FINC Final

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Samuelson Electronics has a required payback period of three years for all of its projects. Currently, the firm is analyzing two independent projects. Project A has an expected payback period of 2.8 years and a net present value of $6,800. Project B has an expected payback period of 3.1 years with a net present value of $28,400. Which projects should be accepted based on the payback decision rule? A. Project A only B. Project B only C. Both A and B D. Neither A nor B E. Answer cannot be determined based on the information given.

Sligo Minerals stock is currently trading at $6 a share. The firm believes its primary clientele can afford to spend between $1,500 and $2,000 to purchase a round lot of 100 shares. The firm should consider a: A. reverse stock split. B. liquidating dividend. C. stock dividend. D. stock split. E. special dividend.

Stock splits can be used to: A. adjust the market price of a stock such that it falls within a preferred trading range. B. decrease the excess cash held by a firm thereby lowering agency costs. C. increase both the number of shares outstanding and the market price per share. D. increase the total equity of a firm. E. adjust the debt-equity ratio.

The Presque Isle Center has branch operations in three states. Each branch deals with a local bank. However, all excess funds in these branch bank accounts are transferred on a daily basis to the firm's primary bank located near the firm's home office. This routine of transferring cash to the primary bank on a regular basis is referred to as: A. cash concentration. B. strategic cash disbursement. C. transfer flotation. D. payables management. E. float management.

The Snow Hut has analyzed the carrying and shortage costs associated with its cash holdings and determined that the firm should ideally maintain a cash balance of $3,600. This $3,600 represents which one of the following to the firm? A. target cash balance B. concentration balance C. available balance D. selected cash amount E. compensating balance

The accounts receivable approach to credit policy supports the theory that: A. a firm's risk of offering credit to a new customer is limited to the variable cost of the sold items. B. the best credit policy is an all-cash policy. C. the cost of offering credit to a new customer is the same as the cost of offering credit to an existing customer. D. foregoing cash discounts is a method of obtaining inexpensive short-term financing. E. the default risk of a credit policy is the same as the default risk under an all cash-policy if your customers remain the same.

The cost of preferred stock: A. is equal to the dividend yield. B. is equal to the yield to maturity. C. is highly dependent on the dividend growth rate. D. is independent of the stock's price. E. decreases when tax rates increase.

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. incremental cash flows. B. internal cash flows. C. external cash flows. D. erosion effects. E. financing cash flows.

The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the: A. gross spread. B. under price amount C. filing fee. D. new issue premium. E. offer price.

The dividend growth model: A. is only as reliable as the estimated rate of growth. B. can only be used if historical dividend information is available. C. considers the risk that future dividends may vary from their estimated values. D. applies only when a firm is currently paying dividends. E. uses beta to measure the systematic risk of a firm.

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

The pre-tax cost of debt: A. is based on the current yield to maturity of the firm's outstanding bonds. B. is equal to the coupon rate on the latest bonds issued by a firm. C. is equivalent to the average current yield on all of a firm's outstanding bonds. D. is based on the original yield to maturity on the latest bonds issued by a firm. E. has to be estimated as it cannot be directly observed in the market.

The top-down approach to computing the operating cash flow: A. ignores noncash expenses. B. applies only if a project increases sales. C. applies only to cost cutting projects. D. is equal to sales - costs - taxes + depreciation. E. is used solely to compute a bid price.

Which of the following are associated with a restrictive short-term financial policy? I. little, if any, investment in marketable securities II. liberal credit terms for customers III. low cash balances IV. increasing inventory levels A. I and III only B. II and IV only C. I and IV only D. III and IV only E. I, II, and III only

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. I and III only B. II and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

Which of the following will increase the cash cycle, all else constant? I. increasing the inventory period II. decreasing the accounts receivable turnover rate III. increasing the accounts payable period IV. decreasing the accounts receivable period A. I and II only B. III and IV only C. I and IV only D. I, II, and III only E. I, III, and IV only

Which one of the following favors a low dividend policy? A. the tax on capital gains is deferred until the gain is realized B. few, if any, positive net present value projects are available to a firm C. a majority of the shareholders has a low relevant tax rate D. a majority of the shareholders has better investment opportunities with similar risks E. corporate tax rates exceed personal tax rates

Which one of the following is a system for managing demand-dependent inventories that minimizes the inventory levels of a firm? A. just-in-time inventory B. turnover planning C. net working capital planning D. inventory scoring E. inventory ranking

Which one of the following is an advantage of the average accounting return method of analysis? A. easy availability of information needed for the computation B. inclusion of time value of money considerations C. the use of a cutoff rate as a benchmark D. the use of pre-tax income in the computation E. use of real, versus nominal, average income

Which one of the following is indicative of a short-term restrictive financial policy? A. purchasing inventory on an as-needed basis B. granting credit to all customers C. investing heavily in marketable securities D. maintaining a large accounts receivable balance E. keeping inventory levels high

Which one of the following methods determines the amount of the change a proposed project will have on the value of a firm? A. net present value B. discounted payback C. internal rate of return D. profitability index E. payback

Which one of the following statements is correct concerning the cash cycle? A. The longer the cash cycle, the more likely a firm will need external financing. B. Increasing the accounts payable period increases the cash cycle. C. A positive cash cycle is preferable to a negative cash cycle. D. The cash cycle can exceed the operating cycle if the payables period is equal to zero. E. Offering early payment discounts to customers will tend to increase the cash cycle.

A 2/10, net 30 credit policy: A. is an expensive form of short-term credit if a buyer foregoes the discount. B. provides cheap financing to the buyer for 30 days. C. is an inexpensive means of reducing the seller's collection period if every customer takes the discount. D. tends to have little effect on the seller's collection period. E. tends to increase a firm's investment in receivables as compared to a straight net 30 policy.

A cash concentration account: A. is frequently used as a source of funds for short-term investments. B. cannot be used to cover a compensating balance requirement. C. cannot be used to transfer funds into zero-balance accounts. D. is generally the only bank account a firm needs to efficiently manage its cash. E. is another name for a controlled disbursement account.

A cumulative cash deficit indicates a firm: A. has at least a short-term need for external funding. B. is facing long-term financial distress. C. will go out of business within the year. D. is capable of funding all of its needs internally. E. is using its cash wisely.

A flexible short-term financial policy: A. increases a firm's need for long-term financing. B. minimizes net working capital. C. avoids bad debts by only selling items for cash. D. maximizes fixed assets and minimizes current assets. E. is most appropriate for a firm with relatively high carrying costs and relatively low shortage costs.

A group of five private investors recently loaned $6 million to Henderson Hardware for ten years at 9 percent interest. This loan is best described as a: A. private placement. B. debt SEO. C. notes payable. D. debt IPO. E. term loan.

A money market preferred stock: A. has a floating dividend. B. is sold only under a repurchase agreement. C. is a special form of commercial paper. D. has more price volatility than an ordinary preferred. E. has its interest rate reset daily.

A project has an initial cost of $27,400 and a market value of $32,600. What is the difference between these two values called? A. net present value B. internal return C. payback value D. profitability index E. discounted payback

A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a _____ underwriting. A. standby B. best efforts C. firm commitment D. direct fee E. tombstone

Applying the discounted payback decision rule to all projects may cause: A. some positive net present value projects to be rejected. B. the most liquid projects to be rejected in favor of the less liquid projects. C. projects to be incorrectly accepted due to ignoring the time value of money. D. a firm to become more long-term focused. E. some projects to be accepted which would otherwise be rejected under the payback rule.

Assigning discount rates to individual projects based on the risk level of each project: A. may cause the firm's overall weighted average cost of capital to either increase or decrease over time. B. will prevent the firm's overall cost of capital from changing over time. C. will cause the firm's overall cost of capital to decrease over time. D. decreases the value of the firm over time. E. negates the firm's goal of creating the most value for the shareholders.

Blackwell Brothers sells men's suits. The store offers a 1 percent discount if payment is received within 10 days. Otherwise, payment is due within 30 days. This credit offering is referred to as the: A. terms of sale. B. credit analysis. C. collection policy. D. payables policy. E. collection float.

Blue Stone Builders recently offered to sell 45,000 newly issued shares of stock to the public. The underwriters charged a fee of 8 percent and paid Blue Stone Builders $16.40 a share on 40,000 shares. Which one of the following terms best describes this underwriting? A. best efforts B. shelf C. direct rights D. private placement E. firm commitment

Brustle's Pottery either factors or assigns all of its receivables to other firms. This is known as: A. accounts receivable financing. B. pledged financing. C. capital funding. D. daily funding. E. capital financing.

Cash concentration accounts: A. tend to increase the funds available for short-term investing. B. tend to increase the complexity of a firm's cash management system. C. that utilize wire transfers rather than automated clearing house transfers are less expensive to maintain. D. receive checks directly from all of a firm's customers. E. are all zero-balance accounts.

Cash management primarily involves: A. optimizing a firm's collections and disbursements of cash. B. maximizing the income a firm earns on its cash reserves. C. reconciling a firm's book balance with its bank balance. D. determining the optimal level of liquidity a firm should maintain. E. determining the best method of raising capital.

Changes in the net working capital requirements: A. can affect the cash flows of a project every year of the project's life. B. only affect the initial cash flows of a project. C. only affect the cash flow at time zero and the final year of a project. D. are generally excluded from project analysis due to their irrelevance to the total project. E. reflect only the changes in the current asset accounts.

Costs that increase as a firm acquires additional current assets are called _____ costs. A. carrying B. shortage C. order D. safety E. trading

Denver Liquid Wholesalers recently offered 50,000 new shares of stock for sale. The underwriters sold a total of 53,000 shares to the public. The additional 3,000 shares were purchased in accordance with which one of the following? A. Green shoe provision B. Red herring provision C. quiet provision D. lockup agreement E. post-issue agreement

Existing shareholders: A. may or may not have a preemptive right to newly issued shares. B. must purchase new shares whenever rights are issued. C. are prohibited from selling their rights. D. are generally well advised to let the rights they receive expire. E. can maintain their proportional ownership positions without exercising their rights.

Geoff Industries offers its credit customers a 2 percent discount if they pay within 10 days. This discount is referred to as a: A. cash discount. B. purchase discount. C. collection discount. D. market discount. E. receivables discount.

Green Roof Motels has more cash on hand than its operations require. Thus, the firm has decided to pay out some of its earnings in the form of cash to its shareholders. What are these payments to shareholders called? A. dividends B. stock payments C. repurchases D. payments-in-kind E. stock splits

Lockboxes: A. should be geographically located close to a firm's primary customers. B. should be located in remote locations to increase the net disbursement float. C. offer no additional benefit to a firm now that the Check Clearing Act for the 21st Century has been enacted. D. tend to be negative net present value projects for firms with a large number of sizeable transactions. E. tend to also be used as concentration accounts.

Money deposited by a borrower with the bank in a low or non-interest-bearing account as a condition of a loan agreement is called a: A. compensating balance. B. secured credit deposit. C. letter of credit. D. line of credit. E. pledge.

Municipal bonds: A. are less liquid than U.S. Treasury bills. B. produce income that is subject to federal income taxation. C. generally pay a higher coupon than corporate bonds. D. are also referred to as commercial paper. E. are issued by the federal government.

Net present value: A. is the best method of analyzing mutually exclusive projects. B. is less useful than the internal rate of return when comparing different sized projects. C. is the easiest method of evaluation for non-financial managers to use. D. is less useful than the profitability index when comparing mutually exclusive projects. E. is very similar in its methodology to the average accounting return.

Roger's Home Appliances offers credit to customers it deems worthy of this privilege. To determine if a customer is worthy, the firm computes a numerical value which is used to estimate the probability that the customer will default if credit is granted to them. The process of computing this numerical value is referred to as: A. credit scoring. B. credit capacity. C. receipts assessment. D. conditions for credit. E. consumer analysis.

A one-for-four reverse stock split will: A. increase the par value by 25 percent. B. increase the number of shares outstanding by 400 percent. C. increase the market value but not affect the par value per share. D. increase a $1 par value to $4. E. increase a $1 par value to $5.

A project has a required payback period of three years. Which one of the following statements is correct concerning the payback analysis of this project? A. The cash flows in each of the three years must exceed one-third of the project's initial cost if the project is to be accepted. B. The cash flow in year three is ignored. C. The project's cash flow in year three is discounted by a factor of (1 + R)3. D. The cash flow in year two is valued just as highly as the cash flow in year one. E. The project is acceptable whenever the payback period exceeds three years.

A project with financing type cash flows is typified by a project that has which one of the following characteristics? A. conventional cash flows B. cash flows that extend beyond the acceptable payback period C. a year or more in the middle of a project where the cash flows are equal to zero D. a cash inflow at time zero E. cash inflows which are equal in amount

A reverse stock split is defined as: A. an increase in the number of shares outstanding that does not affect owners' equity. B. a firm buying back existing shares of its stock on the open market. C. a firm selling new shares of stock on the open market. D. a decrease in the number of shares outstanding that does not affect owners' equity. E. a decrease in both the number of shares outstanding and the price per share.

All new interstate security issues are regulated by the: A. registration statement. B. Green Shoe provision. C. Securities Exchange Act of 1934. D. Securities Act of 1933. E. Federal Reserve Act of 1931.

