1.    Which of the following statements bestrepresents what finance is about?
a.    How political, social, and economic forcesaffect corporations
b.    Maximizing profits
c.    Creation and maintenance of economicwealth
d.    Reducing risk

2.    Consider the timing of the profits of thefollowing certain investment projects:
                              Profit
                         L            S
Year 1         $     0       $ 3000
Year 2          $3000     $       0
a.    Project S is preferred to Project L.
b.    Project L is preferred to Project S.
c.    Projects S and L are equally desirable.
d.    A goal of profit maximization would favorProject S only.

3.    Which of the following factors enable a publiccorporation to grow to a greater extent, and perhaps at a fasterrate, than a partnership or a proprietorship?
a.    Unlimited liability of shareholders
b.    Access to the capital markets
c.    Limited life
d.    Elimination of double taxation on corporateincome
e.    All of the above

4.    How could you compensate an investor fortaking on a significant amount of risk?
a.    Increase the expected rate of return.
b.    Raise more debt capital.
c.    Offer stock at a higher price.
d.    Increase sales.

5.    If an investor had a choice of receiving$1,000 today, or $1,000 in five years, which would the averageinvestor prefer?
a.    $1,000 in five years because they are not goodat saving money.
b.    $1,000 today because it will be worth morethan $1,000 received in five years.
c.    $1,000 in five years because it will be worthmore than $1,000 received today.
d.    Investors would be indifferent to when theywould receive the $1,000.
e.    None of the above.

6.    Which of the following is not a reason whyfinancial analysts use ratio analysis?
a.     Ratios help to pinpoint a firm’sstrengths.
b.         Ratios restate accountingdata in relative terms.
c.     Ratios are ideal for smoothing out thedifferences that may exist when comparing firms that use differentaccounting practices.
    d.     Some of a firm’sweaknesses can be identified through the usage of ratios.

7.    The question “Did the common stockholdersreceive an adequate return on their investment?” is answeredthrough the use of:
a.     liquidity ratios.
b.     profitability ratios.
c.     coverage ratios.
d.    leverage ratios.

8.    Marshall Networks, Inc. has a total assetturnover of 2.5 and a net profit margin of 3.5%. The firm has areturn on equity of 17.5%. Calculate Marshall’s debt ratio.
a.      30%
b.      40%
c.      50%
d.      60%

9.    The quick ratio is a better measure ofliquidity than the current ratio if the firm has current assetscomposed primarily of:
a.     cash.
        b.     work inprocess inventory.
c.     marketable securities.
d.     accruals.

10.    Which of the following is not a limitationrelated to the usage of ratios when reviewing a firm’sperformance?
a.     Many firms experience seasonality in theiroperations.
b.     Ratios cannot be used to compare firms thatare in the same industry if one firm’s sales are higher thananother firm’s.
c.     Some firms operate in a variety of businesslines, which makes it difficult to make comparisons.
d.     Accounting practices differ widely amongfirms.

11.    The _______ is the federal agency primarilyresponsible for regulating the securities industry.
    a.    FTC
    b.    SEC
    c.    FRB
    d.    SCC

12.    __________ is a financial specialist whounderwrites and distributes new securities of publiccorporations.
    a.    The Federal ReserveBoard
    b.    A commercial banker
    c.    The SEC
    d.    An investment banker

13.    What is the role of the SEC as it relates tothe issuance of new securities by U.S. corporations?
    a.    To guaranty the sale ofsecurities to the public
    b.    To ensure accurate andcomplete disclosure of information about the issuing firm to thepublic
    c.    To reduce the cost ofissuing securities to the public
    d.    To provide investmentadvice to the purchasing public

14.    All of the following are found in the cashbudget except:
    a.    a net change in cash forthe period.
    b.    inventory.
    c.    cash disbursements.
    d.    new financing needed.

15.    A company collects 60% of its sales duringthe month of the sale, 30% one month after the sale, and 10% twomonths after the sale. The company expects sales of $10,000 inAugust, $20,000 in September, $30,000 in October, and $40,000 inNovember. How much money is expected to be collected inOctober?
    a.    $25,000
    b.    $15,000
    c.    $35,000
    d.    None of the above

16.    Which of the following are considered to bespontaneous sources of financing (i.e., theyarise    naturally during the course of doingbusiness)?
    a.    Notes payable and commonstock
    b.    Accounts receivable andbonds
    c.    Fixed assets andinventory
    d.    Accounts payable andaccrued expenses

17.    The first step involved in predictingfinancing needs is:
    a.    projecting the firm’s salesrevenues and expenses over the planning period.
    b.    estimating the levels ofinvestment in current and fixed assets that are necessary tosupport the projected sales.
    c.    determining the firm’sfinancing needs throughout the planning period.
    d.    none of the above.

18.    At 8% compounded annually, how long will ittake $750 to double?
a.    6.5 years
b.    48 months
c.    9 years
d.    12 years

19.    A friend plans to buy a big-screenTV/entertainment system and can afford to set aside $1,320 towardthe purchase today. If your friend can earn 5.0%, how much can yourfriend spend in four years on the purchase? Round off to thenearest $1.
a.    $1,444
b.    $1,604
c.    $1,764
d.    $1,283

20.    You have just purchased a share of preferredstock for $50.00. The preferred stock pays an annual dividend of$5.50 per share forever. What is the rate of return on yourinvestment?
a.    .055
b.    .010
c.    .110
d.    .220

21.    A commercial bank will loan you $7,500 fortwo years to buy a car. The loan must be repaid in 24 equal monthlypayments. The annual interest rate on the loan is 12% of the unpaidbalance. What is the amount of the monthly payments?
    a.    $282.43
    b.    $390.52
    c.    $369.82
    d.    $353.05

22.    Gina Dare, who wants to be a millionaire,plans to retire at the end of 40 years. Gina’s plan is to investher money by depositing into an IRA at the end of every year. Whatis the amount that she needs to deposit annually in order toaccumulate $1,000,000? Assume that the account will earn an annualrate of 11.5%. Round off to the nearest $1.
a.    $1,497
b.    $5,281
c.    $75
d.    $3,622

23.    The break-even model enables the manager ofthe firm to:
    a.    calculate the minimum priceof common stock for certain situations.
    b.    set appropriate equilibriumthresholds.
    c.    determine the quantity ofoutput that must be sold to cover all operating costs.
    d.    determine the optimalamount of debt financing to use.

24.    Financial leverage means financing some of afirm’s assets with:
    a.    commercial paper.
    b.    preferred stock.
    c.    corporate bonds.
    d.    all of the above.

25.    In general, as the level of sales rises abovethe break-even point, the degree of operating leverage:
    a.    increases.
    b.    decreases.
    c.    remains constant.
    d.    none of the above.

26.    Due to a technical breakthrough, the fixedcosts for a firm drop by 25%. Prior to this breakthrough, fixedcosts were $100,000 and unit contribution margin was and remains at$5.00. The new amount of break-even units will be:
    a.    25,000.
    b.    20,000.
    c.    15,000.
    d.    10,000.

27.    The firm should accept independent projectsif:
    a.    the payback is less thanthe IRR.
    b.    the profitability index isgreater than 1.0.
    c.    the IRR is positive.
    d.    the NPV is greater than thediscounted payback.

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