:

reflecting expectations of the market participants in the prices of the corporation's.

Question 19

2 out of 2 points

Increased productivity due to technology has

Answer

Selected Answer:

helped to keep corporate costs in check.

Question 20

2 out of 2 points

Increasing interest expense will have what effect on EBIT?

Answer

Selected Answer:

no effect

Question 21

2 out of 2 points

Insider trading occurs when

Answer

Selected

Answer:

someone has information not available to the public which they use to profit from trading

in stocks.

Question 22

2 out of 2 points

Which of the following is not considered to be a profitability ratio?

Answer

Selected Answer:

times interest earned

Question 23

2 out of 2 points

Replacement cost accounting (current cost method) will usually

Answer

Selected Answer:

increase assets, decrease net income before taxes, and lower the return on equity.

Question 24

2 out of 2 points

If a firm has both interest expense and lease payments,

Answer

Selected Answer:

times interest earned will be greater than fixed charge coverage.

Question 25

0 out of 2 points

A corporation is

Answer

Selected Answer:

a separate legal entity with perpetual life.

Question 26

2 out of 2 points

Which of the following is not a true statement about the goal of maximizing shareholder wealth?

Answer

Selected Answer:

It is a short-run point of view which takes risk into account.

Question 27

2 out of 2 points

Which of the following is an outflow of cash?

Answer

Selected Answer:

the payment of cash dividends

Question 28

2 out of 2 points

Proper risk-return management means that

Answer

Selected Answer:

the firm must determine an appropriate trade-off between risk and return.

Question 29

2 out of 2 points

For a given level of profitability as measured by profit margin, the firm's return on equity will

Answer

Selected Answer:

increase as its debt-to assets ratio increases.

Question 30

2 out of 2 points

Money markets would include which of the following securities?

Answer

Selected Answer:

treasury bills and commercial paper.

Workshop 2

Question 1

2 out of 2 points

A firm's break-even point will rise if

Answer

Selected Answer:

variable cost per unit rises

Question 2

2 out of 2 points

In a cash budget, the cumulative cash balance is equal to:

Answer

Selected Answer:

net cash flow plus the beginning cash balance.

Question 3

2 out of 2 points

Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach. Which of

the following comparative statements about firms A and B is true?

Answer

Selected Answer:

B has a lower break-even point than A, but A's profit grows faster after break-even.

Question 4

2 out of 2 points

Cash breakeven analysis

Answer

Selected

Answer:

is helpful in analyzing the short-term outlook of the firm, particularly when it is in

trouble financially.

Question 5

2 out of 2 points

A firm utilizing FIFO inventory accounting would, in calculating gross profits, assume that

Answer

Selected

Answer:

sales were from beginning inventory until it was depleted, and then use sales from

current production.

Question 6

2 out of 2 points

A firm's earnings per share is not impacted by its financing plan at the point when

Answer

Selected Answer:

the cost of borrowed funds equals the return on assets.

Question 7

2 out of 2 points

When a firm employs no debt

Answer

Selected Answer:

it has a financial leverage of one.

Question 8

2 out of 2 points

A weakness of breakeven analysis is that it assumes:

Answer

Selected Answer:

revenue and costs are a linear (constant) function of volume.

Question 9

2 out of 2 points

Under which of the following conditions could the overuse of financial leverage be detrimental to the firm?

Answer

Selected Answer:

Cyclical demand for the firm's products.

Question 10

2 out of 2 points

In using a systems approach to financial planning, it is necessary develop a

Answer

Selected Answer:

all of the above.

Question 11

2 out of 2 points

Required production during a planning period will depend on the

Answer

Selected Answer:

all of the above

Question 12

2 out of 2 points

When the cost of raw materials is increasing, FIFO accounting

Answer

Selected Answer:

yields higher ending inventory values than LIFO.

Question 13

2 out of 2 points

A firm utilizing LIFO inventory accounting would, in calculating gross profits, assume that

Answer

Selected

Answer:

sales were from current production until current production was depleted, and then use

sales from beginning inventory.

Question 14

0 out of 2 points

In the percent-of-sales method, if (A/S) and (L/S) both increase:

Answer

Selected Answer:

RNF stays the same.

Question 15

2 out of 2 points

If a firm has the lowest possible degree of operating leverage and the lowest possible degree of financial

leverage, then

Answer

Selected Answer:

DOL equals 1, and DFL equals 1.

Question 16

2 out of 2 points

In forecasting a firm's cash needs for some future period

Answer

Selected Answer:

all of the above

Question 17

2 out of 2 points

In the percent-of-sales method, an increase in dividends

Answer

Selected Answer:

will increase required new funds.

Question 18

0 out of 2 points

When using the percent-of-sales method in forecasting funds needed, which of the following is not true?

Answer

Selected Answer:

As the dividend payout ratio decreases, the required new funds also increase.

Question 19

2 out of 2 points

The key initial element in developing pro forma statements is

Answer

Selected Answer:

a sales forecast.

Question 20

2 out of 2 points

Financial leverage deals with:

Answer

Selected Answer:

the relationship of debt and equity in the capital structure.

Workshop 2 SECOND ATTEMPT

Question 1

2 out of 2 points

Which of the following is not true about leverage?

Answer

Selected

Answer:

combined leverage utilizes the entire income statement, showing the impact of change in volume

on EBIT.

Question 2

2 out of 2 points

In general, the larger the portion of a firm's sales that are on credit, the

Answer

Selected Answer:

higher will be the firm's need to borrow.

Question 3

2 out of 2 points

The degree of financial leverage is concerned with the relation between

Answer

Selected Answer:

changes in EBIT and changes in EPS.

Question 4

2 out of 2 points


Answer

Selected

Answer:

sales were from beginning inventory until it was depleted, and then use sales from current

production.

Question 5

0 out of 2 points

In order to estimate production requirements, we

Answer

Selected Answer:

add beginning inventory to projected sales in units and subtract desired ending inventory.

Question 6

2 out of 2 points

The concept of operating leverage involves the use of __________ to magnify returns at high levels of operation.

Answer

Selected Answer:

fixed costs

Question 7

2 out of 2 points

In break-even analysis the contribution margin is defined as

Answer

Selected Answer:

sales minus variable costs.

Question 8

2 out of 2 points

The degree of operating leverage is computed as

Answer

Selected Answer:

percent change in operating income divided by percent change in volume.

Question 9

2 out of 2 points


Answer

Selected Answer:


Question 10

2 out of 2 points

Firms with a high degree of operating leverage are

Answer

Selected Answer:

trading off higher fixed costs for lower per-unit variable costs.

Question 11

2 out of 2 points

A firm's earnings per share is not impacted by its financing plan at the point when

Answer

Selected Answer:

the cost of borrowed funds equals the return on assets.

Question 12

2 out of 2 points

In the percent-of-sales method

Answer

Selected Answer:

as the dividend payout ratio goes up, the required new funds also rise.

Question 13

0 out of 2 points

Which of the following questions does break-even analysis attempt to address?