An increase in which one of the following will decrease the cash cycle, all else equal? A. payables turnover B. days sales in inventory C. operating cycle D. inventory turnover rate E. accounts receivable period

An individual investor with a small portfolio who wishes to purchase 100 shares of each IPO is more likely to receive an allocation of shares when: A. an IPO is substantially oversubscribed than when it is not. B. the knowledgeable investors feel the issue is underpriced. C. an IPO is severely underpriced. D. an IPO is undersubscribed. E. he or she has a standing order with the underwriter to purchase shares in every IPO handled by that underwriter.

Automatic dividend reinvestment plans: I. require that stockholders reinvest all of the dividends to which they are entitled. II. sometimes grant shareholders the privilege of purchasing additional shares at a discounted price. III. help shareholders create their own homemade dividend policies. IV. help make corporate dividend policies irrelevant to individual stockholders. A. II only B. III only C. II and III only D. II, III, and IV only E. I, II, III, and IV

Check kiting is: A. used by most firms as an ethical means of handling its cash reserves. B. the process of withdrawing all funds from a bank account as soon as the funds are available. C. the central core of a good cash management system. D. using uncollected cash to invest in short-term, liquid assets. E. increasingly popular due to recent banking law changes.

Collection float: A. is more desirable to firms than disbursement float. B. is totally eliminated by the installation of a lockbox system. C. exists when a firm's available balance exceeds its book balance. D. can be avoided by collecting payments electronically at the time of sale. E. is eliminated by implementing a concentration banking system.

Decreasing which one of the following will increase the acceptability of a project? A. sunk costs B. salvage value C. depreciation tax shield D. equivalent annual cost E. accounts payable requirement

Dividend payments are mailed on which one of the following dates? A. ex-rights date B. ex-dividend date C. date of record D. date of payment E. declaration date

GT Motors regularly issues short-term debt to finance its daily operations. Suddenly, the credit markets froze and no funds were available for borrowing. Fortunately, the firm had some cash reserves saved that it was able to use to fund its operations until additional credit was available. The need to retain cash for situations such as this is referred to as which one of the following motives for holding cash? A. speculative B. float C. compensating D. precautionary E. transaction

Kristi wants to start training her most junior assistant, Amy, in the art of project analysis. Amy has just started college and has no experience or background in business finance. To get her started, Kristi is going to assign the responsibility for all projects that have initial costs less than $1,000 to Amy to analyze. Which method is Kristi most apt to ask Amy to use in making her initial decisions? A. discounted payback B. profitability index C. internal rate of return D. payback E. average accounting return

Metal Designs, Inc., historically produced products for inventory. Now, the firm only produces a product when it receives an actual order from a customer. All else equal, this change will: A. increase the operating cycle. B. lengthen the accounts receivable period. C. shorten the accounts payable period. D. decrease the cash cycle. E. decrease the inventory turnover rate.

Money market securities have which of the following characteristics? I. long maturities II. low default risk III. high degree of liquidity IV. low rates of return A. I and III only B. II and III only C. I and IV only D. II, III, and IV only E. I, II, III, and IV

Net working capital: A. can be ignored in project analysis because any expenditure is normally recouped at the end of the project. B. requirements, such as an increase in accounts receivable, create a cash inflow at the beginning of a project. C. is rarely affected when a new product is introduced. D. can create either a cash inflow or a cash outflow at time zero of a project. E. is the only expenditure where at least a partial recovery can be made at the end of a project.

Phil's Print Shop grants its customers the right to pay for their print jobs within 30 days of the date of service. This 30-day period is referred to as the: A. payables period. B. cash cycle. C. transactions period. D. credit period. E. disbursement period.

Preston Industries has two separate divisions. Each division is in a separate line of business. Division A is the largest division and represents 70 percent of the firm's overall sales. Division A is also the riskier of the two divisions. Division B is the smaller and least risky of the two. When management is deciding which of the various divisional projects should be accepted, the managers should: A. allocate more funds to Division A since it is the largest of the two divisions. B. fund all of Division B's projects first since they tend to be less risky and then allocate the remaining funds to the Division A projects that have the highest net present values. C. allocate the company's funds to the projects with the highest net present values based on the firm's weighted average cost of capital. D. assign appropriate, but differing, discount rates to each project and then select the projects with the highest net present values. E. fund the highest net present value projects from each division based on an allocation of 70 percent of the funds to Division A and 30 percent of the funds to Division B.

Scholastic Toys is considering developing and distributing a new board game for children. The project is similar in risk to the firm's current operations. The firm maintains a debt-equity ratio of 0.40 and retains all profits to fund the firm's rapid growth. How should the firm determine its cost of equity? A. by adding the market risk premium to the aftertax cost of debt B. by multiplying the market risk premium by (1 - 0.40) C. by using the dividend growth model D. by using the capital asset pricing model E. by averaging the costs based on the dividend growth model and the capital asset pricing model

Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent: A. 3 months. B. 6 months. C. 180 days. D. 2 years. E. 5 years.

Southern Chicken is considering two projects. Project A consists of creating an outdoor eating area on the unused portion of the restaurant's property. Project B would use that outdoor space for creating a drive-thru service window. When trying to decide which project to accept, the firm should rely most heavily on which one of the following analytical methods? A. profitability index B. internal rate of return C. payback D. net present value E. accounting rate of return

Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at any time over the next year. This arrangement is called a(n): A. floor loan. B. open loan. C. compensating balance. D. line of credit. E. bank note.

Taylor's Tools declared a $0.48 per share dividend on Friday, March 7. The dividend will be paid on Monday, April 7. The ex-dividend date is Tuesday, March 18. What is the record date? A. Friday, March 14 B. Monday, March 17 C. Wednesday, March 19 D. Thursday, March 20 E. Friday, March 21

The ABC approach to inventory management is based on the concept that: A. inventory should arrive just in time to be used. B. the inventory period should be constant for all inventory items. C. basic inventory items that are essential to production and also inexpensive should be ordered in small quantities only. D. a small percentage of the inventory items probably represents a large percentage of the inventory cost. E. one-third of a year's inventory need should be on hand, another third should be on order, and the last third should not be ordered yet.

The Lumber Mart recently replaced its management team. As a result, the firm is implementing a restrictive short-term policy in place of the flexible policy under which the firm had been operating. Which of the following should the employees expect as a result of this policy change? I. reduction in sales due to stock outs II. greater inventory selection III. decreased sales due to the new accounts receivable credit policy IV. decreased investment in marketable securities A. I and II only B. II and IV only C. I, II, and IV only D. I, III, and IV only E. I, II, III, and IV

The Securities and Exchange Commission: A. verifies the accuracy of the information contained in the prospectus. B. verifies the accuracy of the information contained in the red herring. C. examines the registration statement during the Green Shoe period. D. is concerned only that an issue complies with all rules and regulations. E. determines the final offer price once they have approved the registration statement.

The cost of preferred stock is computed the same as the: A. pre-tax cost of debt. B. return on an annuity. C. aftertax cost of debt. D. return on a perpetuity. E. cost of an irregular growth common stock.

The date on which a shareholder is officially listed as the recipient of stock rights is called the: A. issue date. B. offer date. C. declaration date. D. holder-of-record date. E. ex-rights date.

The depreciation tax shield is best defined as the: A. amount of tax that is saved when an asset is purchased. B. tax that is avoided when an asset is sold as salvage. C. amount of tax that is due when an asset is sold. D. amount of tax that is saved because of the depreciation expense. E. amount by which the aftertax depreciation expense lowers net income.

The final decision on which one of two mutually exclusive projects to accept ultimately depends upon which one of the following? A. initial cost of each project B. timing of the cash inflows C. total cash inflows of each project D. required rate of return E. length of each project's life

The internal rate of return is defined as the: A. maximum rate of return a firm expects to earn on a project. B. rate of return a project will generate if the project in financed solely with internal funds. C. discount rate that equates the net cash inflows of a project to zero. D. discount rate which causes the net present value of a project to equal zero. E. discount rate that causes the profitability index for a project to equal zero.

The length of time between the day a firm purchases an item from its supplier until the day that supplier is paid for that purchase is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

The operating cash flow for a project should exclude which one of the following? A. taxes B. variable costs C. fixed costs D. interest expense E. depreciation tax shield

The option that is foregone so that an asset can be utilized by a specific project is referred to as which one of the following? A. salvage value B. wasted value C. sunk cost D. opportunity cost E. erosion

The period of time that extends from the day a credit sale is made until the day the bank credits a firm's account with the payment for that sale is known as the _____ period. A. float B. cash collection C. sales D. accounts receivable E. discount

The present value of an investment's future cash flows divided by the initial cost of the investment is called the: A. net present value. B. internal rate of return. C. average accounting return. D. profitability index. E. profile period.

The profitability index is most closely related to which one of the following? A. payback B. discounted payback C. average accounting return D. net present value E. modified internal rate of return

The stand-alone principle advocates that project analysis should be based solely on which one of the following costs? A. sunk B. total C. variable D. incremental E. fixed

The value of a right depends upon: I. the number of rights required to purchase one new share. II. the market price of the security. III. the subscription price. IV. the price-earnings ratio of the stock. A. II and III only B. II and IV only C. I and II only D. I, II, and III only E. I, II, III, and IV

Tony currently owns 12,000 shares of GL Tools. He has just been notified that the firm is issuing additional shares of stock and that he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called? A. best efforts offer B. firm commitment offer C. general cash offer D. rights offer E. priority offer

Under credit terms of 1/5, net 15, customers should: A. always pay on the 15th day. B. take the 5 percent discount and pay immediately. C. take the discount and pay on the day following the day of sale. D. either take the discount or pay on the 15th day. E. both take the discount and pay on the 15th day.

What is a prospectus? A. a letter issued by the SEC authorizing a new issue of securities B. a report stating that the SEC recommends a new security to investors C. a letter issued by the SEC that outlines the changes required for a registration statement to be approved D. a document that describes the details of a proposed security offering along with relevant information about the issuer E. an advertisement in a financial newspaper that describes a security offering

What is a seasoned equity offering? A. an offering of shares by shareholders for repurchase by the issuer B. shares of stock that have been recommended for purchase by the SEC C. equity securities held by a firm's founder that are being offered for sale to the general public D. sale of newly issued equity shares by a firm that is currently publicly owned E. a set number of equity shares that are issued and offered to the public annually

When credit policy is at the optimal point, the: A. total costs of granting credit will be maximized. B. carrying costs of credit will be equal to zero. C. opportunity cost of credit will be equal to zero. D. carrying costs will equal the opportunity costs. E. total costs will equal the opportunity costs.

When evaluating the creditworthiness of a customer, the term character refers to the: A. nature of the cash flows of the customer's business. B. customer's financial resources. C. types of assets the customer wants to pledge as collateral. D. customer's willingness to pay bills in a timely fashion. E. nature of the customer's line of work.

Which of the following are considered weaknesses in the average accounting return method of project analysis? I. exclusion of time value of money considerations II. need of a cutoff rate III. easily obtainable information for computation IV. based on accounting values A. I only B. I and IV only C. II and III only D. I, II, and IV only E. I, II, III, and IV

Which of the following balance sheet accounts are affected by a small stock dividend? I. cash II. common stock III. retained earnings IV. capital in excess of par value A. I and III only B. II and III only C. II and IV only D. II, III, and IV only E. I, II, III, and IV

Which of the following should be included in the analysis of a new product? I. money already spent for research and development of the new product II. reduction in sales for a current product once the new product is introduced III. increase in accounts receivable needed to finance sales of the new product IV. market value of a machine owned by the firm which will be used to produce the new product A. I and III only B. II and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

Which of the following statements generally apply to the cash flows of a financing type project? I. nonconventional cash flows II. cash outflows exceed cash inflows prior to any time value adjustments III. cash for services rendered is received prior to the cash that is spent providing the services IV. the total of all cash flows must equal zero on an unadjusted basis A. I only B. I and III only C. II and IV only D. I, II, and III only E. I, II, III, and IV

Which one of the following will decrease the net present value of a project? A. increasing the value of each of the project's discounted cash inflows B. moving each of the cash inflows forward to a sooner time period C. decreasing the required discount rate D. increasing the project's initial cost at time zero E. increasing the amount of the final cash inflow

Which two methods of project analysis were the most widely used by CEO's as of 1999? A. net present value and payback B. internal rate of return and payback C. net present value and average accounting return D. internal rate of return and net present value E. payback and average accounting return

Which two of the following are the key considerations for a seller who is establishing the length of the credit period being offered to a customer? I. seller's operating cycle II. customer's operating cycle III. seller's inventory period IV. customer's inventory period A. I and II B. II and III C. III and IV D. II and IV E. I and IV

Which of the following statements correctly reflect the effects of granting credit to customers? I. Total revenues may increase if both the quantity sold and the price per unit increase when credit is granted. II. A firm's cash cycle generally increases if credit is granted, all else equal. III. Both the cost of default and the cost of discounts must be considered before granting credit. IV. A firm may have to increase its long-term borrowing if it decides to grant credit to its customers. A. I, II, and III only B. II, III, and IV only C. I, III, and IV only D. I, II, and IV only E. I, II, III, and IV

A stock split: A. increases the total value of the common stock account. B. decreases the value of the retained earnings account. C. increases the par value per share. D. increases the value of the capital in excess of par account. E. decreases the market value per share.

