FINC Final

D) rate of return on a perpetuity.

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

B) Stock split

16. Which one of the following does not affect the total equity of a company but does increase the number of shares outstanding? A) Special dividend B) Stock split C) Share repurchase D) Rights offer E) Liquidating dividend

C) consolidate funds.

43. The 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.

E) Red herring

7. Which one of the following is a preliminary prospectus? A) Tombstone B) Green shoe C) Registration statement D) Rights offer E) Red herring

E) group of underwriters sharing the risk of selling a new issue of securities.

9. A syndicate can best be defined as a: A) venture capitalist. B) group of attorneys providing services for an IPO. C) block of investors who control a firm. D) bank that loans funds to finance the start-up of a new company. E) group of underwriters sharing the risk of selling a new issue of securities.

E) knows upfront the amount of money it will receive from the stock offering.

10. 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 upfront the amount of money it will receive from the stock offering.

B) Percentage ownership dilution

11. Before a seasoned stock offering, you owned 500 shares of a firm that had 20,000 shares outstanding. After the seasoned offering, you still owned 500 shares but the number of shares outstanding rose to 25,000. Which one of the following terms best describes this situation? A) Overallotment B) Percentage ownership dilution C) Green Shoe allocation D) Red herring allotment E) Abnormal event

B) A dividend is never a liability of the issuer until it has been declared.

12. 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 of the issuer 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.

B) Kate is entitled to the dividend but Ted is not.

13. Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7. Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8. Fast Deliveries declared a dividend on June 20 to shareholders of record on July 12 and payable on August 1. Which one of the following statements concerning the dividend paid on August 1 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.

B) 2

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

C) management believes earnings growth will be strong going forward.

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

A) adjust the market price of a stock so it falls within a preferred trading range.

17. Stock splits can be used to: A) adjust the market price of a stock so it falls within a preferred trading range. B) decrease a company's excess cash thereby lowering agency costs. C) increase the par value per share while decreasing the market price per share. D) increase the total equity of a firm. E) adjust the debt-equity ratio to its preferred level.

E) Accepting credit from a supplier

18. Which one of the following actions represents a source of 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

C) moves through the current asset accounts.

19. 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.

A) Increasing the accounts receivable turnover rate

20. Which one of these will decrease the cash cycle, all else held constant? A) Increasing the accounts receivable turnover rate B) Decreasing the accounts payable period C) Increasing the inventory period D) Decreasing the inventory turnover rate E) Increasing the accounts receivable period

D) decrease the cash cycle.

21. Metal Designs historically produced products for inventory. Now, they only produce a product when an actual order is received 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.

A) The longer the cash cycle, the more likely a company will need external financing.

22. Which one of the following statements is correct concerning the cash cycle? A) The longer the cash cycle, the more likely a company will need external financing. B) Increasing the accounts payable period increases the cash cycle. C) Accepting a supplier's discount for early payment decreases the 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) operating cycle.

23. 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.

C) accounts receivable period.

24. 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.

E) cash cycle.

25. Central Supply paid off an accounts payable for a toboggan it had purchased on credit three weeks ago. 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.

B) shortage

26. Costs that decrease as a company acquires additional current assets are called ________ costs. A) carrying B) shortage C) debt D) equity E) payables

D) Loss of credit customers

27. The Lumber Mart recently replaced its management team. As a result, they are implementing a restrictive short-term financial policy in place of the flexible policy under which they had been operating. Which one of the following should the employees expect as a result of this policy change? A) Increasing monthly sales as compared to the prior year B) Greater inventory selection C) Fewer out-of-stock occurrences D) Loss of credit customers E) More liberal credit terms

B) knowing for certain what your cash balance will be six months in advance.

28. All of the following are benefits derived from short-term financial planning with the exception of: A) having advance notice of when your firm should require external financing. B) knowing for certain what your cash balance will be six months in advance. C) knowing if excess funds should be available for investing. D) being able to determine the approximate extent of time for which a loan is required. E) having the ability to time capital expenditures in order to place the least financial burden possible on a firm.

C) Speculative

34. RB Enterprises (RBE) received an unexpected phone call from a competitor offering all of its assets to RBE at a bargain basement price. While RBE had not anticipated purchasing these assets, the opportunity was too good to pass up. This illustrates which one of the following needs to hold cash? A) Precautionary B) Transaction C) Speculative D) Compensation E) Float

E) transaction

35. The cash used to make change when customers pay for their purchases in cash is an example of the ________ motive for holding cash. A) speculative B) daily float C) compensating balance D) precautionary E) transaction

A) optimizing the collections and disbursements of cash.

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

B) difference between book cash and bank cash.

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

E) Mailing time is a component of disbursement float.