Answer

Selected Answer:

At what point does the firm break even?

Question 14

2 out of 2 points

Pro forma financial statements are

Answer

Selected Answer:

all of the above

Question 15

2 out of 2 points

A rapid rate of growth in sales and profits may require

Answer

Selected Answer:

increased borrowing by the firm to support the sales increase.

Question 16

2 out of 2 points

In using a systems approach to financial planning, it is necessary develop a

Answer

Selected Answer:

all of the above.

Question 17

2 out of 2 points

Conservatively leveraged Firm C and highly leveraged Firm H operate at the same level of earnings before interest

and taxes where the return on assets is greater than the cost of debt.

Answer

Selected Answer:

Firm H will have a higher return on equity than C.

Question 18

2 out of 2 points

If the price per unit decreases because of competition but the cost structure remains the same

Answer

Selected Answer:

the breakeven point rises.

Question 19

2 out of 2 points

When a firm employs no debt

Answer

Selected Answer:

it has a financial leverage of one.

Question 20

2 out of 2 points

Which of the following is concerned with the change in operating profit as a result of a change in volume?

Answer

Selected Answer:

Operating leverage

WS2 3rd try

Question 1

2 out of 2 points

In break-even analysis the contribution margin is defined as

Answer

Selected Answer:

sales minus variable costs.

Question 2

2 out of 2 points

In general, the larger the portion of a firm's sales that are on credit, the

Answer

Selected Answer:

higher will be the firm's need to borrow.

Question 3

0 out of 2 points

In the percent-of-sales method, if (A/S) and (L/S) both increase:

Answer

Selected Answer:

RNF goes up.

Question 4

2 out of 2 points

A high DOL means:

Answer

Selected Answer:

there are high fixed costs.

Question 5

2 out of 2 points

If the price per unit decreases because of competition but the cost structure remains the same

Answer

Selected Answer:

the breakeven point rises.

Question 6

2 out of 2 points

A highly automated plant would generally have

Answer

Selected Answer:

more fixed than variable costs.

Question 7

2 out of 2 points

The break-even point can be calculated as

Answer

Selected Answer:

fixed cost divided by contribution margin.

Question 8

2 out of 2 points


Answer

Selected Answer:


Question 9

2 out of 2 points

In a cash budget, the cumulative cash balance is equal to:

Answer

Selected Answer:

net cash flow plus the beginning cash balance.

Question 10

2 out of 2 points

Conservatively leveraged Firm C and highly leveraged Firm H operate at the same level of earnings before interest

and taxes where the return on assets is greater than the cost of debt.

Answer

Selected Answer:

Firm H will have a higher return on equity than C.

Question 11

2 out of 2 points

When using the percent-of-sales method in forecasting funds needed, which of the following is not true?

Answer

Selected Answer:

Required new funds decrease as the dividend payout decreases.

Question 12

2 out of 2 points

A conservative financing plan involves

Answer

Selected Answer:

heavy reliance on equity.

Question 13

2 out of 2 points

The pro forma income statement is important to the overall process of constructing pro forma statements because it

allows us to determine a value for:

Answer

Selected Answer:

change in retained earnings.

Question 14

2 out of 2 points

In developing data for accounts receivable for the pro forma balance sheet, the analyst is most likely to turn to the:

Answer

Selected Answer:

cash budget.

Question 15

2 out of 2 points

If sales volume exceeds the break-even point, the firm will experience

Answer

Selected Answer:

an operating profit.

Question 16

2 out of 2 points

In financial statements, the number of units shown in cost of goods sold as compared to the number of the units

actually produced

Answer

Selected Answer:

can be either higher or lower.

Question 17

2 out of 2 points

Firms with a high degree of operating leverage are

Answer

Selected Answer:

trading off higher fixed costs for lower per-unit variable costs.

Question 18

2 out of 2 points


Answer

Selected

Answer:

sales were from beginning inventory until it was depleted, and then use sales from current

production.

Question 19

2 out of 2 points

A firm's break-even point will rise if

Answer

Selected Answer:

variable cost per unit rises

Question 20

2 out of 2 points

In the construction of the cash payments schedule, the major cash payment is generally

Answer

Selected Answer:

costs associated with inventory manufactured.

WS3

Question 1

2 out of 2 points

Companies that are mostly influenced by seasonal sales have to make a choice between

Answer

Selected Answer:

All of the above

Question 2

0 out of 2 points

The term structure of interest rates or the yield curve

Answer

Selected Answer:

all of the above are true.

Question 3

2 out of 2 points

Retail companies like Target and Limited Brands are more likely to have

Answer

Selected Answer:

cyclical sales and more volatile earnings per share.

Question 4

2 out of 2 points

Which of the following combinations of asset structures and financing patterns is likely to create the least volatile

earnings?

Answer

Selected Answer:

Liquid assets and no debt

Question 5

2 out of 2 points

The term "permanent current assets" implies

Answer

Selected Answer:

some minimum level of current assets that are not self-liquidating.

Question 6

2 out of 2 points

Permanent current assets are not a factor in a manager's decision making process when all current assets will be

Answer

Selected Answer:

self-liquidating.

Question 7

2 out of 2 points

Treasury Inflation Protected Securities (TIPS)

Answer

Selected Answer:

a and b are true

Question 8

2 out of 2 points

Ideally, which of the following types of assets should be financed with long-term financing?

Answer

Selected Answer:

Fixed assets and permanent current assets

Question 9

2 out of 2 points

Working capital management is primarily concerned with the management and financing of

Answer

Selected Answer:

current assets.

Question 10

0 out of 2 points

The economic order quantity

Answer

Selected Answer:

all of the above

Question 11

2 out of 2 points

In managing cash and marketable securities, what should the manager's primary concern?

Answer

Selected Answer:

Liquidity and safety

Question 12

2 out of 2 points

Which of the following is not a condition under which a prudent manager would accept some risk in financing?

Answer

Selected Answer:

Inventory is highly perishable

Question 13

2 out of 2 points

Which of the following is not a condition under which a prudent manager would accept some risk in financing?

Answer

Selected Answer:


Question 14

2 out of 2 points

A multinational company may prefer to hold sizeable cash balances in one currency rather than another because

Answer

Selected Answer:

both a and b

Question 15

2 out of 2 points

One of the most popular uses of automated clearing houses is the

Answer

Selected Answer:

direct deposit of checks such as social security payments, and government and private.

Question 16

2 out of 2 points

Well implemented web-based supply chainmanagement has all of the following benefits except

Answer

Selected Answer:

reduces the number of suppliers bidding for a company's business.

Question 17

2 out of 2 points

Inventory is usually divided into three basic categories except

Answer

Selected Answer:

projected sales.

Question 18

2 out of 2 points

The term structure of interest rates

Answer

Selected Answer:

all of the above.

Question 19

2 out of 2 points

When actual sales are greater than forecasted sales

Answer

Selected Answer:

all of the above

Question 20

2 out of 2 points

The corporate sweep account is an account

Answer

Selected Answer:

all of the above.