All else constant, which one of the following will increase a firm's cost of equity if the firm computes that cost using the security market line approach? Assume the firm currently pays an annual dividend of $1 a share and has a beta of 1.2. A. a reduction in the dividend amount B. an increase in the dividend amount C. a reduction in the market rate of return D. a reduction in the firm's beta E. a reduction in the risk-free rate

Allison has developed a set of procedures for determining the amount of each raw material that she needs to have in inventory if she is to keep her firm's assembly lines operating efficiently. These procedures are commonly referred to by which one of the following terms? A. first-in, first-out method B. the Baumol model C. net working capital planning D. economic order procedures E. materials requirements planning

An account into which a firm transfers funds, usually from a master account, in an amount sufficient to cover the checks presented for payment that day is called a _____ account. A. lockbox B. cleanup C. compensating balance D. revolving E. controlled disbursement

Assume each month has 30 days and a firm has a 60-day accounts receivable period. During the second calendar quarter of the year, that firm will collect payment for the sales it made during which of the following months? A. October, November, and December B. November, December, and January C. December, January, and February D. January, February, and March E. February, March, and April

At the optimal order quantity size, the: A. total cost of holding inventory is fully offset by the restocking costs. B. carrying costs are equal to zero. C. restocking costs are equal to zero. D. total costs equal the carrying costs. E. carrying costs equal the restocking costs.

Central Supply purchased a toboggan for inventory this morning and paid cash for it. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire offer of 25,000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share. What type of underwriting was this? A. best efforts B. shelf C. over subscribed D. private placement E. firm commitment

Direct business loans typically ranging from one to five years are called: A. private placements. B. debt SEOs. C. notes payable. D. debt IPOs. E. term loans.

Disbursements float: A. occurs when a deposit is recorded but the funds are unavailable. B. causes the book balance to exceed the bank balance. C. has tended to increase since the enactment of the Check Clearing Act for the 21st Century. D. is a recommended source of funds for short-term investments. E. is eliminated when payments are made electronically.

Douglass Interiors is considering two mutually exclusive projects and have determined that the crossover rate for these projects is 11.7 percent. Project A has an internal rate of return (IRR) of 15.3 percent and Project B has an IRR of 16.5 percent. Given this information, which one of the following statements is correct? A. Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR. B. Project B should be accepted as it has the higher IRR. C. Both projects should be accepted as both of the project's IRRs exceed the crossover rate. D. Neither project should be accepted since both of the project's IRRs exceed the crossover rate. E. You cannot determine which project should be accepted given the information provided.

The basic factors to be evaluated in the credit evaluation process, the five Cs of credit, are: A. conditions, control, cessation, capital, and capacity. B. conditions, character, capital, control, and capacity. C. capital, collateral, control, character, and capacity. D. character, capacity, control, cessation, and collateral. E. character, capacity, capital, collateral, and conditions.

The bid price is: A. an aftertax price. B. the aftertax contribution margin. C. the highest price you should charge if you want the project. D. the only price you can bid if the project is to be profitable. E. the minimum price you should charge if you want to earn a target return on investment.

The cash found in a cash drawer that a check-out clerk uses to make change is an example of which of the following motives for holding cash? A. speculative B. daily float C. compensating balance D. precautionary E. transaction

The discount rate assigned to an individual project should be based on: A. the firm's weighted average cost of capital. B. the actual sources of funding used for the project. C. an average of the firm's overall cost of capital for the past five years. D. the current risk level of the overall firm. E. the risks associated with the use of the funds required by the project.

The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations? I. firms that have a 100 percent retention ratio II. firms that pay a constant dividend III. firms that pay an increasing dividend IV. firms that pay a decreasing dividend A. I and II only B. I and III only C. II and III only D. I, II, and III only E. II, III, and IV only

The equivalent annual cost considers which of the following? I. required rate of return II. operating costs III. need for replacement IV. economic life A. I and II only B. II and IV only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV

Which of the following statements related to the BAT model is correct? I. The BAT model is used to determine the target cash balance for a firm. II. The BAT model is rarely used in business due to its complex nature. III. The BAT model is a model that helps eliminate a firm's collection float. IV. One disadvantage of the BAT model is the fact that it assumes all cash outflows are known with certainty. A. I and II only B. III and IV only C. II and III only D. I and III only E. I and IV only

Which of the following statements related to the internal rate of return (IRR) are correct? I. The IRR method of analysis can be adapted to handle non-conventional cash flows. II. The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the crossover rate. III. The IRR tends to be used more than net present value simply because its results are easier to comprehend. IV. Both the timing and the amount of a project's cash flows affect the value of the project's IRR. A. I and II only B. III and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

Which of the following tends to increase the ability of a shareholder to create his or her own homemade dividend policy? I. low taxes on capital gains II. dividend reinvestment plans III. large holdings of shares IV. low cost equity purchases A. II only B. II and III only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

Which of the following will reduce collection time? I. billing customers electronically rather than by mail II. accepting debit cards but not checks as payment for a sale III. offering cash discounts for early payment IV. reducing the processing delay by one day A. I and II only B. I and III only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

Which one of the five Cs of credit refers to a firm's financial reserves? A. character B. capacity C. collateral D. conditions E. capital

Which one of the following actions will tend to increase the accounts receivable period? Assume the accounts receivable period is currently 34 days. A. tightening the standards for granting credit to customers B. refusing to grant additional credit to any customer who pays late C. increasing the finance charges applied to all customer balances outstanding over thirty days D. granting discounts for cash sales E. eliminating the discount for early payment by credit customers

Which one of the following factors tends to favor longer credit periods? A. high consumer demand B. lower priced merchandise C. increased credit risk D. merchandise with low collateral value E. increased competition

Which one of the following increases cash? A. granting credit to a customer B. purchasing new machinery C. making a payment on a bank loan D. purchasing inventory E. accepting credit from a supplier

Which one of the following is a direct result of a 2-for-1 stock split? A. a 100 percent increase in the number of shareholders B. a 100 percent increase in the common stock account balance C. a 100 percent decrease in the stock price D. a 50 percent increase in the number of shares outstanding E. a 50 percent decrease in the par value per share

Which one of the following is a preliminary prospectus? A. tombstone B. green shoe C. registration statement D. rights offer E. red herring

Which one of the following is a project acceptance indicator given an independent project with investing type cash flows? A. profitability index less than 1.0 B. project's internal rate of return less than the required return C. discounted payback period greater than requirement D. average accounting return that is less than the internal rate of return E. modified internal rate of return that exceeds the required return

The equivalent annual cost method is useful in determining: A. which one of two machines to purchase if the machines are mutually exclusive, have differing lives, and are a one-time purchase. B. the tax shield benefits of depreciation given the purchase of new assets for a project. C. the operating cash flows of a cost-cutting project. D. which one of two investments to accept when the investments have different required rates of return. E. which one of two machines should be purchased when the machines are mutually exclusive, have different machine lives, and will be replaced once they are worn out.

The fact that flotation costs can be significant is an argument for: A. a firm to issue larger dividends than its closest competitors. B. a firm to maintain a constant dividend policy even if it frequently has to issue new C. shares. D. maintaining a constant dividend policy even when profits decline significantly. E. maintaining a high dividend policy. F. maintaining a low dividend policy and rarely issuing extra dividends.

The internal rate of return: A. may produce multiple rates of return when cash flows are conventional. B. is best used when comparing mutually exclusive projects. C. is rarely used in the business world today. D. is principally used to evaluate small dollar projects. E. is easy to understand.

The most common means of financing a temporary cash deficit is a: A. long-term secured bank loan. B. short-term secured bank loan. C. short-term issue of corporate bonds. D. long-term unsecured bank loan. E. short-term unsecured bank loan.

The net book value of equipment will: A. remain constant over the life of the equipment. B. vary in response to changes in the market value. C. decrease at a constant rate when MACRS depreciation is used. D. increase over the taxable life of an asset. E. decrease slower under straight-line depreciation than under MACRS.

The operating cash flow of a cost cutting project: A. is equal to the depreciation tax shield. B. is equal to zero because there is no incremental sales. C. can only be analyzed by projecting the sales and costs for a firm's entire operations. D. includes any changes that occur in the current accounts. E. can be positive even though there are no sales.

The optimal investment in current assets for an operating firm occurs at the point where: A. both shortage costs and carrying costs equal zero. B. shortage costs are equal to zero. C. carrying costs are equal to zero. D. carrying costs exceed shortage costs. E. the total costs of holding current assets is minimized.

The terms of sale generally include which of the following? I. type of credit instrument II. cash discount III. credit period IV. discount period A. I and III only B. II and IV only C. III and IV only D. II, III, and IV only E. I, II, III, and IV

The weighted average cost of capital for a firm may be dependent upon the firm's: I. rate of growth. II. debt-equity ratio. III. preferred dividend payment. IV. retention ratio. A. I and III only B. II and IV only C. I, II, and IV only D. I, III, and IV only E. I, II, III, and IV

There are two distinct discount rates at which a particular project will have a zero net present value. In this situation, the project is said to: A. have two net present value profiles. B. have operational ambiguity. C. create a mutually exclusive investment decision. D. produce multiple economies of scale. E. have multiple rates of return.

To purchase shares in a rights offering, a shareholder generally just needs to: A. pay the subscription amount in cash. B. submit the required form along with the required number of rights. C. pay the difference between the market price of the stock and the subscription price. D. submit the required number of rights along with a payment for the underwriting fee. E. submit the required number of rights along with the subscription price.

What is the definition of a syndicate? A. a venture capitalist B. a group of attorneys providing services for an IPO C. block of investors who control a firm D. a bank that loans funds to finance the start-up of a new firm E. a group of underwriters sharing the risk of selling a new issue of securities

What is the form called that is filed with the SEC and discloses the material information on a securities issuer when that issuer offers new securities to the general public? A. prospectus B. red herring C. indenture D. public disclosure statement E. registration statement

What is the information content effect? A. any type of new information that causes a firm to cease paying dividends B. any news announcement that was anticipated and thus produces no reaction from investors C. the primary contributing data that helps directors determine the amount of a particular dividend payment D. any type of reaction from a shareholder in response to a news announcement related to the stock issuer E. the financial market's reaction to a change in the amount of a firm's dividend

What is the primary purpose of credit analysis? A. determine the optimal credit period B. establish the effectiveness of granting a cash discount C. determine the optimal discount period, if any D. access the frequency and amount of sales by customer E. evaluate whether or not a customer will pay

Which of the following actions will tend to decrease the inventory period? I. discontinuing all slow-selling merchandise II. selling obsolete inventory below cost just to get rid of it III. buying raw materials only as needed for the manufacturing process IV. producing goods on demand versus for inventory A. I and III only B. II and IV only C. II, III, and IV only D. I, II, and III only E. I, II, III, and IV

Which of the following are frequently used as sources of information when trying to ascertain the creditworthiness of a customer? I. payment history with similar firms II. credit reports III. financial statements IV. information provided by a bank A. I and III only B. II and IV only C. I and II only D. I, II, and III only E. I, II, III, and IV

Which of the following have been offered as supporting arguments in favor of IPO underpricing? I. Underpricing counteracts the "winner's curse". II. Underpricing rewards institutional investors for sharing their opinions of a stock's market value. III. Underpricing diminishes the underwriting risk of a firm commitment underwriting. IV. Underpricing reduces the probability that investors will sue the underwriters. A. I and III only B. II and IV only C. I and II only D. I, II, and III only E. I, II, III, and IV

Which of the following should be considered when selecting a venture capitalist? I. level of involvement II. past experiences III. termination of funding IV. financial strength A. I and III only B. II and IV only C. I, III, and IV only D. I, II, and IV only E. I, II, III, and IV

Which of the following should help reduce the total collection time for a firm? I. opening a post office box so mail can be received earlier in the morning II. assigning additional staff in the morning to process incoming payments III. providing a discount for customers who pay electronically IV. establishing preauthorized payments from customers A. I and II only B. III and IV only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV

Which of the following statements are correct? I. The SML approach is dependent upon a reliable measure of a firm's unsystematic risk. II. The SML approach can be applied to firms that retain all of their earnings. III. The SML approach assumes a firm's future risks are similar to its past risks. IV. The SML approach assumes the reward-to-risk ratio is constant. A. I and III only B. II and IV only C. III and IV only D. I, II, and III only E. II, III, and IV only

Which one of the following is a result of a small stock dividend? A. increase in retained earnings B. decrease in total owner's equity C. decrease in cash D. decrease in capital in excess of par value E. increase in common stock

Which one of the following is a result of a stock repurchase? A. increase in the number of shares outstanding B. increase in the market price per share C. increase in the total equity of the repurchasing firm D. decrease in EPS E. PE ratio equal to that resulting from a comparable cash dividend

Which one of the following is the best example of two mutually exclusive projects? A. building a retail store that is attached to a wholesale outlet B. producing both plastic forks and spoons on the same assembly line at the same time C. using an empty warehouse to store both raw materials and finished goods D. promoting two products during the same television commercial E. waiting until a machine finishes molding Product A before being able to mold Product B

Which one of the following is the primary determinant of a firm's cost of capital? A. debt-equity ratio B. applicable tax rate C. cost of equity D. cost of debt E. use of the funds

Which one of the following methods of analysis provides the best information on the cost-benefit aspects of a project? A. net present value B. payback C. internal rate of return D. average accounting return E. profitability index

Which one of the following refers to the ability of shareholders to undo a firm's dividend policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock? A. perfect foresight model B. personalization C. recapitalization D. offsetting leverage E. homemade dividend policy

Which one of the following statements is correct? A. Net float decreases every time a firm issues a check to pay one of its suppliers. B. A positive net float indicates that collection float exceeds disbursements float. C. Firms prefer a zero net float over a positive net float. D. Net float is equal to collection float minus disbursement float. E. Net float is equal to a firm's available balance minus its book balance.

