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Multiple choice

Please complete the attached 50 multiple choice practice problems

1 Finance can be defined as
A) The system of debits and credits.
B) The science of the production, distribution, and consumption of wealth.
C) The art and science of managing money.
D) The art of merchandising products and services.
Answer:

2 Which of the following legal forms of organizations' income is NOT taxed under
individual income tax rates?
A) Sole proprietorships.
B) Partnerships.
C) Limited partnership.
D) Corporation.
Answer:

3 The true owner(s) of the corporation is (are) the ________________
A) board of directors
B) chief executive officer
C) stockholders
D) creditors
Answer:

4 Managerial finance
A) involves tasks such as budgeting, financial forecasting, cash management,
and funds procurement.
B) involves the design and delivery of advice and financial products.
C) recognizes funds on an accrual basis
D) devotes the majority of its attention to the collection and presentation of financial data.
Answer:

5 Which of the following legal forms of organization is characterized by limited liability?
A) Sole proprietorship
B) Partnership
C) Corporation
D) Professional partnership
Answer:

6 Two approaches for dealing with project risk to capture the variability of cash inflows and NPV's are
A) sensitivity analysis and simulation
B) scenario analysis and simulation
C) sensitivity analysis and scenario analysis
D) none of the above
Answer:

7 Breakeven cash inflow refers to
A) the minimum level of cash inflow for a project to be acceptable, that is, NPV < $0
B) the minimum level of cash inflow for a project to be acceptable, that is, NPV > $0
C) the minimum level of cash inflow for a project to be acceptable, that is,
IRR < the cost of capital
D) none of the above is correct.
Answer:

8 The ___________ reflects the return that must be earned on the given project to compensate the
firm's owners adequately according to the project's variability of cash flows.
A) internal rate of return
B) cost of capital
C) risk-adjusted discount rate
D) average rate of return
Answer:

9 If a person requires greater return when risk increases, that person is said to be
A) risk seeking
B) risk indifferent
C) risk averse
D) risk aware
Answer:

10 _____________ is the chance of loss or the variability of returnsassociated with a given asset.
A) Return
B) Value
C) Risk
D) Probability
Answer:

11 The ____________ measures the dispersion around the expected value
A) coefficient of variation
B) chi square
C) mean
D) standard deviation
Answer:

12 An inefficient portfolio is one that
A) maximizes risk for a given level of return
B) maximizes return for a given level of risk
C) minimizes return for a given level of risk
D) maximizes return at all risk levels
Answer:

13 An efficient portfolio is one that
A) maximizes risk for a given level of return
B) maximizes return for a given level of risk
C) minimizes return for a given level of risk
D) maximizes return at all risk levels
Answer:

14 Combining two assets having perfectly positively correlated returns will result in the creation of a
portfolio with an overall risk that
A) remains unchanged
B) decreases to a level below that of either asset
C) increases to a level above that of either asset
D) lies between the asset with the higher risk and the asset with the lower risk
Answer:

15 Risk that affects all firms is called
A) total risk
B) management risk
C) nondiversifiable risk
D) diversifiable risk
Answer:

16 If the interest rate is zero, the future value interest factor equals ___________
A) -1
B) 0
C) 1
D) 2
Answer:

17 As the interest rate increases for any given period, the future value interest factor will
A) decrease
B) increase
C) remain unchanged
D) move toward 1
Answer:

18 The future value of $100 received today and deposited at 6 percent for four years is
A) $126
B) $79
C) $124
D) $116
Answer:

19 The future value of an ordinary annuity of $1,000 each year for 10 years, deposited at 3 percent is
A) $11,808
B) $11,464
C) $8,530
D) $10,000
Answer:

20 A collection of assets is called a(n)
A) grouping
B) portfolio
C) investment
D) diversity
Answer:

21 The future value of $100 received today and deposited in an account for four years paying
semi-annual interest of 8 percent is
A) $450
B) $126
C) $889
D) $134
Answer:

22 The nominal rate of interest is composed of
A) the real rate plus an inflationary expectation
B) the real rate plus a risk premium
C) the risk free rate plus an inflationary expectation
D) the risk free rate plus a risk premium
Answer:

23 Generally, long term loans have higher interest rates than short term loans because of
A) the general expectation of higher future rates of inflation
B) lender preferences for shorter term, more liquid loans
such loans
C) greater demand for long-term rather than short term loans relative to the supply of
D) all of the above
Answer:

24 The yield curve in an economic period where higher future inflation is expected would most likely be
A) upward sloping
B) flat
C) downward sloping
D) linear
Answer:

25 ___________ of all future cash flows an asset is expected to provide over a relevant time period is
the market value of the asset.
A) The future value
B) the present value
C) the stated value
D) the sum
Answer:

26 The return expected from an asset is fully defined by its
A) risk and cash flow
B) cash flow and timing
C) discount rate
D) beta
Answer:

27 Shares of stock currently owned by the firm's shareholders are called
A) authorized
B) issued
C) outstanding
D) treasury shares
Answer:

28 The disadvantages of issuing common stock versus long term debt include all of the
following EXCEPT
A) the potential dilution of earnings
B) high cost
C) no maturity date on which the par value of the issues must be repaid
D) the market perception that management thinks the firm is overvalued causing
a decline in the stock price.
Answer:

29 A firm issued 5,000 shares of $1 par value common stock, receiving proceeds of $20 per share.
The accounting entry for the paid-in-capital in excess of par account is
A) $5,000
B) $95,000
C) $100,000
D) $0
Answer:

30 Generally, an increase in risk will result in ____________ required return or interest rate.
A) a lower
B) a higher
C) an unchanged
D) an undetermined
Answer:

31 The portion of a firm's current assets financed with long term funds may be called
A) working capital
B) accounts receivable
C) net working capital
D) inventory
Answer:

32 The goal of working capital management is to
A) balance current assets against current liabilities
B) pay off short term debts
C) achieve a balance between risk and return in order to maximize the firms value
D) achieve a balance between short term and long tern assets so that they add to the
acheivment of the firm's overall goals.
Answer:

33 Current liabilities can be viewed as
A) debts that mature in one year or less
B) debts that mature in more than one year
C) sources of cash inflows
D) none of the above
Answer:

34 In general, the more working capital a firm has
A) the greater its risk
B) the lower its risk
C) the less likely are creditors to lend to the firm
D) the lower its level of long term funds
Answer:

35 When a portion of the firm's fixed assets are financed with current liabilities, the firm
A) has positive net working capital
B) has negative net working capital
C) has excessive amounts of current assets
D) is in a low risk position
Answer:

36 A firm has an average age of inventory of 101 days, an average collection period of 49 days, and
an average payment period of 60 days. The firm's inventory turnover is ____________
A) 3.2
B) 4
C) 2.5
D) 3.6
Answer:

37 An increase in the curent liabilities to total assets ratio has the effects of __________ on profits
and _________ on risk
A) an increase, an increase
B) anincrease, a decrease
C) a decrease, a decrease
D) a decrease, an increase
Answer:

38 The _________ is an inventory management technique that compares production needs to available
inventory balances and determines when orders should be placed for various material inputs.
A) ABC system
B) EOQ model
C) MRP system
D) JIT system
Answer:

39 Because managing inventory is just like managing any other investment, decisions about the level
of inventory should be guided by
A) the value of the inventory
B) the effect of inventory levels on sales
C) a cost benefit analysis
D) the effect of inventory levels on customer relations.
Answer:

40 If the firm decides to take the cash discount that is offered on goods purchased on credit,
the firm should
A) pay as soon as possible
B) pay on the last day of the credit period
C) take the discount no matter when the firm actually pays
D) pay on the last day of the discount period
Answer:

41 If a firm gives up the cash discount on goods purchased on credit, the firm should pay the bill
A) as late as possible
B) as soon as possible
C) before the credit period ends
D) on the last day of the credit period
Answer:

42 Earnings before interest and taxes (EBIT) is a descriptive label for
A) operating profits
B) net profits before taxes
C) earnings per share
D) gross profits
Answer:

43 Which of the following is NOT a variable cost?
A) Materials used
B) Rent
C) Delivery Costs
D) Direct labor
Answer:

44 At the operating breakeven point, ___________ equals zero.
A) sales revenue
B) fixed operating costs
C) variable operating costs
D) earnings before interest and taxes.
Answer:

45 A firm has fixed operating costs of $150,000, total sales of $1,500,000, and total variable costs
of $1,275,000. The firm's operating breakeven point in dollars is
A) $150,000
B) $176,471
C) $1,000,000
D) $1,425,000
Answer:

46 In a __________, the lessor acts as an equity participant suppplying part of the necessary capital
while a lender supplies the remaining balance
A) direct lease
B) leveraged lease
C) sale-leaseback
D) capital lease
Answer:

47 Advantages of leasing from the lessee's perspective include all of the following EXCEPT
A) capability of effectively depreciating land.
B) ability to avoid restrictive covenants that are normally part of a long term loan
C) benefit of the salvage value at the end of the term of the lease reverts to the lessor
D) 100 percent financing
Answer:

48 All of the following must be considered when making a lease-versus purchase decision EXCEPT
A) the after tax cash flows for each year under the lease alternative
B) the after tax cash flows for each year under the purchase alternative
C) the present value of all cash flows
D) the depreciation expense under the lease
Answer:

49 Foreign exchange risk refers to the risk created by _____________
A) the potential seizure of an MNC's operations in a host country.
B) the varying exchange rate between two currencies
C) the fixed exchange rate between two currencies
D) the potential nationalization of the MNC's operations by a host government.
Answer:

50 A a foreign exchange hedging tool, options have all of the following characteristics EXCEPT
A) the right to buy or sell an amount of foreign curreny.
B) specifies price
C) specifies time period
D) represents an obligation to buy or sell.
Answer:

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Solution Summary

The solution explains various multiple choice questions relating to managerial finance

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