Financial Management Online MCQ Set 14

QN01. In the "real world," corporate bonds usually pay interest:

  1. continuously
  2. quarterly
  3. semiannually
  4. annually
Answer

(C)semiannually

QN02. Long term lease obligations are treated as:

  1. items in the footnotes of the financial statements
  2. solely as an expense items on the income statement
  3. in a manner similar to debt on the balance sheet
  4. as an asset to the firm
Answer

(C)in a manner similar to debt on the balance sheet

QN03. All of the following are advantages of rights offerings except:

  1. the position of current shareholders is protected
  2. a rights offering provides the firm with a built-in securities market
  3. more interest may be generated in the market
  4. the dollar value of rights traded on exchanges is very high
Answer

(D)the dollar value of rights traded on exchanges is very high

QN04. In terms of increasing risk to the investor, the proper ranking would be:

  1. common stock, preferred stock, secured debt
  2. long-term government debt, subordinated debt, common stock
  3. long-term government debt, secured debt, preferred stock
  4. secured debt, common stock, preferred stock
Answer

(B)long-term government debt, subordinated debt, common stock

QN05. The directors of a small, closely held corporation may be reluctant to pay dividends at all because:

  1. the dividends will be taxed at a higher rate
  2. they fear diluting the cash position of the firms
  3. they haven't the means to do a complete funds flow analysis
  4. they fear a shareholder proxy battle
Answer

(B)they fear diluting the cash position of the firms

QN06. A corporation will typically pay the highest dividends in:

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

(D)Maturity-Stage IV

QN07. Derivatives are contracts that:

  1. allow the holder to buy/sell a given commodity
  2. are sold only in established financial markets
  3. usually expose the holder to increased risk
  4. completely remove risk in financial and economic transactions
Answer

(A)allow the holder to buy/sell a given commodity

QN08. A convertible security has:

  1. an upside limitation, but no floor value
  2. no upside limitation, but a floor value
  3. more sensitivity to interest rate movements than regular bonds of equal maturity
  4. a single, fixed yield under all scenario
Answer

(B)no upside limitation, but a floor value

QN09. The minimum value of a warrant is equal to:

  1. warrant price-intrinsic value
  2. intrinsic value-warrant price
  3. (market value of common stock-warrant exercise price) X number of shares per warrant
  4. the speculative premium
Answer

(C)(market value of common stock-warrant exercise price) X number of shares per warrant

QN10. Perhaps the greatest management motive for a merger is:

  1. the synergistic effect
  2. new product acquisition
  3. the portfolio effect
  4. tax loss carry-forwards
Answer

(A)the synergistic effect

QN11. The market for corporate control:

  1. effectively forces managers to strive to maximize shareholder wealth
  2. is best run through a holding company
  3. is a separate market for arbitrageurs
  4. emphasizes the portfolio effect
Answer

(A)effectively forces managers to strive to maximize shareholder wealth

QN12. The relationship between the values of the two currencies is known as:

  1. the currency rate
  2. the conversion rate
  3. the forward rate
  4. the foreign exchange rate
Answer

(D)the foreign exchange rate

QN13. Forward and spot transactions take place:

  1. over-the-counter
  2. in the foreign currency exchange
  3. between domestic and foreign governments
  4. between individuals and foreign governments
Answer

(A)over-the-counter

QN14. Which of the following is not a primary source of international business financing?

  1. The Export Development Bank
  2. The eurobond market
  3. International equity markets
  4. Domestic bond and equity markets
Answer

(D)Domestic bond and equity markets

QN15. In analyzing the firm, the investor should consider:

  1. the risk inherent in the firm's operation
  2. the time patterns over which the firm's earnings increase/decrease
  3. the quality and reliability of the firm's reported earnings
  4. all of the above should be considered
Answer

(D)all of the above should be considered

QN16. The main focus of finance for the last 40 years has been:

  1. mergers and acquisitions
  2. conglomerate firms
  3. inflation
  4. risk-return relationships
Answer

(D)risk-return relationships

QN17. Which of the following is not true regarding the P/E ratio?

  1. It is the multiplier applied to earnings per share to determine current value
  2. P/E ratios allow comparison of the relative market values of many companies based on $1 of earnings per share.
  3. It indicates expectations about the future of a company.
  4. Firms expected to provide returns greater than those of the market with equal or less risk normally have P/E ratios lower than the market P/E.
Answer

(D)Firms expected to provide returns greater than those of the market with equal or less risk normally have P/E ratios lower than the market P/E.