Question 21

2 out of 2 points

An inverted yield curve would suggest that

Answer

Selected Answer:

interest rates are expected to fall.

Question 22

2 out of 2 points

Retail companies like Target and The Limited exhibit sales patterns that are mostly influenced by

Answer

Selected Answer:

seasonality.

Question 23

2 out of 2 points

Some analysts believe that the term structure of interest rates is determined by the behavior of various types of

financial institutions. This theory is called the

Answer

Selected Answer:

segmentation theory.

Question 24

0 out of 2 points

Which of the following are characteristics of money market investments?

Answer

Selected Answer:

Money market funds are offered by banks.

Question 25

2 out of 2 points

One of the major cost savings for consumers using automated clearing houses is

Answer

Selected Answer:

All of the above are true

Question 26

0 out of 2 points

Assuming level production throughout the year, and assuming receivables are collected in two equal installments

over the two months subsequent to the sales period, developing the cash budget requires the following steps:

Answer

Selected Answer:

estimate bank borrowing and repayments

Question 27

2 out of 2 points

Which of the following techniques allows explicit consideration of more than one possible outcome?

Answer

Selected Answer:

Expected value

Question 28

2 out of 2 points

When using the economic order quantity model

Answer

Selected Answer:

costs are minimized when total carrying costs and total ordering costs are equal.

Question 29

2 out of 2 points


Answer

Selected Answer:


Question 30

2 out of 2 points

Cash flow does not rely on which of the following?

Answer

Selected Answer:

the monetary policy of the Federal Reserve

Question 1

2 out of 2 points

Working capital management is primarily concerned with the management and financing of

Answer

Selected Answer:

current assets.

Question 2

2 out of 2 points

The term structure of interest rates is influenced by

Answer

Selected Answer:

all of the above are true

Question 3

2 out of 2 points

A financial executive devotes the most time to

Answer

Selected Answer:

Working capital management.

Question 4

2 out of 2 points

The three primary policy variables to consider when extending credit include all of the following except

Answer

Selected Answer:

the level of interest rates.

Question 5

2 out of 2 points


Answer

Selected Answer:


Question 6

0 out of 2 points

A firm that wishes to minimize risk when investing idle cash would be least likely to buy

Answer

Selected Answer:

commercial paper.

Question 7

2 out of 2 points

When the term structure of interest rates is downward sloping and interest rates are expected to decline, the

Answer

Selected Answer:

financial manager generally borrows short-term.

Question 8

2 out of 2 points


Answer

Selected Answer:


Question 9

2 out of 2 points

Characteristics of a money market deposit account include

Answer

Selected Answer:

all of the above

Question 10

0 out of 2 points

During tight money periods

Answer

Selected Answer:

the relationship between short and long-term rates remains unchanged.

Question 11

2 out of 2 points

International cash management systems are more complex than domestic cash management systems because

of

Answer

Selected Answer:

all of the above

Question 12

2 out of 2 points


Answer

Selected Answer:

a and b are true

Question 13

2 out of 2 points


Answer

Selected Answer:

all of the above.

Question 14

2 out of 2 points

The most subjective and also significant segment of the 5 C's of credit for giving final approval is

Answer

Selected Answer:

character.

Question 15

2 out of 2 points

The corporate sweep account is an account

Answer

Selected Answer:

a and b are correct

Question 16

2 out of 2 points

As the economy moves through a business cycle, which of the following term structure of interest rates

theories dominate the shape of the yield curve.

Answer

Selected Answer:

None of the above dominate the shape of the yield curve

Question 17

2 out of 2 points

Which of the following combinations of asset structures and financing patterns is likely to create the least

volatile earnings?

Answer

Selected Answer:


Question 18

2 out of 2 points


Answer

Selected Answer:


Question 19

2 out of 2 points


Answer

Selected Answer:

all of the above.

Question 20

2 out of 2 points

When developing a credit scoring report, many variables would be considered. Which of the following best

represent the major factors Dun & Bradstreet would examine?

Answer

Selected

Answer:

The financial statements, satisfactory or slow payment experiences, negative public records

(suits, liens, judgments, bankruptcies).

Question 21

2 out of 2 points

A banker's acceptance

Answer

Selected Answer:

all of the above

Question 22

2 out of 2 points


Answer

Selected Answer:


Question 23

2 out of 2 points

Frisch Fish Corp expects net income next year to be $600,000. Inventory and accounts receivable will have

to be increased by $300,000 to accommodate this sales level. Frisch will pay dividends of $400,000. How

much external financing will Frisch Fish need assuming no organically generated increase in liabilities?

Answer

Selected Answer:

$100,000

Question 24

0 out of 2 points

Which of the following yield curves would be characteristic at peak periods of economic expansions?

Answer

Selected Answer:

upward sloping

Question 25

0 out of 2 points

Which of the following is not a true statement about automated clearinghouses (ACHs)?

Answer

Selected

Answer:

Automated clearinghouses are responsible for the check clearing process between

commercial banks and the Federal Reserve Banks.

Question 26

2 out of 2 points

Eurodollar certificates of deposits

Answer

Selected

Answer:

are U.S. dollars held on deposit by foreign banks and loaned out by those banks to

anyone seeking dollars.

Question 27

2 out of 2 points


Answer

Selected Answer:


Question 28

0 out of 2 points


Answer

Selected Answer:

determines the reorder point.

Question 29

2 out of 2 points

Generally, more use is made of short-term financing because

Answer

Selected Answer:

a and b above.

Question 30

2 out of 2 points

Which of the following is not a condition under which a prudent manager would accept some risk in

financing?

Answer

Selected Answer:


Question 1

2 out of 2 points


Answer

Selected Answer:


Question 2

2 out of 2 points

Variables important to credit scoring models include

Answer

Selected Answer:

all of the above

Question 3

2 out of 2 points

Which of the following is a reason for diminishing liquidity in modern corporations?

Answer

Selected Answer:

All of the above are reasons for diminishing liquidity.

Question 4

2 out of 2 points

The theory of the term structure of interest rates which suggests that long-term rates are determined by the

average of short-term rates expected over the time that a long-term bond is outstanding is the

Answer

Selected Answer:

expectations hypothesis.

Question 5

2 out of 2 points

Which of the following is a reason for diminishing liquidity in modern corporations?

Answer

Selected Answer:

All of the above are reasons for diminishing liquidity.

Question 6

0 out of 2 points

A firm will usually increase the ratio of short-term debt to long-term debt when

Answer

Selected Answer:

short-term debt has a lower cost than long-term equity.

Question 7

0 out of 2 points

The term structure of interest rates or the yield curve

Answer

Selected Answer:

is normal when short-term rates are higher than long-term rates.

Question 8

2 out of 2 points

Normally, permanent current assets should be financed by

Answer

Selected Answer:

long-term funds.

Question 9

2 out of 2 points

Which of the following securities trades on a discount basis?

Answer

Selected Answer:

Treasury bills

Question 10

2 out of 2 points

The belief that investors require a higher return to entice them into holding long-term securities is the

viewpoint of the

Answer

Selected Answer:

the liquidity premium theory.

