Financial Management Online MCQ Set 12

QN01. Nonresident holdings of Canadian securities are most significant in the:

1. bond market
2. money market
3. stock market
4. mortgage market

Answer

(A)bond market

QN02. The main function of the investment dealer is to serve as:

1. the middleperson between the firm in need of funds and investors
2. underwriter
3. an advisor to the firm
4. a market maker

Answer

(A)the middleperson between the firm in need of funds and investors

QN03. All of the following are characteristics of private placements except:

1. there are no securities commission filing requirements
2. there is less flexibility for the firm
3. initial costs may be lower than with a public issue
4. the interest rate is usually higher due to lower liquidity

Answer

(B)there is less flexibility for the firm

QN04. The coupon rate on a bond is:

1. the initial or face value of the bond
2. the yield to maturity
3. the rate at which the principal of the bond accrues
4. the stated interest rate of the bond

Answer

(D)the stated interest rate of the bond

QN05. Bonds are rated based on all of the following criteria except:

1. ability to make interest payments
2. consistency of performance
3. debt-equity ratio
4. nominal yield

Answer

(D)nominal yield

QN06. As the owners of the firm, common shareholders:

1. have a primary claim on earnings
2. have the right to vote on all important corporate issues
3. have a legally enforceable right to dividends
4. play a secondary role in financing the firm

Answer

(B)have the right to vote on all important corporate issues

QN07. Dividends may be considered relevant because:

1. they increase the investor's overall return
2. a higher return will be earned than with retained earnings
3. they are preferred by investors in higher tax brackets
4. they resolve uncertainty in the minds of investors

Answer

(D)they resolve uncertainty in the minds of investors

QN08. All of the following are characteristics of the expansion stage of corporate growth except:

1. sales expansion continues, but at a decreasing rate
2. returns on investment decline
3. the asset expansion rate increases
4. the firm is better able to pay higher cash dividends

Answer

(C)the asset expansion rate increases

QN09. The purchaser or holder of a call option has:

1. the obligation to sell the underlying security
2. the obligation to buy the underlying security
3. the right but not the obligation to sell the underlying security
4. the right but not the obligation to buy the underlying security

Answer

(D)the right but not the obligation to buy the underlying security

QN10. If a bond with a face value of $1,000, coupon rate and yield to maturity of 8%, and conversion ratio of 20, sees a drop in the common price to 25, the value of the security will be:

1. $500
2. greater than $1,000
3. less than $1,000
4. $1,000

Answer

(D)$1,000

QN11. All of the following are characteristics of the 1990s mergers and divestitures except:

1. mergers between entertainment firms was popular
2. mergers between financial services firms was also common
3. the federal government was active in divesting crown corporations
4. high interest rates made mergers more costly than in the 1970s and 1980s

Answer

(D)high interest rates made mergers more costly than in the 1970s and 1980s

QN12. The main focus of a stock-for-stock exchange is on:

1. the earnings per share impact of the exchange
2. the capital budgeting implications
3. the shareholders of the acquired firms
4. the growth opportunities

Answer

(A)the earnings per share impact of the exchange

QN13. On the books of the acquiring firm, a merger may be treated as:

1. a cash purchase or a pooling of interests
2. a stock-for-stock exchange
3. a purchase of assets
4. a pooling of interests or a purchase of assets

Answer

(D)a pooling of interests or a purchase of assets

QN14. Fundamental factors influencing exchange rates include:

1. inflation, government policies, translation exposure
2. interest rates, government policies, and expropriation
3. balance of payments, spot rates, and expropriation
4. government policies, balance of payments, inflation

Answer

(D)government policies, balance of payments, inflation

QN15. Foreign exchange risk may be best defined as:

1. the chance of value change in foreign exchange rates
2. the chance that the demand for your currency will drop
3. the chance that exchange rates will be fixed
4. the political risk posed by foreign governments

Answer

(A)the chance of value change in foreign exchange rates

QN16. Which of the following are not among the daily activities of financial management?

1. sale of stocks and bonds
2. credit management
3. inventory control
4. the receipt and disbursement of funds

Answer

(A)sale of stocks and bonds

QN17. The mix of debt and equity in a firm is referred to as the firm's:

1. primary capital
2. capital composition
3. cost of capital
4. capital structure

Answer

(D)capital structure

QN18. All of the following are decisions heavily impacted by federal income tax considerations except:

1. lease versus purchase decisions
2. the issuance of common shares versus debt
3. cash budgeting and dividend policy decisions
4. the decision to replace on asset

Answer

(C)cash budgeting and dividend policy decisions

QN19. Debt utilization ratios measure:

1. the speed at which the firm is turning over its assets
2. the ability of the firm to earn an 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

(D)the debt position of the firm in light of its assets and earning power

QN20. Analyzing the performance of the firm through ratios over a number of years is referred to as:

1. financial analysis
2. ratio analysis
3. trend analysis
4. operations analysis

Answer

(C)trend analysis

QN21. In order to determine cash receipts, the financial manager must know:

1. projected sales and the collection pattern
2. projected sales and the profit margin
3. gross profit and the collection pattern
4. gross profit and taxes

Answer

(A)projected sales and the collection pattern

QN22. Under the percent of sales method, the relationship between sales and what type accounts are assumed to maintain or constant relationship:

1. income statement
2. cash budget
3. balance sheet
4. cash flows.

