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Multiple Choice Finance Questions

1. Which of the following factors does not contribute to dividend's effects on a firm's value.

a. personal taxes
b. corporate taxes
c. transaction costs
d. flotation costs

2. Which of the following policies is most likely to produce a zero dividend now and then?

a. constant-dollar dividend policy
b. constant-payout-ratio-dividend policy
c. residual dividend policy
d. constant-dollar dividend with extra policy
e. stable dividend policy

3. the optimal level of working capital investment is the level that is expected to

a. maximize return on total assets
b. maximize earnings per share
c. maximize investment value
d. minimize interest expenses

4. Which of the following is an appropriate method of financing permanent assets?

a. negotiated current liabilities
b. temporary spontaneous current liabilities
c. permanent spontaneous current liabilities
d. a and c
e. none of the above

5. Credit extended in connection with goods purchased for resale is called

a. commercial paper
b. bank loans
c. trade credit
d. commercial credit

6. the sum of the NPVs of a merger to each of the 2 firms involved

a. cannot exceed the pre-merger value of both firms
b. it always zero
c. is equal to the additional value attributable to the merger
d. none of the above

7. A bond that contains a put option that can be exercised only if an unfriendly takeover occurs, is an example of a

a. Pacman defense
b. Liability restructuring
c. Poison Pill
d. Standstill option

8. Which of the following actions would not intend to increase the value of a country's currency?

a. relatively low interest rates
b. government trade policies that limit imports
c. relatively low rate of inflation
d. d. restrictions on foreign exchange transactions

9. theory of interest rate parity states that the annual percentage differential in the forward market for a currency quoted in terms of another currency is equal to the approximate difference in _____ prevailing in the 2 countries

a. inflation rates
b. interest rates
c. trade deficit rates
d. GNP growth rates

10. Which of the following would cause average inventory holding to increase other thing held constant?

a. the purchase price of inventory items increases by 20 percent
b. the sales forecast is revised by 15 percent
c. fixed order costs are reduced by 25 percent
d. the carrying cost of an item increased as a percentage of purchase price
e. all of the above would cause average inventory holding to decrease

11. Market-determined required rates of return on corporate securities consist of

a. real-riskless rate, inflation premium, nominal rate
b. inflation premium and risk premium
c. real riskless rate, inflation premium, risk premium
d. real riskless rate, risk premium, nominal rate

12. Which of the following are true?

a. Since firms have different risk and cash flow characteristics, different firms have different required returns on equity
b. Since all firms borrow from the same financial markets, all firms have the same required returns on debt
c. For any given firm, the required return on debt is always greater than the required return on equity

13. which of the following items is not considered a receipt in a cash budget?

a. proceeds of stock issue
b. proceeds of long term bond issue
c. proceeds of short-term bank loan
d. collection of account receivable

14. A firm expects next year's sales to be 108,000.00. Estimate the year-end balance in accounts receivable if it expects the average collection period to be 42 days

a. 8,200,000
b. 16,400,000
c. 12,600,000
d. 18,800,000
e. 25,200,000

15. A company averages 60,000.00 in cash collections. A new cash processing system would reduce processing time for check from 3 days to 1 day If the company has a borrowing cost of 11% annually, what annual savings could be realized by the new system?

a. 6,600.00
b. 9,700.00
c. 13,200.00
d. 19,800.00

16. Which of the following statements is true of the relative attractiveness of the 2 proposed payment plans to the firm?

a. both should be equally attractive
b. the variable fee could be increased beyond $.25 per check and that plan could still be preferable
c. the fixed fee plan is more attractive
d. none of the above

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1. Which of the following factors does not contribute to dividend's effects on a firm's value.
a. personal taxes
b. corporate taxes
c. transaction costs
d. flotation costs
Answer: a) personal taxes
Personal taxes do not affect the value of a firm.

2. Which of the following policies is most likely to produce a zero dividend now and then?
a. constant-dollar dividend policy
b. constant-payout-ratio-dividend policy
c. residual dividend policy
d. constant-dollar dividend with extra policy
e. stable dividend policy
Answer: c) residual dividend policy
Under the residual dividend policy the company calculates the retained earnings needed for the capital budget and then pays out any leftover earnings (the residual) as dividends. Thus if all of the earnings are required for capital budget for a year dividend for that year would be zero.

3. the optimal level of working capital investment is the level that is expected to
a. maximize return on total assets
b. maximize earnings per share
c. maximize investment value
d. minimize interest expenses
Answer : a ) maximize return on total assets
The optimal level of working capital investment is the level which is expected to maximize shareholder wealth. Thus a ) maximize return on total assets is the best answer.

4. Which of the following is an appropriate method of financing permanent assets?
a. negotiated current liabilities
b. temporary spontaneous current liabilities
c. permanent spontaneous current liabilities
d. a and c
e. none of the above
Answer : e) none of the above
In general, permanent financing (Long-term Debt or Equity financing) is used to purchase or develop permanent assets. Since the payments for a permanent asset tends to be extended over a period of time, permanent financing reduces the risk of default (in the case of debt financing).

5. Credit extended in connection with goods purchased for resale is called
a. commercial paper
b. bank loans
c. trade credit
d. commercial credit
Answer: c trade credit
Trade credit is the temporary financing extended by suppliers of goods and services pending the customer settlement.

6. the sum of the NPVs ...

Solution Summary

Multiple Choice Finance Questions have been answered.

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