Question 11

2 out of 2 points


Answer

Selected Answer:


Question 12

2 out of 2 points

Some analysts believe that the term structure of interest rates is determined by the behavior of various types

of financial institutions. This theory is called the

Answer

Selected Answer:

segmentation theory.

Question 13

2 out of 2 points

"Float" takes place because

Answer

Selected Answer:

a lag exists between writing a check and clearing it through the banking system.

Question 14

2 out of 2 points

Which of the following is not a condition under which a prudent manager would accept some risk in

financing?

Answer

Selected Answer:


Question 15

2 out of 2 points

If a firm uses level production with seasonal sales

Answer

Selected Answer:

as sales decline inventory will increase.

Question 16

2 out of 2 points

Inventory is usually divided into three basic categories except

Answer

Selected Answer:

projected sales.

Question 17

2 out of 2 points

An aggressive, risk-oriented firm will likely

Answer

Selected Answer:

borrow short-term and carry low levels of liquidity.

Question 18

2 out of 2 points


Answer

Selected Answer:


Question 19

2 out of 2 points

Which of the following combinations of asset structures and financing patterns is likely to create the least

volatile earnings?

Answer

Selected Answer:


Question 20

0 out of 2 points

A firm will usually increase the ratio of short-term debt to long-term debt when

Answer

Selected Answer:

short-term debt has a lower cost than long-term equity.

Question 21

2 out of 2 points

One of the most popular uses of automated clearing houses is the

Answer

Selected Answer:

direct deposit of checks such as social security payments, and government and private.

Question 22

0 out of 2 points


Answer

Selected Answer:

humped

Question 23

2 out of 2 points

Cost savings from JIT inventory management include(s)

Answer

Selected Answer:

all of the above

Question 24

2 out of 2 points

An aggressive working capital policy would have which of following characteristics?

Answer

Selected Answer:

A high ratio of short-term debt to long-term sources of funds.

Question 25

2 out of 2 points


Answer

Selected Answer:


Question 26

2 out of 2 points


Answer

Selected Answer:

assumes that delivery times of each order are consistent.

Question 27

2 out of 2 points


of

Answer

Selected Answer:

all of the above

Question 28

2 out of 2 points

When developing a credit scoring report, many variables would be considered. Which of the following best

represent the major factors Dun & Bradstreet would examine?

Answer

Selected

Answer:

The financial statements, satisfactory or slow payment experiences, negative public records

(suits, liens, judgments, bankruptcies).

Question 29

2 out of 2 points

Retail companies like Target and The Limited exhibit sales patterns that are mostly influenced by

Answer

Selected Answer:

seasonality.

Question 30

2 out of 2 points

The problem in stretching out the maturity of marketable securities is that

Answer

Selected Answer:

there is greater possibility of loss.

Question 1

2 out of 2 points

For a given firm, holding other factors constant, ordering costs per unit generally

Answer

Selected Answer:

decline as average inventory increases.

Question 2

2 out of 2 points

An aggressive, risk-oriented firm will likely

Answer

Selected Answer:

borrow short-term and carry low levels of liquidity.

Question 3

2 out of 2 points

One of the first considerations in cash management is

Answer

Selected Answer:

synchronization of cash inflows and cash outflows.

Question 4

2 out of 2 points


Answer

Selected Answer:

a and b are true

Question 5

0 out of 2 points


Answer

Selected Answer:

horizontal

Question 6

2 out of 2 points

Which of the following techniques allows explicit consideration of more than one possible outcome?

Answer

Selected Answer:

Expected value

Question 7

2 out of 2 points

The belief that investors require a higher return to entice them into holding long-term securities is the

viewpoint of the

Answer

Selected Answer:

the liquidity premium theory.

Question 8

2 out of 2 points


Answer

Selected Answer:


Question 9

2 out of 2 points

During tight money periods

Answer

Selected Answer:

short-term rates are higher than long-term rates.

Question 10

2 out of 2 points

The system whereby funds are moved between computer terminals without use of checks is

Answer

Selected Answer:

electronic funds transfer.

Question 11

2 out of 2 points

"Float" takes place because

Answer

Selected Answer:

a lag exists between writing a check and clearing it through the banking system.

Question 12

2 out of 2 points

Assuming level production throughout the year, and assuming receivables are collected in two equal

installments over the two months subsequent to the sales period, developing the cash budget requires the

following steps:

Answer

Selected Answer:

estimate monthly cash receipts

Question 13

2 out of 2 points

As the economy moves through a business cycle, which of the following term structure of interest rates

theories dominate the shape of the yield curve.

Answer

Selected Answer:

None of the above dominate the shape of the yield curve

Question 14

0 out of 2 points

Publishing companies are characterized by

Answer

Selected Answer:

a and b.

Question 15

2 out of 2 points

Pressure for current asset buildup often results from

Answer

Selected Answer:

rapidly expanding sales.

Question 16

2 out of 2 points


of

Answer

Selected Answer:

all of the above

Question 17

2 out of 2 points

The amount of safety stock that a firm carries depends upon

Answer

Selected Answer:

a and b are correct

Question 18

2 out of 2 points

Which of the following are characteristics of money market investments?

Answer

Selected Answer:

None of the above

Question 19

2 out of 2 points

Retail companies like Target and Limited Brands are more likely to have

Answer

Selected Answer:

cyclical sales and more volatile earnings per share.

Question 20

2 out of 2 points

Eurodollars

Answer

Selected Answer:

may be borrowed by anyone who wishes to hold dollars.

Question 21

2 out of 2 points


Answer

Selected Answer:


Question 22

2 out of 2 points

Eurodollar certificates of deposits

Answer

Selected

Answer:

are U.S. dollars held on deposit by foreign banks and loaned out by those banks to

anyone seeking dollars.

Question 23

2 out of 2 points

An inverted yield curve would suggest that

Answer

Selected Answer:

interest rates are expected to fall.

Question 24

2 out of 2 points

When actual sales are greater than forecasted sales

Answer

Selected Answer:

all of the above

Question 25

2 out of 2 points

A conservatively financed firm would

Answer

Selected

Answer:

use long-term financing for permanent assets and fixed assets and a portion of the short-term

fluctuating assets and use short-term financing for all other short-term assets.

Question 26

2 out of 2 points

Probably the safest and most marketable instrument for short-term investment is

Answer

Selected Answer:

Treasury bills.

Question 27

2 out of 2 points

Some of the services provided around the clock by SWIFT are

Answer

Selected Answer:

all of the above

Question 28

2 out of 2 points

The use of cash budgeting procedures

Answer

Selected Answer:

all of the above are correct.

Question 29

2 out of 2 points


Answer

Selected Answer:


Question 30

2 out of 2 points

Pressure for current asset buildup often results from

Answer

Selected Answer:

rapidly expanding sales.

WS 4

Question 1

2 out of 2 points

The after-tax cost of preferred stock to the issuing corporation

Answer

Selected Answer:

is the same as the before-tax cost.

