A major disadvantage of preferred stock is:
1.common stock dividends have a higher order of precedence
2.dividends are not tax-deductible
3.there is no secondary market for preferred stock
4.the preferred dividend may vary greatly year to year
A payoff schedule for a loan is known as:
1.a mortgage
2.an interest schedule
3.a principal
4.an amortization schedule
A preferred issue carrying a call provision will carry:
1.a higher yield than non-callable preferred
2.a lower yield than non-callable preferred
3.the same yield as non-callable preferred
4.the same yield as callable debt
A warrant may best be defined as:
1.an option to sell a specified number of shares at a stated price
2.an option to buy a stated number of shares at a stated price
3.a convertible security
4.a bond derivative
All of the following are examples of tax deductible expenses, except:
1.dividends on common shares
2.interest payments
3.amortization charges
4.sales and administrative expenses
All of the following are true of shareholders' equity except:
1.it represents the combined total of the firm's current and long term assets
2.it represents the total contribution and ownership interest of preferred and common shareholders
3.the three basic components are preferred stock, common stock, and retained earnings
4.it represents the difference between the firm's assets and liabilities
All of the following are true regarding capital rationing except:
1.it places on artificial constraint on funds that many be invested
2.it may result out of a fear of growth
3.it may result out of a hesitation to use external sources of funds
4.it will help the overall profitability of the firms
All of the following are widely used methods for evaluating capital expenditures except;
1.payback period
2.internal rate of return
3.net present value
4.weighted average cost of capital
All of the following influence the price of a stock for the firm going public by way of an IPO except:
1.the previous share price
2.an in-depth company analysis
3.the P/E ratio for similar firms in the industry
4.anticipated public demand
Among the liquidity ratios, one would include:
1.receivables turnover and inventory turnover
2.current ratio and quick ratio
3.capital asset turnover and total asset turnover
4.receivables turnover and total asset turnover
An inverted yield curve often foreshadows:
1.an inflationary period
2.a recessionary period
3.a large government bond issue
4.nothing at all
As more and more funds are required by the firm, the cost of each component of the capital structure may increase. These incremental changes are most correctly referred to as:
1.the weighted average cost of capital
2.the marginal cost of capital
3.the cost of capital
4.the incremental cost of capital
Asset utilization ratios measure:
1.the speed at which the firm is turning over its assets
2.the ability of the firm to earn on adequate return on sales, total assets, and invested capital
3.the firm's ability to pay off short term obligations as they are due
4.the debt position of the firm in light of its assets and earning power
Financial markets:
1.exist as a vast global network of individuals and financial institutions
2.include a broad group representing lenders, borrowers, owners, institutional investors, corporations, government units and others
3.circulate information quickly that affects prices of securities
4.All of the above
Going public offers the firm many of the advantages listed below with the exception of:
1.security markets may be tapped for a greater amount of funds
2.the prestige of a public security may help in bank negotiations
3.marketable securities may be used for acquisitions
4.there is less pressure for short-term profits
If a firm acquires another firm with a higher P/E ratio:
1.postmerger earnings per share will be diluted
2.a cash acquisition is questionable
3.a stock-for-stock exchange should be pursued
4.none of the above are correct
If a firm has an average daily, remittance of $4,000,000 and 1.5 days in the collection process may be saved through a lockbox system, has the firm freed up any real funds for other investment?
1.No, these funds are theoretical in nature only
2.Yes, approximately $2,666,667 has been freed up
3.Yes, approximately $6,000,000 has been freed up
4.Cannot be determined from information provided
If the yield to maturity changes, the effect will be greatest on:
1.long term bonds
2.short term bonds
3.government bonds
4.the effect will be the same for all bonds
In chronological order, which of the following is correct:Refer to text page 703.
