1. Which one of the following is a means by which shareholders can replace company management?A)promotionB)agency playC)proxy fightD)stock optionsE)Sarbanes-Oxley Act2.Which form of business structure is most associated with agency problems?A)limited liability companyB)corporationC)limited partnershipD)general partnershipE)sole proprietorship3.Which one of the following is least likely to be an agency problem?A)increasing the market value of the firm’s sharesB)concentrating on maximizing current profitsC)closing a division with net lossesD)increasing the size of a firmE)obtaining a patent for a new product4.Why should financial managers strive to maximize the current value per share of the existing stock?A)because managers often receive shares of stock as part of their compensationB)because this will increase the current dividends per shareC)doing so increases employee salariesD)because they have been hired to represent the interests of the current shareholdersE)doing so guarantees the company will grow in size at the maximum possible rate5.Which one of the following parties has ultimate control of a corporation?A)board of directorsB)shareholdersC)chief operating officeD)chairman of the BoardE)chief executive officer6.Which one of the following statements related to the cash flow to creditors is correct?A)If the cash flow to creditors is positive then the firm must have borrowed more money than it repaid.B)If the cash flow to creditors is negative then the firm must have a negative cash flow from assets.C)If the cash flow to creditors is zero then a firm has no long-term debt.D)A positive cash flow to creditors means that a firm has increased its long-term debt.E)A positive cash flow to creditors represents a net cash outflow from the firm.7.Which one of the following represents the most liquid asset?A)$100 of inventory that is sold today for $100 cashB)$100 of inventory which is discounted and sold for $97 cash todayC)$100 account receivable that is discounted and collected for $96 todayD)$100 accounts receivable that will be collected in full next weekE)$100 of inventory which is sold today on credit for $1038.Which of the following are included in the market value of a firm but are excluded from the firm’s book value?I. value of management skillsII. value of a copyrightIII. value of the firm’s reputationIV. value of employee’s experienceA)I onlyB)I III and IV onlyC)II onlyD)III and IV onlyE)I II and III only9.Which one of the following statements related to liquidity is correct?A)Liquid assets tend to earn a high rate of return.B)Inventory is more liquid than accounts receivable because inventory is tangible.C)Liquid assets are valuable to a firm.D)Any asset that can be sold within the next year is considered liquid.E)Liquid assets are defined as assets that can be sold quickly regardless of the price obtained.10.The Blue Bonnet’s 2008 balance sheet showed net fixed assets of $2.2 million and the 2009 balance sheet showed net fixed assets of $2.6 million. The company’s income statement showed a depreciation expense of $900 000. What was the amount of the net capital spending for 2009?A)$1 700 000B)$400 000C)$1 800 000D)-$500 000E)$1 300 00011.Relationships determined from a firm’s financial information and used for comparison purposes are known as:A)financial ratios.B)identities.C)dimensional analysis.D)scenario analysis.E)solvency analysis.12.Which one of the following will decrease if a firm can decrease its operating costs all else constant?A)return on equityB)price-earnings ratioC)equity multiplierD)profit marginE)return on assets13.According to the Statement of Cash Flows a decrease in accounts receivable will _____ the cash flow from _____ activities.A)increase; investmentB)increase; financingC)decrease; financingD)decrease; operatingE)increase; operating14.Activities of a firm which require the spending of cash are known as:A)uses of cash.B)sources of cash.C)cash on hand.D)cash collections.E)cash receipts.15.Oscar’s Dog House has a profit margin of 5.6 percent a return on assets of 12.5 percent and an equity multiplier of 1.49. What is the return on equity?A)19.67 percentB)18.63 percentC)22.30 percentD)21.69 percentE)17.14 percent16.Which one of the following statements is correct?A)Pro forma statements are limited to a balance sheet and income statement.B)Pro forma financial statements must assume that no dividends will be paid.C)Pro forma statements must assume that no new equity is issued.D)Pro forma statements are projections not guarantees.E)Net working capital needs are excluded from pro forma computations.17.Which one of the following ratios identifies the amount of assets a firm needs in order to generate $1 in sales?A)payout ratioB)current ratioC)retention ratioD)equity multiplierE)capital intensity ratio18.Which of the following questions are appropriate to address during the financial planning process?I. Should the firm merge with a competitor?II. Should additional shares of stock be sold?III. Should a particular division be sold?IV. Should a new product be introduced?A)I III and IV onlyB)I II III and IVC)I II and IV onlyD)II III and IV onlyE)I II and III only19.When constructing a pro forma statement net working capital generally:A)varies only if the firm is currently producing at full capacity.B)varies only if the firm is producing at less than full capacity.C)varies proportionally with sales.D)varies only if the firm maintains a fixed debt-equity ratio.E)remains fixed.20.All else constant which one of the following will increase the internal rate of growth?A)decrease in the retention ratioB)increase in costs of goods soldC)decrease in total assetsD)increase in the dividend payout ratioE)decrease in net income21.Steve just computed the present value of a $10 000 bonus he will receive in the future. The interest rate he used in this process is referred to as which one of the