7. The difference between total receipts and total payments referred to as
cumulative cash flow.
beginning cash flow.
net cash flow.
8. In developing the pro forma income statement we follow four important steps:
- 1) compute other expenses,
- 2) determine a production schedule,
- 3) establish a sales projection,
- 4) determine profit by completing the actual pro forma statement.
What is the correct order for these four steps?
9. A large manufacturing firm has been selling on a 3/10, net 30 basis. The firm changes its credit terms to 2/20, net 90. What change might be expected on the balance sheets of its customers?
Decreased receivables and increased bank loans
Increased receivables and increased bank loans
Increased payables and decreased bank loans
Increased payables and increased bank loans
10. In determining the cost of bank financing, which is the important factor?
11. Financial leverage is concerned with the relation between
changes in volume and changes in EPS.
changes in volume and changes in EBIT.
changes in EBIT and changes in EPS.
changes in EBIT and changes in operating income.
12. Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of return for Plan A over Plan B?
13. Mr. Jones borrows $2,000 for 90 days and pays $35 interest. What is his effective rate of interest? 9.3%
None of the above
14. Dr. J. wants to buy an IBM personal computer which will cost $2,788 four years from today. He would like to set aside an equal amount at the end of each year in order to accumulate the amount needed. He can earn 7% annual return. How much should he set aside?
15. A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At the time of retirement you will have $73,425 to your credit in the plan. The plan anticipates earning 9% interest. Given that information, how much will your annual benefits be?
16. In using the internal rate of return method, it is assumed that cash flows can be reinvested at
the cost of equity.
the cost of capital.
the internal rate of return.
the prevailing interest rate.
17.As the cost of capital increases,
fewer projects are accepted
more projects are accepted
project selection remains unchanged
none of the above
18. If a firm has a break-even point of 20,000 units and the contribution margin on the firm's single product is $3.00 per unit and fixed costs are $60,000, what will the firm's net income be at sales of 30,000 units?
19. A employs a high degree of operating leverage; Firm B takes a more conservative approach. Which of the following comparative statements about firms A and B is true?
A has a lower break-even point than B, but A's profit grows faster after the break-even.
A has a higher break-even point than B, but A's profit grows slower after the break-even.
B has a lower break-even point than A, but A's profit grows faster after break-even.
B has a lower break-even point than A, and profit grows the same rate for both companies after the breakeven point.
20. A call provision, which allows the corporation to force an early maturity on a bond issue, usually contains all but which of the following characteristics?
Most bonds must be outstanding at least 5 years before being called.
After the call date, the call premium tends to decline over time.
The provision typically calls for debt conversion into common stock.
The corporation will pay a premium over par for the bonds.
21. When an investment banking firm contracts to perform on a "best efforts" basis, it tries to
buy stock for clients
buy stock for itself
sell a company's stock to the public
none of the above
22. Which of the following are advantages of leasing?
A lease obligation may be substantially less restrictive than the provisions of a bond indenture.
There may be no down payment as in a purchase.
The negative effects of obsolescence may be eliminated.
All of the above.
23. Long-term financing leases currently
show up on the balance sheet.
appear in the footnotes to the annual report.
appear on the company's statement of retained earnings.
do not appear on any financial statements.
The questions are multiple choice on finance issues. The issues handled include net present value, internal rate of return, expected value etc.