Which one of the following statements is correct? A. The quiet period commences when a registration statement is filed with the SEC and ends on the day the IPO shares commence trading. B. Lockup agreements outline how oversubscribed IPO shares will be allocated. C. Additional IPO shares can be issued in accordance with the lockup agreement. D. Quiet period restrictions only apply to the issuer of new securities. E. A TV interview with a firm's CFO could cause a forced delay in the firm's IPO.

Which one of the following statements related to payback and discounted payback is correct? A. Payback is a better method of analysis than is discounted payback. B. Discounted payback is used more frequently in business than is payback. C. Discounted payback does not require a cutoff point like the payback method does. D. Discounted payback is biased towards long-term projects while payback is biased towards short-term projects. E. Payback is used more frequently even though discounted payback is a better method.

Which one of the following statements related to stock repurchases is correct? A. U.S. industrial firms have increased their stock repurchases every year for each of the past twenty years. B. A stock repurchase can be used as a means for incumbent officers to retain control of a firm. C. A tender offer indicates that a firm is willing and able to purchase how ever many shares the current shareholders wish to sell. D. All stock repurchases must be identified as such to the selling party. E. Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders.

Which one of the following statements is correct? A. The subjective approach assesses the risks of each project and assigns an adjustment factor that is unique just for that project. B. Overall, a firm makes better decisions when it uses the subjective approach than when it uses its WACC as the discount rate for all projects. C. Firms will correctly accept or reject every project if they adopt the subjective approach. D. Mandatory projects should only be accepted if they produce a positive NPV when the firm's WACC is used as the discount rate. E. The pure play approach should only be used with low-risk projects.

Which one of the following statements related to cash dividends is correct? A. Extra cash dividends cannot be repeated in the future. B. A dividend is never a liability until it has been declared. C. If a firm has paid regular quarterly dividends for at least five consecutive years it is legally obligated to continue doing so. D. Regular cash dividends reduce paid-in capital. E. The dividend yield expresses the annual dividend as a percentage of net income.

Which one of the following will increase the accounts payable period, all else constant? A. an increase in the cost of goods sold account value B. an increase in the ending accounts payable balance C. an increase in the cash cycle D. a decrease in the operating cycle E. an increase in the accounts payable turnover rate

Which two of the following are most apt to cause a cash-out for a firm that is generally financially sound? I. fixed expenses II. fixed asset purchases III. flexible financing policy IV. highly seasonal sales A. I and III only B. II and IV only C. III and IV only D. I, II, and III only E. II, III, and IV only

Which two of the following are the best justifications for a reverse stock split? I. combine a reverse stock split with a stock repurchase to enable a firm to go dark II. increase the respectability of the stock III. avoid delisting IV. reduce transaction costs for shareholders A. I and II only B. I and III only C. II and III only D. II and IV only E. III and IV only

Which two of the following are the key elements in determining whether or not a switch from a no-credit policy to a credit policy is advisable? I. variable cost per unit II. cash discount percentage III. credit price IV. default rate A. I and III only B. II and IV only C. II and III only D. I and IV only E. III and IV only

With Dutch auction underwriting: A. each winning bidder pays the price he or she bid. B. all successful bidders pay the same price. C. all bidders receive at least a portion of the quantity for which they bid. D. the selling firm receives the maximum possible price for each security sold. E. the bidder for the largest quantity receives the first allocation of securities.

You have recently been hired as an accounting intern for Jefferson Mills. The job that you have been assigned for today is to compile a spreadsheet that has six columns. The column headings are: Invoice #; Customer name; < 30 days; 31-60 days; 61-90 days; > 90 days. You are to list every unpaid invoice by customer name with the amount owed entered into the appropriate column for the number of days between the sale date and today. Once you have completed that, you are to sort the report by customer name and then total the amounts listed in each column. What is this report called? A. credit report B. aging schedule C. risk assessment report D. turnover delineation E. receivables consolidation report

A $0.60 quarterly cash payment paid by T.L. Jones & Co. to its shareholders in the normal course of business is called a: A. repurchase. B. liquidating dividend. C. regular cash dividend. D. special dividend. E. extra cash dividend.

A conditional sales contract: A. passes title to the goods sold to the buyer at the time the contract is signed. B. normally calls for one lump sum payment on the contract payment date. C. generally has a built-in interest cost. D. is payable immediately upon receipt. E. is a formal bid for a project.

A firm wants to maintain a minimum stock price of $15 a share. Due to a recent market downturn, the stock is currently selling for $6 a share. The firm should consider a: A. 3-for-1 stock split. B. 4-for-1 stock split. C. 1-for-3 reverse stock split. D. 1-for-4 reverse stock split. E. 1-for-5 reverse stock split.

A firm with a flexible short-term financial policy will: A. maintain a low balance in accounts receivables. B. only have minimal amounts, if any, invested in marketable securities. C. invest heavily in inventory. D. have low cash balances. E. have tight restrictions on granting credit to customers.

A firm's overall cost of equity is: A. is generally less that the firm's WACC given a leveraged firm. B. unaffected by changes in the market risk premium. C. highly dependent upon the growth rate and risk level of the firm. D. generally less than the firm's aftertax cost of debt. E. inversely related to changes in the firm's tax rate.

A project's average net income divided by its average book value is referred to as the project's average: A. net present value. B. internal rate of return. C. accounting return. D. profitability index. E. payback period.

A small stock dividend is defined as a stock dividend of less than _____ percent. A. 10 to 15 B. 15 to 20 C. 20 to 25 D. 25 to 30 E. 30 to 35

A zero-balance account: A. is used to cover the compensating balance requirement of a line of credit agreement. B. is only used to deposit funds received at local lockboxes. C. is funded on an as-needed basis only. D. is limited to handling payroll disbursements. E. requires a compensating balance.

An account into which funds are deposited only in an amount equal to the value of the checks presented for payment that day is called a _____ account. A. lockbox B. concentration C. zero-balance D. compensating balance E. revolving

Any written proof that a customer owes you money for goods or services provided is referred to as a(n): A. account document. B. sales draft. C. credit instrument. D. commercial paper. E. letter of debt.

Assume that RSF is a wholly-owned subsidiary of the Rolled Steel Company. RSF provides credit financing solely for large ticket items purchased from the Rolled Steel Company. Which one of the following terms describes RSF? A. credit department B. parent company C. captive finance company D. credit union E. service unit

Bell Weather Markets has recently sold for as little as $8 a share and as much as $15 a share. The difference between these two prices is referred to as the: A. price variance. B. bid-ask spread. C. trading range. D. opening price. E. closing price.

Bill is in charge of the inventory for Home Builder's Supply. As an inventory item gets low, he is to restock the item by a quantity that minimizes the total inventory costs for that item. What is this restocking quantity called? A. short order quantity B. refill unit quantity C. economic order quantity D. minimum stock level E. re-order limit

Dan is comparing three machines to determine which one to purchase. The machines sell for differing prices, have differing operating costs, differing machine lives, and will be replaced when worn out. Which one of the following computational methods should Dan use as the basis for his decision? A. internal rate of return B. operating cash flow C. equivalent annual cost D. depreciation tax shield E. bottom-up operating cash flow

Danielle's is a furniture store that is considering adding appliances to its offerings. Which of the following should be considered incremental cash flows of this project? I. utilizing the credit offered by a supplier to purchase the appliance inventory II. benefiting from increased furniture sales to appliance customers III. borrowing money from a bank to fund the appliance project IV. purchasing parts for inventory to handle any appliance repairs that might be necessary A. I and II only B. III and IV only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV

Which one of the following time periods is included in the accounts receivable period but not in the cash collection period? A. the period of time between the receipt of a check and the availability of those funds B. time it takes a firm to process incoming receipts C. period of time a check is in the mail D. the amount of time that it takes a bank to credit a firm's account for a deposit made E. period of time it takes an invoice to reach a customer by mail

Which one of the following will increase a bid price? A. a decrease in the fixed costs B. a reduction in the net working capital requirement C. a reduction in the firm's tax rate D. an increase in the salvage value E. an increase in the required rate of return

Which one of the following will increase a firm's investment in accounts receivables? A. a decrease in the number of days for which credit is granted B. a decrease in credit sales C. an increase in cash sales D. a decrease in the average collection period E. an increase in average daily credit sales

Which one of the following will increase net working capital? Assume the current ratio is greater than 1.0. A. paying a supplier for a previous purchase B. paying off a long-term debt C. selling inventory at cost D. purchasing inventory on credit E. selling inventory at a profit on credit

Which two of the following are the primary reasons why firms temporarily accumulate large cash surpluses? I. cyclical activities II. desire to invest funds III. daily operations IV. fixed asset purchases A. I and III only B. II and IV only C. I and II only D. III and IV only E. I and IV only

Why do firms need liquidity? I. to meet compensating balance requirements II. to take advantage of an opportunity that suddenly arises III. to conduct daily business activities IV. to be prepared for a financial emergency A. I and II only B. III and IV only C. I, III, and IV only D. II, III, and IV only E. I, II, III, and IV

With firm commitment underwriting, the issuing firm: A. is unsure of the total amount of funds it will receive until after the offering is completed. B. is unsure of the number of shares it will actually issue until after the offering is completed. C. knows exactly how many shares will be purchased by the general public during the offer period. D. retains the financial risk associated with unsold shares. E. knows up-front the amount of money it will receive from the stock offering.

You are considering switching from an all cash credit policy to a net 30 credit policy. You do not expect the switch to affect either your sales quantity or your sales price. Ignoring interest and assuming that every month has 30 days, your net present value of the switch will be equal to: A. zero. B. your selling price per unit. C. your selling price per unit multiplied by -1. D. your selling price per unit multiplied by -30. E. your total monthly sales multiplied by -1.

You are considering the purchase of a new machine. Your analysis includes the evaluation of two machines which have differing initial and ongoing costs and differing lives. Whichever machine is purchased will be replaced at the end of its useful life. You should select the machine which has the: A. longest life. B. highest annual operating cost. C. lowest annual operating cost. D. highest equivalent annual cost. E. lowest equivalent annual cost.

Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project's internal rate of return? A. decreasing the required discount rate B. increasing the initial investment in fixed assets C. condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows D. eliminating the salvage value E. decreasing the amount of the final cash inflow

Textile Mills borrows money at a rate of 13.5 percent. This interest rate is referred to as the: A. compound rate. B. current yield. C. cost of debt. D. capital gains yield. E. cost of capital.

The EOQ model is designed to determine how much: A. total inventory a firm needs in any one year. B. total inventory costs will be for any one given year. C. inventory should be purchased at a time. D. inventory will be sold per day. E. a firm loses in sales per day when an inventory item is depleted.

The Harvester collects 25 percent of sales in the month of sale, 60 percent of sales in the month following the month of sale, and 15 percent of sales in the second month following the month of sale. During the month of April, the firm will collect: A. 60 percent of February sales. B. 15 percent of April sales. C. 60 percent of March sales. D. 15 percent of March sales. E. 25 percent of February sales.

The amount paid to an underwriter who participates in a standby underwriting agreement is called a(n): A. gross spread. B. optional spread. C. standby fee. D. additional fee. E. oversubscription fee.

The bid price always assumes which one of the following? A. A project has a one-year life. B. The aftertax net income of the project is zero. C. The net present value of the project is zero. D. Any assets purchased will have a positive salvage value at the end of the project. E. Assets will be depreciated based on MACRS.

The board of directors of Wilson Sporting Equipment met this afternoon and passed a resolution to pay a cash dividend of $0.42 a share next month. In relation to this dividend, today is referred to as which one of the following dates? A. decision date B. date-of-record C. declaration date D. payment date E. ex-dividend date

The cost of equity for a firm: A. tends to remain static for firms with increasing levels of risk. B. increases as the unsystematic risk of the firm increases. C. ignores the firm's risks when that cost is based on the dividend growth model. D. equals the risk-free rate plus the market risk premium. E. equals the firm's pretax weighted average cost of capital.

The dividend market is in equilibrium when: A. all firms adopt a low dividend policy. B. half of the firms adopt a low dividend policy and half adopt a high dividend policy. C. all clienteles are satisfied. D. dividends remain constant and no special dividends are declared. E. the total amount of the annual dividends is equal to the net income for the year.

The incremental investment in receivables under the accounts receivable approach is equal to: A. P - vQ′. B. PQ′. C. PQ + v(Q′ - Q). D. P(Q′ - Q). E. PQ(Q′ - Q).

The information content of a dividend increase generally signals that: A. the firm has a one-time surplus of cash. B. the firm has few, if any, net present value projects to pursue. C. management believes earnings growth will be strong going forward. D. the firm has more cash than it needs due to a decline in future orders. E. dividends thereafter will be lower.

