Question Details

1) At 11 percent interest, how long would it take to quadruple your money?
6.55
6.64
13.09
13.28
13.56
2) Which one of the following will decrease if a firm can decrease its operating costs, all else constant?
Return on equity
Return on assets 
Profit margin 
Equity multiplier 
Price-earnings ratio
3) Chelsea Fashions is expected to pay an annual dividend of $0.80 a share next year. The market price of the stock is $22.40 and the growth rate is 5 percent. What is the firm's cost of equity?
7.58 percent
7.91 percent
8.24 percent
8.57 percent
9.00 percent
4) According to the Rule of 72, you can do which one of the following?
Double your money in five years at 7.2 percent interest
Double your money in 7.2 years at 8 percent interest
Double your money in 8 years at 9 percent interest
Triple your money in 7.2 years at 5 percent interest
Triple your money at 10 percent interest in 7.2 years
5) If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?
0.0
0.5
1.0
1.5
2.0
6) Shareholders' equity: 
Increases in value anytime total assets increases. 
Is equal to total assets plus total liabilities. 
Decreases whenever new shares of stock are issued. 
Includes long-term debt, preferred stock, and common stock. 
Represents the residual value of a firm.
7) Which one of the following statements correctly states a relationship? 
Time and future values are inversely related, all else held constant. 
Interest rates and time are positively related, all else held constant 
An increase in the discount rate increases the present value, given positive rates. 
An increase in time increases the future value given a zero rate of interest. 
Time and present value are inversely related, all else held constant.
8) A loan where the borrower receives money today and repays a single lump sum on a future date is called a(n) _____ loan 
amortized 
continuous 
balloon 
pure discount 
interest-only
9) Which one of following is the rate at which a stock's price is expected to appreciate? 
current yield
total return 
dividend yield 
capital gains yield 
coupon rate
10) What is the net present value of a project that has an initial cash outflow of $34,900 and the following cash inflows? The required return is 15.35 percent.
-$3,383.25 
-$2,784.62 
-$2,481.53 
$52,311.08 
$66,416.75
11) You are investing $100 today in a savings account at your local bank. Which one of the following terms refers to the value of this investment one year from now? 
future value 
present value 
principal amounts 
discounted value 
invested principal
12) A business created as a distinct legal entity and treated as a legal "person" is called a: 
Corporation. 
Sole proprietorship. 
General partnership. 
Limited partnership. 
Unlimited liability company.
13) When the present value of the cash inflows exceeds the initial cost of a project, then the project should be: 
Accepted because the internal rate of return is positive. 
Accepted because the profitability index is greater than 1. 
Accepted because the profitability index is negative. 
Rejected because the internal rate of return is negative. 
rejected because the net present value is negative
14) An amortized loan: 
requires the principal amount to be repaid in even increments over the life of the loan 
May have equal or increasing amounts applied to the principal from each loan payment. 
Requires that all interest be repaid on a monthly basis while the principal is repaid at the end of the loan term. 
Requires that all payments be equal in amount and include both principal and interest. 
Repays both the principal and the interest in one lump sum at the end of the loan term.
15) The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the:
Equilibrium. 
Premium. 
Discount. 
Call price. 
Spread.
16) Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows? 
Constant dividend growth model 
Discounted cash flow valuation 
Average accounting return 
Expected earnings model 
Internal rate of return
17) Mary just purchased a bond which pays $60 a year in interest. What is this $60 called? 
Coupon 
Face value 
Discount 
Call premium 
Yield
18) What are the distributions to shareholders by a corporation called? 
Retained earnings 
Net income 
Dividends 
Capital payments 
Diluted profits
19) Which one of the following is defined as a firm's short-term assets and its short-term liabilities? 
Working capital 
Debt 
Investment capital 
Net capital 
Capital structure
20) An ordinary annuity is best defined by which one of the following? 
Increasing payments paid for a definitive period of time 
Increasing payments paid forever 
Equal payments paid at regular intervals over a stated time period 
Equal payments paid at regular intervals of time on an ongoing basis 
Unequal payments that occur at set intervals for a limited period of time
21) Which one of the following terms is used to describe a loan that calls for periodic interest payments and a lump sum principal payment? 
Amortized loan 
Modified loan 
Balloon loan 
Pure discount loan 
Interest-only loan
22) Which of the following questions are addressed by financial managers?
I. How should a product be marketed?
II. Should customers be given 30 or 45 days to pay for their credit purchases?
III. Should the firm borrow more money?
IV. Should the firm acquire new equipment? 
I and IV only 
II and III only 
I, II, and III only 
II, III, and IV only 
I, II, III, and IV
23) You want to be on the board of directors of Wisely Foods. Since you are the only shareholder that will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected under these conditions? 
Democratic 
Cumulative 
Straight 
Deferred 
Proxy
24) Tracy invested $1,000 five years ago and earns 4 percent interest on her investment. By leaving her interest earnings in her account, she increases the amount of interest she earns each year. The way she is handling her interest income is referred to as which one of the following? 
Simplifying 
Compounding 
Aggregation 
Accumulation 
Discounting
25) A monthly interest rate expressed as an annual rate would be an example of which one of the following rates? 
Stated rate 
Discounted annual rate 
Effective annual rate 
Periodic monthly rate 
Consolidated monthly rate
26) The decision to issue additional shares of stock is an example of which one of the following? 