Question 2

2 out of 2 points

As the time period until receipt increases, the present value of an amount at a fixed interest rate

Answer

Selected Answer:

decreases.

Question 3

2 out of 2 points

Preferred stock has all but which of the following characteristics?

Answer

Selected Answer:

the same binding contractual obligation as debt

Question 4

2 out of 2 points

The higher the rate used in determining the future value of a $1 annuity,

Answer

Selected Answer:

the greater the future value at the end of a period.

Question 5

2 out of 2 points

In a general sense, the value of any asset is the

Answer

Selected Answer:

present value of the cash flows received from the asset.

Question 6

2 out of 2 points

For a firm paying 7% for new debt, the higher the firm's tax rate

Answer

Selected Answer:

the lower the after-tax cost of debt.

Question 7

2 out of 2 points

Which of the following does not influence the yield to maturity for a security?

Answer

Selected Answer:

yields of similar securities

Question 8

2 out of 2 points

As the interest rate increases, the present value of an amount to be received at the end of a fixed period

Answer

Selected Answer:

decreases.

Question 9

2 out of 2 points

In determining the cost of retained earnings

Answer

Selected Answer:

the capital asset pricing model can be used.

Question 10

2 out of 2 points

The risk premium is likely to be highest for

Answer

Selected Answer:

gold mining expedition.

Question 11

2 out of 2 points

If in determining the yield to maturity on a bond at a given interest rate, you get a value below the current market

price, in the next calculation you should use

Answer

Selected Answer:

a lower interest rate.

Question 12

2 out of 2 points

Use of the marginal cost of capital

Answer

Selected Answer:

both a and b are correct.

Question 13

2 out of 2 points

As the compounding rate becomes lower and lower, the future value of inflows approaches

Answer

Selected Answer:

the present value of the inflows

Question 14

2 out of 2 points

The optimal capital structure for firms in cyclical industries should contain ________________ than firms in stable

industries.

Answer

Selected Answer:

less debt

Question 15

2 out of 2 points

Valuation of financial assets requires knowledge of

Answer

Selected Answer:

a and b

Question 16

2 out of 2 points

The price of preferred stock may react strongly to a change in kpbecause

Answer

Selected Answer:

there is no maturity date.

Question 17

2 out of 2 points

Most firms are able to use _____ percent debt in their capital structure without exceeding norms acceptable to

creditors and investors.

Answer

Selected Answer:

30-50

Question 18

2 out of 2 points

If a company's stock price (Po) goes up, and nothing else changes, Ke(the required rate of return) should

Answer

Selected Answer:

go down.

Question 19

0 out of 2 points

There may be a change in the marginal cost of capital curve because

Answer

Selected Answer:

the firm is limited in the amount of depreciation it can take.

Question 20

2 out of 2 points

The shorter the length of time between a present value and its corresponding future value,

Answer

Selected Answer:

the higher the present value, relative to the future value.

Question 21

2 out of 2 points

An increase in the riskiness of a particular security would NOT affect

Answer

Selected Answer:

the premium for expected inflation.

Question 22

2 out of 2 points

In determining the future value of a single amount, one measures

Answer

Selected Answer:

the future value of an amount allowed to grow at a given interest rate.

Question 23

2 out of 2 points

The after-tax cost of debt will almost always be below

Answer

Selected Answer:

all of the above.

Question 24

2 out of 2 points

If the inflation premium for a bond goes up, the price of the bond

Answer

Selected Answer:

goes down.

Question 25

2 out of 2 points

A firm's debt to equity ratio varies at times because

Answer

Selected Answer:

all of the above are accurate statements.

Question 26

0 out of 2 points

If the flotation cost goes up, the cost of retained earnings will

Answer

Selected Answer:

go up.

Question 27

2 out of 2 points

The dividend valuation model stresses the

Answer

Selected Answer:

relationship of dividends to market prices.

Question 28

2 out of 2 points

Each project should be judged against

Answer

Selected Answer:

none of the above.

Question 29

2 out of 2 points

Why is the cost of debt normally lower than the cost of preferred stock?

Answer

Selected Answer:

interest is tax deductible.

Question 30

2 out of 2 points

The cost of capital for common stock is ke=(D1/Po)+g. What are the assumptions of the model?

Answer

Selected Answer:

All of the above are assumptions of the model.

Question 1

2 out of 2 points

Projects that are totally uncorrelated provide:

Answer

Selected Answer:

some risk reduction.

Question 2

2 out of 2 points

Which of the following is a false statement?

Answer

Selected Answer:

Risk-averse investors cannot be induced to invest in risky assets.

Question 3

2 out of 2 points

If three investment alternatives all have some degree of risk and different expected returns, which of the following

measures could best be used to rank the risk levels of the projects?

Answer

Selected Answer:

Coefficient of variation

Question 4

2 out of 2 points

The payback method has several disadvantages, among them:

Answer

Selected Answer:

a and b.

Question 5

2 out of 2 points

The coefficient of variation (V) can be defined as the

Answer

Selected Answer:

standard deviation divided by the mean (expected value).

Question 6

2 out of 2 points

Capital rationing

Answer

Selected Answer:

is a less than optimal way to arrive at capital budgeting decisions.

Question 7

2 out of 2 points

Capital budgeting is primarily concerned with

Answer

Selected Answer:

evaluating investment alternatives.

Question 8

0 out of 2 points

As the cost of capital increases

Answer

Selected Answer:

project selection remains unchanged.

Question 9

2 out of 2 points

An example of negative correlation may exist between the

Answer

Selected Answer:

jewelry and discount furniture industries.

Question 10

2 out of 2 points

With the exception of real estate investments, MACRS depreciation is beneficial to corporations because it

Answer

Selected Answer:

shortens the lives of assets for depreciation purposes.

Question 11

0 out of 2 points

Using the risk-adjusted discount rate approach, the firm's weighted average cost of capital is applied to projects with:

Answer

Selected Answer:

high risk.

Question 12

2 out of 2 points

If an investment project has a positive net present value, then the internal rate of return is

Answer

Selected Answer:

greater than the cost of capital.

Question 13

2 out of 2 points

The modified internal rate of return assumes:

Answer

Selected Answer:

inflows are reinvested at the cost of capital.

Question 14

2 out of 2 points

In order to evaluate risk, management may also set qualitative risk classes. Rank these four projects from the least to

the most risky.

(1.) Completely new market in United States.

(2.) Completely new market in South America.

(3.) Addition to normal product line.

(4.) Repair to old machinery.

Answer

Selected Answer:

4, 3, 1, 2

Question 15

2 out of 2 points

The coefficient of correlation

Answer

Selected Answer:

takes on values anywhere from -1 to +1.

Question 16

2 out of 2 points

Using the risk-adjusted discount rate approach, the cost of capital is applied to projects with:

Answer

Selected Answer:

normal risk.

Question 17

2 out of 2 points

The lower the coefficient of correlation the greater the

Answer

Selected Answer:

risk reduction when projects are combined.

