Finance 52 mcqs… | Business & Finance homework help

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?
 
A 5 percent
 
B 10 percent
 
C 25 percent
 
D None of the above

2

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Question: Which one of the following statements is not true?
 
A The value of a dollar invested at a positive interest rate grows over time
 
B The further in the future you receive a dollar, the less it is worth today
 
C A dollar in hand today is worth more than a dollar to be received in the future
 
D The 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?
 
A 0.24 times; 78.5 days
 
B 4.26 times; 85.7 days
 
C 5.2 times; 61.3 days
 
D None of the above

4

 
Question: If you have loaned capital to a firm, then you could be
 
A A shareholder
 
B A stakeholder
 
C A partner
 
D All of the above

5
Question: Which one of the following is not an advantage of using ROE as a goal?
 
A ROE is highly correlated with shareholder wealth maximization
 
B ROE and the DuPont analysis allow management to break down the performance and identify areas of strengths and weaknesses
 
C ROE does not consider risk
 
D All of the above are advantages of using ROE as a goal

6

 
Question: The future value of multiple cash flows is
 
A Greater than the sum of the cash flows
 
B Equal to the sum of all the cash flows
 
C Less than the sum of the cash flows
 
D None of the above

7
Question: The major players in the direct financial markets are
 
A Investment banks
 
B Money center banks
 
C Regional banks
 
D Both A and B

8
Question: One of the main services offered by investment banks to companies is
 
A Helping companies sell new debt or equity issues in the security markets
 
B Making loans to companies
 
C Taking deposits from companies
 
D All 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 $27,150
 
B $29,900
 
C $30,455
 
D $31,504

10

 
Question: Which of the following is a cash flow from investing activities?
 
A Cash payment of dividends to shareholders
 
B Cash from sale of products
 
C Purchase of plant and equipment
 
D Rent 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.)
 
A 8.40%
 
B 8.73%
 
C 8.95%
 
D None of the above

12

 
Question: Which of the following statements is not a limitation associated with market valuation of balance sheet accounts?
 
A It can be difficult to identify the market value of an asset, particularly if there are few transactions involving comparable assets
 
B The estimates of market value can involve complex financial modeling, and the resulting numbers can be open to manipulation and abuse
 
C Marking to market provides decision makers with a better chance of making the correct economic decision, given the information available
 
D Mark-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)?
 
A CFO
 
B CEO
 
C Board of directors
 
D Audit 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 $23,474
 
B $38,850
 
C $26,625
 
D $16,088

15

 
Question: Which of the following stock exchange organizational forms has no physical location?
 
A A futures exchange
 
B An over-the-counter market
 
C An auction market
 
D None of the above

16
Question: Working capital management decisions involve
 
A How a firm’s day-to-day financial matters should be managed
 
B How the firm should finance its assets
 
C Which productive assets the firm should employ
 
D All 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 $33,124
 
B $36,022
 
C $41,675
 
D $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 $234,000
 
B $132,455
 
C $110,721
 
D $167,884

19

 
Question: The assumption of arm’s-length transaction states that
 
A Both parties to a transaction can act independently of each other and make economically rational decisions
 
B Both parties to a transaction must have had previous transactions
 
C One of the parties to the transaction is a bank that has full knowledge of the firm’s creditworthiness
 
D None of the above

20
Question: The time value of money refers to the issue of
 
A What the value of the stream of future cash flows is today
 
B Why a dollar received tomorrow is worth more than a dollar received today
 
C Why a dollar received tomorrow is worth the same as a dollar received today
 
D None of the above

21

 
Question: Which of the following does maximizing shareholder wealth not usually account for?
 
A Risk
 
B Government regulation
 
C The timing of cash flows
 
D Amount of cash flows

22

 
Question: Which one of the following is not true for a corporation?
 
A Interest paid on bonds issued last year is tax deductible
 
B Common-stock dividends to be paid this year are not tax deductible
 
C Common-stock dividends to be paid this year will be tax deductible if the firm has a net loss for the year
 
D Preferred 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
 
A Earnings per share
 
B Capital contributed in excess of par
 
C Residual cash
 
D Assets

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
 
A The managerial labor market disciplining managers
 
B The market for corporate control
 
C The board of directors affecting the prospects of a manager
 
D None 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 $2,160,000
 
B $3,515,625
 
C $1,875,000
 
D $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 $5,434
 
B $5,441
 
C $5,107
 
D $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 $120,140
 
B $248,475
 
C $79,292
 
D $40,848

28
Question: Which of the following individuals is typically most responsible for managing a large corporation’s financial function?
 
