50 multiple choice for finance

A. 

articles of incorporation

B. 

corporate breakdown

C. 

agency problem

D. 

bylaws

E. 

legal liability

IV only

I and III only

I, II, and III only

II, III, and IV only

I, II, III, and IV

determining how many shares of stock to issue

deciding whether or not to purchase a new machine for the production line

deciding how to refinance a debt issue that is maturing

determining how much inventory to keep on hand

determining how much money should be kept in the checking account

size of the firm

growth rate of the firm

gross profit per unit produced

market value per share of outstanding stock

total sales

equivalent to the firm’s market value provided that the firm has some fixed assets.

based on historical cost.

generally greater than the market value when fixed assets are included.

more of a financial than an accounting valuation.

adjusted to the market value whenever the market value exceeds the stated book value.

I and IV only

I, II, and IV only

$710

$780

$990

$2,430

$2,640

$129,152

$171,852

$179,924

$281,417

$309,076

-$1,194

$1,306

$1,887

$4,780

$5,172

11.

Relationships determined from a firm’s financial information and used for comparison purposes are known as:  

A. financial ratios. B. identities. C. dimensional analysis. D. scenario analysis. E. solvency analysis. 

12.

According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities. 

A. decrease; operating B. decrease; financing C. increase; operating D. increase; financing E. increase; investment 

13.

The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm’s financial ratios in which one of the following ways?  

A. decrease in the inventory turnover rate B. decrease in the net working capital turnover rate C. no change in the fixed asset turnover rate D. decrease in the day’s sales in inventory E. no change in the total asset turnover rate   

14.

Shareholders probably have the most interest in which one of the following sets of ratios?  

A. return on assets and profit margin B. long-term debt and times interest earned C. price-earnings and debt-equity D. market-to-book and times interest earned E. return on equity and price-earnings 

15.

Al’s Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?  

A. 74.19 days B. 84.76 days C. 121.07 days D. 1

38.

16.

You need to analyze a firm’s performance in relation to its peers. You can do this either by comparing the firms’ balance sheets and income statements or by comparing the firms’ ratios. If you only had time to use one means of comparison which method would you use and why? 

17.

The process of determining the present value of future cash flows in order to know their worth today is called which one of the following? 

 A. compound interest valuation B. interest on interest computation C. discounted cash flow valuation D. present value interest factoring E. complex factoring 

18.

You invested $1,400 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually?  

A. $7

49.

30.

19.

You just received $225,000 from an insurance settlement. You have decided to set this money aside and invest it for your retirement. Currently, your goal is to retire 25 years from today. How much more will you have in your account on the day you retire if you can earn an average return of 10.5 percent rather than just 8 percent? 

A. $417,137 B. $689,509 C. $1,050,423 D. $1,189,576 E. $1,818,342 

20.

When you retire 40 years from now, you want to have $1.2 million. You think you can earn an average of 12 percent on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum 2 years from today. How much more will you have to deposit as a lump sum if you wait for 2 years before making the deposit?  

A. $1,414.14 B. $2,319.47 C. $2,891.11 D. $3,280.78 E. $3,406.78 

22.

An ordinary annuity is best defined by which one of the following?  

A. increasing payments paid for a definitive period of time B. increasing payments paid forever C. equal payments paid at regular intervals over a stated time period D. equal payments paid at regular intervals of time on an ongoing basis E. unequal payments that occur at set intervals for a limited period of time    

23.

You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. You can earn 6 percent on your money. Which option should you take and why?  

A. You should accept the payments because they are worth $209,414 to you today.B. You should accept the payments because they are worth $247,800 to you today.C. You should accept the payments because they are worth $336,000 to you today. D. You should accept the $200,000 because the payments are only worth $189,311 to you today.E. You should accept the $200,000 because the payments are only worth $195,413 to you today. 

24.

You have been investing $250 a month for the last 13 years. Today, your investment account is worth $73,262. What is your average rate of return on your investments? 

A. 8.94 percentB. 9.23 percentC. 9.36 percentD. 9.41 percentE. 9.78 percent 

25.

Your parents have made you two offers. The first offer includes annual gifts of $10,000, $11,000, and $12,000 at the end of each of the next three years, respectively. The other offer is the payment of one lump sum amount today. You are trying to decide which offer to accept given the fact that your discount rate is 8 percent. What is the minimum amount that you will accept today if you are to select the lump sum offer?  

A. $28,216 B. $29,407 C. $29,367 D. $30,439 E. $30,691 

26.

You are considering a project which will provide annual cash inflows of $4,500, $5,700, and $8,000 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a 9 percent discount rate?  

A. $14,877 B. $15,103 C. $15,429 D. $16,388 E. $16,847 

27.

Grand Adventure Properties offers a 9.5 percent coupon bond with annual payments. The yield to maturity is 11.2 percent and the maturity date is 11 years from today. What is the market price of this bond if the face value is $1,000?  

A. $895.43 B. $896.67 C. $9

41.

46.

28.

You are purchasing a 20-year, zero-coupon bond. The yield to maturity is 8.68 percent and the face value is $1,000. What is the current market price? 

