means by which shareholders can replace company management
Which one of the following is a means by which
Subject: Business / Finance
Question
1. Which one of the following is a means by which shareholders can replace company management?
A)promotion
B)agency play
C)proxy fight
D)stock options
E)Sarbanes-Oxley Act
2.Which form of business structure is most associated with agency problems?
A)limited liability company
B)corporation
C)limited partnership
D)general partnership
E)sole proprietorship
3.Which one of the following is least likely to be an agency problem?
A)increasing the market value of the firm's shares
B)concentrating on maximizing current profits
C)closing a division with net losses
D)increasing the size of a firm
E)obtaining a patent for a new product
4.Why should financial managers strive to maximize the current value per share of the existing stock?
A)because managers often receive shares of stock as part of their compensation
B)because this will increase the current dividends per share
C)doing so increases employee salaries
D)because they have been hired to represent the interests of the current shareholders
E)doing so guarantees the company will grow in size at the maximum possible rate
5.Which one of the following parties has ultimate control of a corporation?
A)board of directors
B)shareholders
C)chief operating office
D)chairman of the Board
E)chief executive officer
6.Which one of the following statements related to the cash flow to creditors is correct?
A)If the cash flow to creditors is positive then the firm must have borrowed more money than it repaid.
B)If the cash flow to creditors is negative then the firm must have a negative cash flow from assets.
C)If the cash flow to creditors is zero, then a firm has no long-term debt.
D)A positive cash flow to creditors means that a firm has increased its long-term debt.
E)A positive cash flow to creditors represents a net cash outflow from the firm.
7.Which one of the following represents the most liquid asset?
A)$100 of inventory that is sold today for $100 cash
B)$100 of inventory which is discounted and sold for $97 cash today
C)$100 account receivable that is discounted and collected for $96 today
D)$100 accounts receivable that will be collected in full next week
E)$100 of inventory which is sold today on credit for $103
8.Which of the following are included in the market value of a firm but are excluded from the firm's book value?
I. value of management skills
II. value of a copyright
III. value of the firm's reputation
IV. value of employee's experience
A)I only
B)I, III, and IV only
C)II only
D)III and IV only
E)I, II, and III only
9.Which one of the following statements related to liquidity is correct?
A)Liquid assets tend to earn a high rate of return.
B)Inventory is more liquid than accounts receivable because inventory is tangible.
C)Liquid assets are valuable to a firm.
D)Any asset that can be sold within the next year is considered liquid.
E)Liquid assets are defined as assets that can be sold quickly regardless of the price obtained.
10.The Blue Bonnet's 2008 balance sheet showed net fixed assets of $2.2 million, and the 2009 balance sheet showed net fixed assets of $2.6 million. The company's income statement showed a depreciation expense of $900,000. What was the amount of the net capital spending for 2009?
A)$1,700,000
B)$400,000
C)$1,800,000
D)-$500,000
E)$1,300,000
11.Relationships determined from a firm's financial information and used for comparison purposes are known as:
A)financial ratios.
B)identities.
C)dimensional analysis.
D)scenario analysis.
E)solvency analysis.
12.Which one of the following will decrease if a firm can decrease its operating costs, all else constant?
A)return on equity
B)price-earnings ratio
C)equity multiplier
D)profit margin
E)return on assets
13.According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities.
A)increase; investment
B)increase; financing
C)decrease; financing
D)decrease; operating
E)increase; operating
14.Activities of a firm which require the spending of cash are known as:
A)uses of cash.
B)sources of cash.
C)cash on hand.
D)cash collections.
E)cash receipts.
15.Oscar's Dog House has a profit margin of 5.6 percent, a return on assets of 12.5 percent, and an equity multiplier of 1.49. What is the return on equity?
A)19.67 percent
B)18.63 percent
C)22.30 percent
D)21.69 percent
E)17.14 percent
16.Which one of the following statements is correct?
A)Pro forma statements are limited to a balance sheet and income statement.
B)Pro forma financial statements must assume that no dividends will be paid.
C)Pro forma statements must assume that no new equity is issued.
D)Pro forma statements are projections, not guarantees.
E)Net working capital needs are excluded from pro forma computations.
17.Which one of the following ratios identifies the amount of assets a firm needs in order to generate $1 in sales?
A)payout ratio
B)current ratio
C)retention ratio
D)equity multiplier
E)capital intensity ratio
18.Which of the following questions are appropriate to address during the financial planning process?
I. Should the firm merge with a competitor?
II. Should additional shares of stock be sold?
III. Should a particular division be sold?
IV. Should a new product be introduced?
A)I, III, and IV only
B)I, II, III, and IV
C)I, II, and IV only
D)II, III, and IV only
E)I, II, and III only
19.When constructing a pro forma statement, net working capital generally:
A)varies only if the firm is currently producing at full capacity.
B)varies only if the firm is producing at less than full capacity.
C)varies proportionally with sales.
D)varies only if the firm maintains a fixed debt-equity ratio.
E)remains fixed.
20.All else constant, which one of the following will increase the internal rate of growth?
A)decrease in the retention ratio
B)increase in costs of goods sold
C)decrease in total assets
D)increase in the dividend payout ratio
E)decrease in net income
21.Steve just computed the present value of a $10,000 bonus he will receive in the future. The interest rate he used in this process is referred to as which one of the following?
