Financial Management Online MCQ Set 10

QN01. The first area of study to benefit from the focus in the 1950's to a more analytical, decision oriented approach was:

1. cash and inventory management
2. capital budgeting (allocating financial capital to the purchase of plant and equipment)
3. capital structure formulation (the balance between liabilities and equity)
4. dividend policy (the relationship between dividends and earnings)

Answer

(B)capital budgeting (allocating financial capital to the purchase of plant and equipment)

QN02. Agency theory examines the:

1. relationship between the owners and managers of the firm
2. insurability of the firm's assets
3. relationship between dividend policy and firm value
4. value of the firm relative to other firms in the industry

Answer

(A)relationship between the owners and managers of the firm

QN03. A corporation will typically pay moderate dividends in:

1. Development-Stage I
2. Growth-Stage II
3. Expansion-Stage III
4. Maturity-Stage IV

Answer

(C)Expansion-Stage III

QN04. The balance sheet of the firm shows:

1. the profitability of the firm over time
2. the holdings and obligations of the firm
3. the assets of the firm on a current cost basis
4. the receipt and disbursement of corporate funds

Answer

(B)the holdings and obligations of the firm

QN05. The statement of cash flows:

1. measures changes in net income over time
2. the receipt and disbursement of funds of the firm
3. the assets of the firm and the means by which they are financed
4. emphasizes the critical nature of the firm's cash flows

Answer

(D)emphasizes the critical nature of the firm's cash flows

QN06. To an economist, the term income means:

1. sales-cost of goods sold
2. change in real worth taking place between the beginning and each of a period
3. operating profit-interest expense
4. earnings aftertaxes

Answer

(B)change in real worth taking place between the beginning and each of a period

QN07. Under the Du Pont method of analysis, return on total assets is:

1. profit margin times assets turnover
2. net income/total assets
3. income before interest and taxes (EBIT)/total assets
4. net income/sales

Answer

(B)net income/total assets

QN08. To the securities analyst, the most important ratio group is:

1. asset utilization
2. profitability
3. liquidity
4. debt utilization

Answer

(B)profitability

QN09. Which of the following is not a step in the development of the pro forma income statement?

1. Establish a sales projection.
2. Determine a production schedule and associated expenses to determine gross profit.
3. Determine the cash receipts.
4. Determine profit by completing the actual pro forma statement.

Answer

(C)Determine the cash receipts.

QN10. The first step in preparing the pro forma balance sheet is to:

1. prepare the pro forma income statement
2. prepare the cash budget
3. prepare the statement of cash flows
4. examine the prior period's balance sheet and translate the items through time

Answer

(D)examine the prior period's balance sheet and translate the items through time

QN11. On the pro forma income statement, the increase in retained earnings is derived:

1. earnings before taxes - taxes
2. earnings aftertaxes - dividends
3. operating profit - taxes
4. operating profit - dividends

Answer

(B)earnings aftertaxes - dividends

QN12. Most break-even analysis:

1. is conducted on the basis of cash flows
2. is theoretical only and has little impact on the firm
3. excludes fixed costs
4. is done on the basis of accounting flows

Answer

(D)is done on the basis of accounting flows

QN13. The indifference point identifies:

1. equality of impact on eps between two financing plans
2. equality of impact on EBIT between two financing plans
3. equality of impact on revenue between two financing plans
4. equality of impact on number of shares between two financing plans

Answer

(A)equality of impact on eps between two financing plans

QN14. The key to current asset planning is:

1. ensuring that the firm remains current on its obligation
2. maintaining an inventory surplus to ensure liquidity
3. forecasting sales accurately and matching production with the forecast
4. maintaining the proper rate of asset growth

Answer

(C)forecasting sales accurately and matching production with the forecast

QN15. Which of the following would not be important in examining the firm's build-up of accounts receivable/cash/current assets:

1. sales forecast
2. cash receipts and cash payments schedules
3. income statement
4. a brief cash budget

Answer

(C)income statement

QN16. An inverted yield curve often foreshadows:

1. an inflationary period
2. a recessionary period
3. a large government bond issue
4. nothing at all

Answer

(B)a recessionary period

QN17. If a firm has an average daily, remittance of $4,000,000 and 1.5 days in the collection process may be saved through a lockbox system, has the firm freed up any real funds for other investment?

1. No, these funds are theoretical in nature only
2. Yes, approximately $2,666,667 has been freed up
3. Yes, approximately $6,000,000 has been freed up
4. Cannot be determined from information provided

Answer

(C)Yes, approximately $6,000,000 has been freed up

QN18. The level of accounts receivable for the firm:

1. should be judged based on historical standards of industry norms
2. should be judged as to whether the return earned on A/R equals or exceeds the potential gain from other investments
3. is irrelevant as long as sales are increasing
4. is not the concern of the financial manager

Answer

(B)should be judged as to whether the return earned on A/R equals or exceeds the potential gain from other investments

QN19. The net credit position of the firm is defined as:

1. its credit rating
2. the extent to which the firm has utilized its credit line
3. the difference between short and long term debt
4. the difference between accounts receivable and accounts payable

