C708 - Principles of Finance - Module Quizzes/Unit Tests

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A company has $100,000 in cash, $300,000 in accounts receivable, $50,000 in inventory and a $300,000 office building. Its current liabilities are $250,000. What is the company's current ratio, and does that ratio show good short-term financial strength? A. The current ratio is 1.8, and the ratio indicates good short-term financial strength B. The current ratio is 1.8, and the ratio indicates poor short-term financial strength C. The current ratio is 3, and the ratio indicates good short-term financial strength D. The current ratio is 3, and the ratio indicates poor short-term financial strength

A

A company needs funds to expand its business by purchasing new equipment. Which financial market should the company use to raise money? A. capital market B. derivative market C. all of these D. money market

A

A portfolio has $70,000 of bonds and $30,000 of stock. The bonds are 80% likely to have a 10% return and 20% likely to have a 0% return. The stock is 50% likely to have a 20% return and 50% likely to have a 10% loss. What is the expected return? A. 7.1% B. 5.9% C. 2.9% D. 13%

A

Financial Ratios help to identify some of the financial strengths and weaknesses of a company. What are two ways that the ratios provide for making meaningful comparisons of a firm's financial data? A. Examining ratios across time to identify trends and comparing the firm's ratios with those of other firms B. Smoothing out differences when comparing firms that use different accounting practices and restating accounting data in relative terms C. Determining how long it takes to collect the firm's receivables and how long it takes to pay it accounts payables D. Identifying year over year changes in balance sheet and income statement items

A

Suppose a firm has a net profit margin of 15%, sales of $155 million, assets of $312 million, and owner's equity of $223 million. If the dividend payout ratio is 10%, what is the firm's sustainable growth rate? A. 9.38% B. 13.5% C. 10.43% D. 7.45%

A

What are the 3 central components of business ethics? A. personal, professional, and corporate B. moral, mission, and strategy C. practical, tangible, and intangible D. personal, managerial, and organizational

A

Which answer best defines financial statements in general? A. A collection of reports that describes a company's financial activities to a third party B. An analysis of the flow of cash into and out of a business C. A detailed report of a company's income and expenses D. A listing of a company's assets and liabilities

A

Which answer best summarizes why there may be a difference between a difference between a company's pretax income and taxable income? A. Pretax income is based on revenue recognition; taxable income is based on the company's cash flow B. All of these answers are correct C. The tax code requires full disclosure, GAAP does not D. GAAP requires that companies use historical costs, while the tax code does not

A

Which answer is NOT a correct description of a type of yield curve? A. When long-term yields fall below short-term yields, the curve is flat B. When long-term yields fall below short-term yields, the curve is inverted C. When all maturities have similar yields, the resulting curve is flat D. When long-term yields are higher than short-term yields, the curve is normal

A

Which answer is NOT a factor that influences market interest rates? A. stock market activity B. alternative investments C. inflationary expectations D. deferred consumption

A

Which answer is NOT a type of ratio used in financial statement analysis? A. business ratio B. activity ratio C. liquidity ratio D. profitability ratio

A

Which answer is a legal characteristic of a general partnership? A. there must be at least 2 business owners B. all of these answers are correct C. partners are not personally liable for the business's debts and obligations D. the partnership is taxed as a separate entity from its partners

A

Which answer is not a cost to the investor that is included in the calculation of an investment's interest rate? A. brokerage commissions and fees B. risk of a bad investment C. opportunity cost D. inflation

A

Which answer is the best example of a noncash item that would be included on the income statement? A. all of these answers B. write down of inventory C. unrealized losses from investments D. depreciation and amortization

A

Which answer is the correct definition of the accounting equation? A. assets = liabilities + owner's equity B. liabilities = assets + owner's equity C. owner's equity = assets + liabilities D. assets = liabilities + expenses

A

Which example is NOT a correct definition of a basic type of financial ratios? A. activity B. profitability ratios C. liquidity ratios D. debt ratios

A

Which option is an adequate method to reduce an investor's risk through diversification? A. Invest in a broad pool of US and international stocks and bonds B. Invest in a small pool of stocks from companies in the same industry C. Invest in the common stocks of the two companies that have performed the best in the last 5 years D. Invest in a start-up business that has a broad ownership among a large number of investors

