Financial Management Online MCQ Set 11

QN01. Under a pre-emptive right provision:

1. holders of common stock must be given the first option to purchase new shares
2. common shareholders have a pre-emptive right to dividends
3. preferred shareholders have the first option on new common shares
4. dilution of existing positions is encouraged

Answer

(A)holders of common stock must be given the first option to purchase new shares

QN02. A preferred issue carrying a call provision will carry:

1. a higher yield than non-callable preferred
2. a lower yield than non-callable preferred
3. the same yield as non-callable preferred
4. the same yield as callable debt

Answer

(A)a higher yield than non-callable preferred

QN03. Wealthier shareholders tend to prefer:

1. a high dividend payout ratio
2. short term capital gains
3. floating rate dividends
4. capital appreciation

Answer

(D)capital appreciation

QN04. In chronological order, which of the following is correct:Refer to text page 703.

1. ex-dividend date, holder of record date, payment date
2. holder of record date, ex-dividend date, holder of record date
3. payment date, ex-dividend date, holder of record date
4. holder of record date, payment date, ex-dividend date

Answer

(A)ex-dividend date, holder of record date, payment date

QN05. The conversion ratio indicates:

1. the number of shares of common to which the security may be converted
2. the conversion price of the security
3. the number of bonds the common share may be converted to
4. the number of bonds the preferred share may be converted to

Answer

(A)the number of shares of common to which the security may be converted

QN06. A warrant may best be defined as:

1. an option to sell a specified number of shares at a stated price
2. an option to buy a stated number of shares at a stated price
3. a convertible security
4. a bond derivative

Answer

(B)an option to buy a stated number of shares at a stated price

QN07. Which of the following is not a non-financial motive for merging:

1. the desire to expand management capabilities
2. the need to expand marketing capabilities
3. the desire for easier access to capital markets
4. the acquisition of new products

Answer

(C)the desire for easier access to capital markets

QN08. If a firm acquires another firm with a higher P/E ratio:

1. postmerger earnings per share will be diluted
2. a cash acquisition is questionable
3. a stock-for-stock exchange should be pursued
4. none of the above are correct

Answer

(C)a stock-for-stock exchange should be pursued

QN09. The arrangement preferred by most business firms and foreign government is:

1. the joint venture
2. the export arrangement
3. the licensing agreement
4. the fully owned foreign subsidiary

Answer

(A)the joint venture

QN10. The spot rate is:

1. unrelated to the foreign exchange rate
2. the rate of exchange for future delivery
3. the rate of exchange for immediate delivery
4. the “black market” exchange rate

Answer

(C)the rate of exchange for immediate delivery

QN11. To minimize transaction exposure, firms may pursue which of the following activities:

1. forward exchange market hedging
2. money market hedging
3. currency futures market hedging
4. all of the above are correct.

Answer

(D)all of the above are correct.

QN12. The ultimate measure of performance is:

1. the amount of the firm's earnings
2. how the earnings are valued by the investor
3. the firm's profit margin
4. return on the firm's total assets

Answer

(B)how the earnings are valued by the investor

QN13. Financial markets:

1. exist as a vast global network of individuals and financial institutions
2. include a broad group representing lenders, borrowers, owners, institutional investors, corporations, government units and others
3. circulate information quickly that affects prices of securities
4. all of the above

Answer

(D)all of the above

QN14. The income statement measures:

1. what the firm owns and how those assets are financed
2. the profitability of the firm at a given point in time
3. the profitability of the firm over a period of time
4. how changes in the balance sheet are financed over time

Answer

(C)the profitability of the firm over a period of time

QN15. All of the following are examples of tax deductible expenses, except:

1. dividends on common shares
2. interest payments
3. amortization charges
4. sales and administrative expenses

Answer

(A)dividends on common shares

QN16. Which of the following is not the responsibility of financial management?