A)current yield
B)compound rate
C)discount rate
D)effective rate
E)simple rate
22.You invested $1,650 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually?
A)$849.22
B)$930.11
C)$982.19
D)$1,021.15
E)$1,077.94
23.You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You are planning on investing in an account which will pay 7.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire?
I. Invest in a different account paying a higher rate of interest.
II. Invest in a different account paying a lower rate of interest.
III. Retire later.
IV. Retire sooner.
A)I and III only
B)I and IV only
C)II only
D)I only
E)II and III only
24.What is the relationship between present value and future value interest factors?
A)The factors are reciprocals of each other
B)The future value factor is the exponent of the present value factor.
C)There is no relationship between these two factors.
D)The present value and future value factors are equal to each other.
E)The present value factor is the exponent of the future value factor.
25.Which one of the following variables is the exponent in the present value formula?
A)interest rate
B)time
C)There is no exponent in the present value formula.
D)future value
E)present value
26.Real rates are defined as nominal rates that have been adjusted for which of the following?
A)interest rate risk
B)inflation
C)both inflation and interest rate risk
D)accrued interest
E)default risk
27.The Fisher Effect primarily emphasizes the effects of _____ on an investor's rate of return.
A)inflation
B)maturity
C)default
D)interest rate
E)market
28.Which one of the following risk premiums compensates for the possibility of nonpayment by the bond issuer?
A)liquidity
B)taxability
C)default risk
D)inflation
E)interest rate risk
29.A corporate bond was quoted yesterday at 102.16 while today's quote is 102.19. What is the change in the value of a bond that has a face value of $6,000?
A)$180.00
B)$0.30
C)$1.80
D)$3.00
E)$18.00
30.The current yield is defined as the annual interest on a bond divided by which one of the following?
A)market price
B)dirty price
C)coupon
D)face value
E)call price
31.Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?
A)non-cumulative
B)dual class
C)preferred
D)cumulative
E)common
32.A securities market primarily comprised of dealers who buy and sell for their own inventories is referred to which type of market?
A)over-the-counter
B)auction
C)electronic network
D)private
E)regional
33.What are the distributions to shareholders by a corporation called?
A)capital payments
B)net income
C)retained earnings
D)diluted profits
E)dividends
34.The common stock of Textile Mills pays an annual dividend of $1.65 a share. The company has promised to maintain a constant dividend even though economic times are tough. How much are you willing to pay for one share of this stock if you want to earn a 12 percent annual return?
A)$14.01
B)$14.79
C)$14.56
D)13.75
E)$15.23
35.You want to be on the board of directors of Wisely Foods. Since you are the only shareholder that will vote for you, you will need to own more than half of the outstanding shares of stock if you are to be elected to the board. What is the type of voting called that requires this level of stock ownership to be successfully elected under these conditions?
A)proxy
B)democratic
C)straight
D)cumulative
E)deferred
36.The profitability index is most closely related to which one of the following?
A)modified internal rate of return
B)discounted payback
C)average accounting return
D)payback
E)net present value
37.A project produces annual net income of $46,200, $51,800, and $62,900 over its 3-year life, respectively. The initial cost of the project is $675,000. This cost is depreciated straight-line to a zero book value over three years. What is the average accounting rate of return if the required discount rate is 14.5 percent?
A)15.89 percent
B)18.98 percent
C)23.84 percent
D)16.67 percent
E)20.25 percent
38.Which of the following are definite indicators of an accept decision for an independent project with conventional cash flows?
I. positive net present value
II. profitability index greater than zero
III. internal rate of return greater than the required rate
IV. positive internal rate of return
A)II, III, and IV only
B)II and IV only
C)I, II, III, and IV
D)I and III only
E)I, II, and III only
39.The present value of an investment's future cash flows divided by the initial cost of the investment is called the:
A)average accounting return.
B)profitability index.
C)internal rate of return.
D)net present value
E)profile period.
40.If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:
A)operationally distinct.
B)independent.
C)economically scaled.
D)interdependent.
E)mutually exclusive.
41.The difference between a firm's future cash flows if it accepts a project and the firm's future cash flows if it does not accept the project is referred to as the project's:
A)financing cash flows.
B)internal cash flows.
C)external cash flows.
D)erosion effects.
E)incremental cash flows.
42.Changes in the net working capital requirements:
A)are generally excluded from project analysis due to their irrelevance to the total project
B)only affect the cash flow at time zero and the final year of a project.
C)only affect the initial cash flows of a project.
D)can affect the cash flows of a project every year of the project's life.
E)reflect only the changes in the current asset accounts.
43.Which one of the following would make a project unacceptable?
A)cash inflow for net working capital at time zero
B)lack of revenue generation
C)requiring fixed assets that would have no salvage value
D)a depreciation tax shield that exceeds the value of the interest expense
E)an equivalent annual cost that exceeds that of an alternative project
44.When using the equivalent annual cost as a basis for deciding which equipment should be purchased, the equipment under consideration must fit which two of the following criteria?
I. differing productive lives
II. differing manufacturers
III. required replacement at end of economic life
IV. differing initial cost
A)I I and III
B)I and II
C)I and IV
D) I and III
E) II and IV
45.The bid price is:
A)the highest price you should charge if you want the project.
B)an aftertax price.
C)the only price you can bid if the project is to be profitable
D)the minimum price you should charge if you want to financially breakeven.
E)the aftertax contribution margin.
