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Finance and management multiple choice

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1. Which of the following statement is most correct?

a. Our bankruptcy laws were enacted in the 1800s, revised in the 1930s, and has remained unaltered since that time.
b. Federal bankruptcy law deals only with corporation bankruptcies. Municipal and personal bankruptcy is governed solely by state laws.
c. All bankruptcy petitions are filed by creditors seeking to protect their claims on firms in financial distress. Thus, all bankruptcy petitions are involuntary as viewed from the perspective of the firm's management.
d. Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot be worked out under Chapter 11, then the company will be liquidated as prescribed in Chapter 7 of the Act.
e. "Restructuring" a firm's debt can involve forgiving a certain portion of the debt but does not involve changing the debt's maturity or its contractual interest rate.

2. One objective of risk management is to reduce the volatility of a company's cash flows.

a. True
b. False

3. Which of the following statements is most correct?

a. The tax preference theory states that, all else equal, investors prefer stocks that pay low dividends because retained earnings can lead to capital gains that are taxed preferentially.
b. An increase in the cost of equity capital (rs) when a company announces an increase in its dividend per share would be consistent with the bird-in-the-hand theory.
c. An increase in the stock price when a company decreases its dividend is consistent with the signaling theory.
d. A dividend policy that involves paying a consistent percentage of net income is the best policy if the "clientele effect" is correct.
e. Both statements a and d are correct.

4. Errors in the sales forecast can be offset by similar errors in costs and income forecasts. Thus, as long as the errors are not large, sales forecast accuracy is not critical to the firm.

a. True
b. False

5. Others things held constant, which of the following will cause an increase in working capital?

a. Cash is used to buy marketable securities.
b. A cash dividend is declared and paid.
c. Merchandise is sold at a profit, but the sale is on credit.
d. Long-term bonds are retired with the proceeds of a preferred stock issue.
e. Missing inventory is written off against retained earnings.

6. Which of the following are given as reasons for the high level of merger activity in the U.S. during the 1980s?

a. Synergistic benefits arising from mergers.
b. Reduction in competition resulting from mergers.
c. Attempts to stabilize earnings by diversifying.
d. All of the above.
e. Both a and c above.

7. Which of the following are reasons why companies move into international operations?

a. To take advantage of lower production costs in regions of inexpensive labor.
b. To develop new markets for their finished products.
c. To better serve their primary customers.
d. Because important raw materials are located abroad.
e. All of the above.

8. When considering the risk of foreign investment, higher risk could arise from exchange rate risk and political risk while lower risk might result from international diversification.

a. True
b. False

9. As a firm's sales grow its current asset accounts tend to increase. For instance, as sales increase the firm's inventories increase and its level of accounts payable will increase. Thus, spontaneously generated funds will arise from transaction accounts that increase as sales increase.

a. True
b. False

10. Which of the following statements is most correct?

a. The bird-in-the-hand theory would predict that companies could decrease their cost of equity financing by raising their dividend payout.
b. The clientele effect can explain why firms often change their dividend policies.
c. One advantage of adopting a residual distribution policy (with all distributions in the form of dividends) is that it makes it easier for corporations to maintain dividend clienteles.
d. Answers a and c are correct.
e. None of the answers above is correct.

11. If a firm has a large percentage of accounts over 30 days old, it is a sign that the firm's receivables management needs to be reviewed and improved.

a. True
b. False

12. The firm's business risk is largely determined by the financial characteristics of its industry.

a. True
b. False

13. Which of the following statements is most correct?

a. The primary test of feasibility in reorganization is whether every claimant agrees with the reorganization plan.
b. The basic doctrine of fairness states that all debt holders must be treated equally.
c. Since the primary issue in bankruptcy is to determine the sharing of losses between owners and creditors, the "public interest" is not a relevant concern.
d. While the firm is in bankruptcy, the existing management is always allowed to remain in control of the firm, though the court monitors its actions closely.
e. To a large extent, the decision to dissolve a firm through liquidation or to keep it alive through reorganization depends on a determination of the value of the firm if it is rehabilitated versus the value of its assets if they are sold off individually.

