Financial Mngmt Tests

Your test grade is 92 percent

The professor has configured this test to allow students to review:

Questions answered incorrectly. Questions answered correctly. Students answers. Correct answers.

Question 1 - Multiple Choice ID: 5129112

Correct

Question: The most commonly quoted interest rate for Eurodollar overnight lending is known as

FIBOR

LIBOR

PIBOR

None of the above


- The correct answer has been circled.

Question: Cash flows associated with annuities are considered to be

An uneven cash flow stream

A cash flow stream of the same amount (a constant cash flow stream)

A mix of constant and uneven cash flow streams

None of the above


Correct

Question: A surplus budget position means that an entity's

Income and expenditures are equal

Income for the period exceeds expenses

Expenditures for the period exceed revenues

None of the above


Correct

Question: Which one of the following statements is NOT correct?

A leveraged firm is more risky than a firm that is not leveraged

A leveraged firm is less risky than a firm that is not leveraged

A firm that uses debt magnifies the return to its shareholders

All of the above statements are correct


Correct

Question: FV of multiple cash flows: Chandler Corp. is expecting a new project to start producing cash flows, beginning at the end of this year. They expect cash flows to be as follows:

1 2 3 4 5

$643,547 $678,214 $775,908 $778,326 $735,444

If they can reinvest these cash flows to earn a return of 8.2 percent, what is the future value of this cash flow stream at the end of five years? (Round to the nearest dollar.)

$3,889,256

$4,227,118

$5,214,690

$4, 809,112


Correct

Question: The generally accepted accounting principles (GAAP) are

Rules that outline how a firm can operate ethically

Rules on how the firm will be valued in the event of a merger

Rules and procedures that define how companies are to maintain financial records and prepare financial reports

Rules for how a company can issue stock to raise money



Question: Present value of an annuity: Transit Insurance Company has made an investment in another company that will guarantee it a cash flow of $37,250 each year for the next five

years. If the company uses a discount rate of 15 percent on its investments, what is the present value of this investment? (Round to the nearest dollar.)

$101,766

$124,868

$251,154

$186,250


Correct

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

Present value calculations involve bringing a future amount back to the present

The present value (PV) is often called the discounted value of future cash payments

The present value factor is more commonly called the discount factor

All of the above are true statements


Correct

Question: Which one of the following steps is NOT involved in solving future value problems?

First, draw a timeline to make sure that each cash flow is placed in the correct time period

Second, discount each cash flow for its time period

Third, add up the values

All of the above are necessary steps


Correct

Question: FV of multiple cash flows: International Shippers, Inc. have forecast earnings of $1, 233,400, $1,345,900, and $1,455,650 for the next three years. What is the future value of

these earnings if the firm's opportunity cost is 13 percent? (Round to the nearest dollar.)

$4,214,360

$4,551,446

$3,900,865

$4,875,212


Correct

Question: The going concern assumption implies that

A firm will continue to be in business for the foreseeable future

A firm will be going out of business in the near future

A firm will continue to operate in the near future but only after being acquired by another firm

None of the above


Correct

Question: Which of the following is a basic source of funds for the firm?

Debt

Equity

Asset liquidations

A and B above


Correct

Question: Financial markets in which equity and debt instruments with maturities greater than one year are traded are called

Money markets

Capital markets

Stock markets

None of the above


Correct

Question: Using higher discount rates will

Not affect the present value of the future cash flow

Increase the present value of any future cash flow

Decrease the present value of any future cash flow

None of the above


Correct

Question: If you just purchased a share of IBM through a New York Stock Exchange-based transaction, you participated in

A primary market transaction

A secondary market transaction

A futures market transaction

None of the above


Correct

Question: The general level of interest rates tends to follow

Deflation

The business cycle

The default cycle

All of the above


Correct

Question: Future value: Carlos Lopes is looking to invest for the next three years. He is looking to invest $7,500 today in a bank CD that will earn interest at 5.75 percent annually. How

much will he have at the end of three years? (Round to the nearest dollar.)

$8,870

$8,000

$8,681

None of the above


Correct

Question: Which of the following is NOT true of liquidity ratios?

