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74 Cards in this Set
- Front
- Back
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Which of the following did not contribute to the financial crisis?
a. The change from mark-to-market accounting to b. Solid credit ratings from the ratings agencies c. The takeover of JPMorgan Chase by Bear Sterns d. The extension of credit to high-risk borrowers Mark this response if all of the above contributed to the financial crisis |
C
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Professor Merton Miller received the Nobel prize in economics for his work on?
a. working capital management. b. dividend policy. c. capital structure theory. d. investment theory. |
C
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Professors Harry Markowitz and William Sharpe received their Nobel prize in economics for their contributions to the
a. theories of risk-return and portfolio theory. b. theories of international capital budgeting. c. theories of working capital management. d. options pricing model. |
A
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Many companies such as Tyco, Enron, and WorldCom that suffered financial distress in the late 1990s and early 2000s,
a. committed fraud. b. had failed corporate governance oversight. c. went bankrupt. d. all of these are true. |
D
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Which of the following is not a true statement about the goal of maximizing shareholder wealth?
a. It takes into account the timing of cash-flows. b. It is a short-run point of view which takes risk into account. c. It considers risk as a factor. d. None of these. |
B
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Capital markets do not include which of the following securities?
a. Common stock b. Government bonds c. Preferred stock d. Commercial paper |
D
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A corporate buy-back, or the repurchasing of shares, is
a, an example of balance sheet restructuring. b. an excellent source of profits when the firm's stock is over-priced. c. a method of reducing the debt-to-equity ratio. d. all of these |
A
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Increased productivity due to technology has
a. helped to keep corporate costs in check. b. made it cheaper (in terms of interest costs) for firms to borrow money. c. created larger asset values on the firm's historical balance sheet. d. increased corporations' reliance on debt for capital expansion needs. |
A
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The entity that is responsible for establishing the allocation and cost of capital is
a. customers b. the corporation c. the economy d. investors |
D
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Regarding risk levels, financial managers should
a. pursue higher risk projects because they increase value b. evaluate investor's desire for risk c. avoid higher risk projects because they destroy value d. focus primarily on market fluctuations |
B
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Earnings per share is
a. net income minus preferred dividends divided by number of shares outstanding. b. net income divided by stockholders' equity. c. net income divided by number of shares outstanding. d. operating profit divided by number of shares outstanding. |
A
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Which of the following would not be classified as a current asset?
a. Marketable securities b. Inventory c. Investments d. Prepaid expenses |
C
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Asset accounts on the balance sheet are listed in the order of:
a. size. b. liquidity. c. profitability. d. importance. |
B
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Which account represents the cumulative earnings of the firm since its formation, minus dividends paid?
a. Accumulated depreciation b. Common stock c. Paid-in capital d. Retained earnings |
D
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Which of the following is an inflow of cash?
a. Funds spent in normal business operations b. The sale of the firm's bonds c. The purchase of a new factory d. The retirement of the firm's bond |
B
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Preferred stock dividends __________ earnings available to common stockholders.
a. increase b. decrease c. do not effect d. not enough information to tell |
B
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An increase of $100,000 in inventory would result in an
a. Decrease in marketable securities b. Increase in bonds payable c. Decrease of net cash flow d. Increase in net cash flow |
C
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Backdating of options is
a. A fair method to award top-performing employees b. Not to be reported unless a gain is provided to an employee c. Illegal d. Considered a gift by tax law |
C
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Which of the following is not considered to be a profitability ratio?
a. Times interest earned b. Return on assets (investment) c. Return on equity d. Profit margin |
A
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For a given level of profitability as measured by profit margin, the firm's return on equity will
a. decrease as its current ratio increases. b. decrease as its times-interest-earned ratio decreases. c. increase as its debt-to assets ratio increases. d. increase as its debt-to-assets ratio decreases. |
C
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Asset utilization ratios
a. measure how much cash is available for reinvestment into current assets. b. relate balance sheet assets to income statement sales. c. measures the firm's ability to generate a profit on sales. d. are most important to stockholders. |
B
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If accounts receivable stays the same, and credit sales go up
a. the average collection period will go up. b. the average collection period will go down. c. accounts receivable turnover will decrease. d. B and C. |
B
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Total asset turnover indicates the firm's
a. profitability. b. liquidity. c. debt position. d. ability to use its assets to generate sales. |
D
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A quick ratio that is much smaller than the current ratio reflects
a. a small portion of current assets is in inventory. b. that the firm will have a high return on assets. c. that the firm will have a high inventory turnover. d. a large portion of current assets is in inventory. |
D
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Investors and financial analysts wanting to evaluate the operating efficiency of a firm's managers would probably look primarily at the firm's
a. asset utilization ratios. b. debt utilization ratios. c. profitability ratios. d. liquidity ratios. |
A
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The higher a firm's debt utilization ratios, excluding debt-to-total assets, the
a. less risky the firm's financial position. b. more risky the firm's financial position. c. more easily the firm will be able to pay dividends. d. none of these |
A
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In general, the larger the portion of a firm's sales that are on credit, the
a. more the firm can buy raw materials on credit. b. lower will be the firm's need to borrow. c. higher will be the firm's need to borrow. d. more rapidly credit sales will be paid off. |
C
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In the construction of the cash payments schedule, the major cash payment is generally
a. payments for new plant and equipment. b. interest and dividends. c. the general and administrative expense. d. costs associated with inventory manufactured. |
D
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The difference between total receipts and total payments is referred to as
a. cash balance. b. cumulative cash flow. c. net cash flow. d. beginning cash flow. |
C
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Net cash flow is equal to:
a. income after taxes minus depreciation. b. cash receipts minus cash payments minus depreciation. c. cash receipts minus cash payments. d. income after taxes minus dividends. |
C
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In the percent-of-sales method, an increase in dividends
a. will increase required new funds. b. will decrease required new funds. c. has no effect on required new funds. d. more information is needed. |
A
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When using the percent-of-sales method in forecasting funds needed, which of the following is not true?
