Explore BrainMass
Share

Multiple Choice Finance Questions

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

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

(See attachment for full questions)

© BrainMass Inc. brainmass.com October 24, 2018, 5:47 pm ad1c9bdddf
https://brainmass.com/business/options/multiple-choice-finance-questions-21073

Attachments

Solution Preview

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.

$2.19
See Also This Related BrainMass Solution

Multiple choice finance questions.

7. The difference between total receipts and total payments referred to as
cumulative cash flow.
beginning cash flow.
net cash flow.
cash balance.

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?
1,2,3,4
4,3,2,1
2,1,3,4
3,2,1,4

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?
Prime rate
Nominal rate
Effective rate
Discount rate

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?
$28,800
$4,000
$4,800
$35,200

13. Mr. Jones borrows $2,000 for 90 days and pays $35 interest. What is his effective rate of interest? 9.3%
7.0%
11.7%
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?
$697.00
$627.93
$823.15
$531.81

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?
$3,671
$3,965
$8,043
$13,216

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?
$90,000
$30,000
$15,000
$45,000

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.

View Full Posting Details