FIN 571 Final Exam (30 Multiple Choice Questions)  

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FIN/571 Final Exam  (30 Multiple Choice Questions)  

  1. What is the present value of $6,811 to be received in one year if the discount rate is 6.5 percent?
  • $6,023.58
  • $7,253.72
  • $6,643.29
  • $6,395.31
  • $6,671.13
  1. Futures contracts contrast with forward contracts by:
  • Allowing the parties to negotiate the contract size.
  • Marking to the market on a weekly basis.
  • Allowing the seller to deliver any day during the delivery month.
  • Requiring contract fulfilment by the two originating parties.
  • Providing an option for the buyer rather than an obligation.
  1. A project has an initial cost of $2,250. The cash inflows are $0, $500, $900, and $700 for Years 1 to 4, respectively. What is the payback period?
  • 3.92 years
  • 3.98 years
  • 2.84 years
  • never
  • 2.97 years

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  1. The primary goal of financial management is to:
  • Avoid financial distress.
  • Maintain steady growth in both sales and net earnings.
  • Minimize operational costs and maximize firm efficiency.
  • Maximize current dividends per share of the existing stock.
  • Maximize the current value per share of the existing stock.
  1. Which one of these is a correct definition?
  • Net working capital equals current assets plus current liabilities.
  • Tangible assets are fixed assets such as patents.
  • Current assets are assets with short lives, such as inventory.
  • Long-term debt is defined as a residual claim on a firm’s assets.
  • Current liabilities are debts that must be repaid in 18 months or less.
  1. The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as _____ costs.
  • Capital structure
  • Financial solvency
  • Flotation
  • Indirect bankruptcy
  • Direct bankruptcy
  1. An efficient capital market is one in which:
  • Security prices reflect all available information.
  • Brokerage commissions are zero.
  • All investments earn the market rate of return.
  • Securities always offer a positive NPV.
  • Taxes are irrelevant.
  1. The higher the inventory turnover, the:
  • Lesser the amount of inventory held by a firm.
  • Longer it takes a firm to sell its inventory.
  • Greater the amount of inventory held by a firm.
  • Less time inventory items remain on the shelf.
  • Higher the inventory as a percentage of total assets.
  1. Which one of the following statements about preferred stock is true?
  • Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense.
  • If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year.
  • There is no significant difference in the voting rights granted to preferred and common shareholders.
  • Preferred stock usually has a stated liquidating value of $100 per share.
  • Dividends on preferred stock payable during the next twelve months are considered to be a corporate liability.
  1. The underlying assumption of the dividend growth model is that a stock is worth:
  • The same amount as any other stock that pays the same current dividend and has the same required rate of return.
  • An amount computed as the next annual dividend divided by the market rate of return.
  • The same amount to every investor regardless of their desired rate of return.
  • The present value of the future income that the stock is expected to generate.
  • An amount computed as the next annual dividend divided by the required rate of return.
  1. Which one of the following statements is false?
  • An aging schedule includes only overdue accounts.
  • Investments in accounts receivable equal average daily sales times average collection period.
  • Collection efforts may involve legal action.
  • Aging schedules are used to monitor accounts receivable.
  • If sales are seasonal, the percentages shown on an aging schedule will vary during the year.
  1. The discount rate that makes the net present value of an investment exactly equal to zero is called the:
  • Average accounting return.
  • Internal rate of return.
  • Profitability index.
  • Equalizer.
  • External rate of return.
  1. One disadvantage of the corporate form of business ownership is the:
  • Limited liability protection provided for all owners.
  • Firms ability to raise cash.
  • Unlimited life of the firm.
  • Difficulties encountered when changing ownership.
  • Double taxation of profits.
  1. Book value:
  • Is adjusted to market value whenever the market value exceeds the stated book value.
  • Is based on historical cost.
  • Generally tends to exceed market value when fixed assets are included.
