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Finance:Break-even analysis,ratios,cost of capital,NPV etc

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1. The goal of the firm should be:
a. Maximization of profits.
b. Maximization of shareholder wealth.
c. Maximization of consumer satisfaction.
d. Maximization of sales.

2. The true owners of the corporation are the:
a. holders of debt issues of the firm.
b. preferred stockholders.
c. board of directors of the firm.
d. common stockholders.

3. Another name for the acid test ratio is the:
a. current ratio.
b. quick ratio.
c. inventory turnover ratio.
d. average collection period.

4. Which of the following ratios indicates how rapidly the firm's credit accounts are being collected?
a. Debt ratio
b. Gross profit margin
c. Accounts receivable turnover ratio
d. Fixed asset turnover

5. Which of the following is always a non-cash expense?
a. Income taxes
b. Salaries
c. Depreciation
d. None of the above

6. The first step involved in predicting financing needs is:
a. projecting the firm's sales revenues and expenses over the planning period.
b. estimating the levels of investment in current and fixed assets that are necessary to support the projected sales.
c. determining the firm's financing needs throughout the planning period.
d. none of the above.

7. A Max, Inc. deposited $2,000 in a bank account that pays 12% interest annually. What will the dollar amount be in four years?
a. $2,800
b. $3,100
c. $3,111
d. $3,148

8. If you want to have $1,700 in seven years, how much money must you put in a savings account today? Assume that the savings account pays 6% and it is compounded quarterly (round to the nearest $10).
a. $1,120
b. $1,130
c. $1,110
d. $1,140

9. The NPV method:
a. is consistent with the goal of shareholder wealth maximization.
b. recognizes the time value of money.
c. uses cash flows.
d. all of the above.

10. ABC Service can purchase a new assembler for $15,052 that will provide an annual net cash flow of $6,000 per year for five years. Calculate the NPV of the assembler if the required rate of return is 12%. (Round your answer to the nearest $1.)
a. $1,056
b. $4,568
c. $7,621
d. $6,577

11. Depreciation expenses affect capital budgeting analysis by increasing
a. taxes paid.
b. incremental cash flows.
c. the initial outlay.
d. working capital.

12. Which of the following is included in the terminal cash flow?
a. The expected salvage value of the asset
b. Tax impacts from selling asset
c. Recapture of any working capital
d. All of the above

13. Cost of capital is:
a. the coupon rate of debt.
b. a hurdle rate set by the board of directors.
c. the rate of return that must be earned on additional investment if firm value is to remain unchanged.
d. the average cost of the firm's assets.

14. When calculating the average cost of capital, which of the following has to be adjusted for taxes?
a. Common stock
b. Retained earnings
c. Debt
d. Preferred stock

15. Money market instruments include:
a. bankers' acceptances.
b. preferred stock.
c. corporate bonds.
d. common stock.

16. __________ is a financial specialist who underwrites and distributes new securities of public corporations.
a. The Federal Reserve Board
b. A commercial banker
c. The SEC
d. An investment banker

17. Break-even analysis applications include:
a. financing decisions.
b. labor contract negotiations.
c. capital expenditure analysis.
d. all of the above.

18. Financing a portion of a public corporation's assets with securities that bear a fixed rate of return in hopes of increasing the return to the common stockholders is referred to as:
a. business risk.
b. basic earning power.
c. operating leverage.
d. break-even analysis.
e. financial leverage.

19. Optimal capital structure is:
a. the mix of permanent sources of funds used by the firm in a manner that will maximize the company's common stock price.
b. the mix of all items that appear on the right-hand side of the company's balance sheet.
c. the mix of funds that will minimize the firm's beta.
d. the mix of securities that will maximize EPS.

20. The focus of current asset management is on:
a. property, plant, and equipment acquisition.
b. cash, accounts receivable, and inventory levels.
c. investments in marketable securities.
d. both a and c.
e. all of the above.

21. An increase in ___________ would increase net working capital.
a. plant and equipment
b. accounts payable
c. accounts receivable
d. both b and c

22. Which of the following can be used to decrease a firm's processing float?
a. Lock box arrangement
b. Preauthorized checks
c. Wire transfer
d. Zero balance account

23. Which of the following would increase cash flow for a firm?
a. Purchase of marketable securities
b. Purchase of fixed assets
c. Credit sales
d. Cash sales

24. Which of the following is considered to be a spontaneous source of financing?
a. Operating leases
b. Accounts receivable
c. Inventory
d. Accounts payable

25. The purpose of carrying inventory is to:
a. make different production processes more dependent on sales.
b. make sales more independent of the production process.
c. have collateral for loans.
d. improve the current ratio.

26. Exchange rate risk:
a. exists when the contract is written in terms of the foreign currency.
b. exists also in direct foreign investments and foreign portfolio investments.
c. does not exist if the international trade contract is written in terms of the domestic currency.
d. all of the above.

27. Foreign countries claim that multinational corporations:
a. cause stability in their currencies in foreign exchange markets.
b. exploit local labor with low wages.
c. have no political or cultural loyalty.
d. both b and c.
e. all of the above.

28. A __________ is a business combination of two companies in which the new company maintains the identity of the acquiring company.
a. consolidation
b. holding company
c. conglomerate
d. merger

29. A merger that is driven by the potentially large reduction in the staffing of overlapping functions and the integration of the two companies' strong similar product lines is referred to as a:
a. conglomerate merger.
b. vertical merger.
c. horizontal merger.
d. diversification merger.

30. Which of the following is a potential benefit of leasing for the lessee?
a. Flexibility
b. Restrictive covenants
c. Tax savings
d. Both a and c
e. All of the above

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Solution Summary

The problem set deal with certain aspects of finance:Cost of capital,break-even analysis,net present value,Ratio analysis, etc

Solution provided by:
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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