finance test 1 (52 question)

1

Question: If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan?

A5 percentB10 percentC25 percentDNone of the above

2

Question: Which one of the following statements is not true?

AThe value of a dollar invested at a positive interest rate grows over timeBThe further in the future you receive a dollar, the less it is worth todayCA dollar in hand today is worth more than a dollar to be received in the futureDThe further in the future you receive a dollar, the more it is worth today

3

Question: Efficiency ratio: Jet, Inc., has net sales of $712,478 and accounts receivables of $167,435. What are the firm’s accounts receivables turnover and days’ sales outstanding?

A0.24 times; 78.5 daysB4.26 times; 85.7 daysC5.2 times; 61.3 daysDNone of the above

4

Question: If you have loaned capital to a firm, then you could be

AA shareholderBA stakeholderCA partnerDAll of the above

5

Question: Which one of the following is not an advantage of using ROE as a goal?

AROE is highly correlated with shareholder wealth maximizationBROE and the DuPont analysis allow management to break down the performance and identify areas of strengths and weaknessesCROE does not consider riskDAll of the above are advantages of using ROE as a goal

6

Question: The future value of multiple cash flows is

AGreater than the sum of the cash flowsBEqual to the sum of all the cash flowsCLess than the sum of the cash flowsDNone of the above

7

Question: The major players in the direct financial markets are

AInvestment banksBMoney center banksCRegional banksDBoth A and B

8

Question: One of the main services offered by investment banks to companies is

AHelping companies sell new debt or equity issues in the security marketsBMaking loans to companiesCTaking deposits from companiesDAll of the above

9

Question: Shane Matthews has invested in an investment that will pay him $6,200, $6,450, $7,225, and $7,500 over the next four years. If his opportunity cost is 10 percent, what is the future value of the cash flows he will receive? (Round to the nearest dollar.)

A$27,150B$29,900C$30,455D$31,504

10

Question: Which of the following is a cash flow from investing activities?

ACash payment of dividends to shareholdersBCash from sale of productsCPurchase of plant and equipmentDRent received from industrial property owned

11

Question: Largent Supplies Corp. has borrowed to invest in a project. The loan calls for a payment of $17,384 every month for three years. The lender quoted Largent a rate of 8.40 percent with monthly compounding. At what rate would you discount the payments to find the amount borrowed by Largent? (Round to two decimal places.)

A8.40%B8.73%C8.95%DNone of the above

12

Question: Which of the following statements is not a limitation associated with market valuation of balance sheet accounts?

AIt can be difficult to identify the market value of an asset, particularly if there are few transactions involving comparable assetsBThe estimates of market value can involve complex financial modeling, and the resulting numbers can be open to manipulation and abuseCMarking to market provides decision makers with a better chance of making the correct economic decision, given the information availableDMark-to-market accounting can become inaccurate if market prices deviate from the fundamental values of assets and liabilities

13

Question: Which of the following reports directly to the owners of the firm (assume the firm is a public corporation)?

ACFOBCEOCBoard of directorsDAudit committee

14

Question: Tommie Harris is considering an investment that pays 6.5 percent annually. How much must he invest today such that he will have $25,000 in seven years? (Round to the nearest dollar.)

A$23,474B$38,850C$26,625D$16,088

15

Question: Which of the following stock exchange organizational forms has no physical location?

AA futures exchangeBAn over-the-counter marketCAn auction marketDNone of the above

16

Question: Working capital management decisions involve

AHow a firm’s day-to-day financial matters should be managedBHow the firm should finance its assetsCWhich productive assets the firm should employDAll of the above

17

Question: Hassan Ali has made an investment that will pay him $11,455, $16,376, and $19,812 at the end of the next three years. His investment was to fetch him a return of 14 percent. What is the present value of these cash flows? (Round to the nearest dollar.)