  • Is more of a financial than an accounting valuation.
  • Is equivalent to market value for firms with fixed assets.
  1. The market price of a bond increases when the:
  • Coupon is paid annually rather than semiannually.
  • Coupon rate decreases.
  • Face value decreases.
  • Discount rate decreases.
  • Par value decreases.
  1. Which one of the following is an example of a nondiversifiable risk?
  • A poorly managed firm suddenly goes out of business due to lack of sales
  • A key employee suddenly resigns and accepts employment with a key competitor
  • A well-managed firm reduces its work force and automates several jobs
  • A well-respected president of a firm suddenly resigns
  • A well-respected chairman of the Federal Reserve Bank suddenly resigns
  1. Ratios that measure a firm’s ability to pay its bills over the short run without undue stress are known as:
  • Profitability ratios.
  • Liquidity measures.
  • Asset management ratios.
  • Market value ratios.
  • Long-term solvency measures.
  1. Under the _______ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the _______ method, the underwriter does not purchase the shares but merely acts as an agent.
  • Best efforts; firm commitment
  • Competitive offer; negotiated offer
  • Negotiated offer; competitive offer
  • Firm commitment; best efforts
  • Seasoned; unseasoned
  1. All else held constant, interest rate risk will increase when the time to maturity:
  • Decreases or the coupon rate decreases.
  • Decreases and the coupon rate equals zero.
  • Increases or the coupon rate increases.
  • Increases or the coupon rate decreases.
  • Decreases or the coupon rate increases.
  1. Which term defines the tax rate that applies to the next dollar of taxable income earned?
  • Total
  • Residual
  • Deductible
  • Average
  • Marginal
  1. Which one of these statements is correct concerning the cash cycle?
  • Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.
  • The longer the cash cycle, the more likely a firm will need external financing.
  • Increasing the accounts payable period increases the cash cycle.
  • The cash cycle can exceed the operating cycle if the payables period is equal to zero.
  • A positive cash cycle is preferable to a negative cash cycle.
  1. The cash flow resulting from a firm’s ongoing, normal business activities is referred to as the:
  • Net capital spending.
  • Cash flow to retained earnings.
  • Additions to net working capital.
  • Operating cash flow.
  • Cash flow to investors.
  1. A firm has a total debt ratio of .47. This means the firm has 47 cents in debt for every:
  • $.53 in total equity.
  • $1 in total equity.
  • $1 in fixed assets.
  • $1 in current assets.
  • $.53 in total assets.
  1. The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the:
  • Inflation premium.
  • Arithmetic average return.
  • Geometric average return.
  • Risk premium.
  • Time premium.
  1. The process of planning and managing a firm’s long-term assets is called:
  • Financial depreciation.
  • Agency cost analysis.
  • Capital structure.
  • Working capital management.
  • Capital budgeting.
  1. A firm has a debt-equity ratio of .64, a pretax cost of debt of 8.5 percent, and a required return on assets of 12.6 percent. What is the cost of equity if you ignore taxes?
  • 8.06%
  • 11.12%
  • 15.22%
  • 16.38%
  • 8.55%
  1. Lois is purchasing an annuity that will pay $5,000 annually for 20 years, with the first annuity payment made on the date of purchase. What is the value of the annuity on the purchase date given a discount rate of 7 percent?
  • $66,916.21
  • $56,677.98
  • $52,970.07
  • $54,282.98
  • $56,191.91
  1. You plan to invest $6,500 for three years at 4 percent simple interest. What will your investment be worth at the end of the three years?
  • $7,280.00
  • $6,760.00
  • $7,311.62
  • $7,250.00
  • $6,941.11
  1. An interest rate that is compounded monthly, but is expressed as if the rate were compounded annually, is called the _____ rate.
  • Daily interest
  • Periodic interest
  • Stated interest
  • Effective annual
  • Compound interest
  1. All else equal, the contribution margin must increase as:
  • The fixed cost per unit declines.
  • The sales price minus the fixed cost per unit increases.
  • The variable cost per unit declines.
  • Both the sales price and variable cost per unit increase.
  • Sales price per unit declines.

Course: FIN/571 Corporate Finance
School: University of Phoenix

  • 03/07/2018
  • 60
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