The internal rate of return is: A. the discount rate that makes the net present value of a project equal to the initial cash outlay. B. equivalent to the discount rate that makes the net present value equal to one. C. tedious to compute without the use of either a financial calculator or a computer. D. highly dependent upon the current interest rates offered in the marketplace. E. a better methodology than net present value when dealing with unconventional cash flows.

The last date on which you can purchase shares of stock and still receive the dividend is the date which is _____ business days prior to the date of record. A. 1 B. 2 C. 3 D. 4 E. 5

The length of time between the sale of inventory and the collection of the payment for that sale is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

The main purpose of a cash concentration account is to: A. decrease collection float. B. decrease disbursement float. C. consolidate funds. D. replace a lockbox system. E. cover compensating balance requirements.

The operating cycle describes how a product: A. is priced. B. is sold. C. moves through the current asset accounts. D. moves through the production process. E. generates a profit.

The optimal amount of credit equates the incremental costs of carrying the increase in accounts receivable to the incremental: A. decrease in the cash cycle. B. benefit from decreasing the inventory level. C. cash flows from increased sales. D. increase in bad debts. E. gain in net profits.

The subjective approach to project analysis: A. is used only when a firm has an all-equity capital structure. B. uses the WACC of firm X as the basis for the discount rate for a project under consideration by firm Y. C. assigns discount rates to projects based on the discretion of the senior managers of a firm. D. allows managers to randomly adjust the discount rate assigned to a project once the project's beta has been determined. E. applies a lower discount rate to projects that are financed totally with equity as compared to those that are partially financed with debt.

The total direct costs of underwriting an equity IPO: A. tends to increase on a percentage basis as the proceeds of the IPO increase. B. is generally between 7 and 8 percent, regardless of the issue size. C. can be as high as 25 percent for small issues. D. excludes the gross spread. E. excludes both the gross spread and the underpricing cost.

The weighted average cost of capital for a wholesaler: A. is equivalent to the aftertax cost of the firm's liabilities. B. should be used as the required return when analyzing a potential acquisition of a retail outlet. C. is the return investors require on the total assets of the firm. D. remains constant when the debt-equity ratio changes. E. is unaffected by changes in corporate tax rates.

Town Hardware sells goods on credit with payment due 30 days after purchase. If payment is not received by the 30th day, the store mails a friendly reminder to the customer. If payment is not received by the 45th day, the store calls the customer and requests payment and also stops offering credit to that customer. These procedures are referred to as the store's: A. customer service policy. B. credit policy. C. collection policy. D. payables policy. E. disbursements policy.

Trevor is the CEO of Harvest Foods, which is a privately-held corporation. What is the first step he must take if he wishes to take Harvest Foods public? A. select an underwriter B. obtain SEC approval C. gain board approval D. prepare a registration statement E. distribute a prospectus

Underwriters generally: A. pay a spread to the issuing firm. B. provide only best efforts underwriting in the U.S. C. receive less compensation under a competitive agreement than under a negotiated agreement. D. market and distribute an entire issue of new securities within their own firm. E. pass the risk of unsold shares back to the issuing firm via a firm commitment agreement.

Western Beef Exporters is considering a project that has an NPV of $32,600, an IRR of 15.1 percent, and a payback period of 3.2 years. The required return is 14.5 percent and the required payback period is 3.0 years. Which one of the following statements correctly applies to this project? A. The net present value indicates accept while the internal rate of return indicates reject. B. Payback indicates acceptance. C. The payback decision rule could override the accept decision indicated by the net present value. D. The payback rule will automatically be ignored since both the net present value and the internal rate of return indicate an accept decision. E. The net present value decision rule is the only rule that matters when making the final decision.

What is an issue of securities that is offered for sale to the general public on a direct cash basis called? A. best efforts underwriting B. firm commitment underwriting C. general cash offer D. rights offer E. herring offer

Which of the following account balance changes occur as a result of a large stock dividend? I. increase in common stock II. decrease in capital in excess of par III. increase in capital in excess of par IV. decrease in retained earnings A. I and III only B. II and IV only C. I and IV only D. II and III only E. I, III, and IV only

Which of the following are advantages of the payback method of project analysis? I. works well for research and development projects II. liquidity bias III. ease of use IV. arbitrary cutoff point A. I and II only B. I and III only C. II and III only D. II and IV only E. II, III, and IV only

Which of the following costs related to holding cash are minimized when the level of cash a firm holds is optimized? A. opportunity costs B. trading costs C. total costs D. both trading and opportunity costs E. trading costs, opportunity costs, and total costs

Which of the following shareholders tend to favor a high dividend policy? I. retired individuals II. endowment funds III. corporate investors IV. investors with high dividend tax rates but low capital gains tax rates A. I and III only B. II and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

Which of the following statements is (are) correct? I. An increase in the accounts payable period shortens the cash cycle. II. The cash cycle is equal to the operating cycle minus the inventory period. III. A negative cash cycle is preferable to a positive cash cycle. IV. The cash cycle plus the accounts receivable period is equal to the operating cycle. A. I only B. III and IV only C. I and III only D. I and IV only E. I, II, and III only

Which of the following tend to keep dividends low? I. shareholders desiring current income II. terms contained in bond indenture agreements III. the desire to maintain constant dividends over time IV. flotation costs A. II and III only B. I and IV only C. II, III, and IV only D. I, II, and III only E. I, II, III, and IV

Which one of the five Cs of credit refers to the general economic situation in the customer's line of business? A. capacity B. character C. conditions D. capital E. collateral

Which one of the following best describes the concept of erosion? A. expenses that have already been incurred and cannot be recovered B. change in net working capital related to implementing a new project C. the cash flows of a new project that come at the expense of a firm's existing cash flows D. the alternative that is forfeited when a fixed asset is utilized by a project E. the differences in a firm's cash flows with and without a particular project

Which one of the following costs was incurred in the past and cannot be recouped? A. incremental B. side C. sunk D. opportunity E. erosion

Which one of the following dates is used to determine the names of shareholders who will receive a dividend payment? A. ex-rights date B. ex-dividend date C. date of record D. date of payment E. declaration date

Which one of the following inventory items is probably the least liquid? A. plywood held in inventory by a home builder B. a wheel barrow held in inventory by a garden center C. a partially assembled interior for a new vehicle D. a set of tires owned by an automobile manufacturer E. a toy owned by a retail toy store

Which one of the following inventory items is probably the most liquid? A. a custom made set of kitchen cabinets B. metal cabinets for dishwashers C. wheat stored in a grain silo D. a customized drilling press E. a partially built modular home

Which one of the following inventory-related costs is considered a shortage cost? A. storage costs B. insurance cost C. cost of safety reserves D. obsolescence cost E. opportunity cost of capital used for inventory purchases

Which one of the following is a correct method for computing the operating cash flow of a project assuming that the interest expense is equal to zero? A. EBIT + D B. EBIT - T C. NI + D D. (Sales - Costs) × (1 - D) × (1- T) E. (Sales - Costs) × (1 - T)

Which one of the following is a key goal of the aftermarket period? A. collection of largest number of Dutch auction bids as possible B. best determination of a fair offer price for an upcoming IPO C. price support for a new issue of securities D. establishment of a broad-based underwriting syndicate for an upcoming IPO E. widest distribution of red herrings as possible

Which one of the following is a project cash inflow? Ignore any tax effects. A. decrease in accounts payable B. increase in inventory C. decrease in accounts receivable D. depreciation expense based on MACRS E. equipment acquisition

Which one of the following statements concerning dilution is correct? A. Dilution of percentage ownership occurs whenever an investor participates in a rights offer. B. Market value dilution increases as the net present value of a project increases. C. Market value dilution occurs when the net present value of a project is negative. D. Neither book value dilution nor market value dilution has any direct bearing on individual shareholders. E. Book value dilution is the cause of market value dilution.

Which one of the following statements is correct concerning zero-balance accounts? A. Each zero-balance account is offset by a compensating balance account. B. Zero-balance accounts are used for depositing incoming funds. C. A master account must be used in conjunction with a zero-balance account. D. Zero-balance accounts are used solely in conjunction with a lockbox system. E. Zero-balance accounts are still required to maintain a minimal balance.

Which one of the following statements is correct? A. Firms prefer to cut dividend payments rather than borrow money to fund a short-term cash need. B. Share repurchases tend to increase agency costs. C. Maintaining a steady dividend is a key goal of most dividend-paying firms. D. Tax rates are the key factor in determining a firm's dividend policy. E. Stock prices tend to ignore expected changes in dividend payments.

Which one of the following statements is correct? A. Firms should accept low risk projects prior to funding high risk projects. B. Making subjective adjustments to a firm's WACC when determining project discount rates unfairly punishes low-risk divisions within a firm. C. A project that is unacceptable today might be acceptable tomorrow given a change in market returns. D. The pure play method is most frequently used for projects involving the expansion of a firm's current operations. E. Firms that elect to use the pure play method for determining a discount rate for a project cannot subjectively adjust the pure play rate.

Which one of the following statements is correct? A. Funds received via automated clearinghouse transfers are available that day. B. A depository transfer check is the most costly means of transferring funds into a cash concentration account. C. The means selected to transfer funds into a concentration account depends primarily upon the size of the transfers. D. Concentration accounts are used to transfer funds to lockbox locations as needed. E. The most expedient means of transferring funds into a concentration account is a wire transfer.

Which one of the following statements is correct? A. If the majority of a firm's new customers become repeat customers then there is a strong argument against extending credit even if the default rate is low. B. A customer's past payment history reveals little information in relation to his or her future tendency to pay. C. A suggested policy for offering credit to new customers is to limit the amount of their initial credit purchase. D. The risk of issuing credit is the same for a new customer as it is for an existing customer. E. The recommended credit policy for new customers is to extend the maximum amount of credit you will ever be willing to offer as an enticement to get their business.

Which one of the following statements is correct? A. Money market accounts are low-risk, high-return investments. B. The rate of return earned on short-term securities tends to exceed that earned on long-term securities. C. U.S. Treasury bills are well suited for short-term investments. D. The income earned on U.S. Treasury bills is exempt from all taxation. E. Short-term investments tend to have high levels of default risk.

Which one of the following statements is correct? A. Seasonal needs are financed externally when firms adhere to a flexible financing policy. B. A flexible financing policy tends to increase the risk of encountering financial distress. C. Long-term interest rates tend to be less volatile than short-term rates. D. Most firms tend to finance inventory with long-term debt. E. Short-term interest rates are generally higher than long-term rates.

Which one of the following statements is correct? A. The credit period begins when the discount period ends. B. The discount period is the length of time granted to a customer to pay for a purchase. C. The credit period begins on the invoice date. D. With terms of 2/10, net 30, the net credit period is 20 days. E. With EOM dating, all sales are assumed to have occurred on the 15th of each month.

Which one of the following statements is correct? A. A firm with a restrictive financing policy secures sufficient long-term financing to fund all its assets. B. A firm with a flexible financing policy frequently invests in marketable securities. C. A firm with a flexible financing policy tends to use short-term financing on a frequent basis. D. Firms tend to avoid short-term financing under both restrictive and flexible financing policies. E. Firms with seasonal sales select flexible financing policies.

Which one of the following statements related to dividend policy is correct? A. The primary question related to dividend policy is whether or not a firm should ever pay a dividend. B. Both dividends and dividend policy are irrelevant. C. Dividend policy focuses on the timing of dividend payments. D. Homemade dividends increase the importance of a firm's dividend policy decisions. E. Whether or not a firm ever pays a dividend is irrelevant to equity valuation.

Which one of the following statements is correct for a firm that uses debt in its capital structure? A. The WACC should decrease as the firm's debt-equity ratio increases. B. When computing the WACC, the weight assigned to the preferred stock is based on the coupon rate multiplied by the par value of the preferred. C. The firm's WACC will decrease as the corporate tax rate decreases. D. The weight of the common stock used in the computation of the WACC is based on the number of shares outstanding multiplied by the book value per share. E. The WACC will remain constant unless a firm retires some of its debt.

Which one of the following statements is correct? A. An aging schedule helps identify those customers who are the most delinquent. B. The percentage of total receivables that falls within a certain time period on an aging schedule will remain constant over time even if the firm has seasonal sales. C. Normally firms call their delinquent customers prior to sending them a past due letter. D. A constant average collection period over a period of time is cause for concern. E. It is common practice when a customer files for bankruptcy to sell that customer's receivable at face value. Refer to section 20.6

A cash discount of 2/5, net 30: A. grants customers 30 days to pay after the discount period expires. B. offers customers a maximum of 30 days credit. C. grants free credit for a period of 30 days. D. charges a higher price to a cash customer than to a customer who pays in 2 days. E. grants customers 2 days to pay if they want the 5 percent discount.

A company that utilizes the MACRS system of depreciation: A. will have equal depreciation costs each year of an asset's life. B. will have a greater tax shield in year two of a project than it would have if the firm had opted for straight-line depreciation, given the same depreciation life. C. can depreciate the cost of land, if it so desires. D. will expense less than the entire cost of an asset. E. cannot expense any of the cost of a new asset during the first year of the asset's life.

A graphical representation of the operating and cash cycles is called a(n): A. operating chart. B. cash flow time line. C. production flow line. D. component chart. E. working time line.