Question 18

2 out of 2 points

The portfolio effect in capital budgeting refers to

Answer

Selected Answer:

the degree of correlation between various investments.

Question 19

2 out of 2 points

The net present value profile

Answer

Selected Answer:

graphically portrays the relationship between the discount rate and the net present value.

Question 20

2 out of 2 points

Assuming that a firm has no capital rationing constraint and that a firm's investment alternatives are not mutually

exclusive, the firm should accept all investment proposals

Answer

Selected Answer:

that have a positive net present value.

Question 1

2 out of 2 points

In order to reduce risk in a firm, the firm would seek to enter a business that

Answer

Selected Answer:

has high negative correlation with its present business.

Question 2

2 out of 2 points

At higher tax rates, depreciation is

Answer

Selected Answer:

more beneficial.

Question 3

2 out of 2 points

The net present value profile

Answer

Selected Answer:

graphically portrays the relationship between the discount rate and the net present value.

Question 4

2 out of 2 points

If a firm is experiencing no capital rationing, it should accept all investment proposals

Answer

Selected Answer:

that return an amount equal to or greater than the cost of capital.

Question 5

2 out of 2 points

Which of the following is a false statement?

Answer

Selected Answer:

Risk-averse investors cannot be induced to invest in risky assets.

Question 6

2 out of 2 points

If three investment alternatives all have some degree of risk and different expected returns, which of the following

measures could best be used to rank the risk levels of the projects?

Answer

Selected Answer:

Coefficient of variation

Question 7

2 out of 2 points

A characteristic of capital budgeting is

Answer

Selected Answer:

the internal rate of return must be greater than the cost of capital.

Question 8

0 out of 2 points

Projects that are negatively correlated

Answer

Selected Answer:

none of the above

Question 9

2 out of 2 points

The net present value method is a better method of evaluation than the internal rate of return method because the

NPV method

Answer

Selected Answer:

assumes that cash flows can be reinvested at the firm's more conservative cost of capital.

Question 10

2 out of 2 points

Suppose that interest rates (and, therefore, the firm's Weighted Average Cost of Capital) increase. This WOULD NOT

CHANGE the capital budgeting choices a firm would make if it

Answer

Selected Answer:

uses payback period analysis.

Question 11

2 out of 2 points

If the capital budgeting decision includes a replacement analysis, then

Answer

Selected Answer:

only incremental cash flows should be looked at.

Question 12

2 out of 2 points

Using higher discount rates,

Answer

Selected Answer:

accelerated cost recovery depreciation is more valuable than straight line.

Question 13

2 out of 2 points

The coefficient of correlation

Answer

Selected Answer:

takes on values anywhere from -1 to +1.

Question 14

2 out of 2 points

The reason cash flow is used in capital budgeting is because

Answer

Selected Answer:

all of the above.

Question 15

2 out of 2 points

A firm is selling an old asset below book value in a replacement decision. As the firm's tax rate is raised, the net cash

outflow (purchase price less proceeds from the sale of the old asset) would:

Answer

Selected Answer:

go down.

Question 16

2 out of 2 points

Risk is usually measured as the

Answer

Selected Answer:

variability of outcomes around some expected value.

Question 17

2 out of 2 points

A firm may adopt capital rationing because

Answer

Selected Answer:

a and c.

Question 18

2 out of 2 points

The first step in the capital budgeting process is

Answer

Selected Answer:

idea development.

Question 19

2 out of 2 points

The portfolio effect in capital budgeting refers to

Answer

Selected Answer:

the degree of correlation between various investments.

Question 20

2 out of 2 points

Using the risk-adjusted discount rate approach, the cost of capital is applied to projects with:

Answer

Selected Answer:

normal risk.

Question 1

2 out of 2 points

Which of the following is the lowest in priority of claims against a bankrupt firm?

Answer

Selected Answer:

Common stock

Question 2

2 out of 2 points

All of the following are advantages of going public except

Answer

Selected Answer:

the firm disseminates more information to the public on corporate affairs.

Question 3

2 out of 2 points

Investors consider which of the following to be the most important measure of bond returns?

Answer

Selected Answer:

yield to maturity.

Question 4

2 out of 2 points

Which Stock Exchange is known as the most liquid?

Answer

Selected Answer:

NYSE

Question 5

2 out of 2 points

Private placement of corporate bonds

Answer

Selected Answer:

has increased in use as new bond issues increased.

Question 6

2 out of 2 points

A call feature allows:

Answer

Selected Answer:

the corporation to redeem the bond before the maturity date.

Question 7

2 out of 2 points

Which of the following is not a key role of an investment banker?

Answer

Selected Answer:

Acting as transfer agent

Question 8

2 out of 2 points

The "call" provision on some bonds allows

Answer

Selected

Answer:

the corporation to redeem the bonds earlier than maturity but usually for a premium over the

par value.

Question 9

2 out of 2 points

The higher the tax rate, the ______ the net underwriting cost on the new bond issue.

Answer

Selected Answer:

lower

Question 10

2 out of 2 points

Which of the following best represents the hierarchy of creditor and stockholder claims?

Answer

Selected Answer:

Senior secured debt, subordinated debentures, common stock

Question 11

2 out of 2 points

An indenture is

Answer

Selected Answer:

the contract between a corporation and a trustee acting for bondholders.

Question 12

2 out of 2 points

Which of the following represents an inflow in a bond refunding decision?

Answer

Selected Answer:

Two of the above

Question 13

2 out of 2 points

The Securities Exchange Act of 1934 is primarily concerned with

Answer

Selected Answer:

regulation of organized exchanges.

Question 14

0 out of 2 points

The strong form of the efficient market hypothesis states that

Answer

Selected Answer:

prices reflect all public information.

Question 15

2 out of 2 points

Market stabilization

Answer

Selected Answer:

all of the above.

Question 16

2 out of 2 points

Zero-coupon bonds

Answer

Selected Answer:

provide no annual interest payments.

Question 17

2 out of 2 points

Financial intermediaries serve which of the following purposes?

Answer

Selected Answer:

All of the above.

Question 18

2 out of 2 points

A debenture represents:

Answer

Selected Answer:

unsecured debt.

Question 19

2 out of 2 points

Which of the following is an advantage of floating rate bonds to investors?

Answer

Selected Answer:

Their prices tend to be highly stable regardless of interest rate changes.

Question 20

2 out of 2 points

Which company is a leader in rating bonds?

Answer

Selected Answer:

Moody's Investor Service

Question 21

2 out of 2 points

Which of the following is not a recent trend in investment banking?

Answer

Selected Answer:

The use of self registration by smaller investment bankers.

Question 22

2 out of 2 points

the emergence of trading via ECNs has

Answer

Selected Answer:

lowered the cost of trading.

Question 23

2 out of 2 points

With respect to the United States and its relationship with the rest of the world, it can be said that

Answer

Selected Answer:

foreign investors hold large positions in U.S. government securities.

Question 24

2 out of 2 points

The purpose of secondary trading is to

Answer

Selected Answer:

provide liquidity and competition between investments.