following?A)current yieldB)compound rateC)discount rateD)effective rateE)simple rate22.You invested $1 650 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually?A)$849.22B)$930.11C)$982.19D)$1 021.15E)$1 077.9423.You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You are planning on investing in an account which will pay 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire?I. Invest in a different account paying a higher rate of interest.II. Invest in a different account paying a lower rate of interest.III. Retire later.IV. Retire sooner.A)I and III onlyB)I and IV onlyC)II onlyD)I onlyE)II and III only24.What is the relationship between present value and future value interest factors?A)The factors are reciprocals of each otherB)The future value factor is the exponent of the present value factor.C)There is no relationship between these two factors.D)The present value and future value factors are equal to each other.E)The present value factor is the exponent of the future value factor.25.Which one of the following variables is the exponent in the present value formula?A)interest rateB)timeC)There is no exponent in the present value formula.D)future valueE)present value26.Real rates are defined as nominal rates that have been adjusted for which of the following?A)interest rate riskB)inflationC)both inflation and interest rate riskD)accrued interestE)default risk27.The Fisher Effect primarily emphasizes the effects of _____ on an investor’s rate of return.A)inflationB)maturityC)defaultD)interest rateE)market28.Which one of the following risk premiums compensates for the possibility of nonpayment by the bond issuer?A)liquidityB)taxabilityC)default riskD)inflationE)interest rate risk29.A corporate bond was quoted yesterday at 102.16 while today’s quote is 102.19. What is the change in the value of a bond that has a face value of $6 000?A)$180.00B)$0.30C)$1.80D)$3.00E)$18.0030.The current yield is defined as the annual interest on a bond divided by which one of the following?A)market priceB)dirty priceC)couponD)face valueE)call price31.Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?A)non-cumulativeB)dual classC)preferredD)cumulativeE)common32.A securities market primarily comprised of dealers who buy and sell for their own inventories is referred to which type of market?A)over-the-counterB)auctionC)electronic networkD)privateE)regional33.What are the distributions to shareholders by a corporation called?A)capital paymentsB)net incomeC)retained earningsD)diluted profitsE)dividends34.The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?A)$14.01B)$14.79C)$14.56D)13.75E)$15.2335.You want to be on the board of directors of Wisely Foods. Since you are the only shareholder that will vote for you you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected under these conditions?A)proxyB)democraticC)straightD)cumulativeE)deferred36.The profitability index is most closely related to which one of the following?A)modified internal rate of returnB)discounted paybackC)average accounting returnD)paybackE)net present value37.A project produces annual net income of $46 200 $51 800 and $62 900 over its 3-year life respectively. The initial cost of the project is $675 000. This cost is depreciated straight-line to a zero book value over three years. What is the average accounting rate of return if the required discount rate is 14.5 percent?A)15.89 percentB)18.98 percentC)23.84 percentD)16.67 percentE)20.25 percent38.Which of the following are definite indicators of an accept decision for an independent project with conventional cash flows?I. positive net present valueII. profitability index greater than zeroIII. internal rate of return greater than the required rateIV. positive internal rate of returnA)II III and IV onlyB)II and IV onlyC)I II III and IVD)I and III onlyE)I II and III only39.The present value of an investment’s future cash flows divided by the initial cost of the investment is called the:A)average accounting return.B)profitability index.C)internal rate of return.D)net present valueE)profile period.40.If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:A)operationally distinct.B)independent.C)economically scaled.D)interdependent.E)mutually exclusive.41.The difference between a firm’s future cash flows if it accepts a project and the firm’s future cash flows if it does not accept the project is referred to as the project’s:A)financing cash flows.B)internal cash flows.C)external cash flows.D)erosion effects.E)incremental cash flows.42.Changes in the net working capital requirements:A)are generally excluded from project analysis due to their irrelevance to the total projectB)only affect the cash flow at time zero and the final year of a project.C)only affect the initial cash flows of a project.D)can affect the cash flows of a project every year of the project’s life.E)reflect only the changes in the current asset accounts.43.Which one of the following would make a project unacceptable?A)cash inflow for net working capital at time zeroB)lack of revenue generationC)requiring fixed assets that would have no salvage valueD)a depreciation tax shield that exceeds the value of the interest expenseE)an equivalent annual cost that exceeds that of an alternative project44.When using the equivalent annual cost as a basis for deciding which equipment should be purchased the equipment under consideration must fit which two of the following criteria?I. differing productive livesII. differing manufacturersIII. required replacement at end of economic lifeIV. differing initial costA)I I and IIIB)I and IIC)I and IVD) I and IIIE) II and IV45.The bid price is:A)the highest price you should charge if you want the project.B)an aftertax price.C)the only price you can bid if the project is to be profitableD)the minimum price you should charge if you want to financially breakeven.E)the aftertax contribution margin.