A group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc. What is the return that these individuals require on this investment called? A. dividend yield B. cost of equity C. capital gains yield D. cost of capital E. income return

A lockbox system: A. entails the use of a bank which is centrally located to collect payments on a nationwide basis. B. is designed to deposit a customer's check into the firm's bank account prior to recording the receipt of that check to a customer's account. C. is used to reduce the disbursement float of a firm. D. is efficient regardless of the locations selected for lockbox destinations. E. automatically records payments to a customer's account when the customer's check is received at the lockbox location.

Which one of the following statements related to the SML approach to equity valuation is correct? Assume the firm uses debt in its capital structure. A. This model considers a firm's rate of growth. B. The model applies only to non-dividend paying firms. C. The model is dependent upon a reliable estimate of the market risk premium. D. The model generally produces the same cost of equity as the dividend growth model. E. This approach generally produces a cost of equity that equals the firm's overall cost of capital.

A manufacturing firm has a 90-day collection period. The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the fourth quarter of a year. The firm maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters. The firm is most apt to face a cash-out situation in: A. the first quarter. B. the second quarter. C. the third quarter. D. the fourth quarter. E. any quarter with equal probabilities of occurrence.

A project has a discounted payback period that is equal to the required payback period. Given this, which of the following statements must be true? I. The project must also be acceptable under the payback rule. II. The project must have a profitability index that is equal to or greater than 1.0. III. The project must have a zero net present value. IV. The project's internal rate of return must equal the required return. A. I only B. I and II only C. II and III only D. I, III, and IV only E. I, II, III, and IV

A repurchase agreement generally has a maximum life of: A. 1 day. B. a few days. C. one month. D. one to three months. E. three to six months.

Adjustment costs is another name for which one of the following? A. borrowing costs B. shortage costs C. cash transfer costs D. cash wire costs E. excess cash costs

Advertisements in a financial newspaper announcing a public offering of securities, along with a list of the investment banks handling the offering, are called: A. red herrings. B. tombstones. C. Green Shoes. D. registration statements. E. cash offers.

All else equal, the market value of a stock will tend to decrease by roughly the aftertax value of the dividend on the: A. dividend declaration date. B. ex-dividend date. C. date of record. D. date of payment. E. day after the date of payment.

All of the following are related to a proposed project. Which of these should be included in the cash flow at time zero? I. purchase of $1,400 of parts inventory needed to support the project II. loan of $125,000 used to finance the project III. depreciation tax shield of $1,100 IV. $6,500 of equipment needed to commence the project A. I and II only B. I and IV only C. II and IV only D. I, II, and IV only E. I, II, III, and IV

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive? A. bad debts B. accounts receivable turnover rate C. accounts receivable period D. credit sales E. operating cycle

An investor is more likely to prefer a high dividend payout if a firm: A. has high flotation costs. B. has few, if any, positive net present value projects. C. has lower tax rates than the investor. D. has a stock price that is increasing rapidly. E. offers substantial gains on its equities, which are taxed at a favorable rate.

Before a seasoned stock offering, you owned 7,500 shares of a firm that had 500,000 shares outstanding. After the seasoned offering, you still owned 7,500 shares but the number of shares outstanding rose to 625,000. Which one of the following terms best describes this situation? A. overallotment B. percentage ownership dilution C. Green Shoe D. Red herring E. abnormal event

Billingsley United declared a $0.20 a share dividend on Thursday, October 16. The dividend will be paid on Monday, November 10 to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date? A. Tuesday, October 28 B. Wednesday, October 29 C. Thursday, October 30 D. Wednesday, November 5 E. Thursday, November 6

Brown Trucking is buying a U.S. Treasury bill today with the understanding that the seller will buy it back tomorrow at a slightly higher price. This investment is known as a: A. commercial paper transaction. B. repurchase agreement. C. private certificate of deposit. D. revenue anticipation note. E. bill anticipation note.

Costs that decrease as a firm acquires additional current assets are called _____ costs. A. carrying B. shortage C. debt D. equity E. payables

Float is defined as the: A. amount of cash a firm can immediately withdraw from its bank account. B. difference between book cash and bank cash. C. change in a firm's cash balance from one accounting period to the next. D. amount of cash a firm has on hand. E. cash balance according to a firm's records.

Which one of the following statements is correct? A. Project analysis should only include the cash flows that affect the income statement. B. A project can create a positive operating cash flow without affecting sales. C. The depreciation tax shield creates a cash outflow for a project. D. Interest expense should always be included as a cash outflow when analyzing a project. E. The opportunity cost of a company-owned building that is going to be used in a new project should be included as a cash inflow to the project.

Which one of the following statements is correct? A. The assignment of receivables involves selling the firm's accounts receivables at full price. B. Lines of credit frequently require a cleanup period. C. With maturity factoring, the borrower receives the loan amount immediately. D. Commercial paper is short-term financing offered to highly-rated corporations by major banks. E. Credit card receivables funding is a relatively inexpensive method of borrowing on a short-term basis.

Franklin Minerals recently had a rights offering of 1,000 shares at an offer price of $10 a share. Isabelle is a shareholder who exercised her rights option by buying all of the rights to which she was entitled based on the number of shares she owns. Currently, there are six shareholders who have opted not to participate in the rights offering. Isabelle would like to purchase the unsubscribed shares. Which one of the following will allow her to do so? A. standby provision B. oversubscription privilege C. open offer privilege D. new issues provision E. overallotment provision

Graphing the crossover point helps explain: A. why one project is always superior to another project. B. how decisions concerning mutually exclusive projects are derived. C. how the duration of a project affects the decision as to which project to accept. D. how the net present value and the initial cash outflow of a project are related. E. how the profitability index and the net present value are related.

Steve owns 3,000 shares of NOP, Inc. stock, which he purchased six years ago at a price of $22 a share. Today, these shares are selling for $68 each. Assume the current tax laws are such that Steve is subject to a tax rate of 25 percent on both his dividend income and his capital gains. From Steve's point of view, a stock repurchase today: (Ignore costs) A. is equivalent to a cash dividend in all respects. B. is more desirable than a cash dividend in respect to taxes. C. will result in the same tax liability as an equivalent cash dividend. D. is more highly taxed than a cash dividend. E. is totally unacceptable to him.

The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the _____ period. A. silent B. quiet C. lockup D. green E. red

The BAT model is used to: A. maximize the benefits of leverage. B. determine the optimal cash position of a firm. C. eliminate all daily cash surpluses. D. analyze the cash balance given fluctuating cash inflows and outflows. E. maximize the opportunity costs of holding cash.

The aftertax cost of debt generally increases when: I. a firm's bond rating increases. II. the market rate of interest increases. III. tax rates decrease. IV. bond prices rise. A. I and III only B. II and III only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV

The bottom-up approach to computing the operating cash flow applies only when: A. both the depreciation expense and the interest expense are equal to zero. B. the interest expense is equal to zero. C. the project is a cost-cutting project. D. no fixed assets are required for a project. E. both taxes and the interest expense are equal to zero.

The capital structure weights used in computing the weighted average cost of capital: A. are based on the book values of total debt and total equity. B. are based on the market value of the firm's debt and equity securities. C. are computed using the book value of the long-term debt and the book value of equity. D. remain constant over time unless the firm issues new securities. E. are restricted to the firm's debt and common stock.

The common stock of Pierson Enterprises has historically had a high dividend yield and is expected to continue to do so. As a result, the majority of its shareholders are individuals and entities that are seeking a regular source of cash income. Most of these shareholders pay either no taxes or a relatively low amount of taxes. The fact that most of these shareholders have similar characteristics is referred to by which one of the following terms? A. information content effect B. clientele effect C. efficient markets hypothesis D. distribution effect E. market reaction effect

The current book value of a fixed asset that was purchased two years ago is used in the computation of which one of the following? A. depreciation tax shield B. tax due on the salvage value of that asset C. current year's operating cash flow D. change in net working capital E. MACRS depreciation for the current year

The ex-dividend date is defined as _____ business day(s) before the date of record. A. 1 B. 2 C. 3 D. 5 E. 10

The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles? A. underlying value principle B. stand-alone principle C. equivalent cost principle D. salvage principle E. fundamental principle

The length of time a firm must wait to recoup the money it has invested in a project is called the: A. internal return period. B. payback period. C. profitability period. D. discounted cash period. E. valuation period.

The length of time that elapses between the day a firm purchases an inventory item and the day that item sells is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

The primary difference between a line of credit and a revolving credit arrangement is the: A. type of collateral used to secure the loan. B. length of the credit period. C. fact that the line of credit is a secured loan and the revolving credit arrangement is unsecured. D. fact that the line of credit is an unsecured loan and the revolving credit arrangement is secured. E. classification as either a committed or a noncommitted loan.

The weighted average cost of capital for a firm is the: A. discount rate which the firm should apply to all of the projects it undertakes. B. rate of return a firm must earn on its existing assets to maintain the current value of its stock. C. coupon rate the firm should expect to pay on its next bond issue. D. minimum discount rate the firm should require on any new project. E. rate of return shareholders should expect to earn on their investment in this firm.

When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to: A. increase. B. decrease. C. remain constant. D. respond but the direction of the response is not predictable as shown by past studies. E. decrease momentarily and then immediately increase substantially within an hour following the announcement.

When a manager develops a cost of capital for a specific project based on the cost of capital for another firm which has a similar line of business as the project, the manager is utilizing the _____ approach. A. subjective risk B. pure play C. divisional cost of capital D. capital adjustment E. security market line

When the present value of the cash inflows exceeds the initial cost of a project, then the project should be: A. accepted because the internal rate of return is positive. B. accepted because the profitability index is greater than 1. C. accepted because the profitability index is negative. D. rejected because the internal rate of return is negative. E. rejected because the net present value is negative.

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 and II B. I and III C. I and IV D. II and IIII E. II and IV

Which of the following are benefits derived from short-term financial planning? I. having advance notice of when your firm will require external financing II. being able to determine the extent of time for which a loan is required III. having the ability to time capital expenditures in order to place the least financial burden possible on a firm IV. knowing for certain what your cash balance will be six months in advance A. I and III only B. I, II, and III only C. II, III, and IV only D. I, II, and IV only E. I, II, III, and IV

Which of the following are sources of cash? I. decrease in inventory II. increase in accounts receivable III. repayment of a bond IV. sale of preferred stock A. I and III only B. I and IV only C. II and III only D. I, II, and III only E. I, III, and IV only

Which of the following are uses of cash? I. collecting a receivable II. increasing inventory III. obtaining a bank loan IV. paying a supplier for previous purchases A. I and III only B. II and IV only C. I and II only D. I, II, and IV only E. II, III, and IV only

Which of the following determines the length of the operating cycle? I. cash cycle II. inventory period III. accounts payable period IV. accounts receivable period A. I and III only B. II and IV only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV

Which of the following statements is correct? A. A firm has a greater likelihood of needing an unexpected loan when its cash flows are relatively constant over time. B. The cost of borrowing affects the target cash balance of a firm. C. Management's desire to maintain a low cash balance has no effect on the borrowing needs of a firm. D. The target cash balance increases as the interest rate rises. E. The target cash balance decreases as the order costs increase.

Which of the following will increase the operating cycle? I. increasing the inventory turnover rate II. increasing the payables period III. decreasing the receivable turnover rate IV. decreasing the inventory level A. I only B. III only C. II and IV only D. I and IV only E. II and III only

Which one of the following does not affect the total equity of a firm but does increase the number of shares outstanding? A. special dividend B. stock split C. share repurchase D. rights offer E. liquidating dividend

Which one of the following equals the operating cycle? A. cash cycle plus accounts receivable period B. inventory period plus the accounts receivable period C. inventory period plus the accounts payable period D. accounts payable period minus the cash cycle E. accounts payable period plus the accounts receivable period

Which one of the following involves a payment in shares by a stock issuer that increases the number of shares a shareholder owns but also decreases the value per share? A. cash dividend B. stock dividend C. stock repurchase D. stock split E. reverse stock split

Which one of the following is the depreciation method which allows accelerated write-offs of property under various lifetime classifications? A. IRR B. ACRS C. AAR D. straight-line to zero E. straight-line with salvage

Which one of the following items is most likely a derived-demand inventory item? A. cereal ready to be bagged and shipped to stores B. tires held in inventory by an auto maker C. shoes on display in a retail store D. toys ready to be shipped to toy stores E. wheat harvested by a farmer

Which one of the following managers determines when a supplier will be paid? A. controller B. payables manager C. credit manager D. purchasing manager E. production manager

Which one of the following managers determines which customers must pay cash and which can charge their purchases? A. purchasing manager B. credit manager C. controller D. production manager E. payables manager

Which one of the following methods of project analysis is defined as computing the value of a project based upon the present value of the project's anticipated cash flows? A. constant dividend growth model B. discounted cash flow valuation C. average accounting return D. expected earnings model E. internal rate of return

Which one of the following statements concerning venture capitalists is correct? A. Venture capitalists assume management responsibility for the firms they finance. B. Exit strategy is a key consideration when selecting a venture capitalist. C. Venture capitalists limit their services to providing money to start-up firms. D. Most venture capitalists are long-term investors in a firm. E. A venture capitalist normally invests in a new idea and finances that idea until the newly-formed firm can issue an IPO.

Which one of the following statements is correct concerning bid prices? A. The bid price is the maximum price that a firm should bid. B. A firm can submit a bid that is higher than the computed bid price and still break even. C. A bid price ignores taxes. D. A bid price should be computed based solely on the operating cash flows of the project. E. A bid price should be computed based on a zero percent required rate of return.

