Explore BrainMass
Share

Explore BrainMass

    MCQ: Financial Markets, Goals, Ratios, Investments, Budgets, Planning, PV and WACC

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

    MULTIPLE CHOICE. Choose the one answer for the question.

    1. Which of the following is true of an efficient market?
    a. 0 There is one seller
    b. 0 There is one buyer
    c. 0 Stock exchanges are always open
    d. 0 There is always a low brokerage fee
    e. 0 Information is reflected in security prices immediately

    2. Which of the following is a primary financial goal of an organization?
    a. 0 Having zero debt
    b. 0 Increasing market share at any cost
    c. 0 Maximization of shareholder wealth
    d. 0 Keeping expenses constant
    e. 0 Increasing sale prices each year

    3. Which of the following ratios measures an organization's liquidity?
    a. 0 Acid test ratio
    b. 0 Debt ratio
    c. 0 Return on equity
    d. 0 Times interest earned
    e. 0 Return on assets

    4. Which of the following ratios would tell an investor about the profitability of the organization?
    a. 0 Acid test ratio
    b. 0 Debt ratio
    c. 0 Return on equity
    d. 0 Times interest earned
    e. 0 Current ratio

    5. Which of the following is the function of investment bankers?
    a. 0 Distributing
    b. 0 Making commercial loans
    c. 0 Taking deposits
    d. 0 Cash flow management
    e. 0 Auditing

    6. Which of the following is a method by which securities are distributed to final investors?
    a. 0 Negotiated purpose
    b. 0 Commission or best effort basis
    c. 0 Direct sale
    d. 0 Competitive bid purchase
    e. 0 All of the above

    7. Which sector of the economy supplied the largest amount of funds in US financial markets in the second half of the 90's?
    a. 0 State governments
    b. 0 Corporate business
    c. 0 U.S. Government
    d. 0 Foreign
    e. 0 Household

    8. What is a cash budget?
    a. 0 Detailed plan of future cash flows
    b. 0 A budget that shows only what cash comes in
    c. 0 A historical look at cash flows
    d. 0 A report that analyzes the cash account
    e. 0 A report that analyzes the accounts receivable

    9. What is the key ingredient of the organization's planning process?
    a. 0 Past performance
    b. 0 Union contracts
    c. 0 Capital budget
    d. 0 Full time equivalent employees
    e. 0 Sales forecast

    10. If an organization collects 30% of sales within a month and the balance two months after the sale, how much would it collect in March if it sold 60,000 in January and 80,000 in February?
    a. 0 20,000
    b. 0 64,000
    c. 0 140,000
    d. 0 66,000
    e. 0 52,000

    11. If your revenue is $10 million, your variable cost is $6 million, your fixed cost is $3 million, what is your contribution margin?
    a. 0 $4 million
    b. 0 $1 million
    c. 0 $3 million
    d. 0 $9 million
    e. 0 $7 million

    12. What is present value?
    a. 0 The money you have now
    b. 0 The money you have before paying taxes
    c. 0 The money you will get next month
    d. 0 The current value of a future sum
    e. 0 The future value of a current sum

    13. How much will you have at the end of three years if you put away $2500 at the end of each year, and you earn 4% on your money?
    a. 0 $7500
    b. 0 $8000
    c. 0 $7805
    d. 0 $7800
    e. 0 $7750

    14. Which of the following decreases the breakeven point?
    a. 0 Increase fixed costs
    b. 0 Increase variable costs
    c. 0 Lower sales price
    d. 0 Increase units sold
    e. 0 Decrease fixed costs

    15. Which of the following is a shortcoming of the payback period as a capital budgeting criterion?
    a. 0 It's easy to calculate
    b. 0 It doesn't use free cash flows
    c. 0 It ignores the time value of money
    d. 0 It uses accounting profits
    e. 0 It's easy to understand

    16. Net present value is the preferred method to evaluate capital budgeting projects because:
    a. 0 It requires detailed long term forecasts of cash flows
    b. 0 It is sensitive to the choice of discount rate
    c. 0 It ignores the time value of money
    d. 0 It is consistent with the goal of shareholder wealth maximization
    e. 0 It is difficult to explain

    17. Trade credit is a:
    a. 0 Permanent source of financing
    b. 0 Spontaneous source of financing
    c. 0 Temporary source of financing
    d. 0 Not a source of financing
    e. 0 None of the above

    18. The three primary motives for holding cash are:
    a. 0 Transactions, speculative, predictive
    b. 0 Speculative, precautionary, predictive
    c. 0 Transactions, speculative, storing
    d. 0 Predictive, storing, speculative
    e. 0 Transactions, precautionary, speculative

    19. Which one of these determining factors of the size of a firm's accounts receivable is under the control of financial managers?
    a. 0 Credit and collection policies
    b. 0 Percentage of credit sales to total sales
    c. 0 Permanent growth in sales
    d. 0 Seasonal growth in sales
    e. 0 Nature of the business