14. Which of the following statement is most correct?

a. If a company increases its current liabilities by $1,000 and simultaneously increases its inventories by $1,000, its current ratio must rise.
b. If a company increases its current liabilities by $1,000 and simultaneously increases its inventories by $1,000, its quick ratio must fall.
c. A company's quick ratio may never exceed its current ratio.
d. Answers b and c are correct.
e. None of the answers above is correct.

15. Which of the following would increase the likelihood that a company would increase its debt ratio in its capital structure?

a. An increase in costs incurred when filing for bankruptcy.
b. An increase in the corporate tax rate.
c. An increase in the personal tax rate.
d. A decrease in the firm's business risk.
e. Statements b and d are correct.

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This is not a completion of assignment but guidelines to help complete the assignment.

1. Which of the following statement is most correct?

a. Our bankruptcy laws were enacted in the 1800s, revised in the 1930s, and has remained unaltered since that time.
b. Federal bankruptcy law deals only with corporation bankruptcies. Municipal and personal bankruptcy is governed solely by state laws.
c. All bankruptcy petitions are filed by creditors seeking to protect their claims on firms in financial distress. Thus, all bankruptcy petitions are involuntary as viewed from the perspective of the firm's management.
d. Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot be worked out under Chapter 11, then the company will be liquidated as prescribed in Chapter 7 of the Act.
e. "Restructuring" a firm's debt can involve forgiving a certain portion of the debt but does not involve changing the debt's maturity or its contractual interest rate.

Chapters 11 and 7 are the most important bankruptcy chapters for financial management purposes. If a reorganization plan cannot be worked out under Chapter 11, then the company will be liquidated as prescribed in Chapter 7 of the Act.

2. One objective of risk management is to reduce the volatility of a company's cash flows.

a. True
b. False
True

3. Which of the following statements is most correct?

a. The tax preference theory states that, all else equal, investors prefer stocks that pay low dividends because retained earnings can lead to capital gains that are taxed preferentially.
b. An increase in the cost of equity capital (rs) when a company announces an increase in its dividend per share would be consistent with the bird-in-the-hand theory.
c. An increase in the stock ...

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See Also This Related BrainMass Solution

International financial management multiple choice questions

Question 1: Assume the following information:

U.S. deposit rate for 1 year = 11%
U.S. borrowing rate for 1 year = 12%
New Zealand deposit rate for 1 year = 8%
New Zealand borrowing rate for 1 year = 9%
New Zealand dollar forward rate for 1 year = $.40
New Zealand dollar spot rate = $.39

Also assume that a U.S. exporter denominates its New Zealand exports in NZ$ and expects to receive NZ$600,000 in 1 year. You are a consultant for this firm.

Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a money market hedge?
A) $238,294.
B) $232,591
C) $234,000.
D) $236,127.

Question 2: Assume that Kramer Co. will receive SF800,000 in 90 days. Today's spot rate of the Swiss franc is $.62, and the 90 day forward rate is $.645. Kramer has developed the following probability distribution for the spot rate in 90 days:

Possible Spot Rate
in 90 Days Probability
$.61 10%
$.63 20%
$.64 40%
$.65 30%

The probability that the forward hedge will result in more dollars received than not hedging is:
A) 10%.
B) 20%.
C) 30%.
D) 50%.
E) 70%.

Question 3: FAB Corporation will need 200,000 Canadian dollars (C$) in 90 days to cover a payable position. Currently, a 90-day call option with an exercise price of $.75 and a premium of $.01 is available. Also, a 90-day put option with an exercise price of $.73 and a premium of $.01 is available. FAB plans to purchase options to hedge its payable position. Assuming that the spot rate in 90 days is $.70, what is the net amount paid, assuming FAB wishes to minimize its cost?
A) 142,000
B) 144,000
C) 146,000
D) 150,000

Question 4: Samson Inc. needs ?1,000,000 in 30 days. Samsong can earn 6 percent annualized on a German security. The current spot rate for the euro is $1.00. Samson can borrow funds in the U.S. at an annualized interest rate of 5 percent. If Samson uses a money market hedge, how much should it borrow in the U.S.?
A) $952,381.
B) $995,851.
C) $943,396.
D) $995,025.