38. Which one of these statements is correct? A) Mailing time affects both collections and disbursements float. B) A positive net float indicates that collection float exceeds disbursements float. C) A zero net float is preferred by companies over a positive net float. D) Net float is equal to collection float minus disbursement float. E) Mailing time is a component of disbursement float.

E) Requiring all nationwide payments be mailed to the home office rather than to lockboxes

39. Which one of the following will increase collection time? A) Offering cash discounts for early payment B) Billing customers electronically rather than by mail C) Reducing the processing delay by one day D) Accepting debit cards but not checks as payment for a sale E) Requiring all nationwide payments be mailed to the home office rather than to lockboxes

A) cash concentration.

40. The Research 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 company's primary bank located near the 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.

A) should be geographically located close to primary customers.

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

E) The fastest means of transferring funds into a concentration account is a wire transfer.

42. Which one of the following statements is correct? A) Funds received via automated clearing house 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 depend upon the bank used for the concentration account. D) Concentration accounts are used to transfer funds to lockbox locations as needed. E) The fastest means of transferring funds into a concentration account is a wire transfer.

C) is funded on an as-needed basis only.

44. 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.

C) U.S. Treasury bills are well suited for short-term investments.

45. 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.

D) High liquidity, low risk, low return

46. Money market securities generally have which of the following characteristics? A) Short maturity, low risk, low liquidity B) Low default risk, low liquidity, low return C) High return, high liquidity, low risk D) High liquidity, low risk, low return E) Long maturity, low risk, high return

B) Exit strategy is a key consideration when selecting a venture capitalist.

5. Which one of the following statements concerning venture capitalists is correct? A) Venture capitalists always assume management responsibility for the companies 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 the companies they finance. E) A venture capitalist normally invests in a new idea from conception through the IPO.

C) collection policy.

50. 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.

A) An increase in the number of days for which credit is granted

51. Which one of the following will increase a firm's investment in accounts receivables? A) An increase 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) A decrease in average daily credit sales

B) If you pay within 15 days, you will receive a discount of 3 percent.

52. Which one of the following statements is correct if you purchase an item with credit terms of 3/15, net 45? A) If you pay within 3 days, you will receive a discount of 15 percent. B) If you pay within 15 days, you will receive a discount of 3 percent. C) If you do not pay within 15 days, you will be charged interest at a rate of 3 percent per month. D) If you pay 3 percent of your purchases within 15 days, you will have 45 days to pay for the remainder. E) One-third of your purchase is due in 15 days and the rest is due in 45 days.

D) either take the discount or pay on the 15th day.

53. Under credit terms of 1/5, net 15, customers should: A) Always pay on the 15th day. B) take the 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.

E) change in the fixed costs.

54. When considering a switch from an all-cash credit policy to a net 30 credit policy all of the following should be considered except the: A) revenue effects. B) effects on the variable costs. C) cost of the discount. D) probability of default. E) change in the fixed costs.

C) Conditions

55. 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

A) credit scoring.

56. Roger's Home Appliances offers credit to customers it deems qualified based on a numerical value that estimates 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.

C) Wheat stored in a grain silo

57. 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 drill press E) A partially built modular home

C) within two business days.

58. Spot trades must be settled: A) at the time of the trade. B) on the day following the trade date. C) within two business days. D) within three business days. E) within one week of the trade date.

E) Spot trade

59. Trader A has agreed to give 100,000 U.S. dollars to Trader B in exchange for British pounds based on today's exchange rate of $1 = £.78. The traders agree to settle this trade within two business days. What is this exchange called? A) Swap B) Option trade C) Futures trade D) Forward trade E) Spot trade

C) Gain board approval

6. 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

B) forward trade.

60. A trader has just agreed to exchange British pounds for French francs three months from today. This exchange is an example of a: A) spot trade. B) forward trade. C) short sale. D) floating swap. E) triangle arbitrage.

A) Entering a forward exchange agreement timed to match the invoice date

61. Which one of the following is a suggested method of reducing a U.S. importer's short-run exposure to exchange rate risk? A) Entering a forward exchange agreement timed to match the invoice date B) Investing U.S. dollars when an order is placed and using the investment proceeds to pay the invoice C) Exchanging funds on the spot market at the time an order is placed with a foreign supplier D) Exchanging funds on the spot market at the time an order is received E) Exchanging funds on the spot market at the time an invoice is payable

B) problem encountered by an accountant of an international firm who is trying to record balance sheet account values.

62. The type of exchange rate risk known as translation exposure is best described as the: A) risk that a positive net present value (NPV) project could turn into a negative NPV project because of changes in the exchange rate between two countries. B) problem encountered by an accountant of an international firm who is trying to record balance sheet account values. C) fluctuation in prices faced by importers of foreign goods. D) variance in relative pay rates based on the currency used to pay an employee. E) variance between the revenue of an exporter who uses forward rates and an equivalent exporter who does not use forward rates.