1. A corporation sold a fixed asset for $100,000. This is
A. an investment cash flow and a source of funds.
B. an operating cash flow and a source of funds.
C. an operating cash flow and a use of funds.
D. an investment cash flow and a use of funds.
2. A proxy statement is
A. a statement giving the votes of a stockholder to the CEO
B. a statement giving the votes of a stockholder to the board of director
C. a statement giving the votes of a stockholder to another party
D. None of the above.
3. The theory suggesting that for any given issuer, long-term interest rates tends to be higher than short-term rates is called
B. liquidity preference theory
C. Market segmentation theory
D. None of the Above
4.The present value of an ordinary annuity of $350 each year for five years, assuming an opportunity cost of 4 percent, is
A. $288 B. $1,896 C. $1,750 D.$1,558
5.Typically the long-term capital source that is the least expensive is
A. Common stock B. Current (short-term) debt C. Long-term debt D. Preferred stock
6. How much is a bond with a face value of $1,000 that matures in 3 years and pays 12% annually worth? (pick the best answer)
7.________ yield curve reflects higher expected future rates of interest.
• 8. The key participants in financial transactions are individuals, businesses, and governments. Individuals are net ________ of funds, and businesses are net ________ of funds.
• 9.The ________ are sometimes referred to as the residual owners of the corporation.
• 10. A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 par value and an 8 percent annual dividend. The firm also has 5,000 shares of common stock outstanding. If the stock is cumulative and the board of directors has passed the preferred dividend for the prior two years, how much must the preferred stockholders be paid prior to paying dividends to common stockholders?
• 11. What is the highest effective rate attainable with a 12 percent nominal rate?
• 12. Colin would like to send her parents on a cruise for their 25th wedding anniversary. She has priced the cruise at $15,000 and she has 5 years to accumulate this money. How much must Janice deposit annually in an account paying 10 percent interest in order to have enough money to send her parents on the cruise?
• 13.Which of the following is a career opportunity in managerial finance?
Real Estate and Insurance.
Capital Expenditures Management.
Personal Financial Planning.
• 14.The ________ represents a summary statement of the firm’s financial position at a given point in time.
statement of cash flows
statement of retained earnings
• 15. Gross profits are defined as
operating profits minus depreciation.
operating profits minus cost of goods sold.
sales revenue minus operating expenses.
sales revenue minus cost of goods sold.
• 16. When preparing a statement of cash flows, retained earnings adjustments are required so that which of the following are separated on the statement?
Revenue and cost.
Assets and liabilities.
Depreciation and purchases.
Net profits and dividends.
• 17. The legal contract setting forth the terms and provisions of a corporate bond is a(n)
18. Most businesses raise money by selling their securities in a
19._____________ is the rate of return companies must earn on investments to support the market value of its stock.
Internal rate of return
Cost of capital
Net present value
Gross profit margin
20. Stock represents __________ and bonds represent ____________.
retained earnings; debt
equity; current liabilities
• 21. An ADR is
a claim issued by a U.S. bank representing ownership of shares of a foreign company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors
a claim issued by a foreign bank representing ownership of shares of a foreign company’s stock held on deposit by the foreign bank and is issued in dollars to U.S. investors
a claim issued by a U.S. bank representing ownership of shares of a U.S. company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors
None of the above.
• 22. Allocation of the historic costs of fixed assets against the annual revenue they generate is called
23. is an expense that is a legal obligation of the firm.
• 24. Nico Nelson, a management trainee at a large New York-based bank is trying to estimate the real rate of return expected by investors. He notes that the 3-month T-bill currently yields 3 percent and has decided to use the consumer price index as a proxy for expected inflation. What is the estimated real rate of interest if the CPI is currently 2 percent?
• 25. One of the most influential documents issued by a publicly-held corporation is the
letter to stockholders.
cash flow statement.
• 26. ________ is concerned with the duties of the financial manager in the business firm.
None of the above
• 27. The treasurer is commonly responsible for
making capital expenditures.
• 28. Bond prices and interest rates are:
• 29. The cost of long-term debt generally ________ that of short-term debt.
is less than
is equal to
is greater than
has no relation to
• 30. A downward-sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term borrowing costs is called
normal yield curve
inverted yield curve
flat yield curve
None of the above
• 31. Preferred stockholders
do not have preference over common stockholders in the case of liquidation
do have preference over bondholders in the case of liquidation
do not have preference over bondholders in the case of liquidation
Two of the above are true statement
• 32. The ________ rate of interest is typically the required rate of return on a three-month U.S. Treasury bill.
• 33. The ________ is/are a graphic depiction of the term structure of interest rates.
supply and demand functions
aggregate demand curve
• 34. How much would Sophie have in her account at the end of 10 years if she deposit $2,000 into the account today if she earned 8 percent interest and interest is compounded continuously?
35. Cash flows associated with the purchase and sale of fixed assets and business interests are called
none of the above
• 36. What is the nominal rate of return on an IBM bond if the real rate of interest is 3 percent, the inflation risk premium is 2 percent, the U.S. T-bill rate is 5 percent, the maturity risk premium on the IBM bond is 3 percent, the default risk premium on the IBM bond is 2 percent, and the liquidity risk premium on the bond is 1 percent?
• 37. The Glass-Steagall Act allowed commercial and investment banks to engage in the same activities.
created the Securities Exchange Commission.
created the Federal Deposit Insurance program and separated the activities of commercial and investment banks.
was intended to regulate the activities in the primary market.
38. The ________ provides a financial summary of the firm’s operating results during a specified period.
statement of cash flows
statement of retained earnings
• 39. A corporation
must use the same depreciation method for tax and financial reporting purposes.
must use different depreciation methods for tax and financial reporting purposes.
may use different depreciation methods for tax and financial reporting purposes.
must use different (than for tax purposes), but strictly mandated, depreciation methods for financial reporting purposes.
• 40. The financial manager must determine ______________ to apply the Gordon growth model
A growth rate
A required return
The next period’s dividend
All of the above
• 41. The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method used for ________ purposes.
• 42. The officer responsible for the firm’s financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange is
foreign exchange manager.
None of the Above.
• 43. Which of the following serve as intermediaries channeling the savings of individuals, businesses and governments into loans and investments?
• 44. Which of the following provide savers with a secure place to invest funds and offer both individuals and companies loans to finance investments?
• 45. Given the financial manager’s preference for faster receipt of cash flows,
a longer depreciable life is preferred to a shorter one.
a shorter depreciable life is preferred to a longer one.
the manager is not concerned with depreciable lives, because depreciation is a non-cash expense.
the manager is not concerned with depreciable lives, because once purchased, depreciation is considered a sunk cost.
• 46. Bonds sell at a __________ when the required return is greater than the coupon rate.
the par value divided by expected return plus the coupon rate
• 47. Finance can be defined as
the system of debits and credits.
the science of the production, distribution, and consumption of wealth.
the art and science of managing money.
the art of merchandising products and services.
• 48. The sale of a new security directly to an investor or a group of investors is called
the secondary market
the primary market
the capital market
the private placement market
• 49. The statement of cash flows provides a summary of the firm’s
cash flows from operating activities.
cash inflows from financing activities.
cash flows from investment activities.
all of the above.
• 50. The net value of fixed assets is also called its