FIN 381 final definitions

Which one of the following questions involves a capital structure decision? A) How much debt should the firm incur to fund a project? B) Which one of two project proposals should the firm implement? C) How much inventory will be needed to support a project? D) How should the firm allocate its limited available funds among acceptable projects? E) How much funding should be allocated to financing customer purchases of a new product?

How much debt should the firm incur to fund a project?

Which one of the following questions is a working capital management decision? A) How much inventory should the company keep on hand? B) Should the company refurbish its equipment or replace it? C) Should the company issue new shares of stock or borrow money? D) Should the company close one of its current stores? E) How much money should the company borrow to buy a new building?

How much inventory should the company keep on hand?

Which one of the following questions is a working capital management decision? A) How much money should the company borrow to buy a new building? B) Should the company refurbish its equipment or replace it? C) Should the company close one of its current stores? D) Should the company issue new shares of stock or borrow money? E) How much inventory should the company keep on hand?

How much inventory should the company keep on hand?

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following? A) 1.5 B) 1.0 C) .5 D) 2.0 E) 0

.5

Which one of the following accounts is the most liquid? A) Accounts Receivable B) Land C) Equipment D) Building E) Inventory

Accounts Receivable

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio? A) Fixed assets B) Accounts payable C) Cash D) Accounts receivable E) Inventory

Accounts receivable

An increase in which one of the following will increase a firm's quick ratio without affecting its cash ratio? A) Fixed assets B) Accounts payable C) Cash D) Inventory E) Accounts receivable

Accounts receivable

Which one of the following is classified as a tangible fixed asset? A) Goodwill B) Computer equipment C) Inventory D) Accounts receivable E) Cash

Computer equipment

Which one of the following is classified as a tangible fixed asset? A) Inventory B) Cash C) Accounts receivable D) Computer equipment E) Goodwill

Computer equipment

Which one of the following is classified as a tangible fixed asset? A) Inventory B) Goodwill C) Accounts receivable D) Computer equipment E) Cash

Computer equipment

Which one of the following is a source of cash? A) Decrease in accounts payable B) Decrease in inventory C) Increase in accounts receivable D) Decrease in common stock E) Increase in fixed assets

Decrease in inventory

Which one of the following is a source of cash? A) Decrease in accounts payable B) Increase in fixed assets C) Increase in accounts receivable D) Decrease in common stock E) Decrease in inventory

Decrease in inventory

Which one of the following actions will increase the present value of an amount to be received sometime in the future? A) Increase in the discount rate B) Decrease in the future value C) Increase in the time until the amount is received D) Decrease in the interest rate E) Decrease in both the future value and the number of time periods

Decrease in the interest rate

A decrease in which of the following will increase the current value of a stock according to the dividend growth model? A) Both the discount rate and the dividend growth rate B) Dividend amount C) Dividend growth rate D) Discount rate E) Number of future dividends, provided the total number of dividends is less than infinite

Discount rate

A decrease in which of the following will increase the current value of a stock according to the dividend growth model? A) Discount rate B) Dividend amount C) Dividend growth rate D) Both the discount rate and the dividend growth rate E) Number of future dividends, provided the total number of dividends is less than infinite

Discount rate

A decrease in which of the following will increase the current value of a stock according to the dividend growth model? A) Discount rate B) Number of future dividends, provided the total number of dividends is less than infinite C) Both the discount rate and the dividend growth rate D) Dividend amount E) Dividend growth rate

Discount rate

A decrease in which of the following will increase the current value of a stock according to the dividend growth model? A) Dividend amount B) Both the discount rate and the dividend growth rate C) Number of future dividends, provided the total number of dividends is less than infinite D) Dividend growth rate E) Discount rate

Discount rate

Which one of the following will decrease the net present value of a project? A) Decreasing the required discount rate B) Moving each cash inflow forward one time period, such as from Year 3 to Year 2 C) Increasing the value of each of the project's discounted cash inflows D) Increasing the amount of the final cash inflow E) Increasing the project's initial cost at Time 0