A. $106.67 B. $108.18 C. $182.80 D. $221.50 E. $228.47 

29.

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings? 

A. dual class B. cumulative C. non-cumulative D. preferred E. common 

What are the distributions to shareholders by a corporation called?  

A. retained earnings B. net income C. dividends D. capital payments E. diluted profits  

31.

Atlas Mines has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 2.75 percent annually. The firm just paid an annual dividend of $1.67. What will the dividend be six years from now?  

A. $1.88 B. $1.92 C. $1.97 D. $2.02 E. $2.05 

32.

A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called?  

A. net present value B. internal return C. payback value D. profitability index E. discounted payback 

33.

The length of time a firm must wait to recoup the money it has invested in a project is called the:  

A. internal return period. B. payback period. C. profitability period. D. discounted cash period. E. valuation period. 

34.

The internal rate of return is defined as the:  

A. maximum rate of return a firm expects to earn on a project. B. rate of return a project will generate if the project in financed solely with internal funds. C. discount rate that equates the net cash inflows of a project to zero. D. discount rate which causes the net present value of a project to equal zero. E. discount rate that causes the profitability index for a project to equal zero.  

36.

You are considering a project with an initial cost of $7,500. What is the payback period for this project if the cash inflows are $1,100, $1,640, $3,800, and $4,500 a year over the next four years, respectively? 

A. 3.21 years B. 3.28 years C. 3.36 years D. 4.21 years E. 4.29 years 

37.

 A firm evaluates all of its projects by using the NPV decision rule. At a required return of 14 percent, the NPV for the following project is _____ and the firm should _____ the project.     

A. $5,684.22; reject B. $7,264.95; accept C. $7,264.95; reject D. $9,616.93; accept E. $9,616.93; reject 

How does the net present value (NPV) decision rule relate to the primary goal of financial management, which is creating wealth for shareholders? 

39.

The average of a firm’s cost of equity and aftertax cost of debt that is weighted based on the firm’s capital structure is called the:  

A. reward to risk ratio. B. weighted capital gains rate. C. structured cost of capital. D. subjective cost of capital. E. weighted average cost of capital. 

40.

The capital structure weights used in computing the weighted average cost of capital:  

A. are based on the book values of total debt and total equity. B. are based on the market value of the firm’s debt and equity securities. C. are computed using the book value of the long-term debt and the book value of equity. D. remain constant over time unless the firm issues new securities. E. are restricted to the firm’s debt and common stock. 

Which one of the following statements is correct for a firm that uses debt in its capital structure?  

A. The WACC should decrease as the firm’s debt-equity ratio increases. B. When computing the WACC, the weight assigned to the preferred stock is based on the coupon rate multiplied by the par value of the preferred. C. The firm’s WACC will decrease as the corporate tax rate decreases. D. The weight of the common stock used in the computation of the WACC is based on the number of shares outstanding multiplied by the book value per share. E. The WACC will remain constant unless a firm retires some of its debt. 

42.

Central Systems, Inc. desires a weighted average cost of capital of 8 percent. The firm has an aftertax cost of debt of 5.4 percent and a cost of equity of 15.2 percent. What debt-equity ratio is needed for the firm to achieve its targeted weighted average cost of capital?  

A. 0.38 B. 0.44 C. 1.02 D. 2.77 E. 3.63 

43.

Carson Electronics uses 70 percent common stock and 30 percent debt to finance its operations. The aftertax cost of debt is 5.4 percent and the cost of equity is 15.4 percent. Management is considering a project that will produce a cash inflow of $36,000 in the first year. The cash inflows will then grow at 3 percent per year forever. What is the maximum amount the firm can initially invest in this project to avoid a negative net present value for the project?  

A. $299,032 B. $382,979 C. $411,406 D. $434,086 E. $441,414 

44.

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:  

A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle. 

45.

The length of time between the day a firm purchases an item from its supplier until the day that supplier is paid for that purchase is called the:  

A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle. 

Which one of the following increases cash?  

A. granting credit to a customer B. purchasing new machinery C. making a payment on a bank loan D. purchasing inventory E. accepting credit from a supplier   

 47.

Which of the following are uses of cash?I. collecting a receivableII. increasing inventoryIII. obtaining a bank loanIV. paying a supplier for previous purchases  

A. I and III only B. 

II and IV only

 C. I and II only D. I, II, and IV only E. II, III, and IV only 

48.

Which one of the following will increase net working capital? Assume the current ratio is greater than 1.0.  

A. paying a supplier for a previous purchase B. paying off a long-term debt C. selling inventory at cost D. purchasing inventory on credit E. selling inventory at a profit on credit 

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?  

A. bad debts B. accounts receivable turnover rate C. accounts receivable period D. credit sales E. operating cycle 

50.

Denver Interiors, Inc., has sales of $836,000 and cost of goods sold of $601,000. The firm had a beginning inventory of $36,000 and an ending inventory of $47,000. What is the length of the inventory period?  

A. 19.21 days B. 20.89 days C. 25.20 days D. 30.53 days E. 33.69 days