A The CEO
 
B The chairman of the board
 
C The CBO
 
D The 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 $640,225
 
B $252,325
 
C $144,350
 
D $185,185

30

 
Question: The DuPont equation shows that a firm’s ROE is determined by three factors
 
A Net profit margin, total asset turnover, and the equity multiplier
 
B Operating profit margin, ROA, and the ROE
 
C Net profit margin, total asset turnover, the ROA
 
D ROA, 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?
 
A 0.60
 
B 1.47
 
C 1.74
 
D 0

32

 
Question: A director who is not an employee of the firm is called
 
A An executive director
 
B An inside director
 
C An independent director
 
D An 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 $132,085
 
B $145,940
 
C –$132,085
 
D None of the above

34

 
Question: During an economic expansion, we would expect
 
A Interest rates to increase
 
B Interest rates to decrease
 
C Interest rates to remain the same
 
D The 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 $1,069,607
 
B $1,037,732
 
C $822,512
 
D None of the above

36
Question: Using higher discount rates will
 
A Not affect the present value of the future cash flow
 
B Increase the present value of any future cash flow
 
C Decrease the present value of any future cash flow
 
D None 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?
 
A 0.72
 
B 1.20
 
C 1.92
 
D None of the above

38

 
Question: According to the realization principle, revenue from a sale of the firm’s products are recognized
 
A When the products are shipped to the buyer
 
B When the buyer orders the goods
 
C When cash is realized from the sale of the products
 
D At 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?
 
A Sole proprietorship
 
B Partnership
 
C Private corporation
 
D Public corporation

40
Question: Which organizational form best enables the owners of the firm to monitor the actions of other owners of the same firm?
 
A Sole proprietorship
 
B Partnership
 
C Private corporation
 
D Public corporation

41

 
Question: Which one of the following does not change a firm’s current ratio?
 
A The firm collects on its accounts receivables
 
B The firm purchases inventory by taking a short-term loan
 
C The firm pays down its accounts payables
 
D None 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 $17,133.35
 
B $17,420.73
 
C $17,880.69
 
D $18,211.17
 
E $18,886.40

43 

 
Question: The annuity transformation method is used to transform
 
A A present value annuity to a future value annuity
 
B A present value annuity to an annuity due
 
C An ordinary annuity to an annuity due
 
D A perpetuity to an annuity

44
Question: To solve present value problems with multiple cash flows involves which of the following steps?
 
A First, draw a time line to make sure that each cash flow is placed in the correct time period
 
B Second, calculate the present value of each cash flow for its time period
 
C Third, add up the present values
 
D All of the above are necessary steps

45

 
Question: Direct financing occurs when
 
A A lender-saver borrows directly from a borrower-spender
 
B A borrower-spender borrows directly from a lender-saver
 
C A lender-saver borrows from the federal government
 
D A 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?
 
A Management compensation
 
B Managerial labor markets
 
C An independent board of directors
 
D All of the above

47
Question: The present value of a lump sum future amount
 
A Is unaffected by the interest rate
 
B Is unaffected by the timing of the future cash flow
 
C Is inversely related to the future value
 
D Is directly related to the interest rate
 
E Is inversely related to the period of time

48

 
Question: Peer group analysis can be performed by
 
A Management choosing a set of firms that are similar in size or sales, or who compete in the same market
 
B Using the average ratios of this peer group, which would then be used as the benchmark
 
C Identifying firms in the same industry that are grouped by size, sales, and product lines in order to establish benchmark ratios
 
D Only 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 $6,000
 
B $7,035
 
C $6,500
 
D $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?
 
A 3.5% compounded daily
 
B 3.25% compounded monthly
 
C 3.4% compounded quarterly
 
D 3.75% compounded annually

51

 
Question: The price of borrowing money is called
 
A Inflation
 
B Return
 
C Interest
 
D All of the above

52

 
Question: A mutual fund is an example of
 
A A commercial bank
 
B An insurance company
 
C An investment fund
 
D A pension fund

 

 

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