Question 25

2 out of 2 points

Floating rate bonds are most likely to be popular with investors when it is anticipated that

Answer

Selected Answer:

interest rates will go up.

Question 26

2 out of 2 points

Which of the following is an internal source of funds?

Answer

Selected Answer:

Cash flow from depreciation (tax shield)

Question 27

2 out of 2 points

From the corporate issuer viewpoint, a zero-coupon bond allows the firm to:

Answer

Selected Answer:

defer payment obligations

Question 28

2 out of 2 points

Many bonds have some orderly preplanned system of repayment. Which of the following apply?

Answer

Selected Answer:

a and b

Question 29

2 out of 2 points

The Glass Stegal Act prohibited

Answer

Selected Answer:

commercial banks from combining investment banking and commercial banking functions.

Question 30

2 out of 2 points

Which of the following are advantages to private bond placement over public offerings?

Answer

Selected Answer:

Greater flexibility in negotiating terms

Question 1

2 out of 2 points

A major desire of stockholders regarding dividend policy is

Answer

Selected Answer:

dividend stability.

Question 2

2 out of 2 points

A warrant which does not expire until several years in the future and which provides its owner the opportunity to

buy a stock which is rising in price will probably sell for

Answer

Selected Answer:

more than its intrinsic value.

Question 3

2 out of 2 points

A stock dividend will

Answer

Selected Answer:

decrease the retained earnings account.

Question 4

2 out of 2 points

Which would not be considered an ADR stock in the U.S.?

Answer

Selected Answer:

Intel

Question 5

2 out of 2 points

If the price of common stock associated with a convertible bond is less than the conversion price

Answer

Selected Answer:

there is not enough information to tell what the bond price will be.

Question 6

2 out of 2 points

Preferred stock is the least used of all long-term securities because

Answer

Selected Answer:

all of the above.

Question 7

2 out of 2 points

A convertible bond is often utilized

Answer

Selected Answer:

All of the above.

Question 8

2 out of 2 points

Management may repurchase shares of stock in the market

Answer

Selected Answer:

all of the above

Question 9

2 out of 2 points

Which of the following is not true about the life cycle growth and dividend policy?

Answer

Selected Answer:

In the development stage, a firm usually pays stock dividends and some low cash dividends.

Question 10

2 out of 2 points

Preferred stock is often sold by companies

Answer

Selected Answer:

both a and b.

Question 11

0 out of 2 points

In the initial stage (Stage I), the corporation

Answer

Selected Answer:

needs all its earnings for reinvestment in new assets.

Question 12

2 out of 2 points

The theoretical floor value for a convertible bond is its

Answer

Selected Answer:

pure bond value.

Question 13

2 out of 2 points

Conversion price is usually set_______ the prevailing market price of the common stock at the time the bond issue is

sold.

Answer

Selected Answer:

above

Question 14

0 out of 2 points

Which of the following actions will provide the shareholders with the most total wealth when a company conducts a

rights offering?

Answer

Selected Answer:

Exercise the rights and sell the shares.

Question 15

2 out of 2 points

Expectations of a significant increase in the price of a firm's common stock will result in

Answer

Selected Answer:

large conversion premiums for the firm's convertible bonds.

Question 16

2 out of 2 points

According to the "marginal principle of retained earnings," dividends are

Answer

Selected Answer:

the passive variable.

Question 17

2 out of 2 points

The major, overall argument against the "marginal principle of retained earnings" is

Answer

Selected Answer:

its failure to consider stockholder preferences.

Question 18

2 out of 2 points

The par value on a preferred stock entitles the holder:

Answer

Selected Answer:

an established amount of money if the company is liquidated.

Question 19

2 out of 2 points

A convertible bond is currently selling for $1335. It is convertible into 20 shares of common which presently sell for

$56 per share. The conversion premium is

Answer

Selected Answer:

$215

Question 20

2 out of 2 points

A convertible security is almost always

Answer

Selected Answer:

a security that can be converted into common stock at the holder's option.

Question 21

2 out of 2 points

The owner of a call has

Answer

Selected Answer:

the right but not the obligation to buy an asset at a given price.

Question 22

2 out of 2 points

Which of the following is the correct order of corporate issues based on risk and return? (most risk-return to least

risk-return)

Answer

Selected Answer:

Common stock, subordinated debentures, secured debt, treasury bills.

Question 23

2 out of 2 points

The conversion ratio is the

Answer

Selected Answer:

number of shares of common stock into which the convertible may be converted.

Question 24

2 out of 2 points

A proxy is

Answer

Selected Answer:

an authorization of a registered stockholder to another person to act in his place at the meeting.

Question 25

2 out of 2 points

The following are primary purchasers of preferred stock except

Answer

Selected Answer:

individual investors.

Question 26

2 out of 2 points

Under normal operating conditions the board of directors is elected by

Answer

Selected Answer:

the common stockholders.

Question 27

2 out of 2 points

A contract giving the owner the right to buy or sell an asset at a fixed price for a given period of time is

Answer

Selected Answer:

an option

Question 28

2 out of 2 points

In the maturity stage, a firm

Answer

Selected Answer:

is growing about the same rate as the economy as a whole.

Question 29

2 out of 2 points

The price of a convertible bond

Answer

Selected Answer:

has only downside limitations.

Question 30

0 out of 2 points

The conversion premium is the greatest and the downside risk the smallest when

Answer

Selected Answer:

the conversion value is greater than the pure bond value.

Question 1

2 out of 2 points

A stock split

Answer

Selected Answer:

does not change the amount in the common stock account.

Question 2

2 out of 2 points

Conversion price is usually set_______ the prevailing market price of the common stock at the time the bond issue is

sold.

Answer

Selected Answer:

above

Question 3

0 out of 2 points

Which of the following is not true about rights trading on organized exchanges.

Answer

Selected Answer:

All are true

Question 4

2 out of 2 points

Preferred stock may be good for a company because it

Answer

Selected Answer:

expands the capital base of the firm without diluting the common stock ownership.

Question 5

2 out of 2 points

All of the following statements are true except

Answer

Selected

Answer:

Stockholders have to approve the acceptance of poison pill strategies before a corporation can

use them.

Question 6

2 out of 2 points

According to the "marginal principle of retained earnings," dividends are

Answer

Selected Answer:

the passive variable.

Question 7

0 out of 2 points

Which of the following is true?

Answer

Selected Answer:

Two of the above are true.

Question 8

2 out of 2 points

Which of the following is not a very common feature of preferred stock?

Answer

Selected Answer:

Voting rights

Question 9

2 out of 2 points

The owner of a put has

Answer

Selected Answer:

the right but not the obligation to sell an asset at a given price.

Question 10

2 out of 2 points


Answer

Selected Answer:


Question 11

2 out of 2 points

The effect of a rights offering on a stockholder is

Answer

Selected Answer:

to decrease his/her wealth if nothing is done.

Question 12

2 out of 2 points

A proxy is

Answer

Selected Answer:

an authorization of a registered stockholder to another person to act in his place at the meeting.