1.ex-dividend date, holder of record date, payment date
2.holder of record date, ex-dividend date, holder of record date
3.payment date, ex-dividend date, holder of record date
4.holder of record date, payment date, ex-dividend date
Markets comprised of securities with maturities of one year or less are generally referred to as:
1.money markets
2.capital markets
3.stock markets
4.bond markets
Most break-even analysis:
1.is conducted on the basis of cash flows
2.is theoretical only and has little impact on the firm
3.excludes fixed costs
4.is done on the basis of accounting flows
On the pro forma income statement, the increase in retained earnings is derived:
1.earnings before taxes - taxes
2.earnings aftertaxes - dividends
3.operating profit - taxes
4.operating profit - dividends
Organized securities markets exhibit all of the following characteristics except:
1.listings on national and regional exchanges are mutually exclusive
2.each exchange has a central location where buying and selling occurs
3.brokers represent the actual buyers and sellers
4.securities are listed and traded with the approval of the board of governors
The allocation of capital is determined by:
1.expected rates of return
2.the Bank of Canada
3.the initial sale of securities in the primary market
4.the size of the federal debt
The arrangement preferred by most business firms and foreign government is:
1.the joint venture
2.the export arrangement
3.the licensing agreement
4.the fully owned foreign subsidiary
The conversion ratio indicates:
1.the number of shares of common to which the security may be converted
2.the conversion price of the security
3.the number of bonds the common share may be converted to
4.the number of bonds the preferred share may be converted to
The cost of debt is measured by:
1.the yield to maturity on the firm's bonds
2.the coupon rate on the firm's bonds
3.the weighted average cost of capital
4.the marginal cost of capital
The expected value may be defined as:
1.a weighted average of outcomes times their probability
2.the arithmetic average of the outcomes
3.the median value of the possible outcomes
4.a measure of dispersion or variability
The income statement measures:
1.what the firm owns and how those assets are financed
2.the profitability of the firm at a given point in time
3.the profitability of the firm over a period of time
4.how changes in the balance sheet are financed over time
The indifference point identifies:
1.equality of impact on eps between two financing plans
2.equality of impact on EBIT between two financing plans
3.equality of impact on revenue between two financing plans
4.equality of impact on number of shares between two financing plans
The interest rate used in time value of money calculations is also referred to as:
1.a discount rate, rate of return or yield
2.a discount rate, accounting return or yield
3.a compound rate, rate of return or market return
4.a compound rate, accounting return, or yield
The interest rate used to discount the cash flows associated with a bond is:
1.the required rate of return on the firm's equity
2.the yield to maturity
3.the prime rate
4.the government T-bill rate
The key to current asset planning is:
1.ensuring that the firm remains current on its obligation
2.maintaining an inventory surplus to ensure liquidity
3.forecasting sales accurately and matching production with the forecast
4.maintaining the proper rate of asset growth
The key to simulation analysis has been:
1.statistical analysis
2.the development of the computer
3.risk adjusted interest rates
4.the ability to classify investments as to their risk class
The least expensive form of financing for the firm is:
1.existing common stock
2.preferred stock
3.debt
4.new common stock
The level of accounts receivable for the firm:
1.should be judged based on historical standards of industry norms
2.should be judged as to whether the return earned on A/R equals or exceeds the potential gain from other investments
3.is irrelevant as long as sales are increasing
4.is not the concern of the financial manager
The major disadvantage of commercial paper is:
1.the continued availability of funds is less certain than with bank financing
2.that there is no secondary market for commercial paper
3.firms must maintain an account balance equal to the paper outstanding
4.commercial paper is normally issued with a floating interest rate
The net credit position of the firm is defined as:
1.its credit rating
2.the extent to which the firm has utilized its credit line
3.the difference between short and long term debt
4.the difference between accounts receivable and accounts payable
The spot rate is:
1.unrelated to the foreign exchange rate
2.the rate of exchange for future delivery
3.the rate of exchange for immediate delivery
4.the "black market" exchange rate
The ultimate measure of performance is:
1.the amount of the firm's earnings
2.how the earnings are valued by the investor
3.the firm's profit margin
4.return on the firm's total assets
The value in five years of a stream of payments received over the five year period is known as:
1.future value-annuity
2.present value-annuity
3.compound sum-single amount
4.present value-single amount
The value of a share of common stock may be thought of as:
1.a perpetuity
2.an annuity
3.the present value of a perpetuity
4.the present value of expected future dividends
To minimize transaction exposure, firms may pursue which of the following activities:
1.forward exchange market hedging
2.money market hedging
3.currency futures market hedging
4.all of the above are correct.
Under a pre-emptive right provision:
1.holders of common stock must be given the first option to purchase new shares
2.common shareholders have a pre-emptive right to dividends
3.preferred shareholders have the first option on new common shares
4.dilution of existing positions is encouraged
Wealthier shareholders tend to prefer:
1.a high dividend payout ratio
2.short term capital gains
3.floating rate dividends
4.capital appreciation
Which of the following is a benefit of debt to the firm:
1.interest and principal obligations are contractually set
2.interest payments are tax deductible
3.indenture agreements provide the firm with no restrictions
4.used beyond a certain point, debt will decrease the cost of capital
Which of the following is not a non-financial motive for merging:
1.the desire to expand management capabilities
2.the need to expand marketing capabilities
3.the desire for easier access to capital markets
4.the acquisition of new products
Which of the following is not the responsibility of financial management?
1.allocation of funds to current and capital assets
2.obtaining the best mix of financing alternatives
3.preparation of the firm's accounting statements
4.development of an appropriate dividend policy
Which of the following would not be important in examining the firm's build-up of accounts receivable/cash/current assets:
1.sales forecast
2.cash receipts and cash payments schedules
3.income statement
4.a brief cash budget
With a secured claim:
1.specific assets are pledged in the event of default
2.a debenture exists
3.the lower the value of the initial security
4.pledged assets are often sold off and the proceeds distributed