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Finance: 30 multiple choice questions

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1. A company has a current ratio of 1.8, a net income of 180,000, a profit margin of 10% and an accounts receivable balance of 150,000. What is the firm's average collection period?
A. 24 days
B. 30 days
C. 43 days
D. 50 days

2. Balance sheets Income statement
Assets Sale(all credit ) 6,000,000
Cash 150,000 Costs of goods sold 3,000,000
Accounts receivable 450,000 Interests expense 750,000
Inventory 600,000 Income taxes 750,000
Net fixed assets 1,800,000 Net Income 750,000

Liabilities and owners equity
Accounts payable 150,000
Notes payable 150,000
Long term debt 1,200,000
Owners equity 1,500,000

Based on the given information, what is the debt to assets ratio?

A. 0.1
B. 0.4
C. 0.5
D. 0.8
E. 1.0

3. Balance sheets Income statement
Assets Sales (all credit ) 6,000,000
Cash 150,000 Costs of goods sold 3,000,000
Accounts receivable 450,000 Operating expenses 750,000
Inventory 600,000 Interest expense 750,000
Net fixed assets 1,800,000 Income taxes 750,000
Net Income 750,000

Liabilities of owner's equity:
Accounts payable 150,000
Notes payable 150,000
Long term debt 1,200,000
Owner's equity 1,500,000

Based on the information, what is the average collection period using a 360-day year?

A. 9.0 days
B. 13.2 days
C. 27.0 days
D. 36.0 days

4. Use the DuPont identity and assume that a firm has a profit margin of 10%, ROE=25%, D/E=1.5, and assets of $200.
A. $10
B. $150
C. $200
D. $250
E. $1,000

5. The equity multiplier ratio is measured as:
A. Total equity divided by total assets
B. Total assets divided by total equity
C. Total assets minus total equity divided by total assets
D. Total assets plus total equity, divided by total debt

6. A company has 100,000 shares outstanding, EBIT, is $1 million and interest paid is $200,000. If the corporate tax is 34% ,what are the company's earning per share?
A. $2.72
B. $3.40
C. $5.28
D. $6.60
E. $10.00

7. Considering each action independently and hold other things constant, what would reduce a firm's need for additional capital?
A. An increase in expected sales growth
B. A decrease in the days sales outstanding
C. An increase in the dividend payout ratio
D. A decrease in the profit margin

8. You borrow 1,000 today from a bank and agree to repay 2,000 at the end of 5 years. What rate of interest is the bank charging you?
A. 12%
B. 15%
C. 18%
D. 20%

9. What is the percent value of $1 million to be received at the end of year 50, if the interest rate is 12%, compounded annually?
A. 3,460
B. 20,000
C. 34,000
D. 50,000

10. What is annuity?
A. A series of payments for a specified period of time
B. A series of equal payments occurring at equal intervals for a specified number of periods
C. Any series of payments
D. A series of equal payments for a specified number of years

11. When an investment banker agrees to buy securities from an issuing firm at a given price, this is called?
A. An underwriting
B. A repurchase agreement
C. A best efforts agreement

12. What is the phenomenon where the issued shared in the market place increases above the initial offering price?
A. Underpricing
B. Yielded burning
C. Green shoe pricing
D. Yielded bumping
E. Aftermarket support

13. A zero- coupon bond with a positive yield to maturity will have an offering price?
A. Less than the contribution margin
B. Less than par
C. Equal to par
D. Equal to the market rate

14. The yield to maturity of a bond is more than the coupon rate, the bond sell at?
A. Market value
B. Par value
C. A discount
D. A premium

15. What is issuing new bonds to replace old bonds called?
A. A provisional call
B. A refunding operation
C. A serial redemption
D. A sinking fund redemption

16. What is the market value of share common stock affected by?
A. Par value
B. Risk-free rate
C. Paid in capital
D. Book value

17. What is a proxy?
A. A warrant attached to your stock
B. A substitute rate for the board of directors
C. Number of votes per share of common stock
D. An authorization for someone else to vote on your behalf

18. The internal rate of return in capital budgeting is best described as that discount rate which?
A. Equal the NPV and IRR
B. Equal that required rate of return
C. Equal all cash flows to the current market rate
D. Makes the NPV equal zero

19. The IRR is the point on the NPV profile where the?
A. Cost of capital is equal to the IRR
B. NPV is equal to the hurdle rate
C. Cost of capital equal the hurdle rate
D. NPV equal zero

20. What is the proper term for an unsecured bond?
A. Debenture
B. Redemption Bond
C. Zero coupon
D. Junk Bond

21. For an investor, what is most useful in determining the market value of a corporate bond?
A. The bond rating
B. The size of the issue
C. The required rate of return
D. The sinking fund provision

22. Which event would make it more likely that a company would choose to call it outstanding callable bonds?
A. A downgrading of the company's bonds
B. An increase in the call premium
C. A reduction in the market interest rate
D. A reduction in the coupon rate

23. What is the portfolio beta if 75% of the money is invested in the market portfolio and the remainder is invested in the risk free assets?
A. 0
B. 0.25
C. 0.75
D. 1.00
E 1.25

24. Advantage of using simulation to access capital budgeting risk include?
A. Adjustment for risk in the resulting distribution of net present values
B. Single period investment since discounting is not possible
C. Presenting a range of possible outcomes
D. Graphically displaying all possible outcomes of the investment

25. The owner of a seat on the New York Stock Exchange (NYSE) is also?
A. Agent
B. Trustee
C. Member
D. Customer

26. If the yield curve is downward sloping, whats is the yield to maturity on a 10-year treasury coupon bond, relative to that on a 1-year T-bond?
A. The yield on a 10 year bond is higher than the yield on a 1-year bond
B. The yield on the 10 year bond is less than the yield on a 1-year bond
C. It is impossible to determine without knowing the coupon rate of the two bonds
D. It is impossible to determine without knowing the relative risks of the two bonds

27. Based on the historical record from 1925 to the present, which type of securities earned highest return?
A. The common stock of the small capitalization firms on the NYSE
B. Long term US. Government bonds
C. The common stock of the largest 500 firms on the NYSE
D. Long term corporate bonds

28. What is the difference of a firm's current assets and it currents liabilities?
A. Non operating cash flow
B. Cash flow from assets
C. Operating cash flows
D. Net working capital

29. What would decrease the length of the cash cycle?
A. Increasing the inventory period
B. Increasing the accounts payable turnover
C. Decreasing the inventory turnover
D. Increasing the accounts receivable turnover

30. A firm with negative net working capital?
A. Has no cash on hand
B. Is technically bankrupt
C. Needs to sell some of its inventory to correct the problem
D. Has more current liabilities than current assets

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Solution Summary

The answer multiple choice question related to finance. (average collection period, profit margin, equity multiplier ratio, etc)