Which one of the following statements is correct concerning the issuance of long-term debt? A. A direct long-term loan has to be registered with the SEC. B. Direct placement debt tends to have more restrictive covenants than publicly issued debt. C. Distribution costs are lower for public debt than for private debt. D. It is easier to renegotiate public debt than private debt. E. Wealthy individuals tend to dominate the private debt market.

Which one of the following statements is correct if you purchase an item with credit terms of 1/5, net 15? A. If you pay within 1 day, you will receive a 5 percent discount. B. If you pay within 5 days, you will receive a 1 percent discount. C. If you do not pay within 15 days, you will be charged interest at a 1.5 percent monthly rate. D. If you pay within 15 days, you will receive a 1/5th percent discount. E. You must pay the discounted amount within 15 days.

Which one of the following statements is correct in relation to independent projects? A. The internal rate of return cannot be used to determine the acceptability of a project that has financing type cash flows. B. A project with investing type cash flows is acceptable if its internal rate of return exceeds the required return. C. A project with financing type cash flows is acceptable if its internal rate of return exceeds the required return. D. The net present value profile is upsloping for projects with both investing and financing type cash flows. E. Projects with financing type cash flows are acceptable only when the internal rate of return is negative.

Which one of the following statements related to the internal rate of return (IRR) is correct? A. The IRR yields the same accept and reject decisions as the net present value method given mutually exclusive projects. B. A project with an IRR equal to the required return would reduce the value of a firm if accepted. C. The IRR is equal to the required return when the net present value is equal to zero. D. Financing type projects should be accepted if the IRR exceeds the required return. E. The average accounting return is a better method of analysis than the IRR from a financial point of view.

Which one of the following statements would generally be considered as accurate given independent projects with conventional cash flows? A. The internal rate of return decision may contradict the net present value decision. B. Business practice dictates that independent projects should have three distinct accept indicators before a project is actually implemented. C. The payback decision rule could override the net present value decision rule should cash availability be limited. D. The profitability index rule cannot be applied in this situation. E. The projects cannot be accepted unless the average accounting return decision ruling is positive.

Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0. A. selling inventory at cost B. collecting payment from a customer C. paying a payment on a long-term debt D. selling a fixed asset for book value E. paying a supplier for the purchase of an inventory item

Which one of the following will decrease the operating cycle? A. decreasing the inventory turnover rate B. decreasing the accounts payable period C. increasing the accounts receivable turnover rate D. increasing the accounts payable period E. increasing the accounts receivable period

Which one of the following would make a project unacceptable? A. cash inflow for net working capital at time zero B. requiring fixed assets that would have no salvage value C. an equivalent annual cost that exceeds that of an alternative project D. lack of revenue generation E. a depreciation tax shield that exceeds the value of the interest expense

Which two methods of project analysis are the most biased towards short-term projects? A. net present value and internal rate of return B. internal rate of return and profitability index C. payback and discounted payback D. net present value and discounted payback E. discounted payback and profitability index

Why is payback often used as the sole method of analyzing a proposed small project? A. Payback considers the time value of money. B. All relevant cash flows are included in the payback analysis. C. It is the only method where the benefits of the analysis outweigh the costs of that analysis. D. Payback is the most desirable of the various financial methods of analysis. E. Payback is focused on the long-term impact of a project.

Yesterday, the president of RB Enterprises received a phone call from DLK, a competitor. DLK is a sole proprietorship. An unexpected family situation has caused the owner to suddenly want to retire and relocate closer to his family. Thus, the assets of DLK are being offered to RB Enterprises at a bargain basement price. While RB Enterprises had not anticipated purchasing these assets, it was decided that the opportunity was too good to pass up. This illustrates which of the following needs to hold cash? A. precautionary B. transaction C. speculative D. compensation E. float

You are comparing two mutually exclusive projects. The crossover point is 12.3 percent. You have determined that you should accept project A if the required return is 13.1 percent. This implies you should: A. always accept project A. B. be indifferent to the projects at any discount rate above 13.1 percent. C. always accept project A if the required return exceeds the crossover rate. D. accept project B only when the required return is equal to the crossover rate. E. accept project B if the required return is less than 13.1 percent.

You are viewing a graph that plots the NPVs of a project to various discount rates that could be applied to the project's cash flows. What is the name given to this graph? A. project tract B. projected risk profile C. NPV profile D. NPV route E. present value sequence

You are viewing a graph which compares costs with the amount of credit extended. Both the carrying costs and the opportunity costs of credit are depicted. What is the function called that represents the summation of these carrying and opportunity costs? A. opportunity cost curve B. credit extension curve C. credit cost curve D. terms of sale graph E. optimal sales graph

A firm's total investment in receivables depends primarily on the firm's: A. total sales and cash discount period. B. cash to credit sales ratio. C. bad debt ratio. D. average collection period and amount of credit sales. E. amount of credit sales and cash discount percentage.

A flexible short-term financial policy: I. increases shortage costs due to frequent cash-outs. II. tends to increase sales as compared to a restrictive policy. III. requires a sizeable investment in current assets. IV. incurs more carrying costs than a restrictive policy. A. I and IV only B. II and III only C. I, II, and III only D. II, III, and IV only E. I, III, and IV only

A just-in-time inventory system: I. when implemented properly reduces the cost of inventory to zero. II. increases the inventory turnover rate. III. is sufficient to handle immediate production needs. IV. minimizes the costs of holding inventory. A. I and III only B. II and IV only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV

High Point Hotel (HPH) has $165,000 in accounts receivable. To finance a major purchase, the company assigns these receivables to Cross Town Bank. Which one of the following statements correctly describes this transaction? A. HPH will immediately receive $165,000 and will have no further obligation related to these receivables. B. HPH will receive some amount of cash immediately while maintaining full responsibility for any uncollected receivables. C. Cross Town Bank accepts full responsibility for the collection of the accounts receivables and, in exchange, immediately pays HPH a discounted value for its receivables. D. Cross Town Bank accepts full responsibility for collecting the accounts receivables and pays HPH a discounted price for the accounts collected after the normal collection period has elapsed. E. HPH receives the full amount of its receivables upon assignment but must reimburse Cross Town Bank for any uncollected account.

If a project has a net present value equal to zero, then: A. the total of the cash inflows must equal the initial cost of the project. B. the project earns a return exactly equal to the discount rate. C. a decrease in the project's initial cost will cause the project to have a negative NPV. D. any delay in receiving the projected cash inflows will cause the project to have a positive NPV. E. the project's PI must be also be equal to zero.

If you extend credit for a one-time sale to a new customer you risk an amount equal to: A. the sales price of the item sold. B. the variable cost of the item sold. C. the fixed cost of the item sold. D. the profit margin on the item sold. E. zero.

If you ignore taxes and costs, a stock repurchase will: I. reduce the total assets of a firm. II. decrease the earnings per share. III. reduce the PE ratio more so than an equivalent stock dividend. IV. reduce the total equity of a firm. A. I and III only B. I and IV only C. II and IV only D. I, III, and IV only E. II, III, and IV only

If you pay your suppliers five days sooner, then: A. your payables turnover rate will decrease. B. you may require additional funds from other sources to fund the cash cycle. C. the cash cycle will decrease. D. your operating cycle will increase. E. the accounts receivable period will decrease.

Inventory needs under a derived-demand inventory system are: A. primarily dependent upon the competitive demands placed on a firm's suppliers. B. based on the anticipated demand for the finished product. C. based on minimizing the cost of restocking inventory. D. held constant over time. E. determined by a kanban system.

Jillian was recently hired by a major retail store. Her job is to determine the probability that individual customers will fail to pay for their charge sales. Jillian's job best relates to which one of the following? A. terms of sale B. credit analysis C. collection policy D. payables policy E. customer service

Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7th. Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8th. Fast Deliveries declared a dividend on June 20th to shareholders of record on July 12th and payable on August 1st. Which one of the following statements concerning the dividend paid on August 1st is correct given this information? A. Neither Kate nor Ted is entitled to the dividend. B. Kate is entitled to the dividend but Ted is not. C. Ted is entitled to the dividend but Kate is not. D. Both Ted and Kate are entitled to the dividend. E. Both Ted and Kate are entitled to one-half of the dividend amount.

Lester's Frozen Foods just paid out $0.50 a share to its shareholders. The cash for these payments came from a large sale of assets, not from any earnings of the firm. What are these payments to shareholders called? A. dividends B. distributions C. repurchases D. payments-in-kind E. stock splits

Pearson Electric recently registered 250,000 shares of stock under SEC Rule 415. The firm plans to sell 150,000 shares this year and the remaining 100,000 shares next year. What type of registration was this? A. standby registration B. shelf registration C. Regulation A registration D. Regulation Q registration E. private placement registration

Revol-Tech is a technology firm with excellent growth prospects. The firm wishes to do something to acknowledge the loyalty of the shareholders but needs all of its available cash to fund the firm's rapid growth. The market price of the stock is currently trading at the upper end of its preferred trading range. The firm is most apt to consider which one of the following in this situation? A. liquidating dividend B. stock split C. reverse stock split D. small stock dividend E. special cash dividend

Roger's Meat Market is considering two independent projects. The profitability index decision rule indicates that both projects should be accepted. This result most likely does which one of the following? A. conflicts with the results of the net present value decision rule B. assumes the firm has sufficient funds to undertake both projects C. agrees with the decision that would also apply if the projects were mutually exclusive D. bases the accept/reject decision on the same variables as the average accounting return E. fails to provide useful information as the firm must reject at least one of the projects

Rossiter Restaurants is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project? A. reduction in the cash outflow at time zero B. cash inflow in the final year of the project C. cash inflow for the year following the final year of the project D. cash inflow prorated over the life of the project E. not included in the net present value

Steve has estimated the cash inflows and outflows for his hardware store for next year. The report that he has prepared recapping these cash flows is called a: A. pro forma income statement. B. sales projection. C. cash budget. D. receivables analysis. E. credit analysis.

Dexter Smith & Co. is replacing a machine simply because it has worn out. The new machine will not affect either sales or operating costs and will not have any salvage value at the end of its 5-year life. The firm has a 34 percent tax rate, uses straight-line depreciation over an asset's life, and has a positive net income. Given this, which one of the following statements is correct? A. As a project, the new machine has a net present value equal to minus one times the machine's purchase price. B. The new machine will have a zero rate of return. C. The new machine will generate positive operating cash flows, at least in the first few years of its life. D. The new machine will create a cash outflow when the firm disposes of it at the end of its life. E. The new machine creates erosion effects.

Executive Tours has decided to take its firm public and has hired an investment firm to handle this offering. The investment firm is serving as a(n): A. aftermarket specialist. B. venture capitalist. C. underwriter. D. seasoned writer. E. primary investor.

HJ Corporation has excess cash and has opted to buy some of its shares of outstanding common stock. What is this process of buying called? A. stock dividend B. stock split C. stock repurchase D. stock recap E. stock repeal

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. independent. B. interdependent. C. mutually exclusive. D. economically scaled. E. operationally distinct.

In actual practice, managers frequently use the: I. average accounting return method because the information is so readily available. II. internal rate of return because the results are easy to communicate and understand. III. discounted payback because of its simplicity. IV. net present value because it is considered by many to be the best method of analysis. A. I and III only B. II and III only C. I, II, and IV only D. II, III, and IV only E. I, II, III, and IV

Jones & Co. is funded by a group of individual investors for the sole purpose of providing funding for individuals who are trying to convert their new ideas into viable products. What is this type of funding called? A. green shoe funding B. tombstone underwriting C. venture capital D. red herring funding E. life cycle capital

Kelley's Baskets makes handmade baskets for distribution to upscale retail outlets. The firm is currently considering making handmade wreaths as well. Which one of the following is the best example of an incremental operating cash flow related to the wreath project? A. storing supplies in the same space currently used for materials storage B. utilizing the basket manager to oversee wreath production C. hiring additional employees to handle the increased workload should the firm accept the wreath project D. researching the market to determine if wreath sales might be profitable before deciding to proceed E. planning on lower interest expense by assuming the proceeds of the wreath sales will be used to reduce the firm's currently outstanding debt

Morris Industries has a capital structure of 55 percent common stock, 10 percent preferred stock, and 45 percent debt. The firm has a 60 percent dividend payout ratio, a beta of 0.89, and a tax rate of 38 percent. Given this, which one of the following statements is correct? A. The aftertax cost of debt will be greater than the current yield-to-maturity on the firm's bonds. B. The firm's cost of preferred is most likely less than the firm's actual cost of debt. C. The firm's cost of equity is unaffected by a change in the firm's tax rate. D. The cost of equity can only be estimated using the SML approach. E. The firm's weighted average cost of capital will remain constant as long as the capital structure remains constant.

Mutually exclusive projects are best defined as competing projects which: A. would commence on the same day. B. have the same initial start-up costs. C. both require the total use of the same limited resource. D. both have negative cash outflows at time zero. E. have the same life span.