Increasing the project's initial cost at Time 0

Which one of the following will decrease the net present value of a project? A) Increasing the project's initial cost at Time 0 B) Decreasing the required discount rate C) Increasing the amount of the final cash inflow D) Increasing the value of each of the project's discounted cash inflows E) Moving each cash inflow forward one time period, such as from Year 3 to Year 2

Increasing the project's initial cost at Time 0

Which one of the following best states the primary goal of financial management? A) Avoid financial distress B) Maintain steady growth while increasing current profits C) Maximize the current value per share D) Maximize current dividends per share E) Maximize profit

Maximize the current value per share

Which one of the following best states the primary goal of financial management? A) Avoid financial distress B) Maximize the current value per share C) Maximize profit D) Maintain steady growth while increasing current profits E) Maximize current dividends per share

Maximize the current value per share

Which one of the following best states the primary goal of financial management? A) Maximize current dividends per share B) Maintain steady growth while increasing current profits C) Maximize the current value per share D) Maximize profit E) Avoid financial distress

Maximize the current value per share

A proposed project has an initial cost of $74,200 and cash inflows of $23,900, $34,700, and $40,200 for Years 1 through 3, respectively. The required rate of return is 15.2 percent. Based on IRR, should this project be accepted? Why or why not? A) Yes; The IRR exceeds the required return. B) No; The IRR exceeds the required return. C) No; The IRR is less than the required return. D) Yes; The IRR equals the required return. E) No; The IRR equals the required return.

No; The IRR is less than the required return.

A proposed project has an initial cost of $74,200 and cash inflows of $23,900, $34,700, and $40,200 for Years 1 through 3, respectively. The required rate of return is 15.2 percent. Based on IRR, should this project be accepted? Why or why not? A) Yes; The IRR exceeds the required return. B) Yes; The IRR equals the required return. C) No; The IRR exceeds the required return. D) No; The IRR equals the required return. E) No; The IRR is less than the required return.

No; The IRR is less than the required return.

Assume you are investing $100 today in a savings account. Which one of the following terms refers to the total value of this investment one year from now? A) Invested principal B) Future value C) Principal amount D) Present value E) Discounted value

Principal amount

Bui Bakery has a required payback period of two years for all of its projects. Currently, the firm is analyzing two independent projects. Project X has an expected payback period of 1.4 years and a net present value of $6,100. Project Z has an expected payback period of 2.6 years with a net present value of $18,600. Which project(s) should be accepted based on the payback decision rule? A) Project X only B) Neither X nor Z C) Project Z only D) Either, but not both projects E) Both X and Z

Project X only

Bui Bakery has a required payback period of two years for all of its projects. Currently, the firm is analyzing two independent projects. Project X has an expected payback period of 1.4 years and a net present value of $6,100. Project Z has an expected payback period of 2.6 years with a net present value of $18,600. Which project(s) should be accepted based on the payback decision rule? A) Project Z only B) Project X only C) Both X and Z D) Neither X nor Z E) Either, but not both projects

Project X only

Symone sold shares of Naraghi Corporation stock to Aleena. The stock is listed on the NYSE. This trade occurred in which one of the following? A) Primary, auction market B) Primary, dealer market C) Secondary, dealer market D) Secondary, auction market E) Secondary, OTC market

Secondary, auction market

Which one of the following questions involves a capital budgeting decision? A) How many shares of stock should the firm issue? B) How much inventory should the firm keep on hand? C) Should the firm borrow money to acquire new equipment? D) Should the firm purchase a new machine for the production line? E) How much money should be kept in the checking account?

Should the firm purchase a new machine for the production line?

Which one of the following questions involves a capital budgeting decision? A) Should the firm borrow money to acquire new equipment? B) Should the firm purchase a new machine for the production line? C) How many shares of stock should the firm issue? D) How much inventory should the firm keep on hand? E) How much money should be kept in the checking account?