They measure the ability of the firm to meet short-term obligations with short-term assets without putting the firm in financial trouble

There are two commonly used ratios to measure liquidity – current ratio and quick ratio

For manufacturing firms, quick ratios will tend to be much larger than current ratios

The higher the number, the more liquid the firm and the better its ability to pay its short-term bills


Correct

Question: Efficiency ratio: If Viera, Inc. has an accounts receivable turnover of 3.9 times and net sales of $3,436,812, what is its level of receivables?

$881,234

$13,403,567

$1,340,357

$81,234


Correct

Question: All but one of the following is true of common-size balance sheets

Each asset and liability item on the balance sheet is standardized by dividing it by total assets

Balance sheet accounts are represented as percentages of total assets

Each asset and liability item on the balance sheet is standardized by dividing it by sales

Common-size financial statements allow us to make meaningful comparisons between the financial statements of two firms that are different in size


Correct

Question: The NYSE is an example of

An over-the-counter market exchange

An organized exchange

An electronic market exchange

All of the above


Correct

Question: Calculating the present and future values of multiple cash flows is relevant

For businesses only

For individuals only

For both individuals and businesses

None of the above


Correct

Question: Future value measures

What one or more cash flows are worth at the end of a specified period

What one or more cash flows that is to be received in the future will be worth today

Both A and B

None of the above


Correct

Question: Present value: 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.)

$23,474

$38,850

$26,625

$16,088



Question: Which one of the following does NOT change a firm's current ratio?

The firm collects on its accounts receivables

The firm purchases inventory by taking a short-term loan

The firm pays down its accounts payables

None of the above


Correct

Question: A mutual fund is an example of

A commercial bank

An insurance company

An investment fund

A pension fund


Correct

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

A futures exchange

An over-the-counter market

An auction market

None of the above


Correct

Question: Your aunt is looking to invest a certain amount today. Which of the following choices should she opt for?

Three-year CD at 6.5% annual rate



Three-year CD at 7% annual rate


Correct

Question: Perpetuity: Chris Collinge has funded a retirement investment with $250,000 earning a return of 5.75 percent. What is the value of the payment that he can receive in perpetuity?

(Round to the nearest dollar.)

$12,150

$15,250

$14,375

$14,900



Question: Tumbling Haven, a gymnastic equipment manufacturer, provided the following information to its accountants. The company had current assets of $145,332, net fixed assets of

$356,190, and other assets of $4,176. The firm has long-term debt of $76,445, common stock of $200,000, and retained earnings of $134,461. What amount of current liabilities does this

firm have?

$94,792

$505,678

$171,217

None of the above


Correct

Question: Teakap, Inc. has current assets of $1,456,312 and total assets of $4,812,369 for the year ending September 30, 2006. It also has current liabilities of $1,041,012, common equity

of $1,500,000, and retained earnings of $1,468,347. How much long-term debt does the firm have?

$1,844,022

$2,303,010

$2,123,612

$803,010


Correct

Question: Using lower discount rates will

Not affect the present value of the future cash flow

Increase the present value of any future cash flow

Decrease the present value of any future cash flow

None of the above


Correct

Question: Secondary financial markets are similar to

Direct auction markets

New-car markets

Used-car markets

All of the above


Correct

Question: Financial statements can be analyzed from which of the following three different perspectives

Management, regulator, and bondholder

Management, shareholder, and creditor

Regulator, shareholder, and creditor

Shareholder, creditor, and regulator


Correct

Question: When analysts and investors determine the value of a firm's stock, they should consider

The size of the expected cash flows associated with owning the stock

The timing of the cash flows

The riskiness of the cash flows

All of the above


Correct

Question: Liquidity ratio: Bathez Corp. has receivables of $334,227, inventory of $451,000, cash of $73,913, and accounts payables of $469,553. What is the firm's current ratio?

1.83

0.73

1.67

None of the above


Correct

Question: Maddux, Inc., has completed its fiscal year and reported the following information. The company had current assets of $153,413, net fixed assets of $412,331, and other assets of

$7,822. The firm also has current liabilities worth $65,314, long-term debt of $178,334, and common stock of $162,000. How much retained earnings does the firm have?