Answer

(D)the difference between accounts receivable and accounts payable

QN20. The major disadvantage of commercial paper is:

1. the continued availability of funds is less certain than with bank financing
2. that there is no secondary market for commercial paper
3. firms must maintain an account balance equal to the paper outstanding
4. commercial paper is normally issued with a floating interest rate

Answer

(A)the continued availability of funds is less certain than with bank financing

QN21. The interest rate used in time value of money calculations is also referred to as:

1. a discount rate, rate of return or yield
2. a discount rate, accounting return or yield
3. a compound rate, rate of return or market return
4. a compound rate, accounting return, or yield

Answer

(A)a discount rate, rate of return or yield

QN22. The value in five years of a stream of payments received over the five year period is known as:

1. future value-annuity
2. present value-annuity
3. compound sum-single amount
4. present value-single amount

Answer

(A)future value-annuity

QN23. A payoff schedule for a loan is known as:

1. a mortgage
2. an interest schedule
3. a principal
4. an amortization schedule

Answer

(D)an amortization schedule

QN24. The interest rate used to discount the cash flows associated with a bond is:

1. the required rate of return on the firm's equity
2. the yield to maturity
3. the prime rate
4. the government T-bill rate

Answer

(B)the yield to maturity

QN25. If the yield to maturity changes, the effect will be greatest on:

1. long term bonds
2. short term bonds
3. government bonds
4. the effect will be the same for all bonds

Answer

(A)long term bonds

QN26. The value of a share of common stock may be thought of as:

1. a perpetuity
2. an annuity
3. the present value of a perpetuity
4. the present value of expected future dividends

Answer

(D)the present value of expected future dividends

QN27. The cost of debt is measured by:

1. the yield to maturity on the firm's bonds
2. the coupon rate on the firm's bonds
3. the weighted average cost of capital
4. the marginal cost of capital

Answer

(A)the yield to maturity on the firm's bonds

QN28. The least expensive form of financing for the firm is:

1. existing common stock
2. preferred stock
3. debt
4. new common stock

Answer

(C)debt

QN29. As more and more funds are required by the firm, the cost of each component of the capital structure may increase. These incremental changes are most correctly referred to as:

1. the weighted average cost of capital
2. the marginal cost of capital
3. the cost of capital
4. the incremental cost of capital

Answer

(B)the marginal cost of capital

QN30. All of the following are widely used methods for evaluating capital expenditures except;

1. payback period
2. internal rate of return
3. net present value
4. weighted average cost of capital

Answer

(D)weighted average cost of capital

QN31. All of the following are true regarding capital rationing except:

1. it places on artificial constraint on funds that many be invested
2. it may result out of a fear of growth
3. it may result out of a hesitation to use external sources of funds
4. it will help the overall profitability of the firms

Answer

(D)it will help the overall profitability of the firms

QN32. The expected value may be defined as:

1. a weighted average of outcomes times their probability
2. the arithmetic average of the outcomes
3. the median value of the possible outcomes
4. a measure of dispersion or variability

Answer

(A)a weighted average of outcomes times their probability

QN33. The key to simulation analysis has been:

1. statistical analysis
2. the development of the computer
3. risk adjusted interest rates
4. the ability to classify investments as to their risk class

Answer

(B)the development of the computer

QN34. Markets comprised of securities with maturities of one year or less are generally referred to as:

1. money markets
2. capital markets
3. stock markets
4. bond markets

Answer

(A)money markets

QN35. A major disadvantage of preferred stock is:

1. common stock dividends have a higher order of precedence
2. dividends are not tax-deductible
3. there is no secondary market for preferred stock
4. the preferred dividend may vary greatly year to year

Answer

(B)dividends are not tax-deductible

QN36. Organized securities markets exhibit all of the following characteristics except:

1. listings on national and regional exchanges are mutually exclusive
2. each exchange has a central location where buying and selling occurs
3. brokers represent the actual buyers and sellers
4. securities are listed and traded with the approval of the board of governors

Answer

(A)listings on national and regional exchanges are mutually exclusive

QN37. All of the following influence the price of a stock for the firm going public by way of an IPO except:

1. the previous share price
2. an in-depth company analysis
3. the P/E ratio for similar firms in the industry
4. anticipated public demand

Answer

(A)the previous share price

QN38. Going public offers the firm many of the advantages listed below with the exception of:

1. security markets may be tapped for a greater amount of funds
2. the prestige of a public security may help in bank negotiations
3. marketable securities may be used for acquisitions
4. there is less pressure for short-term profits

Answer

(D)there is less pressure for short-term profits

QN39. With a secured claim:

1. specific assets are pledged in the event of default
2. a debenture exists
3. the lower the value of the initial security
4. pledged assets are often sold off and the proceeds distributed

Answer

(A)specific assets are pledged in the event of default

QN40. Which of the following is a benefit of debt to the firm:

1. interest and principal obligations are contractually set
2. interest payments are tax deductible
3. indenture agreements provide the firm with no restrictions
4. used beyond a certain point, debt will decrease the cost of capital

Answer

(B)interest payments are tax deductible