A

Which statement does NOT accurately describe the Sarbanes-Oxley Act of 2002? A. this act was amended by the maloney act, which authorized the formation and registration of national securities associations to supervise the conduct of their members subject to the oversight of the SEC B. it is also known as the public company accounting reform and investor protection act and the corporate and auditing accountability and responsibility act C. this act is a federal law that set new or enhanced standards for all public company boards, management, and public accounting firms in the United States D. as a result of this act, top management must now individually certify the accuracy of financial information

A

You own a perpetuity that pays $1000 in the first year. It has a 5% annual interest rate and a 2% annual growth rate. What is the present value of the perpetuity? A. $33,333 B. $14,286 C. $50,000 D. $20,000

A

You plan to invest $100,000 in a 3 year Certificate of Deposit that has a simple interest rate of 5%. What is its future value? A. $115,000 B. $115,927 C. $115,763 D. $105,000

A

A company had $5,000,000 in total revenues for its fiscal year. Its expenses for the year were $3,500,000. Its total assets were $12,500,000. What is the company's return on assets for the fiscal year? A. 0.4 B. 0.12 C. 0.28 D. 0.7

B

A company has $750,000 in cash, $200,000 in marketable securities and $300,000 worth of accounts receivable. Its current assets are worth $1,500,000 and its current liabilities are $1,000,000. What is the company's quick ratio? A. 1.3 B. 1.25 C. 1.05 D. 1.5

B

A firm has projected current assets to be $205 million, fixed assets to be $605 million, current liabilities to be $188 million, long-term debt to be $461 million, and owner's equity to be $106 million. Given this information, what is the discretionary financing need? A. $94 million B. $55 million C. $9 million D. $38 million

B

A portfolio is composed of 30% stock, 20% bonds, and 50% mutual funds. The stock is expected to have a 10% return, the bonds a 5% return and the mutual funds a 7% return. What is the expected return of the portfolio? A. 7% B. 7.5% C. 8.1% D. 7.3%

B

According to the Insider Trading Act of 1988, the SEC is allowed to order a penalty of up to how much of the profit of the guilty parties? A. 5x the profit B. 3x the profit C. 6x the profit D. 4x the profit

B

Company X has decided to merge with another business. It is planning on preparing a pro forma income statement. Which condition should be included in the pro forma statement? A. if the merged company will have increase research & development (R&D) expenses B. all of these answers C. how much the company's revenues will increase due to the merger D. how much the merged company's income tax expense will increase

B

During a fiscal year, a company had $25,000,000 in total sales. It had a cost of goods sold (COGS) of $18,000,000, and $4,000,000 in additional expenses. What is the company's gross profit margin? A. 16% B. 28% C. 33.33% D. 12%

B

In the percent-of-sales forecasting method, which balance sheet items are not assumed to increase proportionately with sales? A. inventories B. long-term debt C. accounts payable D. accounts receivable

B

Last year T&J Inc. reported total assets of $250 million, equity of $120 million, net income of $50 million, dividends of $15 million, and retained earnings of $35 million. What is T&J Inc.'s sustainable growth rate? A. 20.00% B. 29.17% C. 12.50% D. 41.67%

B

Of the following car financing options, which one would you prefer while assuming that you prefer paying the least amount of dollars and that you face a 10% annual compound interest rate on all your financial decisions? A. lump sum payment of $20,000 today only B. lump sum payment of $20,000 in 2 years from today C. payment of $10,000 today and another of $10,000 in 1 year from today D. lump sum payment of $19,000 today only

B

What does the principal agent problem refer to? A. Possible conflicts between a company's financial and operational goals B. Potential conflicts of interest between shareholders and managers of a company C. The personal liability risks that some business owners must accept D. The struggle for power between managers and union representatives of a company

B

What is the future value in 30 years of $100,000 invested today in a savings account earning a 1% compound interest rate every year (rounded up to the nearest dollar)? A. $130,000 B. $134,785 C. More than $134,785 D. $30,000

B

What type of risk can an investor reduce through the process of diversification? A. uncertainty B. unsystematic risk C. systematic risk only D. all risk can be reduced

B

Which answer best summarizes how the fields of accounting, finance, and economics relate to each other? A. finance-backwards, economics-forward, accounting-cause/effect B. accounting-backwards, finance-forward, economics-cause/effect C. economics-backwards, finance-forward, accounting-cause/effect D. finance-backwards, economics-forward, accounting-cause/effect

B

Which answer does NOT represent how finance is used in organizations? A. maximize shareholder value B. maximize short-term profit C. ensure that $ is at the right place at the right time D. choose between different potential investments