a. As the ratio of assets to sales decrease, required new funds also decrease. b. Required new funds decrease as profit margins increase. c. As the tax rate increases, the required new funds increase. d. Required new funds increase as the dividend payout decreases. |
D
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As the compounding rate becomes lower and lower, the future value of inflows approaches
a. 0 b. the present value of the inflows c. infinity d. need more information |
B
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As the discount rate becomes higher and higher, the present value of inflows approaches
a. 0 b. minus infinity c. plus infinity d. need more information |
A
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An annuity may be defined as
a. a series of yearly payments. b. a payment at a fixed interest rate. c. a series of consecutive payments of equal amounts. d. a series of payments of unequal amount. |
C
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If you were to put $1,000 in the bank at 6% interest each year for the next ten years, which table would you use to find the ending balance in your account?
a. Future value of $1 b. Present value of an annuity of $1 c. Present value of $1 d. Future value of an annuity of $1 |
D
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Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today's dollars?
a. Future value of an annuity b. Present value of a single amount c. None of these d. Present value of an annuity |
D
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Football player Walter Johnson signs a contract calling for payments of $250,000 per year, to begin 10 years from now. To find the present value of this contract, which table or tables should you use?
a. the future value of $1 b. the future value of an annuity of $1 and the future value of $1 c. the present value of an annuity of $1 and the present value of $1 d. none of these |
C
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The higher the rate used in determining the future value of a $1 annuity,
a. the smaller the future value at the end of the period. b. the greater the future value at the end of a period. c. the greater the present value at the beginning of a period. d. none of these - the interest has no effect on the future value of an annuity. |
B
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Which of the following financial assets is likely to have the highest required rate of return based on risk?
a. Corporate bond. b. Common stock. c. Treasury bill. d. Certificate of Deposit. |
B
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An increase in the riskiness of a particular security would NOT affect
a. investors' willingness to buy the security. b. the premium for expected inflation. c. the risk premium for that security. d. the total required return for the security. |
B
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The longer the time to maturity:
a. the greater the price increase from a decrease in interest rates. b. the greater the price increase from an increase in interest rates. c. the less the price increase from an increase in interest rates. d. the less the price decrease from a decrease in interest rates. |
A
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The dividend valuation model stresses the
a. importance of earnings per share. b. importance of dividends and legal rules for maximum payment. c. relationship of dividends to earnings per share. d. relationship of dividends to market prices. |
D
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Stock valuation models are dependent upon
a. expected dividends, future dividend growth and an appropriate discount rate. b. past dividends, flotation costs and bond yields. c. historical dividends, historical growth and an appropriate discount rate. d. all of these. |
A
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If a company's stock price (Po) goes up, and nothing else changes, Ke (the required rate of return) should
a. go up. b. go down. c. remain unchanged. d. need more information. |
B
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The required return by investors is important to financial managers for all of the following reasons except:
a. It influences their stock price b. It influences the firm's cost of financing c. It is the primary driver of their financial ratios d. It helps when pricing new issues of securities |
C
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The market allocates capital to firms based on all of the following except:
a. Higher risk requires lower returns due to higher expectations b. Degree of past performance c. Level of efficiency d. Expected returns |
A
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Credit swaps are:
A. an insurance product designed to protect financial institutions from customers who default on their loans. B. securities with a maturity of less than 1 year. C. the result of a leveling off or slowing down of price increases. D. market trades in previously issued securities. E. none of the above. |
A
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What is the primary goal of financial management?