A$33,124B$36,022C$41,675D$39,208

18

Question: Herm Mueller has invested in a fund that will provide him a cash flow of $11,700 for the next 20 years. If his opportunity cost is 8.5 percent, what is the present value of this cash flow stream? (Round to the nearest dollar.)

A$234,000B$132,455C$110,721D$167,884

19

Question: The assumption of arm’s-length transaction states that

ABoth parties to a transaction can act independently of each other and make economically rational decisionsBBoth parties to a transaction must have had previous transactionsCOne of the parties to the transaction is a bank that has full knowledge of the firm’s creditworthinessDNone of the above

20

Question: The time value of money refers to the issue of

AWhat the value of the stream of future cash flows is todayBWhy a dollar received tomorrow is worth more than a dollar received todayCWhy a dollar received tomorrow is worth the same as a dollar received todayDNone of the above

21

Question: Which of the following does maximizing shareholder wealth not usually account for?

ARiskBGovernment regulationCThe timing of cash flowsDAmount of cash flows

22

Question: Which one of the following is not true for a corporation?

AInterest paid on bonds issued last year is tax deductibleBCommon-stock dividends to be paid this year are not tax deductibleCCommon-stock dividends to be paid this year will be tax deductible if the firm has a net loss for the yearDPreferred stock dividends to be paid this year are not tax deductible

23

Question: The cash remaining after the firm has met its operating expenses, payments to creditors, and taxes is called

AEarnings per shareBCapital contributed in excess of parCResidual cashDAssets

24

Question: Executives that repeatedly put their own interests before that of the firm may find that they have difficulty finding another job after their current one. This is an example of

AThe managerial labor market disciplining managersBThe market for corporate controlCThe board of directors affecting the prospects of a managerDNone of the above

25

Question: Petry Corp. is a growing company with sales of $1.25 million this year. The firm expects to grow at an annual rate of 25 percent for the next three years, followed by a growth of 20 percent per year for the next two years. What will be Petry’s sales at the end of five years? (Round to the nearest dollar.)

A$2,160,000B$3,515,625C$1,875,000D$2,929,688

26

Question: Your brother has asked you to help him with choosing an investment. He has $5,000 to invest today for a period of two years. You identify a bank CD that pays an interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years?

A$5,434B$5,441C$5,107D$5,216

27

Question: Centennial Brewery produced revenues of $1,145,227 in 2008. It has expenses (excluding depreciation) of $812,640, depreciation of $131,335, and interest expense of $81,112. It pays an average tax rate of 34 percent. What is the firm’s net income after taxes?

A$120,140B$248,475C$79,292D$40,848

28

Question: Which of the following individuals is typically most responsible for managing a large corporation’s financial function?

AThe CEOBThe chairman of the boardCThe CBODThe CFO

29

Question: Jeff Conway wants to receive $25,000 in perpetuity and will invest his money in an investment that will earn a return of 13.5 percent annually. What is the value of the investment that he needs to make today to receive his perpetual cash flow stream? (Round to the nearest dollar.)

A$640,225B$252,325C$144,350D$185,185

30

Question: The DuPont equation shows that a firm’s ROE is determined by three factors

ANet profit margin, total asset turnover, and the equity multiplierBOperating profit margin, ROA, and the ROECNet profit margin, total asset turnover, the ROADROA, total asset turnover, and the equity multiplier

31

Question: Leverage ratio: Your firm has an equity multiplier of 2.47. What is its debt-to-equity ratio?

A0.60B1.47C1.74D0

32

Question: A director who is not an employee of the firm is called

AAn executive directorBAn inside directorCAn independent directorDAn official director

33

Question: During 2008, Towson Recording Company increased its investment in marketable securities by $36,845, funded fixed assets acquisition by $109,455, and had marketable securities to the tune of $14,215 mature. What is the net cash provided (used) in investing activities?