Phil's is a sit-down restaurant that specializes in home-cooked meals. Theresa's is a walk-in deli that specializes in specialty soups and sandwiches. Both firms are currently considering expanding their operations during the summer months by offering pre-wrapped donuts, sandwiches, and wraps at a local beach. Phil's currently has a WACC of 14 percent while Theresa's WACC is 10 percent. The expansion project has a projected net present value of $12,600 at a 10 percent discount rate and a net present value of -$2,080 at a 14 percent discount rate. Which firm or firms should expand and offer food at the local beach during the summer months? A. Phil's only B. Theresa's only C. both Phil's and Theresa's D. neither Phil's nor Theresa's E. cannot be determined from the information provided

Roy owns 200 shares of R.T.F., Inc. He has opted not to participate in the current rights offering by this firm. As a result, Roy will most likely be subject to: A. an oversubscription cost. B. underpricing. C. dilution. D. the Green Shoe provision. E. a locked in period.

S.L. Moffatt, Inc. has paid a quarterly dividend of $1.20 per share for the last ten quarters. Which one of the following is most apt to cause the firm to reduce the amount of its next dividend payment? A. decrease in the next quarter's revenue B. decrease in the next quarter's net income C. loss of a major customer which lowers the firm's outlook for the next few years D. major lump sum cash outflow next month to settle a class action product liability lawsuit on a product that is no longer produced E. decrease in the number of new projects under consideration as compared to last year

Which one of the following collection times is correctly described? A. The processing delay starts when a firm mails out a billing statement and ends when the payment is received from a customer. B. Mailing time begins when a firm mails out a billing statement and ends when the payment is received. C. Collection time begins when a firm mails out a billing statement and ends when the cash payment for that billing is available to the firm. D. Availability delay begins when a firm deposits a customer's check into its bank account and ends when the cash from that payment is available to the firm. E. Processing delay begins when a firm mails out billing statements and ends when the firm deposits the payment for that statement into its bank account. Refer to section 19.3

Which one of the following credit instruments is commonly used in international commerce? A. open account B. sight draft C. time draft D. banker's acceptance E. promissory note

Which one of the following increases the net present value of a project? A. an increase in the required rate of return B. an increase in the initial capital requirement C. a deferment of some cash inflows until a later year D. an increase in the aftertax salvage value of the fixed assets E. a reduction in the final cash inflow

Which one of the following is probably the most successful means of finding venture capital? A. internet searches B. Dutch auctions C. newspaper advertisements D. personal contacts E. personal letters to venture capital firms

Which one of the following statements appears to be supported by the current dividend policies of U.S. industrial firms? A. Firms tend to increase the dividend amount per share, even when it's unclear if the increase can be maintained. B. Investors no longer react to changes, either up or down, in dividends. C. Newer, high-growth firms tend to pay larger dividends than mature firms. D. Dividends are still viewed by shareholders as a signal of a firm's future outlook. E. Managers are no longer hesitant to lower dividend payments.

Which one of the following statements concerning venture capital financing is correct? A. Venture capitalists desire shares of common stock but avoid preferred stock. B. Venture capital is relatively easy to obtain. C. Venture capitalists rarely assume active roles in the management of the financed firm. D. Venture capitalists often require at least a forty percent equity position as a condition of financing. E. Venture capital is relatively inexpensive in today's competitive markets.

Which one of the following statements correctly applies to U.S. industrial firms based on the period of 1984-2004? A. Earnings growth rates tend to lag dividend growth rates. B. Dividends tend to fluctuate significantly from quarter to quarter. C. The percentage of these firms paying dividends in 2004 was higher than in 1984. D. The total amount of dividends paid by these firms was greater in 2004 than in 1984. E. Non-dividend paying firms in 1984 were more apt to commence paying regular dividends than to implement a stock repurchase program.

Which one of the following statements is correct concerning a cash management system that employs both lockboxes and a concentration bank account? A. All customer payments must be submitted to a lockbox. B. The party which collects the checks from the lockbox is responsible for recording the payment on the customer's account. C. Payments received in a lockbox are transferred immediately to the concentration account. D. The firm's cash manager determines how the funds in the concentration account are disbursed. E. The concentration account must be zeroed out on a daily basis.

Which one of the following statements is correct concerning the cash balance of a firm? A. Most firms attempt to maintain a zero cash balance at all times. B. The cumulative cash surplus shown on a cash budget is equal to the ending cash balance plus the minimum desired cash balance. C. On a cash balance report, the cumulative cash surplus at the end of May is used as June's beginning cash balance. D. A cumulative cash deficit indicates a borrowing need. E. The ending cash balance must equal the minimum desired cash balance.

Which one of the following statements is correct concerning the costs of issuing securities? A. Domestic bonds are generally more expensive to issue than equity IPOs. B. Abnormal returns are rarely associated with seasoned issues. C. A seasoned offering is typically more expensive on a percentage basis than an IPO. D. There tends to be substantial economies of scale when issuing securities. E. The costs of issuing convertible bonds tend to be less on a percentage basis than the costs of issuing straight debt.

Which one of the following statements is correct in regards to credit periods? A. Perishable items tend to have longer credit periods. B. Items with low markups tend to have longer credit periods. C. Smaller accounts tend to have longer credit periods. D. Different customers may be offered different credit periods by the same firm. E. Newer products tend to have shorter credit periods.

Which one of the following statements is correct? A. The money market refers to securities that mature in two years or less. B. Banks are prohibited from investing cash surpluses on behalf of their customers on a short- term basis. C. Short-term securities tend to have a high degree of interest rate risk. D. A cyclical firm may purchase marketable securities as part of its short-term financing plan. E. Corporations are not permitted to invest in money market mutual funds but can invest in bank money market accounts.

Which one of the following statements related to stock repurchases is correct? A. An open market stock repurchase increases the total wealth of a shareholder if you ignore taxes, costs, and market imperfections. B. Targeted repurchases must be offered to all shareholders but can be done in steps such that only a portion of the shareholders have the option to sell at any one point in time. C. When a firm wishes to repurchase shares in the open market, it will do so in a special trading session that is set up by the SEC. D. A firm may spend more cash over the course of a year on stock repurchases than it does on cash dividends. E. Tender offer prices must be set equal to the opening market price on the day the tender offer is announced.

Wilderness Adventures specializes in back-country tours and resort management. Travel Excitement specializes in making travel reservations and promoting vacation travel. Wilderness Adventures has an aftertax cost of capital of 13 percent and Travel Excitement has an aftertax cost of capital of 11 percent. Both firms are considering building wilderness campgrounds complete with man-made lakes and hiking trails. The estimated net present value of such a project is estimated at $87,000 at a discount rate of 11 percent and -$12,500 at a 13 percent discount rate. Which firm or firms, if either, should accept this project? A. Wilderness Adventures only B. Travel Excitement only C. both Wilderness Adventures and Travel Excitement D. neither Wilderness Adventures nor Travel Excitement E. cannot be determined without further information

26. Which one of the following correctly applies to the average accounting rate of return? A. It considers the time value of money. B. It measures net income as a percentage of the sales generated by a project. C. It is the best method of analyzing mutually exclusive projects from a financial point of view. D. It is the primary methodology used in analyzing independent projects. E. It can be compared to the return on assets ratio. Refer to section 9.4

4. The length of time a firm must wait to recoup, in present value terms, the money it has in invested in a project is referred to as the: A. net present value period. B. internal return period. C. payback period. D. discounted profitability period. E. discounted payback period.

A compensating balance: I. is required when a firm acquires any bank financing other than a line of credit. II. increases the cost of short-term bank financing. III. may be required even if a firm never borrows funds. IV. is often used as a means of paying for banking services received. A. I and III only B. II and IV only C. II and III only D. I and IV only E. II, III, and IV only

A firm's cost of capital: A. will decrease as the risk level of the firm increases. B. for a specific project is primarily dependent upon the source of the funds used for the project. C. is independent of the firm's capital structure. D. should be applied as the discount rate for any project considered by the firm. E. depends upon how the funds raised are going to be spent.

A jumbo CD: A. is issued by the federal government. B. generally matures between 2 and 5 years. C. is a loan of $100,000 or more to a municipality. D. is a loan of $1 million or more on a short-term basis. E. is a short-term loan of $100,000 or more to a commercial bank.

A lockbox is a: A. special safe used by a firm for overnight storage of any cash or undeposited checks. B. special safe used by a firm that can only be opened at prespecified times of the day. C. box located in a bank's vault that is rented by a firm and used to hold unprocessed checks. D. special post office box which can only be opened by prespecified postal inspectors for direct delivery to the addressee. E. post office box strategically located so that a firm's receivables can be collected faster.

A project has a net present value of zero. Which one of the following best describes this project? A. The project has a zero percent rate of return. B. The project requires no initial cash investment. C. The project has no cash flows. D. The summation of all of the project's cash flows is zero. E. The project's cash inflows equal its cash outflows in current dollar terms.

A stock repurchase program: A. requires all shareholders to sell a fraction of their shares. B. is preferred over a high-dividend program only by tax-exempt shareholders. C. decreases both the number of shares outstanding and the market price per share. D. has no effect on a firm's financial statements. E. is essentially the same as a cash dividend program provided there are no taxes or other costs.

If a firm uses its WACC as the discount rate for all of the projects it undertakes then the firm will tend to: I. reject some positive net present value projects. II. accept some negative net present value projects. III. favor high risk projects over low risk projects. IV. increase its overall level of risk over time. A. I and III only B. III and IV only C. I, II, and III only D. I, II, and IV only E. I, II, III, and IV

If an IPO is underpriced then the: A. investors in the IPO are generally unhappy with the underwriters. B. issue is less likely to sell out. C. stock price will generally decline on the first day of trading. D. issuing firm is guaranteed to be successful in the long term. E. issuing firm receives less money than it probably should have.

Increasing which one of the following will increase the operating cash flow assuming that the bottom-up approach is used to compute the operating cash flow? A. erosion effects B. taxes C. fixed expenses D. salaries E. depreciation expense

Jill is the CFO of Summertime Adventures which is a seasonal firm specializing in products related to water sports. The firm purchases inventory one month before it is sold and pays for its purchases 60 days after the invoice date. Sales are highest during July and August. Currently, Jill is preparing the cash disbursements section of the firm's cash budget. Which one of the following statements is supported by this information? A. Inventory purchases will be highest during the months of July and August. B. Inventory purchases will be highest during the months of May and June. C. Payments to suppliers will be highest during the months of June and July. D. Payments to suppliers will be highest during the months of July and August. E. Payments to suppliers will be highest during the months of August and September.

Markley and Stearns is a multi-divisional firm that uses its WACC as the discount rate for all proposed projects. Each division is in a separate line of business and each presents risks unique to those lines. Given this, a division within the firm will tend to: A. receive less project funding if its line of business is riskier than that of the other divisions. B. avoid risky projects so it can receive more project funding. C. become less risky over time based on the projects that are accepted. D. have equal probability of receiving funding as compared to the other divisions. E. prefer higher risk projects over lower risk projects.

Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n): A. debenture. B. line of credit. C. banker's acceptance. D. working loan. E. inventory loan.

Scott purchased a shovel, a rake, and a wheelbarrow from The Local Hardware Store yesterday. Today, the store issued a bill for these items and mailed it to Scott. What is the name given to this bill? A. ledger statement B. warranty C. indenture D. receipt E. invoice

Shares of PLS United have been selling with rights attached. Tomorrow, the stock will sell independent of these rights. Which one of the following terms applies to tomorrow in relation to this stock? A. pre-issue date B. aftermarket date C. declaration date D. holder-of-record date E. ex-rights date

Shortage costs include which of the following? I. disruption of production schedules II. inventory ordering costs III. lost customer goodwill IV. brokerage costs A. I and II only B. II and III only C. II, III, and IV only D. I, II, and III only E. I, II, III, and IV

Soup Galore is a partnership that was formed three years ago for the purpose of creating, producing, and distributing healthy soups in a dried form. The firm has been extremely successful thus far and has decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called? A. venture capital offering B. shelf offering C. private placement D. seasoned equity offering E. initial public offering

Suzie is a chemist who has been experimenting with fragrances in her home laboratory and feels that she now has three viable perfumes that could be successfully marketed. She knows a venture capitalist who has offered to finance her business to the point where she would be ready to begin the manufacturing and marketing stage. Which type of financing is Suzie being offered? A. syndicate B. introduction C. second-stage D. mezzanine-level E. seed money

The EOQ model is designed to minimize: A. production costs. B. inventory obsolescence. C. the carrying costs of inventory. D. the costs of replenishing inventory. E. the total costs of holding inventory.

The Green Hornet offers a trade discount with terms of 2/5, EOM. Assume you purchase an item on credit from The Green Hornet on Monday, November 3. What is the invoice date for this purchase? A. November 3 B. November 5 C. November 7 D. November 8 E. November 30

The aftertax cost of debt: A. varies inversely to changes in market interest rates. B. will generally exceed the cost of equity if the relevant tax rate is zero. C. will generally equal the cost of preferred if the tax rate is zero. D. is unaffected by changes in the market rate of interest. E. has a greater effect on a firm's cost of capital when the debt-equity ratio increases.

The annual annuity stream of payments that has the same present value as a project's costs is referred to as which one of the following? A. yearly incremental costs B. sunk costs C. opportunity costs D. erosion cost E. equivalent annual cost

The average of a firm's cost of equity and aftertax cost of debt that is weighted based on the firm's capital structure is called the: A. reward to risk ratio. B. weighted capital gains rate. C. structured cost of capital. D. subjective cost of capital. E. weighted average cost of capital.

FINC Final

Ensembles d'études connexes

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