A. Increased earnings B. Maximizing cash flow C. Maximizing shareholder wealth D. Minimizing risk of the firm |
C
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In the past, the study of finance has included
A. mergers and acquisitions. B. raising capital. C. bankruptcy. D. all of these. |
D
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Proper risk-return management means that
A. the firm should take as few risks as possible. B. the firm must determine an appropriate trade-off between risk and return. C. the firm should earn the highest return possible. D. the firm should value future profits more highly than current profits. |
B
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One of the major disadvantages of a sole proprietorship is
A. that there is unlimited liability to the owner. B. the simplicity of decision making. C. low organizational costs. D. low operating costs. |
A
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The partnership form of an organization
A. avoids the double taxation of earnings and dividends found in the corporate form of organization. B. usually provides limited liability to the partners. C. has unlimited life. D. simplifies decision making. |
A
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A corporation is
A. owned by stockholders who enjoy the privilege of limited liability. B. easily divisible between owners. C. a separate legal entity with perpetual life. D. all of these. |
D
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With a Subchapter S corporation
A. income is taxed as direct income to stockholders. B. stockholders have the same liability as members of a partnership. C. the number of stockholders is unlimited. D. life of the corporation is limited. |
A
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A Subchapter S corporation
A. is similar to a partnership in that it carries unlimited liability. B. is a separate legal entity which is treated like a normal corporation. C. has all the organizational benefits of a corporation and its income is only taxed once. D. all of these. |
C
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Corporate governance is the
A. relationship and exercise of oversight by the board of directors of the company. B. relationship between the chief financial officer and institutional investors. C. operation of a company by the chief executive officer (CEO) and other senior executives on the management team. D. governance of the company by the board of directors with a focus on social responsibility. |
A
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Agency theory examines the relationship between the
A. shareholders of the firm and the firm's investment banker. B. owners of the firm and the managers of the firm. C. board of directors and large institutional investors. D. shareholders and the firm's transfer agent. |
B
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Agency theory would imply that conflicts are more likely to occur between management and shareholders when
A. the company is owned and operated by the same person. B. management acts in the best interests of maximizing shareholder wealth. C. the chairman of the board is also the chief executive officer (CEO). D. the board of directors exerts strong and involved oversight of management. |
C
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Reinvested funds from retained earnings theoretically belong to:
A. bond holders. B. common stockholders. C. employees. D. all of these |
B
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The firm's price-earnings (P/E) ratio is influenced by its
A. capital structure. B. earnings volatility. C. sales, profit margins, and earnings. D. all of these. |
D
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A short-term creditor would be most interested in
A. profitability ratios. B. asset utilization ratios. C. liquidity ratios. D. debt utilization ratios. |
C
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Which two ratios are used in the DuPont system to create return on assets?
A. Return on assets and asset turnover B. Profit margin and asset turnover C. Return on total capital and the profit margin D. Inventory turnover and return on fixed assets |
B
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Total asset turnover indicates the firm's
A. liquidity. B. debt position. C. ability to use its assets to generate sales. D. profitability. |
C
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In developing the pro forma income statement we follow four important steps:
1) compute other expenses, 2) determine a production schedule, 3) establish a sales projection, 4) determine profit by completing the actual pro forma statement. What is the correct order for these four steps? A. 1,2,3,4 B. 3,2,4,1 C. 2,1,3,4 D. 3,2,1,4 |
D
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Pro forma financial statements are
A. the most comprehensive means of financial forecasting. B. often required by prospective creditors. C. projections of financial statements for a future period. D. all of these. |
D
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Required production during a planning period will depend on the
A. beginning inventory of products. B. sales during the period. C. desired level of ending inventory. D. all of these. |
D
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Agency problems are least likely to arise in which organizational form?
a. Sole proprietorship b. Limited partnership c. Corporation d. Subchapter S corporation |
A
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The major difficulty in most insider-trading cases has been
a. That lenient judges have simply released the guilty individuals. b. That insider trading, even though illegal, actually serves a beneficial economic and financial purpose. c. That inside trades have not been legally well defined d. Insides trades actually have a beneficial effect on the wealth of all stockholders. |
C
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A Corporate restructuring can result in
a. Changes in the capital structure b. Selling of low profit margin divisions c. Reductions in the work force d. All of these |
D
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Which of the following is not an example of restructuring as discussed in the text
a. Repurchase of common stock b. Creating a new organizational chart c. Merging with companies in related industries d. Divesting of an unprofitable division |
B
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Which of the following factors do not influence the firm's P/E ratio
a. Past earnings b. Shares outstanding c. Volatility in performance d. None of these |
D
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The key initial element in developing pro forma statements is
a. a cash budget b. an income statement c. a sales forecast d. a collections schedule |
C
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In the development of the pro forma financial statements, the last step in the process is the development of the
a. cash budget b. pro forma balance sheet c. pro forma income statement d. capital budget |
B
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