1)
The goal of the firm should be
A. maximization of profits
B. maximization of shareholder wealth
C. maximization of consumer satisfaction
D. maximization of
sales
2) An example of a primary market transaction is
A. a new issue of common stock by
AT&T
B. a sale of some outstanding common stock of AT&T
C.
AT&T repurchasing its own stock from a stockholder
D. one stockholder
selling shares of common stock to another individual
3) According to the
agency problem, _________ represent the principals of acorporation.
A. shareholders
B. managers
C.
employees
D. suppliers
4) Which of the following is a principle of
basic financial management?
A. Risk/return tradeoff
B. Derivatives
C.
Stock warrants
D. Profit is
king
5) Another name for the acid test ratio is the
A. current
ratio
B. quick ratio
C.
inventory turnover ratio
D. average collection period
6) The
accounting rate of return on stockholders’ investments is measuredby
A.
return on assets
B. return on
equity
C. operating income return on investment
D. realized rate of
inflation
7) If you are an investor, which of the following would you
prefer?
A. Earnings on funds
invested compound annually
B. Earnings on funds invested compound
daily
C. Earnings on funds invested would compound monthly
D. Earnings on
funds invested would compound quarterly
8) The primary purpose of a cash
budget is to
A. determine the level of investment in current and fixed
assets
B. determine accounts payable
C. provide a detailed plan of future cash
flows
D. determine the estimated income tax for the year
9)
Which of the following is a non-cash expense?
A. Depreciation expenses
B. Interest
expense
C. Packaging costs
D. Administrative salaries
10) The
break-even model enables the manager of a firm to
A. calculate the minimum
price of common stock for certain situations
B. set appropriate equilibrium
thresholds
C. determine the quantity
of output that must be sold to cover all operating costs
D. determine
the optimal amount of debt financing to use
11) A zero-coupon bond
A.
pays no interest
B. pays interest at a rate less than the market rate
C.
is a junk bond
D. is sold at a deep
discount at less than the par value
12) If you have $20,000 in an
account earning 8% annually, what constant amount could youwithdraw each year
and have nothing remaining at the end of 5 years?
A. $3,525.62
B. $5,008.76
C. $3,408.88
D.
$2,465.78
13) At what rate must $400 be compounded annually for it to
grow to $716.40 in 10 years?
A. 6%
B. 5%
C. 7%
D.
8%
14) The present value of a single future sum
A. increases as the
number of discount periods increase
B. is generally larger than the future
sum
C. depends upon the number of
discount periods
D. increases as the discount rate
increases
15) Which of the following is considered to be a spontaneous
source of financing?
A. Operating leases
B. Accounts receivable
C.
Inventory
D. Accounts
payable
16) Compute the payback period for a project with the
following cash flows, if the company’s discount rate is 12%.
Initial outlay
= $450
Cash flows:
Year 1 = $325
Year 2 = $65
Year 3 = $100
A.
3.43 years
B. 3.17 years
C. 2.88 years
D. 2.6 years
17) For the NPV
criteria, a project is acceptable if the NPV is __________, whilefor the
profitability index, a project is acceptable if the profitabilityindex is
__________.
A. less than zero, greater than the required return
B. greater than zero, greater than
one
C. greater than one, greater than zero
D. greater than zero,
less than one
18) Which of the following is considered to be a deficiency
of the IRR?
A. It fails to properly rank capital projects.
B. It could produce more than one rate of
return.
C. It fails to utilize the time value of money.
D. It is
not useful in accounting for risk in capital budgeting.
19) The firm
should accept independent projects if
A. the payback is less than the
IRR
B. the profitability index is
greater than 1.0
C. the IRR is positive
D. the NPV is greater than
the discounted payback
20) The most expensive source of capital is
A.
preferred stock
B. new common
stock
C. debt
D. retained earnings
21) The cost associated
with each additional dollar of financing for investment projectsis
A. the
incremental return
B. the marginal
cost of capital
C. risk-free rate
D. beta
22) The XYZ
Company is planning a $50 million expansion. The expansion is to befinanced by
selling $20 million in new debt and $30 million in new commonstock. The
before-tax required rate of return on debt is 9%, and the requiredrate of
return on equity is 14%. If the company is in the 40% tax bracket,what is the
marginal cost of capital?
A. 14.0%
B. 9.0%
C. 10.6%
D. 11.5%
23) Shawhan
Supply plans to maintain its optimal capital structure of 30% debt,20%
preferred stock, and 50% common stock far into the future. Therequired return
on each component is: debt–10%; preferred stock–11%; and commonstock–18%.
Assuming a 40% marginal tax rate, what after-tax rate of returnmust Shawhan
Supply earn on its investments if the value of the firm is toremain
unchanged?
A. 18.0%
B. 13.0%
C. 10.0%
D.
14.2%
24) Lever Brothers has a debt ratio (debt to assets) of 40%.
Management is wondering if its current capital structure is tooconservative.
Lever Brothers’ present EBIT is $3 million, and profits availableto common
shareholders are $1,560,000, with 342,857 shares of common stockoutstanding. If
the firm were to instead have a debt ratio of 60%, additionalinterest expense
would cause profits available to stockholders to decline to$1,440,000, but only
228,571 common shares would be outstanding. What is the differencein EPS at a
debt ratio of 60% versus 40%?
A.
$1.75
B. $2.00
C. $3.25
D. $4.50
25) Zybeck Corp.
projects operating income of $4 million next year. The firm’sincome tax rate is
40%. Zybeck presently has 750,000 shares of common stock which havea market
value of $10 per share, no preferred stock, and no debt. The firmis considering
two alternatives to finance a new product: (a) the issuance of $6million of 10%
bonds, or (b) the issuance of 60,000 new shares of common stock. IfZybeck
issues common stock this year, what will be the projected EPS nextyear?
A.
$4.94
B. $2.96
C.
$5.33
D. $3.20
26) _________ risk is generally considered only a paper
gain or loss.
A. Transaction
B. Translation
C. Economic
D.
Financial
27) Capital markets in foreign countries
A. offer lower
returns than those obtainable in the domestic capital markets
B. provide international
diversification
C. in general are becoming less integrated due to the
widespread availability of interest rate and currency swaps
D. have been
getting smaller in the past decade
28) Buying and selling in more than
one market to make a riskless profit is called
A. profit maximization
B.
arbitrage
C. international
trading
D. an efficient market
29) What keeps foreign exchange quotes
in two FIN 370 Final Exam different countries in line witheach other?
A. Cross rates
B.
Forward rates
C. Arbitrage
D. Spot rates
30)
One reason for international investment is to reduce
A. portfolio risk
B. price-earnings
(P/E) ratios
C. advantages in a foreign country
D. exchange rate risk
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