B

Which answer gives a definition of finance? A. the process of evaluating financial risk B. the study of fund management and asset allocation over time C. a means for evaluating the time value of money D. recording of all the financial transactions of the company

B

Which answer is NOT a requirement for a financial manager to carry out his or her responsibilities? A. a firm grasp of the business's accounting system B. knowing with certainty what the business cash flows will be in the future C. an understanding of the business's long-term strategy D. the ability to calculate the cost of investing in a product or business opportunity

B

Which answer is NOT a responsibility of a financial manager? A. figuring out financial projections and whether a project is worth financing B. maintaining the company's financial system C. ensuring the business has enough cash to pay its financial obligations D. managing the budget

B

Which answer is NOT a true statement regarding the valuation process? A. valuation can be done on assets or on liabilities B. valuation is a forward-looking process, so historical data is unimportant C. valuation is the process of estimating what something is worth D. valuation often relies on fundamental analysis, such as discounted cash flow or net present value

B

Which answer is NOT one of the four basic GAAP principles? A. assets and liabilities should be reported based on acquisition cost B. revenue should be recorded when realized or realizable and when cash is received C. deciding which information to disclose should be based on a trade-off analysis D. expenses should be recognized when the product it is associated with generates recognized revenue

B

Which answer is a reason why a person would study finance? A. to apply financial concepts to business situations B. all of these answers C. to improve management of personal finances D. to better understand the economic environment

B

Which answer is an example of a stakeholder in a company? A. the company's shareholders B. all of these C. the company's employees D. the company's suppliers

B

Which description is NOT a benefit associated with using the DuPont Equation? A. The DuPont equation can show whether a high level of leverage is risky or necessary for a company B. The DuPont equation is very useful in analyzing any business regardless of industry C. Analysts can determine which factor is dominant in determining a company's return on equity D. Analysts can use the DuPont equation to understand the fluctuations of a company's Return on Equity

B

Which description is not a drawback of using return on assets in a financial analysis? A. ROA is calculated using the assets' carrying value, not its market value B. It does not measure how effective the company is at using its assets to generate profit C. ROA does not identify how assets were financed D. There is no definitive metric that identifies an ROA as good or bad

B

Which of the following is NOT a statistical forecasting method? A. time series B. judgmental C. longitudinal data D. cross-sectional

B

Which statement accurately describes systematic risk? A. An example of a systematic risk is if you own stock in a company that has liquidity problems B. Systematic risk is what provides a stock's "risk premium" C. By diversifying your stock portfolio, you can minimize systematic risk D. Systematic risk is uncertainty associated with a company or industry in which you invest

B

Which yield curve theory is based on the premises that financial instruments of different terms are not substitutable and therefore the supply and demand in the markets for short-term and long-term instruments is determined largely independently? A. the expectation hypothesis B. the segmented market hypothesis C. the liquidity premium theory D. time value of money theory

B

You are considering investing in the common stock of a major US Corporation. Which answer is an example of systematic risk? A. Risk related to an impending lawsuit against the company B. Risk resulting from a general decline in the US stock markets C. Risk related to the possibility of foreign expropriation of the company's property D. Risk resulting from general unrest in the company's labor force

B

You expect to receive a payment of $1 million in a year. The annual interest rate is 5%. What is the present value of the future payment? A. $666,667 B. $952,381 C. $105,000 D. $995,025

B

You plan to invest $100,000 in a 3 year Certificate of Deposit that has a 5% compound interest rate. What is its future value? A. $105,000 B. $115, 763 C. $115,927 D. $115,000

B

hen crowding out occurs, investment spending decreases. What causes this phenomenon? A. The total money supply is decreased, decreasing interest rates B. The total money supply is increased, increasing interest rates C. The total money supply is increased, decreasing interest rates D. The total money supply is decreased, increasing interest rates

B

A US Treasury security matures in 7 years. What type of security is it? A. bill B. money market instrument C. note D. bond

C

A company has assets of $2,000,000, net sales of $3,000,000, and $1,500,000 in equity. Its net income is $10,000,000. What is its return on equity? A. 3.333 B. 0.15 C. 6.667 D. 5

C

A company issues a bond with the provision that it may pay off the debt early. Which type of risk is this bond subject to? A. model risk B. foreign investment risk C. prepayment risk D. asset-backed risk

C

During a fiscal year, a company has $20,000,000 in revenue. Its operating expenses are $17,000,000. What is the company's operating margin? A. 0.85 B. 0.13 C. 0.15 D. 0.73