$405,648

$243,648

$167,918

$573,566


Correct

Question: The present value of multiple cash flows is

Greater than the sum of the cash flows

Equal to the sum of all the cash flows

Less than the sum of the cash flows

None of the above


Correct

Question: Future value: Ning Gao is planning to buy a house in five years. She is looking to invest $25,000 today in an index mutual fund that will provide her a return of 12 percent annually.

How much will she have at the end of five years? (Round to the nearest dollar.)

$45,000

$28,000

$44,059

None of the above


Correct

Question: Capital budgeting decisions generally involve

The fixed asset portion of the balance sheet

The short-term portion of the balance sheet

The current liability portion of the balance sheet

All of the above


Correct

Question: Which of the following owners is protected by limited liability?

A sole proprietor

A general partner

A limited partner

None of the above


Correct

Question: Which of the following sections do annual reports typically contain?

Financial summary related to the past year's performance

Information about the company, its products, and its activities

Audited financial statements, including limited historical financial data

All three of the above sections are included in the annual report


Correct

Question: Efficiency ratio: If Randolph Corp. has accounts receivables of $654,803 and net sales of $1,932,349, what is its accounts receivable turnover?

0.34 times

1.78 times

2.95 times

None of the above


Correct

Question: Trekkers Footwear bought a piece of machinery on January 1, 2006 at a cost of $2.3 million, and the machinery is being depreciated annually at an amount of $230,000 for 10

years. Its market value on December 31, 2008 is $1.75 million. The firm's accountant is preparing its financial statement for the fiscal year end on December 31, 2008. The asset's value

should be recognized on the balance sheet at

$2.3 million

$1.61 million

$230,000

$1.75 million


Correct

Question: Working capital management decisions involve

How a firm's day-to-day financial matters should be managed

How the firm should finance its assets

Which productive assets the firm should employ

All of the above


Correct

Question: Market-value ratios: Perez Electronics Corp. has reported that its net income for 2006 is $1,276,351. The firm has 420,000 shares outstanding and a P-E ratio of 11.2 times. What

is the firm's share price?

$34.05

$3.68

$11.20

$36.80


Correct

Question: Galan Associates prepared its financial statement for 2008 based on the information given here. The company had cash worth $1,234, inventory worth $13,480, and accounts

receivables of $7,789. The company's net fixed assets are $42,331, and other assets are $1,822. It had accounts payables of $9,558, notes payables of $2,756, common stock of $22,000,

and retained earnings of $14,008. How much long-term debt does the firm have?

$54,342

$76,342

$12,314

$18,334


Correct

Question: Which of the following cannot be engaged in managing the business?

A sole proprietor

A general partner

A limited partner

None of the above


Correct

Question: The financial market where a new security is sold for the first time is

A primary market

A secondary market

An indirect market

None of the above


Correct

Question: About 75 percent of all businesses in the United States are

Sole proprietorships

Partnerships

Corporations

Limited liability partnerships

EXAM 2

Your test grade is 86 percent

The professor has configured this test to allow students to review:

Questions answered incorrectly. Questions answered correctly. Students answers. Correct answers.


Correct

Question: Bond price: Your friend recommends that you invest in a three-year bond issued by Trimer, Inc. that will pay annual coupons of 10 percent. Similar investments today will yield 6

percent. How much should you pay for the bond? (Round to the nearest dollar.)

$1,024

$979

$886

$1,107


Correct

Question: Which one of the following statements is true about secondary markets in the United States?

In terms of total volume of activity and total capitalization of the firms listed, the NASDAQ is the largest in the world and the NYSE is the second largest

In terms of the number of companies listed and shares traded on a daily basis, NASDAQ is larger than the NYSE

Firms listed on the NASDAQ tend to be, on average, larger in size, and their shares trade more frequently than firms whose securities trade on NYSE

In the United States, most secondary market transactions are done over the counter



Question: Which one of the following statements about IRR is NOT true?

