1) In terms of organizational costs, which of the followingsequences is correct, moving from lowest to highest cost?
A.
Sole proprietorship, general partnership, corporation, limitedpartnership
B.
Corporation, limited partnership, general partnership, soleproprietorship
C.
Sole proprietorship, general partnership, limited partnership,corporation
D.
General partnership, sole proprietorship, limited partnership,corporation
2) Which of the following best describes the goal of the firm?
A.
The maximization of the total market value of the firm’s commonstock]
B.
Profit maximization
C.
Risk minimization
D.
None of the above
3) Which of the following categories of owners have limitedliability?
A.
General partners
B.
Sole proprietors
C.
Shareholders of a corporation
D.
Both a and b
4) Money market instruments include:
A.
preferred stock.
B.
corporate bonds.
C.
bankers’ acceptances.
D.
common stock.
5) Which of the following would increase the need for externalequity?
A.
A slow-down in economic growth
B.
A reduction in corporate profits
C.
Inadequate investment opportunities
D.
A seasonal reduction in sales revenues
6) When public corporations decide to raise cash in the capitalmarkets, what type of financing vehicle is most favored?
A.
Preferred stock
B.
Common stock
C.
Retained earnings
D.
Corporate bonds
7) Which of the following is NOT a principle of basic financialmanagement?
A.
Incremental cash flow counts
B.
Efficient capital markets
C.
Risk/return tradeoff
D.
Profit is king
8) Difficulty in finding profitable projects is due to:
A.
competitive markets.
B.
ethical dilemmas.
C.
social responsibility.
D.
opportunity costs.
9) According to the agency problem, _________ represent theprincipals of a corporation.
A.
managers
B.
employees
C.
shareholders
D.
suppliers
10) The accounting rate of return on stockholders’ investments ismeasured by:
A.
return on equity.
B.
operating income return on investment.
C.
return on assets.
D.
realized rate of inflation.
11) Which of the following financial ratios is the best measure ofthe operating effectiveness of a firm’s management?
A.
Gross profit margin
B.
Quick ratio
C.
Current ratio
D.
Return on investment
12) Marshall Networks, Inc. has a total asset turnover of 2.5% anda net profit margin of 3.5%. The firm has a return on equity of17.5%. Calculate Marshall’s debt ratio.
A.
40%
B.
50%
C.
30%
D.
60%
13) If you are an investor, which of the following would youprefer?
A.
Earnings on funds invested would compound daily.
B.
Earnings on funds invested would compound monthly.
C.
Earnings on funds invested would compound annually.
D.
Earnings on funds invested would compound quarterly.
14) When George Washington was president of the United States in1797, his salary was $25,000. If you assume an annual rate ofinflation of 2.5%, how much would his salary have been in 1997?
A.
$954,719
B.
$2,525,548
C.
$4,085,920
D.
$1,025,000
E.
$3,489,097
15) Northwest Bank pays a quoted annual (nominal) interest rate of4.75%. However, it pays interest (compouned) daily using a 365-dayyear. What is the effective annual rate of return (APY)?
A.
5.02%
B.
3.61%
C.
4.75%
D.
4.86%
16) Which of the following is NOT a basic function of a budget?
A.
Budgets allow for performance evaluation.
B.
Budgets compare historical costs of the firm with its current costperformance.
C.
Budgets indicate the need for future financing.
D.
Budgets provide the basis for corrective action when actual figuresdiffer from the budgeted figures.
17) The primary purpose of a cash budget is to:
A.
determine the estimated income tax for the year.
B.
provide a detailed plan of future cash flows.
C.
determine the level of investment in current and fixed assets.
D.
determine accounts payable.
18) All of the following are found in the cash budget EXCEPT:
A.
new financing needed.
B.
cash disbursements.
C.
a net change in cash for the period.
D.
inventory.
19) Which of the following is a non-cash expense?
A.
Administrative salaries
B.
Packaging costs
C.
Depreciation expenses
D.
Interest expense
20) A plant can remain operating when sales are depressed:
A.
unless variable costs are zero when production is zero.
B.
in an effort to cover at least some of the variable cost.
C.
if the selling price per unit exceeds the variable cost perunit.
D.
to help the local economy.
21) The break-even model enables the manager of a firm to:
A.
determine the optimal amount of debt financing to use.
B.
determine the quantity of output that must be sold to cover alloperating costs.
C.
calculate the minimum price of common stock for certainsituations.
D.
set appropriate equilibrium thresholds.
22) At what rate must $400 be compounded annually for it to grow to$716.40 in 10 years?
A.
8%
B.
7%
C.
6%
D.
5%
23) If you have $20,000 in an account earning 8% annually, whatconstant amount could you withdraw each year and have nothingremaining at the end of five years?
A.
$2,465.78
B.
$3,408.88
C.
$3,525.62
D.
$5,008.76
24) How long will it take $750 to double at 8% compoundedannually?
A.
12 years
B.
9 years
C.
6.5 years
D.
48 months
25) Which of the following is considered to be a spontaneous sourceof financing?
A.
Accounts payable
B.
Inventory
C.
Operating leases
D.
Accounts receivable
26) A toy manufacturer following the hedging principle willgenerally finance seasonal inventory build-up prior to theChristmas season with:
A.
preferred stock.
B.
trade credit.
C.
common stock.
D.
selling equipment.
27) Which of the following is NOT considered a permanent source offinancing?
A.
Commercial paper
B.
Preferred stock
C.
Corporate bonds
D.
Common stock
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