Should the firm purchase a new machine for the production line?

Which one of the following questions involves a capital budgeting decision? A) Should the firm purchase a new machine for the production line? B) How many shares of stock should the firm issue? C) How much inventory should the firm keep on hand? D) How much money should be kept in the checking account? E) Should the firm borrow money to acquire new equipment?

Should the firm purchase a new machine for the production line?

Assume you deposited $6,000 into a retirement savings account today. The account will earn 8 percent interest per year, compounded annually. You will not withdraw any principal or interest until you retire in 48 years. Which one of the following statements is correct? A) The present value of this investment is equal to $6,000. B) The interest you earn in Year 7 will equal the interest you earn in Year 14. C) The future value of this amount is equal to $6,000 × (1 + 48) .08 . D) The interest amount you earn will double in value every year. E) The total amount of interest you will earn will equal $6,000 × .08 × 48.

The present value of this investment is equal to $6,000.

Agency problems are most likely to be associated with: A) corporations. B) sole proprietorships. C) limited partnerships. D) general partnerships. E) limited liability companies.

corporations.

Which one of the following statements correctly defines a time value of money relationship? A) Time and future values are inversely related, all else held constant. B) Time and present value are inversely related, all else held constant. C) An increase in time increases the future value given a zero rate of interest. D) An increase in a positive discount rate increases the present value. E) Interest rates and time are positively related, all else held constant.

Time and future values are inversely related, all else held constant.

You are considering two independent projects. Project A has an initial cost of $125,000 and cash inflows of $46,000, $79,000, and $51,000 for Years 1 to 3, respectively. Project B costs $135,000 with expected cash inflows for Years 1 to 3 of $50,000, $30,000, and $100,000, respectively. The required return for both projects is 16 percent. Based on IRR, you should: A) accept Project B and reject Project A. B) accept either one of the projects, but not both. C) reject both projects. D) accept both projects. E) accept Project A and reject Project B.

accept Project A and reject Project B

You are considering two independent projects. Project A has an initial cost of $125,000 and cash inflows of $46,000, $79,000, and $51,000 for Years 1 to 3, respectively. Project B costs $135,000 with expected cash inflows for Years 1 to 3 of $50,000, $30,000, and $100,000, respectively. The required return for both projects is 16 percent. Based on IRR, you should: A) accept Project B and reject Project A. B) accept both projects. C) reject both projects. D) accept either one of the projects, but not both. E) accept Project A and reject Project B.

accept Project A and reject Project B.

Total income taxes divided by total taxable income equals the ______ tax rate. A) average B) marginal C) deductible D) residual E) total

average

Total income taxes divided by total taxable income equals the ______ tax rate. A) total B) marginal C) deductible D) residual E) average

average

Agency problems are most likely to be associated with: A) limited liability companies. B) corporations. C) general partnerships. D) limited partnerships. E) sole proprietorships.

corporations.

A firm's mixture of debt and equity financing is the result of its ______ decisions. A) capital budgeting B) working capital management C) cash management D) capital structure E) cost analysis

capital structure

A firm's mixture of debt and equity financing is the result of its ______ decisions. A) capital structure B) capital budgeting C) cost analysis D) cash management E) working capital management

capital structure

A business that is a legal entity separate from the owners, yet treated as a legal person, is called a(n): A) general partnership. B) corporation. C) limited partnership. D) unlimited liability company. E) sole proprietorship.

corporation

A business that is a legal entity separate from the owners, yet treated as a legal person, is called a(n): A) sole proprietorship. B) general partnership. C) limited partnership. D) corporation. E) unlimited liability company.