The IRR is the discount rate that makes the NPV greater than zero

The IRR is a discounted cash flow method

The IRR is an expected rate of return

None of the above




The risk that the lender may not receive payments as promised is called default risk

Investors must pay a premium to purchase a security that exposes them to default risk

U.S. Treasury securities do not have any default risk and are the best proxy measure for the risk-free rate



Correct

Question: Zero coupon bonds: The U.S. Treasury has issued 10-year zero coupon bonds with a face value of $1,000. Assume that coupon payments are normally semiannual. What will be

the current market price of these bonds if the opportunity cost for similar investments in the market is 6.75 percent? (Round to the nearest dollar.)

$684

$860

$515

$604


Correct

Question: Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over

the next three years. The cost of capital is 20 percent.

Modified Internal rate of return: What is the MIRR on this project? (Round to the nearest percent.)

36%

37%

38%

39%


Correct

Question: Which one of the following statements about vanilla bonds is NOT true?

They have no special provisions

The face value, or par value, for most corporate bonds is $1,000

Coupon payments are usually made quarterly

The bond's coupon rate is calculated as the annual coupon payment divided by the bond's face value


Correct

Question: Which ONE of the following statements is true about common stock?

Common stock is considered to have a fixed maturity

Owners of common stock are guaranteed dividend payment by the firm

Owners of common stock have the lowest-priority claim on the firm's assets in the event of bankruptcy

Common-stock holders have unlimited liability


Correct

Question: The expected return for Stock Z is 30 percent. If we know the following information about Stock Z, then what return will it produce in the Lukewarm state of the world?

Return Probability

Poor 0.20 0.25

Lukewarm ? 0.50

Dynamite! 0.40 0.25

20%

30%

40%

It is impossible to determine


Correct

Question: Net present value: Gao Enterprises plans to build a new plant at a cost of $3,250,000. The plant is expected to generate annual cash flows of $1,225,000 for the next five years. If

the firm's required rate of return is 18 percent, what is the NPV of this project?

$2,875,000

$3,830,785

$580,785

$21,225,875


Correct

Question: Bonds sell at a discount off the par value when market rates for similar bonds are

Less than the bond's coupon rate

Greater than the bond's coupon rate

Equal to the bond's coupon rate

Market rates are irrelevant in determining a bond's price


Correct

Question: Strange Manufacturing Company is purchasing a production facility at a cost of $21 million. The firm expects the project to generate annual cash flows of $7 million over the next

five years. Its cost of capital is 18 percent.

Internal rate of return: What is the internal rate of return on this project? (Round to the nearest percent.)

17%

18%

19%

20%


Correct

Question: Payback: Kathleen Dancewear Co. has bought some new machinery at a cost of $1,250,000. The impact of the new machinery will be felt in the additional annual cash flows of

$375,000 over the next five years. What is the payback period for this project? If their acceptance period is three years, will this project be accepted?

2.67 years; yes

2.67 years; no

3.33 years; yes

3.33 years; no



Question: Francis purchased a stock one year ago for $20, and it is now worth $24. The stock paid a dividend of $3 during the year. What was the stock's rate of return from capital

appreciation during the year? (Round your answer to the nearest percent.)

17%

20%

29%

35%


Correct

Question: Two projects are considered to be mutually exclusive if

The projects perform the same function

Selecting one would automatically eliminate accepting the other

Both A and B

None of the above


Correct

Question: A construction firm is evaluating two value-adding projects. The first project deals with building access roads to a new terminal at the local airport. The second project is to build a

parking garage on a piece of land that the firm owns adjacent to the airport.

The firm's decision will be to

Accept both projects because they are independent projects

Accept both projects because they are contingent projects

Pick the one that adds the most value because they are mutually exclusive projects

Pick neither project


Correct

Question: The largest holders of equity securities are

Mutual funds

Pension funds

Foreign investors

Households


Correct

Question: Which of the following investment classes had the greatest average return based on recent historical data?