Working capital management 
Net working capital decision 
Capital budgeting 
Controller- duties 
Capital structure decision
27) The average of a firm's cost of equity and after-tax cost of debt that is weighted based on the firm's capital structure is called the: 
Reward to risk ratio. 
Weighted capital gains rate. 
Structured cost of capital. 
Subjective cost of capital. 
Weighted average cost of capital.
28) Wayco Industrial Supply has a pre-tax cost of debt of 7.6 percent, a cost of equity of 14.3 percent, and a cost of preferred stock of 8.5 percent. The firm has 220,000 shares of common stock outstanding at a market price of $27 a share. There are 25,000 shares of preferred stock outstanding at a market price of $41 a share. The bond issue has a face value of $550,000 and a market quote of 101.2. The company's tax rate is 37 percent. What is the firm's weighted average cost of capital? 
10.18 percent 
10.84 percent 
11.32 percent 
12.60 percent 
12.81 percent
29) 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? 
Net present value 
Internal return 
Payback value 
Profitability index 
Discounted payback
30) Which one of the following terms is defined as the management of a firm's long-term investments? 
Working capital management 
Financial allocation 
Agency cost analysis 
Capital budgeting 
Capital structure
31) Which one of the following is computed by dividing next year's annual dividend by the current stock price? 
Yield to maturity 
Total yield 
Dividend yield 
Capital gains yield 
Growth rate
32) Alex invested $10,500 in an account that pays 6 percent simple interest. How much money will he have at the end of four years? 
$12,650 
$12,967 
$13,020 
$13,256 
$13,500
33) The length of time between the sale of inventory and the collection of the payment for that sale is called the: 
Operating cycle. 
Inventory period. 
Accounts receivable period. 
Accounts payable period. 
Cash cycle.
34) Your grandmother has promised to give you $5,000 when you graduate from college. She is expecting you to graduate two years from now. What happens to the present value of this gift if you delay your graduation by one year and graduate three years from now? 
Remains constant 
Increases 
Decreases 
Becomes negative 
Cannot be determined from the information provided
35) Wind Power Systems has 20-year, semi-annual bonds outstanding with a 5 percent coupon. The face amount of each bond is $1,000. These bonds are currently selling for 114 percent of face value. What is the company's pre-tax cost of debt? 
3.98 percent 
4.42 percent 
4.71 percent 
5.36 percent 
5.55 percent
36) Rachel's has a $50,000 line of credit with Uptown Bank. The line of credit calls for an interest rate of 8 percent and a compensating balance of 4 percent. The compensating balance is based on the total amount borrowed and will be held in an interest-free account. What is the effective annual interest rate if the firm borrows $35,000 for one year? 
7.76 percent 
8.00 percent 
8.17 percent 
8.33 percent 
8.42 percent
37) The cash flow of a firm which is available for distribution to the firm's creditors and stockholders is called the: 
Operating cash flow. 
Net capital spending. 
Net working capital. 
Cash flow from assets. 
Cash flow to stockholders.
38) Which one of the following is a source of cash? 
Increase in accounts receivable 
Decrease in notes payable 
Decrease in common stock 
Increase in accounts payable 
Increase in inventory
39) An agent who maintains an inventory from which he or she buys and sells securities is called a: 
Broker. 
Trader. 
Capitalist. 
Principal. 
Dealer.
40) You cannot attend the shareholder's meeting for Alpha United so you authorize another shareholder to vote on your behalf. What is the granting of this authority called? 
Altering 
Cumulative voting 
Straight voting 
Indenture agreement 
Voting by proxy
41) The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the: 
Operating cycle. 
Inventory period. 
Accounts receivable period. 
Accounts payable period. 
Cash cycle.
42) Phil can afford $180 a month for 5 years for a car loan. If the interest rate is 8.6 percent, how much can he afford to borrow to purchase a car? 
$7,750.00 
$8,348.03 
$8,752.84 
$9,266.67 
$9,400.00
43) Which one of the following is computed by dividing next year's annual dividend by the current stock price? 
Yield to maturity 
Total yield 
Dividend yield 
Capital gains yield 
Growth rate
44) The decision to issue additional shares of stock is an example of which one of the following? 
Working capital management 
Net working capital decision 
Capital budgeting 
Controller- duties 
Capital structure decision
45) An ordinary annuity is best defined by which one of the following? 
Increasing payments paid for a definitive period of time 
Increasing payments paid forever 
Equal payments paid at regular intervals over a stated time period 
Equal payments paid at regular intervals of time on an ongoing basis 
Unequal payments that occur at set intervals for a limited period of time
46) Which one of the following is a capital budgeting decision?
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
47) Travis invested $9,250 in an account that pays 6 percent simple interest. How much more could he have earned over a 7-year period if the interest had compounded annually? 
$741.41 
$773.58 
$802.16 
$833.33 
$858.09
48) Net working capital is defined as: 
Total liabilities minus shareholders' equity. 
Current liabilities minus shareholders' equity. 
Fixed assets minus long-term liabilities. 
Total assets minus total liabilities. 
Current assets minus current liabilities.
49) Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called? 
Coupon 
Face value 
Discount 
Yield 
Dirty price
50) Which one of the following will increase the value of a firm's net working capital? 
Using cash to pay a supplier 
Depreciating an asset 
Collecting an accounts receivable 
Purchasing inventory on credit 
Selling inventory at a profit