1. allocation of funds to current and capital assets
2. obtaining the best mix of financing alternatives
3. preparation of the firm's accounting statements
4. development of an appropriate dividend policy

Answer

(C)preparation of the firm's accounting statements

QN17. The allocation of capital is determined by:

1. expected rates of return
2. the Bank of Canada
3. the initial sale of securities in the primary market
4. the size of the federal debt

Answer

(A)expected rates of return

QN18. All of the following are true of shareholders' equity except:

1. it represents the combined total of the firm's current and long term assets
2. it represents the total contribution and ownership interest of preferred and common shareholders
3. the three basic components are preferred stock, common stock, and retained earnings
4. it represents the difference between the firm's assets and liabilities

Answer

(A)it represents the combined total of the firm's current and long term assets

QN19. Asset utilization ratios measure:

1. the speed at which the firm is turning over its assets
2. the ability of the firm to earn on adequate return on sales, total assets, and invested capital
3. the firm's ability to pay off short term obligations as they are due
4. the debt position of the firm in light of its assets and earning power

Answer

(A)the speed at which the firm is turning over its assets

QN20. Among the liquidity ratios, one would include:

1. receivables turnover and inventory turnover
2. current ratio and quick ratio
3. capital asset turnover and total asset turnover
4. receivables turnover and total asset turnover

Answer

(B)current ratio and quick ratio

QN21. To the bondholder, the most important ratio is:

1. profit margin
2. quick ratio
3. times interest earned
4. debt to total assets

Answer

(D)debt to total assets

QN22. In preparing the pro forma balance sheet, all of the following will normally remain unchanged from the prior period except:

1. accounts receivable
2. marketable securities
3. long term debt
4. common stock

Answer

(A)accounts receivable

QN23. The conservative firm will utilize:

1. a high degree of operating leverage
2. a low degree of operating leverage
3. high fixed costs
4. a higher profit margin

Answer

(B)a low degree of operating leverage

QN24. The degree of financial leverage may be defined as:

1. percent change in sales/percent change in volume
2. percent change in EPS/percent change in net income
3. percent change in EPS/percent change in EBIT
4. percent change in EPS/percent change in sales

Answer

(C)percent change in EPS/percent change in EBIT

QN25. To enhance overall operating results, a firm should prudently use which of the following:

1. operating leverage
2. financial leverage
3. combined leverage
4. conservative leverage

Answer

(C)combined leverage

QN26. A major advantage of using short term funds is:

1. there is no advantage
2. there are always more easily obtained
3. there are no governmental procedures with which to comply
4. interest rates are normally lower

Answer

(D)interest rates are normally lower

QN27. A collection center:

1. involves using geographically disbursed centers to collect from non-paying customers
2. utilizes local banks to clear local payments made to the collection center
3. is lower in cost to the firm than a lockbox system
4. results in checks being forwarded to a P.O. box and clearing through local bank branches

Answer

(B)utilizes local banks to clear local payments made to the collection center

QN28. In monitoring collection policy, the firm should look at all of the following, except:

1. average collection period
2. ratio of bad debts to credit sales
3. aging of accounts receivable
4. terms of credit

Answer

(D)terms of credit

QN29. In return for providing loans and other services, banks may require that business customers maintain

1. a specified profit margin
2. a compensating balance
3. a sinking fund
4. a specified growth rate

Answer

(B)a compensating balance

QN30. Characteristics of pledging accounts receivable include all of the following, except:

1. the sale of receivables to a finance company
2. the lender stipulates which accounts are of sufficient quality
3. 60-80% of the value of the acceptable collateral may be borrowed
4. the interest rate is normally well in excess of prime

Answer

(A)the sale of receivables to a finance company

QN31. The value today of an amount to be received at some point in the future is known as:

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

Answer

(C)present value-single amount

QN32. A series of payments required to accumulate a given amount is known as:

1. future value-annuity
2. present value-annuity
3. annuity equalling a future amount
4. annuity equalling a present amount

Answer

(C)annuity equalling a future amount

QN33. Financial risk relates to:

1. the ability of the firm to pay dividends
2. the ability of the firm to access capital markets for additional funds
3. the ability of the firm to meet debt obligations as they come due
4. the firm's financial risk premium

Answer

(C)the ability of the firm to meet debt obligations as they come due

QN34. The beta coefficient measures:

1. the return relative to the risk-free rate
2. the return relative to the market return
3. the historical volatility relative to the market's volatility
4. the required return on a financial asset

Answer

(C) the historical volatility relative to the market's volatility