QN18. The aftertax cost of a tax deductible expense is:

  1. cost times the tax rate
  2. cost times (1-tax rate)
  3. the cost of the expense
  4. the cost divided by the tax rate
Answer

(B)cost times (1-tax rate)

QN19. Liquidity 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

(C)the firm's ability to pay off short term obligations as they are due

QN20. All of the following are debt utilization ratios except:

  1. debt to total assets
  2. times interest earned
  3. fixed charge coverage
  4. debt to sales
Answer

(D)debt to sales

QN21. The most comprehensive means of financial forecasting is:

  1. through the use of securities analysts forecasts for the firm
  2. done with a short term time horizon
  3. done with a long term time horizon
  4. through the use of pro forma financial statements
Answer

(D)through the use of pro forma financial statements

QN22. In general, the cost of producing a product is based on material, labor, and:

  1. profit margin
  2. cost of goods sold
  3. overhead costs
  4. shipping costs
Answer

(C)overhead costs

QN23. On the pro forma balance sheet, changes in the level of accounts payable will be determined from:

  1. the prior balance sheet
  2. the cash budget
  3. the pro forma income statement
  4. the monthly cash payments schedule
Answer

(D)the monthly cash payments schedule

QN24. LThe more aggressive firm:

  1. substitutes higher fixed costs for variable costs
  2. substitutes lower fixed costs for variable costs
  3. has lower potential profit above the break-even point
  4. is normally more effectively managed
Answer

(A)substitutes higher fixed costs for variable costs

QN25. The highly financially leverage firm will typically:

  1. has a higher EPS figure than the conservative firm
  2. has a lower EPS figure than the conservative firm
  3. uses less debt than the conservative firm
  4. will produce the same EPS figure as the conservative firm
Answer

(A)has a higher EPS figure than the conservative firm

QN26. Degree of combined leverage:

  1. should be minimized by the financial manager
  2. affects only balance sheet items
  3. decreases the firm's operating profit
  4. shows the impact of sales or volume changes on bottom line EPS
Answer

(D)shows the impact of sales or volume changes on bottom line EPS

QN27. The cash conversion cycle equals:

  1. inventory period + collection period-payables period
  2. payables period-inventory period-collection period
  3. payables period + inventory period-collection period
  4. inventory period-collection period + payables period
Answer

(A)inventory period + collection period-payables period

QN28. Under normal conditions:

  1. long term rates are lower than short term rates
  2. the yield curve is downward sloping, or inverted
  3. intermediate rates are higher than long or short term rates
  4. short term rates are lower than long term rates
Answer

(D)short term rates are lower than long term rates

QN29. The concept of float is best defined as:

  1. cheques written by the corporation that are still outstanding
  2. cheques written to the corporation that are still outstanding
  3. the difference between the firm's recorded cash balance and the amount credited to the firm's account by the bank
  4. what a boat does in water
Answer

(C)the difference between the firm's recorded cash balance and the amount credited to the firm's account by the bank

QN30. Under normal conditions, the longer the maturity of the security:

  1. the higher the yield
  2. the lower the yield
  3. the greater the possibility of the yield curve changing
  4. the lower the level of interest rate risk
Answer

(A)the higher the yield

QN31. The largest provider of short-term credit to the firm is:

  1. banks
  2. bondholders
  3. manufacturers or sellers of goods or services
  4. shareholders
Answer

(C)manufacturers or sellers of goods or services

QN32. Banks will most likely provide funds for all of the following activities:

  1. financing of seasonal needs
  2. product line expansion
  3. long term growth
  4. marketing campaign
Answer

(D)marketing campaign

QN33. All of the following are characteristics of a credit shortage, except:

  1. the Bank of Canada tightens growth in money supply to fight inflation
  2. business needs more funds to carry inflation-laden receivables and inventory
  3. restrictive usury regulations are normally imposed
  4. savings withdrawals occur, with higher rates sought by investors
Answer

(C)restrictive usury regulations are normally imposed

QN34. A eurodollar loan may be defined as:

  1. a loan by Canadian banks to European corporations
  2. a loan from a foreign bank denominated in dollars
  3. the borrowing of foreign currencies and conversion into dollars
  4. a foreign currency loan repaid in dollars
Answer

(B)a loan from a foreign bank denominated in dollars

QN35. Asset-backed securities

  1. are issued by financially shaky firms
  2. usually trade at a yield below bankers acceptances
  3. provide the issuer with immediate cash
  4. rarely experience losses on the assets held
Answer

(C)provide the issuer with immediate cash

QN36. An effective rate of return captures:

  1. the time period
  2. present values
  3. compounding effects
  4. tax consequences
Answer

(C)compounding effects

QN37. A series of payments that can be drawn from 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

(D)annuity equalling a present amount

QN38. The time value of money plays an important role in which of the following:

  1. understanding the effective rate on a business loan
  2. understanding the composition of a mortgage payment
  3. determining the true rate of return on an investment
  4. all of the above
Answer

(D)all of the above

QN39. If there is an increase in the inflation premium:

  1. the yield to maturity will decrease
  2. the price of the bond will decrease
  3. the maturity of the bond will change proportionally
  4. there will be no effect on the price of the bond
Answer

(B)the price of the bond will decrease

QN40. The price-earnings ratio is affected by:

  1. the earnings and sales growth of the firm
  2. the volatility of the firm's performance
  3. the debt-equity structure of the firm
  4. all of the above are correct
Answer

(D)all of the above are correct

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