C

What is the future value in 30 years of $100,000 invested today in a savings account earning a 1% simple interest rate every year (rounded up to the nearest dollar)? A. $134,785 B. More than $134,785 C. $130,000 D. $30,000

C

What is the present value of $100,000 that will be received 5 years from today if you face a 10% compound interest rate every year (rounded up to the nearest dollar)? A. $72,092 B. $52,092 C. $62,092 D. $82,092

C

Which answer best describes a characteristic of a corporation? A. the corporation is a separate taxable entity from its owners B. shareholders are generally not personally liable for the business's obligations and liabilities C. all of these answers are correct D. the corporation must have an elected board of directors

C

Which answer best describes a type of financial market? A. money markets B. capital markets C. all of these D. derivative markets

C

Which answer does not describe a step in constructing a multi-step income statement? A. subtract income tax expense from income before taxes B. subtract operating expenses from gross profit to determine income from operations C. add all revenues, then subtract all expenses D. subtract non-operating expenses from income from operations

C

Which answer gives the best example of a factor that can be determined through an analysis of a company's financial statements? A. the accuracy of the company's tax returns B. the company's profitability C. all of these answers D. the company's creditworthiness

C

Which concept describes the underlying driver behind all finance? A. fund management and asset allocation B. risk C. time D. profit

C

Which of the following describes the relationship between present value and future value? A. The more time that passes, the higher the present value and the lower the future value B. When present value increases, the future value decreases, assuming all variables are constant C. When one increases, the other increases, assuming all variables are constant D. The higher the interest rate, the higher the present value and the lower the future value

C

Which of the following is NOT a component of the Cash Flow Statement? A. cash flow from investing B. cash flow from operations C. cash flow from sales D. cash flow from financing

C

Which of the following is NOT an example of benchmarking using ratio analysis? A. Compare the company's gross profit margin to the average gross profit margin of the top three firms in its industry B. Calculate a company's debt ratio and compare it to its industry's average debt ratio C. Calculate the company's current ratio by comparing its current assets with its current liabilities D. Contrast a company's current ratio with its nearest competitors

C

Which statement regarding shareholder and market value is correct? A. market value is not the price at which a shareholder is willing to sell B. short-term focus on shareholder value is never detrimental to long-term shareholder value C. the idea of maximizing market value is related to the idea of maximizing shareholder value D. all of these answers are correct

C

You have $300,000 that you want to invest in a one year Certificate of Deposit (CD) with a 4% annual interest rate. What will be the value of that CD in a year? A. $301,200 B. $420,000 C. $312,000 D. $315,000

C

A US Treasury security matures in 26 weeks. What type of treasury is it? A. bond B. note C. bank deposit D. bill

D

A bond makes only one payment—the payment of the face value on the maturity date. The bond is sold at a discount. What type of bond is this? A. floating rate note B. stepped-coupon bond C. inflation-linked bond D. zero-coupon bond

D

A bond pays a coupon rate equal to the LIBOR rate plus 0.30%. The coupon rate is recalculated every three months. What type of bond is this? A. stepped-coupon bond B. zero-coupon bond C. inflation-linked bond D. floating rate note

D

A company had $1 million in sales last year, $1.5 million in sales this year, and projected net income of $250,000. Last year, it had $5 million of its assets tied to sales, $3 million in sales-affected liabilities, and a retention ratio of 0.3. What is its AFN? A. $92,500 B. $23,425,000 C. $9,992,500 D. $925,000

D

A company has $450,000 in cash, $300,000 in marketable securities, and $500,000 worth of inventory. Its current assets are worth $1,750,000 and its current liabilities are $1,250,000. What is the company's acid test ratio? A. 1.16 B. 1.04 C. 0.8 D. 1

D

According to the Example Case from the Essential Reading section, a CEO was charged with which crime from the Securities and Exchange Commission (SEC)? A. failing to appear in court on his assigned date B. issuing false claims about its company's technology C. defrauding seniors by pressuring them to invest D. providing a friend with confidential information about his company's merger

D

An investment portfolio has a 30% chance of earning $125,000 in a year, a 40% chance of earning $50,000, a 15% chance of earning nothing and 15% chance of losing $20,000. What is its expected return? A. $62,000 B. $38,750 C. $50,000 D. $54,500

D

Financial Markets can address which problem faced by a company's management? A. market oscillation B. all of these answers C. emotional factors among market participants D. information asymmetry