Question 5. Assume that Cooper Co. will not use its cash balances in a money market hedge. When deciding between a forward hedge and a money market hedge, it _______ determine which hedge is preferable before implementing the hedge. It _______ determine whether either hedge will outperform an unhedged strategy before implementing the hedge.
A) can; can
B) can; cannot
C) cannot; can
D) cannot; cannot

Question 6: Springfield Co., based in the U.S., has a cost from orders of foreign material that is less than its foreign revenue. All foreign transactions are denominated in the foreign currency of concern. This firm would _______ a stronger dollar and would _______ a weaker dollar.
A) benefit from; be unaffected by
B) benefit from; be adversely affected by
C) be unaffected by; be adversely affected by
D) be unaffected by; benefit from
E) be adversely affected by; benefit from

Question 7: Sycamore (a U.S. firm) has no subsidiaries and presently has sales to Mexican customers amounting to MXP98 million, while its peso denominated expenses amount to MXP61 million. If it shifts its material orders from its Mexican suppliers to U.S. suppliers, it could reduce peso denominated expenses by MXP19 million and increase dollar denominated expenses by $1,800,000. This strategy would _______ the Sycamore's exposure to changes in the peso's movements against the U.S. dollar. Regardless of whether the firm shifts expenses, it is likely to perform better when the peso is valued _______ relative to the dollar.
A) reduce; high
B) reduce; low
C) increase; low
D) increase; high

Question 8: Assume a U.S. firm uses a forward contract to hedge all of its translation exposure. Also assume that the firm underestimated what its foreign earnings would be. Assume that the foreign currency depreciated over the year. The firm would generate a translation _______, which would be _______ than the gain generated by the forward contract.
A) loss; smaller
B) loss; larger
C) gain; larger
D) gain; smaller

Question 9: Assume that a Japanese car manufacturer exports cars to U.S. dealerships, which are priced in yen. The demand for those cars declines when the yen is strong. The manufacturer also produces some cars in the U.S. with U.S. materials and those cars are priced in dollars. The manufacturer could reduce its economic exposure by:
A) closing down most of its plants in the U.S.
B) producing more automobiles in the U.S.
C) relying completely on Japanese suppliers for its parts.
D) pricing its exports in dollars.

Question 10. If countries are highly influential upon each other, the correlations of their economic growth levels would likely be _______. A firm would benefit _______ by diversifying sales among these countries relative to another set of countries that were not influential upon each other.
A) high and positive; more
B) close to zero; more
C) high and positive; less
D) close to zero; less

Question 11: Which of the following firms is not exposed to translation exposure?
A) firm X, with a fully owned subsidiary that periodically remits earnings generated in Great Britain to the U.S.-based parent.
B) firm Y, with a fully owned subsidiary that periodically generates foreign losses in Sweden; the parent covers at least some of these losses.
C) firm Z, with a fully owned subsidiary that generates substantial earnings in Germany; the subsidiary never remits earnings but reinvests them in Germany.
D) all of these firms are exposed to translation exposure.

Question 12: Consider Firm "A" and Firm "B" that both produce the same product. Firm "A" would more likely have more stable cash flows if its percentage of foreign sales were _______ and the number of foreign countries it sold products to was _______.
A) higher; large
B) higher; small
C) lower; small
D) lower; large

Question 14. According to the text, in order to develop a distribution of possible net present values from international projects, a firm should use:
A) a risk adjusted discount rate.
B) payback period.
C) certainty equivalents.
D) simulation.

Question 15: Direct foreign investment is perceived by foreign governments to:
A) be a cause of national problems.
B) be a remedy for national problems.
C) be a cause and a remedy for national problems.
D) have no impact on national problems.

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