Intermediate-Term Government Bonds

Long-Term Government Bonds

Large U.S. Stocks

Small U.S. Stocks


Correct

Question: Internal rate of return: Lowell Communications, Inc. has been installing a fiber-optic network at a cost of $18 million. The firm expects annual cash flows of $3.7 million over the

next 10 years. What is this project's internal rate of return? (Round to the nearest percent.)

10%

12%

14%

16%


Correct

Question: Bond price: Regatta, Inc. has six-year bonds outstanding that pay a 8.25 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 6.875

percent. What should the company's bonds be priced at today? Assume annual coupon payments. (Round to the nearest dollar.)

$972

$1,066

$1,014

$923


Correct

Question: Which one of the following statements is true about secondary markets?

In secondary markets, outstanding shares of stock are bought and sold among investors

For an investor, the function of secondary markets is to provide profitability for the shares of securities they own

An active secondary market causes firms to sell their new debt or equity issues at a higher cost of funds



Correct

Question: Bond price: Kevin Oh is planning to sell a bond that he owns. This bond has four years to maturity and pays a coupon of 10 percent on a semiannual basis. Similar bonds in the

current market will yield 12 percent. What will be the price that he will get for his bond? (Round to the nearest dollar.)

$1,044

$938

$970

$1,102


Correct

Question: Jamaica Corp. is adding a new assembly line at a cost of $8.5 million. The firm expects the project to generate cash flows of $2 million, $3 million, $4 million, and $5 million over

the next four years. Its cost of capital is 16 percent.

Net present value: What is the net present value of this project?

$645,366

$1,213,909

$905,888

$777,713


Correct

Question: Bonds sell at a premium over the par value when market rates for similar bonds are

Less than the bond's coupon rate

Greater than the bond's coupon rate

Equal to the bond's coupon rate

Market rates are irrelevant in determining a bond's price


Correct

Question: Payback: Elmer Sporting Goods is getting ready to produce a new line of golf clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000,

$812,500, and 1,200,000 over the next three years. What is the payback period for this project?

3 years

2.43 years

1.57 years

More than 3 years


Correct

Question: If a bond's coupon rate is equal to the market rate, then the bond will sell

At a price equal to its face value

At a price greater than its face value

At a price less than its face value

None of the above are true



Question: Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over

the next three years. The cost of capital is 20 percent.

Payback: What is the payback period for this project?

1.7 years

2.2 years

1.2 years

2.7 years


Correct


Prices in the corporate bond market also tend to be more volatile than the markets for stocks or money market securities

Corporate bonds are more marketable than the securities that have higher daily trading volumes

The market for corporate bonds is thin

The largest investors in corporate bonds are life insurance companies and pension funds


Correct

Question: If you were to compare the returns of an individual stock to a market index, select the answer below that is most true.

The returns of the individual stock will show more variability than those of the market index

The returns of the individual stock will show less variability than those of the market index

The returns of the individual stock will show the same level of variability than those of the market index, if they have the same beta

None of the above


Correct

Question: Payback: Creighton, Inc. has invested $2,165,800 on equipment. The firm uses payback period criteria of not accepting any project that takes more than four years to recover

costs. The company anticipates cash flows of $424,386, $512,178, $561,755, $764,997, $816,500, and $825,375 over the next six years. What is the payback period, and does this

investment meet the firm's payback criteria?

4.13 years; no

4.13 years; yes

3.87 years; yes

3.87 years; no


Correct

Question: Use the following table to calculate the expected return for the asset.

Return Probability

0.05 0.10

0.10 0.15

015 0.50

0.25 0.25

12.50%

13.75%

15.75%

16.75%


Correct

Question: Ahmet purchased a stock for $45 one year ago. The stock is now worth $65. During the year, the stock paid a dividend of $2.50. What is the total return to Ahmet from owning the

stock? (Round your answer to the nearest whole percent.)

5%

44%

35%

50%


Correct

Question: Moshe purchased a stock for $30 last year. He found out today that he had a -100 percent return on his investment. Which of the following must be true?

The stock is worth $30 today

The stock is worth $0 today

The stock paid no dividends during the year

Both B and C must be true


Correct

Question: Gwen purchased a stock one year ago for $25, and it is now worth $31. The stock paid a dividend of $1.50 during the year. What was the stock's rate of return income during the

year? (Round your answer to the nearest percent.)