D

Government bonds have lower interest rates than do actively traded corporate bonds of the same maturity because the default premium is lower for government bonds. This illustrates which of the major factors influencing market interest rates? A. deferred consumption B. inflationary expectations C. liquidity preference D. risks of investment

D

What is a disadvantage of a partnership? A. owners must publish financial statements B. making business decisions involves a board C. filing taxes is overly complicated D. personal assets of owners are not protected

D

Which answer describes a characteristic of a sole proprietorship? A. it requires formal incorporation B. liability is shared among stakeholders C. it requires election of a board D. taxes are filed as personal income

D

Which answer does not give a correct definition of the basic type of financial ratio described? A. Debt ratios measure the firm's ability to pay long-term debt B. Profitability ratios measure the firm's use of its assets to generate an acceptable rate of return C. Liquidity ratios measure the availability of cash to pay debt D. Activity ratios are concerned with shareholder audiences

D

Which answer is a factor that contributes to the conflict of interest between a company's bondholders and its shareholders? A. shareholders have a vote in how the company conducts its business; bondholders generally do not B. shareholders are only paid if the company makes a profit, bondholders are paid regardless C. shareholders generally want the company to pursue riskier projects; bondholders do not D. All of these answers are correct

D

Which answer is not a characteristic of a sole proprietorship? A. the owner is personally liable for the business's debt and obligations B. there is only one owner C. a sole proprietorship does not elect board members D. the owner must file a separate tax return for the business

D

Which answer option is NOT a job function associated with a corporate finance department? A. valuing the profitability of multiple projects and choosing one in which to invest B. determining whether to pay a dividend to the corporation's shareholders C. preparing the corporation's budget for the next fiscal quarter D. ensuring that the financial statements accurately reflect the firm's performance

D

Which description accurately describes a primary market? A. A primary market is where investors purchase assets from other investors B. Securities start trading in primary market venues including the New York Stock Exchange and Nasdaq C. A primary market is often referred to as a "stock market" D. A primary market refers to the market where securities are created

D

Which factor is NOT something a corporation must consider when making an investment decision? A. whether the investment maximizes the value of the firm B. whether the investment is too risky for the corporation and its shareholders C. whether the investment can be financed appropriately D. whether you can accurately calculate the guaranteed return on the investment

D

Which of the following is the correct order of how assets should be presented on a balance sheet? A. Cash; inventory; property, plant, and equipment (PPE); accounts receivable B. Cash; inventory; accounts receivable; property, plant, and equipment (PPE) C. Accounts receivable; cash; inventory property, plant, and equipment (PPE) D. Cash; accounts receivable; inventory; property, plant, and equipment (PPE)

D

Which regulation's primary purpose is to ensure that buyers of securities receive complete and accurate information before they invest? A. rule 144 B. the securities exchange act of 1934 C. regulation s D. the securities act of 1933

D

Which statement regarding financial forecasting is correct? A. Only a cash budget is needed to prepare a financial forecast B. Forecasting is straightforward and does not require making many assumptions C. Strategic planners do not rely on financial forecasts to understand the possible outcomes from different investments options D. The most difficult aspect of preparing a financial forecast is predicting revenue

D

T or F: A person buying Barnes and Noble stock from an investor who owns shares in Barnes and Noble is participating in a primary market

False

T or F: Bond markets and stock markets are two types of money markets

False

T or F: Insider trading occurs when a member of an establishment uses information readily available to the public in an attempt to increase his/her wealth through buying or selling stock

False

T or F: A financial institution is a company involved in the business of dealing with monetary transactions, such as loans, investments and deposits

True

T or F: Company directors and high-level executives, ("insiders"), are legally permitted to buy and sell shares of the company they work for

True

T or F: In the bond market, firms raise debt financing directly from investors

True

T or F: One of the main functions of financial markets is matching those who need capital with those who have capital

True

T or F: The U.S. Financial System is composed of financial institutions and markets that allow the exchange of funds between lenders, investors, and borrowers

True

T or F: The balance sheet is the only financial statement which applies to a single point in time of a business's calendar year

True

T or F: The cost of money is not related to the concept of depreciation

True

T or F: The risk that remains after an investor has extensively diversified his portfolio is primarily systematic risk

True

T or F: the most common measure of risk in finance is the standard deviation

True

Which prediction based on a description of the yield curve is not correct? A. A normal yield curve suggests that interest rates will remain the same in the future B. A flat yield curve suggest that interest rates will be cut C. An inverted yield curve suggests that interest rates will be dramatically cut D. A normal yield curve suggests that interest rates will be raised in the future

a


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