corporation

Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment. A) coupon B) call premium C) discount D) face value E) yield

coupon

Ana just received the semiannual payment of $35 on a bond she owns. This is called the ______ payment. A) coupon B) call premium C) face value D) discount E) yield

coupon

An ordinary annuity is best defined as: A) increasing payments paid for a definitive period of time. B) equal payments paid at the end of regular intervals over a stated time period. C) increasing payments paid forever. D) equal payments paid at the beginning of regular intervals for a limited time period. E) equal payments that occur at set intervals for an unlimited period of time.

equal payments paid at the end of regular intervals over a stated time period

Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the: A) coupon. B) dirty price. C) face value. D) yield. E) discount.

face value

A discount bond's coupon rate is equal to the annual interest divided by the: A) call price. B) clean price. C) current price. D) dirty price. E) face value.

face value.

A discount bond's coupon rate is equal to the annual interest divided by the: A) clean price. B) call price. C) current price. D) dirty price. E) face value.

face value.

Dilan owns a bond that will pay him $45 each year in interest plus $1,000 as a principal payment at maturity. The $1,000 is referred to as the: A) face value. B) coupon. C) discount. D) yield. E) dirty price.

face value.

A firm owned by two or more people who each have unlimited liability for all of the firm's debts is called a: A) limited liability company. B) general partnership. C) sole proprietorship. D) limited partnership. E) corporation.

general partnership.

A firm owned by two or more people who each have unlimited liability for all of the firm's debts is called a: A) sole proprietorship. B) limited liability company. C) general partnership. D) corporation. E) limited partnership.

general partnership.

A partner in a firm knows that the maximum financial loss he or she will experience is the amount he or she invested in the firm. The partner is called a ______ partner. A) general B) corporate C) sole D) limited E) zero

limited

The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes. A) average B) residual C) total D) marginal E) standard

marginal

The ______ tax rate is the percentage of the last dollar you earned that must be paid in taxes. A) marginal B) average C) standard D) total E) residual

marginal

A bond's principal is repaid on the ________ date. A) yield B) clean C) dirty D) coupon E) maturity

maturity

A bond's principal is repaid on the ________ date. A) yield B) dirty C) clean D) maturity E) coupon

maturity

A firm's ______ is the firm's mix of short-term assets and short-term liabilities. A) net debt B) net working capital C) capital structure D) investment capital E) net currency

net working capital

Eduardo sold 500 shares of Northcutt Corporation stock on the New York Stock Exchange. This transaction: A) involved a proxy. B) occurred in a dealer market. C) took place in the primary market. D) was a private placement. E) occurred in the secondary market.

occurred in the secondary market.

Hayley won a lottery and will receive $1,000 each year for the next 30 years. The current value of these winnings is called the: A) compounded value. B) single amount. C) simple amount. D) future value. E) present value.

present value

Ultimately, the ______ control(s) the corporation. A) chief operating officer B) members of the board of directors C) chief executive officer D) chair of the board E) shareholders

shareholders

Ultimately, the ______ control(s) the corporation. A) shareholders B) chief executive officer C) chair of the board D) members of the board of directors E) chief operating officer

shareholders

A project has a net present value of zero. Given this information: A) the summation of all of the project's cash flows is zero. B) the project requires no initial cash investment. C) the project has a zero percent rate of return. D) the project has no cash flows. E) the project's cash inflows equal its cash outflows in current dollar terms.

the project's cash inflows equal its cash outflows in current dollar terms.

A project has a net present value of zero. Given this information: A) the summation of all of the project's cash flows is zero. B) the project's cash inflows equal its cash outflows in current dollar terms. C) the project requires no initial cash investment. D) the project has no cash flows. E) the project has a zero percent rate of return.

the project's cash inflows equal its cash outflows in current dollar terms.

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the: A) face rate. B) coupon rate. C) call rate. D) yield to maturity. E) current yield.

yield to maturity.

The bond market requires a return of 6.2 percent on the 15-year bonds issued by Mingwei Manufacturing. The 6.2 percent is referred to as the: A) face rate. B) coupon rate. C) yield to maturity. D) call rate. E) current yield.

yield to maturity.