Answer

(C)balance sheet

QN23. A higher degree of financial leverage may be desirable for:

1. a stable firm, with positive growth, under favorable economic conditions
2. an unstable firm operating in an uncertain environment
3. a stable firm operating in an uncertain environment
4. neither the stable nor unstable firm under any circumstances

Answer

(A)a stable firm, with positive growth, under favorable economic conditions

QN24. In designing working capital policy, the financial manager is concerned with yield curve and:

1. dividend policy
2. balance of trade figures
3. the relative volatility of short and long term rates
4. the term structure of interest rates

Answer

(C)the relative volatility of short and long term rates

QN25. Treasury bills are:

1. government obligations with a maturity of 3-5 years
2. sold at a discount to face value
3. the only government security that pays cash dividends
4. extremely illiquid, although extremely safe

Answer

(B)sold at a discount to face value

QN26. As the least liquid of the current assets, inventory:

1. could technically be classified as a capital asset and amortized
2. should be managed using level production
3. should be managed using seasonal production
4. should provide the highest yield to justify investment

Answer

(D)should provide the highest yield to justify investment

QN27. All of the following are characteristics of the term loan, except:

1. credit is extended for one to seven years
2. the loan is repaid in one lump sum at maturity
3. only superior credit applicants qualify
4. interest rates may commonly change with market conditions

Answer

(B)the loan is repaid in one lump sum at maturity

QN28. Future value of an amount allowed to grow at a given interest rate over a period of time is known as the:

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

Answer

(A)future value-single amount

QN29. Canadian mortgages have interest compounded:

1. annually
2. semiannually
3. monthly
4. it depends on the payment period

Answer

(B)semiannually

QN30. Business risk relates to:

1. the ability of the firm to hold its competitive position
2. the ability of the firm to maintain growth in its earnings
3. the ability of the firm to maintain stability in the earnings
4. all of the above are correct

Answer

(D)all of the above are correct

QN31. The required rate of return on an equity investment can be determined by:

1. the P/E yield plus the growth rate
2. the dividend yield plus the growth rate
3. the earnings yield
4. the revenue growth rate

Answer

(B)the dividend yield plus the growth rate

QN32. In determining the appropriate capital mix, the starting point for the firm is:

1. the cost of common equity
2. the optimum capital structure
3. the present capital structure
4. the after-tax cost of debt

Answer

(C)the present capital structure

QN33. In most capital budgeting decisions, the emphasis is on:

1. reported income
2. cash flows
3. short-term profits
4. maximization of shareholder wealth

Answer

(B)cash flows

QN34. The basic discount rate used in net present value analysis is:

1. the internal rate of return
2. the cost of common equity
3. the net discount rate
4. the cost of capital to the firm

Answer

(D)the cost of capital to the firm

QN35. In a replacement decision, all of the following should be considered except:

1. the cost of the new equipment
2. interest costs
3. the capital loss or gain on the sale of the old equipment
4. the difference in capital cost allowance tax shields between the old and new equipment

Answer

(B)interest costs

QN36. All of the following are true regarding beta except:

1. it is widely used with portfolios of common stock
2. it measures the volatility of returns relative to the expected value
3. it is an important component of the Capital Asset Pricing Model (CAPM)
4. the higher the beta, the greater the risk level

Answer

(B)it measures the volatility of returns relative to the expected value

QN37. A decision tree analysis:

1. lays out the sequence of decisions and presents a graphical comparison
2. is a form of simulation analysis
3. tends to be more accurate than simulation techniques
4. should be utilized as the sole input for the decision making process

Answer

(A)lays out the sequence of decisions and presents a graphical comparison

QN38. Markets comprised of securities with maturities greater than one year are generally referred to as:

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

Answer

(B)capital markets

QN39. Markets may be said to be efficient when:

1. prices adjust rapidly to new information
2. there is a continuous market with successive trade at widely varying prices
3. the market absorbs only small dollar amounts without destabilizing prices
4. all of the above are correct

Answer

(D)all of the above are correct

QN40. The main organization used in distributing securities is:

1. the stock market
2. the underwriting syndicate
3. the primary market
4. the secondary market

Answer

(B)the underwriting syndicate