A$132,085B$145,940C–$132,085DNone of the above

34

Question: During an economic expansion, we would expect

AInterest rates to increaseBInterest rates to decreaseCInterest rates to remain the sameDThe price of money to decrease

35

Question: Chartworth Associates’ financial statements indicated that the company had EBITDA of $3,145,903. It had depreciation of $633,000, and its interest rate on debt of $1.25 million was 7.5 percent. Calculate the amount of taxes the company is likely to owe.

A$1,069,607B$1,037,732C$822,512DNone of the above

36

Question: Using higher discount rates will

ANot affect the present value of the future cash flowBIncrease the present value of any future cash flowCDecrease the present value of any future cash flowDNone of the above

37

Question: Liquidity ratio: Zidane Enterprises has a current ratio of 1.92, current liabilities of $272,934, and inventory of $197,333. What is the firm’s quick ratio?

A0.72B1.20C1.92DNone of the above

38

Question: According to the realization principle, revenue from a sale of the firm’s products are recognized

AWhen the products are shipped to the buyerBWhen the buyer orders the goodsCWhen cash is realized from the sale of the productsDAt the time of the sale

39

Question: Which organizational form best enables the owners of the firm to monitor the actions of other owners of the same firm?

ASole proprietorshipBPartnershipCPrivate corporationDPublic corporation

40

Question: Which organizational form best enables the owners of the firm to monitor the actions of other owners of the same firm?

ASole proprietorshipBPartnershipCPrivate corporationDPublic corporation

41

Question: Which one of the following does not change a firm’s current ratio?

AThe firm collects on its accounts receivablesBThe firm purchases inventory by taking a short-term loanCThe firm pays down its accounts payablesDNone of the above

42

Question: You want to have $25,000 for a down payment on a house 6 years from now. If you can earn 6.5 percent, compounded annually, on your savings, how much do need to deposit today to reach your goal?

A$17,133.35B$17,420.73C$17,880.69D$18,211.17E$18,886.40

43

Question: The annuity transformation method is used to transform

AA present value annuity to a future value annuityBA present value annuity to an annuity dueCAn ordinary annuity to an annuity dueDA perpetuity to an annuity

44

Question: To solve present value problems with multiple cash flows involves which of the following steps?

AFirst, draw a time line to make sure that each cash flow is placed in the correct time periodBSecond, calculate the present value of each cash flow for its time periodCThird, add up the present valuesDAll of the above are necessary steps

45

Question: Direct financing occurs when

AA lender-saver borrows directly from a borrower-spenderBA borrower-spender borrows directly from a lender-saverCA lender-saver borrows from the federal governmentDA borrower-spender borrows from the federal government

46

Question: Which of the following can help align the behavior of managers with the goals of shareholders?

AManagement compensationBManagerial labor marketsCAn independent board of directorsDAll of the above

47

Question: The present value of a lump sum future amount

AIs unaffected by the interest rateBIs unaffected by the timing of the future cash flowCIs inversely related to the future valueDIs directly related to the interest rateEIs inversely related to the period of time

48

Question: Peer group analysis can be performed by

AManagement choosing a set of firms that are similar in size or sales, or who compete in the same marketBUsing the average ratios of this peer group, which would then be used as the benchmarkCIdentifying firms in the same industry that are grouped by size, sales, and product lines in order to establish benchmark ratiosDOnly A and B relate to peer group analysis

49

Question: Derek’s friend, Jackson, is asking to borrow today with a promise to repay $7,418.87 in four years. If Derek could earn 5.45 percent annually on the any investment he makes today, how much would he be willing to lend Jackson today? (Round to nearest dollar.)

A$6,000B$7,035C$6,500D$7,150

50

Question: Your mother is trying to choose one of the following bank CDs to deposit $10,000. Which one will have the highest future value if she plans to invest for three years?

A3.5% compounded dailyB3.25% compounded monthlyC3.4% compounded quarterlyD3.75% compounded annually

51

Question: The price of borrowing money is called

AInflationBReturnCInterestDAll of the above

52

Question: A mutual fund is an example of

AA commercial bankBAn insurance companyCAn investment fundDA pension fund

 

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