    20. A project has an initial outflow of $10,000. The project will generate free cash flows of $8,000 per year for two years. The discount rate is 8%. What is this project's net present value (NPV)?
    a. 0 $4,250
    b. 0 $6,000
    c. 0 $4,264
    d. 0 $16,000
    e. 0 $8,000

    21. According to the hedging principle, seasonal increases in inventory should be financed with:
    a. 0 Long term loans
    b. 0 Short term loans
    c. 0 Spontaneous financing
    d. 0 Common stock
    e. 0 Bonds

    22. What happens to the cost of debt for firms with debt as their corporate tax rates increase?
    a. 0 kd increases
    b. 0 kd decreases
    c. 0 kd remains the same
    d. 0 kd can either increase or decrease depending on the amount of debt
    e. 0 kd can either increase or decrease depending on the percent debt represents of the
    entire capital structure

    23. What is the Weighted Average Cost of Capital (WACC) for a firm where debt is 40% of the firm, preferred stock is 10% of the firm, common stock is 50% of the firm, after-tax cost of debt is 8%, cost of preferred stock is 12%, and cost of common stock is 18%?
    a. 0 12.00%
    b. 0 12.38%
    c. 0 12.67%
    d. 0 13.40%
    e. 0 16.33%

    24. What is a "good" reason for a firm to go public?
    a. 0 Private equity investors get to share new wealth with public investors
    b. 0 Founders share, on an equal footing, the good (and bad) fortune of the firm with new
    shareholders
    c. 0 The firm gains future access to the public capital market (it is easier to go back a
    second and/or third time)
    d. 0 Everyone involved faces legal liability
    e. 0 Private investors lose a degree of control of the organization

    25. What was a downside of debt financing cited by current Federal Reserve Bank Chairman Ben Bernanke over 15 years ago?
    a. 0 There is a theoretical incentive to choose riskier projects over safe ones
    b. 0 Highly leveraged firms which suffer losses can find themselves in financial distress
    and possibly bankruptcy
    c. 0 The need to meet interest payments may force management to take a very short-run
    perspective
    d. 0 Firms in financial distress may cut back production and employment, and lose
    customers and suppliers
    e. 0 All of the above

    © BrainMass Inc. brainmass.com October 9, 2019, 11:29 pm ad1c9bdddf
    https://brainmass.com/business/weighted-average-cost-of-capital/mcq-financial-markets-goals-ratios-investments-budgets-planning-pv-and-wacc-257798

    Solution Preview

    See attached file for additional details.

    MULTIPLE CHOICE. Choose the one answer for the question.

    1.Which of the following is true of an efficient market?
    b. 0 There is one seller
    c. 0 There is one buyer
    d. 0 Stock exchanges are always open
    e. 0 There is always a low brokerage fee
    f. 0 Information is reflected in security prices immediately
    Ans: e 0 Information is reflected in security prices immediately

    2. Which of the following is a primary financial goal of an organization?
    a. 0 Having zero debt
    b. 0 Increasing market share at any cost
    c. 0 Maximization of shareholder wealth
    d. 0 Keeping expenses constant
    e. 0 Increasing sale prices each year
    Ans: c0 Maximization of shareholder wealth

    3. Which of the following ratios measures an organization's liquidity?
    a. 0 Acid test ratio
    b. 0 Debt ratio
    c. 0 Return on equity
    d. 0 Times interest earned
    e. 0 Return on assets
    Ans: a. Acid test ratio

    4. Which of the following ratios would tell an investor about the profitability of the organization?
    a. 0 Acid test ratio
    b. 0 Debt ratio
    c. 0 Return on equity
    d. 0 Times interest earned
    e. 0 Current ratio
    Ans: Return on equity

    5. Which of the following is the function of investment bankers?
    a. 0 Distributing
    b. 0 Making commercial loans
    c. 0 Taking deposits
    d. 0 Cash flow management
    e. 0 Auditing
    f. Ans:b. 0 Making commercial loans
    g.

    6. Which of the following is a method by which securities are distributed to final investors?
    a. 0 Negotiated purpose
    b. 0 Commission or best effort basis
    c. 0 Direct sale
    d. 0 Competitive bid purchase
    e. 0 All of the above
    Ans: All of the above

    7. Which sector of the economy supplied the largest amount of funds in US financial markets in the second half of the 90's?
    a. 0 State governments
    b. 0 Corporate business
    c. 0 U.S. Government
    d. 0 Foreign
    e. 0 Household
    Ans 0 Corporate business

    8. What is a cash budget?
    a. 0 Detailed plan of ...

    Solution Summary

    This solution shows step-by-step calculations to determine the correct answer in determining goals, ratios, investments, budgets, planning, PV and WACC scenarios.

    $2.19