6%

15%

24%

26%


Correct

Question: Which one of the following statements is NOT true about auction markets?

In an auction market, buyers and sellers face each other directly and bargain over price

The NASDAQ is the most efficient equity market in the United States

The New York Stock Exchange is the best-known example of an auction market

The auctioneer in this case is the specialist, who is designated by the exchange to represent orders placed by public customers




Interest rate risk is the risk that bond prices will change as interest rates change

Interest rate changes and bond prices are inversely related

As interest rates increase, bond prices increase

Long-term bonds are more price volatile than short-term bonds of similar risk


Correct

Question: Payback: Carmen Electronics bought new machinery for $5 million. This is expected to result in additional cash flows of $1.2 million over the next seven years. What is the

payback period for this project? If their acceptance period is five years, will this project be accepted?

4.17 years; yes

4.17 years; no

3.83 years; yes

3.83 years; no


Correct

Question: Two projects are considered to be independent if

Selecting one would have no bearing on accepting the other

Their cash flows are unrelated

Both A and B

None of the above


Correct

Question: Capital rationing implies that

The firm does not have enough resources to fund all of the available projects

Funding needs equal funding resources

The available capital will be allocated equally to all available projects

None of the above



Question: Jamaica Corp. is adding a new assembly line at a cost of $8.5 million. The firm expects the project to generate cash flows of $2 million, $3 million, $4 million, and $5 million over

the next four years. Its cost of capital is 16 percent.


2.8 years

2.9 years

3.1 years

3.4 years


Correct

Question: Which of the following are aspects of independent projects?

Their cash flows are related

Their cash flows are unrelated

Selecting one would automatically eliminate accepting the other

None of the above


Correct

Question: Marketability is the ability of an investor

To sell a security quickly, at a low transaction cost, and at a price close to its fair market value

To sell at a profit under all circumstances

To sell the security above its par value

None of the above


Correct

Question: Julio purchased a stock one year ago for $27. The stock is now worth $32, and the total return to Julio for owning the stock was 37 percent. What is the dollar amount of dividends

that he received for owning the stock during the year?

$4

$5

$6

$7


Correct

Question: Applying the valuation procedure to common stocks is more difficult than applying it to bonds because

The size and timing of the dividend cash flows are less certain than the coupon payments for bonds

Common stocks have no final maturity date

Unlike the rate of return, or yield, on bonds, the rate of return on common stock is not directly observable

All of the above are true


Correct

Question: Which one of the following statements is true?

To secure the conversion option on a bond, bondholders would be willing to pay a premium

The conversion ratio is set so that the firm's stock price must appreciate 15 to 20 percent before it is profitable to convert bonds into equity

Convertible bonds can be converted into shares of common stock at some predetermined ratio at the discretion of the bondholder

All of the above are true


Correct

Question: Bond price: Briar Corp is issuing a 10-year bond with a coupon rate of 7 percent. The interest rate for similar bonds is currently 9 percent. Assuming annual payments, what is the

present value of the bond? (Round to the nearest dollar.)

$872

$1,066

$990

$945



Question: Strange Manufacturing Company is purchasing a production facility at a cost of $21 million. The firm expects the project to generate annual cash flows of $7 million over the next

five years. Its cost of capital is 18 percent.


2.8 years

3.0 years

3.2 years

3.4 years


Correct

Question: Which one of the following statements is NOT true about common stock?

Common-stock holders have the right to vote on the selection of the board of directors for the firm

Common stock is considered to have no fixed maturity

Owners of common stock are guaranteed dividend payments by the firm

Common-stock holders have limited liability


Correct

Question: Use the following table to calculate the expected return for the asset.

Return Probability

0.10 0.25

0.20 0.50

0.25 0.25

15.00%

17.50%

18.75%

20.00%


Correct

Question: Which of the following investment classes had the greatest variability in returns for recent historical data?

Intermediate-Term Government Bonds

Long-Term Government Bonds

Large U.S. Stocks

Small U.S. Stocks

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