Finance 2400 Joyce

Which of the following parties are considered stakeholders of a firm? I. Employee II. Long-term creditor III. Government IV. Common stockholder

I and III only

. _____ is a popular Latin phrase very commonly used in Economics and Finance which translates to "other things equal."

Ceteris Paribus

Interest earned on both the initial principal and the interest reinvested from prior periods is called

Compound interest

The book value of a firm is

Based on historical cost

Which one of the following accurately defines a growing annuity?

A growing stream of cash flows with a fixed maturity

annuity due

A series of equal cash flows for a finite period of time with the first payment occurring at the beginning of the period.

. The term _____ describes a downward market trend.

Bear market

Which one of the following terms is defined as the possibility of conflict of interest between the stockholders and management of a firm?

Agency problem

A(n) _____ describes the relationship between stockholders and management

Agency relationship.

perpetuity

An annuity in which the cash flows continue forever

A stakeholder is

Any person or entity other than a stockholder or creditor who potentially has a claim on the cash flows of a firm

Which one of the following is a capital budgeting decision? A. Determining how many shares of stock to issue. B. Deciding whether or not to purchase a new machine for the production line. C. Deciding how to refinance a debt issue that is maturing. D. Determining how much inventory to keep on hand. E. Determining how much money should be kept in the checking account.

B

Which one of the following best states the primary goal of financial management? A. Maximize current dividends per share. B. Maximize the current value per share. C. Increase cash flow and avoid financial distress. D. Minimize operational costs while maximizing firm efficiency. E. Maintain steady growth while increasing current profits.

B.

Which one of the following statements is an advantage of financial ratios? A. Ratios can be misleading. B. Ratios allow for comparison through time or between companies. C. Accuracy of ratios depends on the accuracy of accounting. D. Some ratios do not have a standard calculation. E. Ratios should be supplemented with context and other financial measures.

B.

Which one of the following is defined as the specific mixture of a firm's debt and equity financing?

Capital structure

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.

D.

Ceteris paribus, as the time period increases, the present value _____

Decreases

Which one of the following actions by a financial manager is most apt to create an agency problem? A. Refusing to borrow money when doing so will create losses for the firm. B. Refusing to lower selling prices if doing so will reduce the net profits. C. Refusing to expand the company if doing so will lower the value of the equity. D. Agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales. E. Increasing current profits when doing so lowers the value of the firm's equity.

E.

Which one of the following represents the most liquid asset? A. $100 account receivable that is discounted and collected for $96 today. B. $100 of inventory which is sold today on credit for $103. C. $100 of inventory which is discounted and sold for $97 cash today. D. $100 accounts receivable that will be collected in full next week. E. $100 of inventory that is sold today of $100 cash

E.

. _____ is the portion of a company's profit allocated to each outstanding share of common stock

Earnings per share

. _____ is the interest rate expressed as if it were compounded once per year. It is the actual rate paid (or received) after accounting for compounding that occurs during the year.

Effective annual rate

Which one of the following accurately describes the three parts of the DuPont identity?

Equity multiplier, profit margin, and total asset turnover

Noncash items refer to

Expenses which do not directly affect cash flows

You want to have $1 million in your savings account when you retire. You plan on investing a single lump sum today to fund this goal. You will earn 6.5 percent annual interest. Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire? I. Invest in a different account paying a higher rate of interest. II. Invest in a different account paying a lower rate of interest. III. Retire later. IV. Retire sooner.

I and III only

An increase in which of the following will increase the return on equity, all else constant? I. Total asset turnover. II. Net income. III. Total assets. IV. Debt-equity ratio.

I, II, and IV only

Which of the following ratios are measures of a firm's liquidity? I. Cash coverage ratio. II. Interval measure. III. Debt-equity ratio. IV. Quick ratio.

II and IV only

Which of the following questions are addressed by financial managers? I. How should a product be marketed? II. Should customers be given 30 or 45 days to pay for their credit purchases? III. Should the firm borrow more money? IV. Should the firm acquire new equipment?

II, III, and IV only

The _____ is the discount rate that makes the NPV of an investment zero.

IRR

Your grandmother has promised to give you $10,000 when you graduate from college. She is expecting you to graduate three years from now. What happens to the present value of this gift if you speed up your graduation by one year and graduate two years from now?

Increases.

The percentage of the next dollar you earn that must be paid in taxes is referred to as the _____ tax rate.

Marginal.

The _____ criterion is the best way to evaluate proposed investments

NPV

Which term relates to the cash flow that results from a firm's ongoing, normal business activities?

Operating cash flow

. Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

Profitability

. _____ are those in which securities are bought and sold after the original sale. They provide a means of transferring ownership of corporate securities

Secondary markets

The sources and uses of cash over a stated period of time are reflected on the

Statement of cash flows

Which one of the following represents the most liquid asset? A. $100 account receivable that is discounted and collected for $96 today. B. $100 of inventory which is sold today on credit for $103. C. $100 of inventory which is discounted and sold for $97 cash today. D. $100 accounts receivable that will be collected in full next week. E. $100 of inventory that is sold today of $100 cash

e