Question 13

2 out of 2 points

A major desire of stockholders regarding dividend policy is

Answer

Selected Answer:

dividend stability.

Question 14

2 out of 2 points

When a firm enters Stage IV of its life cycle,

Answer

Selected Answer:

The firm has reached maturity.

Question 15

2 out of 2 points

Which of the following statements is true with respect to cumulative voting?

Answer

Selected Answer:

All of the above are true.

Question 16

2 out of 2 points

Which of the following generally does not influence the dividend policy of the firm?

Answer

Selected Answer:

Seasonal changes in the level of cash

Question 17

2 out of 2 points

Expectations of a significant increase in the price of a firm's common stock will result in

Answer

Selected Answer:

large conversion premiums for the firm's convertible bonds.

Question 18

2 out of 2 points

Preferred stock is often sold by companies

Answer

Selected Answer:

both a and b.

Question 19

2 out of 2 points

Warrants are

Answer

Selected Answer:

investments whose value is directly related to the price of the underlying stock.

Question 20

2 out of 2 points

A warrant which does not expire until several years in the future and which provides its owner the opportunity to

buy a stock which is rising in price will probably sell for

Answer

Selected Answer:

more than its intrinsic value.

Question 21

2 out of 2 points

A convertible bond is currently selling for $1335. It is convertible into 20 shares of common which presently sell for

$56 per share. The conversion premium is

Answer

Selected Answer:

$215

Question 22

2 out of 2 points

A rights offer made to existing shareholders with the sole purpose of making it more difficult for another firm acquire

the company is called

Answer

Selected Answer:

a poison pill.

Question 23

2 out of 2 points

When comparing common stock of the same company it is fair to say that

Answer

Selected

Answer:

companies sometimes have two different classes of shares with unequal rights to dividends and

votes.

Question 24

2 out of 2 points

Reverse stock splits take place in many cases

Answer

Selected Answer:

to avoid delisting by the stock exchanges and NASDAQ.

Question 25

2 out of 2 points


Answer

Selected Answer:


Question 26

0 out of 2 points

Dutch auction preferred stock

Answer

Selected Answer:

is issued first to the bidder willing to accept the lowest yield.

Question 27

2 out of 2 points

If a corporate charter includes a provision for preemptive rights, the stockholders

Answer

Selected Answer:

get first option to buy additional issues of common stock.

Question 28

2 out of 2 points

The computation of basic earnings per share will include consideration of

Answer

Selected Answer:

only shares outstanding.

Question 29

2 out of 2 points

When a company has a convertible bond in its capital structure,

Answer

Selected Answer:

it can reduce its debt-to-equity ratio by calling the bond.

Question 30

2 out of 2 points

Which of the following is not true about the life cycle growth and dividend policy?

Answer

Selected Answer:

In the development stage, a firm usually pays stock dividends and some low cash dividends.

Question 1

2 out of 2 points

Under normal operating conditions the board of directors is elected by

Answer

Selected Answer:

the common stockholders.

Question 2

2 out of 2 points

Which of the following balance sheet accounts will be affected by a stock dividend but not by a stock split?

Answer

Selected Answer:

Retained earnings

Question 3

2 out of 2 points

The subscription rate is generally _______ than the rights-on price and _______ than the ex-rights price.

Answer

Selected Answer:

lower, lower

Question 4

2 out of 2 points

A proxy is

Answer

Selected

Answer:

an authorization of a registered stockholder to another person to act in his place at the

meeting.

Question 5

2 out of 2 points

The computation of basic earnings per share will include consideration of

Answer

Selected Answer:

only shares outstanding.

Question 6

0 out of 2 points

An increasing proportion of shares in the U.S. are owned by:

Answer

Selected Answer:

individual investors.

Question 7

2 out of 2 points

The marginal principle of retained earnings means that each potential project to be financed by retained

earnings must

Answer

Selected

Answer:

provide a higher rate of return than the stockholders can achieve after paying taxes on the

distributed dividends.

Question 8

2 out of 2 points

Which of the following characteristics are drawbacks of convertible bonds?

Answer

Selected Answer:

all of the above are drawbacks of convertibles.

Question 9

0 out of 2 points

A firm with excess cash and few investment alternatives might logically

Answer

Selected Answer:

choose to issue preferred stock.

Question 10

2 out of 2 points

Preferred stock is the least used of all long-term securities because

Answer

Selected Answer:

all of the above.

Question 11

2 out of 2 points

Which of the following statements about floating rate preferred stock is true?

Answer

Selected Answer:

The dividend rate changes quarterly.

Question 12

2 out of 2 points


Answer

Selected Answer:


Question 13

2 out of 2 points

If the stock price rises substantially above the conversion price, an advantage to the corporation would be

Answer

Selected

Answer:

the bond would most likely be converted into common stock and the debt would not have

to be repaid.

Question 14

2 out of 2 points

The residual theory of dividend policy asserts that

Answer

Selected Answer:

dividends are paid out of the residual remaining after internal investments by the firm.

Question 15

0 out of 2 points

A derivative is a financial instrument whose value is determined by

Answer

Selected Answer:

None of the above.

Question 16

0 out of 2 points


Answer

Selected Answer:

decrease the total value of stockholders' equity.

Question 17

0 out of 2 points

Which of the following actions will provide the shareholders with the most total wealth when a company

conducts a rights offering?

Answer

Selected Answer:

Exercise the rights for new shares.

Question 18

2 out of 2 points

A firm may repurchase stock in the market because

Answer

Selected Answer:

all of the above

Question 19

2 out of 2 points


Answer

Selected Answer:


Question 20

2 out of 2 points

Warrants are

Answer

Selected Answer:

investments whose value is directly related to the price of the underlying stock.

Question 21

2 out of 2 points

The floor price of a convertible bond cannot fall below

Answer

Selected Answer:

the pure bond value.

Question 22

2 out of 2 points

Which of the following is true?

Answer

Selected

Answer:

As the price of common stock increases, the market price of a convertible bond and the

conversion value increase.

Question 23

2 out of 2 points

"Preemptive rights" means that

Answer

Selected

Answer:

existing shareholders are guaranteed an opportunity to retain their proportional share of

ownership of the firm.

Question 24

0 out of 2 points

Which of the following is not true about preferred stock?

Answer

Selected Answer:

Preferred stocks are often cumulative in respect to dividends.

Question 25

2 out of 2 points

Some dividend reinvestment plans allow the stockholder to acquire shares of stock

Answer

Selected Answer:

all of the above

Question 26

2 out of 2 points

The owner of a put has

Answer

Selected Answer:

the right but not the obligation to sell an asset at a given price.

Question 27

2 out of 2 points

If the price of common stock associated with a convertible bond is less than the conversion price

Answer

Selected Answer:

there is not enough information to tell what the bond price will be.

Question 28

2 out of 2 points

A convertible bond is currently selling for $1335. It is convertible into 20 s

Applied Finance for Business Reading Quiz

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