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- Download: http://solutionzip.com/downloads/30-mcq-1-the-goal-of-the-firm-should-be/
- 1) The goal of the firm should be.
- A. maximization of profits
- B. maximization of shareholder wealth
- C. maximization of consumer satisfaction
- D. maximization of sales
- 2) An example of a primary market transaction is
- A. a new issue of common stock by AT&T
- B. a sale of some outstanding common stock of AT&T
- C. AT&T repurchasing its own stock from a stockholder
- D. one stockholder selling shares of common stock to another individual
- 3) According to the agency problem, _________ represent the principals of a corporation.
- A. shareholders
- B. managers
- C. employees
- D. suppliers
- 4) Which of the following is a principle of basic financial management?
- A. Risk/return tradeoff
- B. Derivatives
- C. Stock warrants
- D. Profit is king
- 5) Another name for the acid test ratio is the
- A. current ratio
- B. quick ratio
- C. inventory turnover ratio
- D. average collection period
- 6) The accounting rate of return on stockholders’ investments is measured by
- A. return on assets
- B. return on equity
- C. operating income return on investment
- D. realized rate of inflation
- 7) If you are an investor, which of the following would you prefer?
- A. Earnings on funds invested compound annually
- B. Earnings on funds invested compound daily
- C. Earnings on funds invested would compound monthly
- D. Earnings on funds invested would compound quarterly
- 8) The primary purpose of a cash budget is to
- A. determine the level of investment in current and fixed assets
- B. determine accounts payable
- C. provide a detailed plan of future cash flows
- D. determine the estimated income tax for the year
- 9) Which of the following is a non-cash expense?
- A. Depreciation expenses
- B. Interest expense
- C. Packaging costs
- D. Administrative salaries
- 10) The break-even model enables the manager of a firm to
- A. calculate the minimum price of common stock for certain situations
- B. set appropriate equilibrium thresholds
- C. determine the quantity of output that must be sold to cover all operating costs
- D. determine the optimal amount of debt financing to use
- 11) A zero-coupon bond
- A. pays no interest
- B. pays interest at a rate less than the market rate
- C. is a junk bond
- D. is sold at a deep discount at less than the par value
- 12) If you have $20,000 in an account earning 8% annually, what constant amount could you withdraw each year and have nothing remaining at the end of 5 years?
- A. $3,525.62
- B. $5,008.76
- C. $3,408.88
- D. $2,465.78
- 13) At what rate must $400 be compounded annually for it to grow to $716.40 in 10 years?
- A. 6%
- B. 5%
- C. 7%
- D. 8%
- 14) The present value of a single future sum
- A. increases as the number of discount periods increase
- B. is generally larger than the future sum
- C. depends upon the number of discount periods
- D. increases as the discount rate increases
- 15) Which of the following is considered to be a spontaneous source of financing?
- A. Operating leases
- B. Accounts receivable
- C. Inventory
- D. Accounts payable
- 16) Compute the payback period for a project with the following cash flows, if the company’s discount rate is 12%.
- Initial outlay = $450
- Cash flows:
- Year 1 = $325
- Year 2 = $65
- Year 3 = $100
- A. 3.43 years
- B. 3.17 years
- C. 2.88 years
- D. 2.6 years
- 17) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________.
- A. less than zero, greater than the required return
- B. greater than zero, greater than one
- C. greater than one, greater than zero
- D. greater than zero, less than one
- 18) Which of the following is considered to be a deficiency of the IRR?
- A. It fails to properly rank capital projects.
- B. It could produce more than one rate of return.
- C. It fails to utilize the time value of money.
- D. It is not useful in accounting for risk in capital budgeting.
- 19) The firm should accept independent projects if
- A. the payback is less than the IRR
- B. the profitability index is greater than 1.0
- C. the IRR is positive
- D. the NPV is greater than the discounted payback
- 20) The most expensive source of capital is
- A. preferred stock
- B. new common stock
- C. debt
- D. retained earnings
- 21) The cost associated with each additional dollar of financing for investment projects is
- A. the incremental return
- B. the marginal cost of capital
- C. risk-free rate
- D. beta
- 22) The XYZ Company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required rate of return on debt is 9%, and the required rate of return on equity is 14%. If the company is in the 40% tax bracket, what is the marginal cost of capital?
- A. 14.0%
- B. 9.0%
- C. 10.6%
- D. 11.5%
- 23) Shawhan Supply plans to maintain its optimal capital structure of 30% debt, 20% preferred stock, and 50% common stock far into the future. The required return on each component is: debt–10%; preferred stock–11%; and common stock–18%. Assuming a 40% marginal tax rate, what after-tax rate of return must Shawhan Supply earn on its investments if the value of the firm is to remain unchanged?
- A. 18.0%
- B. 13.0%
- C. 10.0%
- D. 14.2%
- 24) Lever Brothers has a debt ratio (debt to assets) of 40%. Management is wondering if its current capital structure is too conservative. Lever Brothers’ present EBIT is $3 million, and profits available to common shareholders are $1,560,000, with 342,857 shares of common stock outstanding. If the firm were to instead have a debt ratio of 60%, additional interest expense would cause profits available to stockholders to decline to $1,440,000, but only 228,571 common shares would be outstanding. What is the difference in EPS at a debt ratio of 60% versus 40%?
- A. $1.75
- B. $2.00
- C. $3.25
- D. $4.50
- 25) Zybeck Corp. projects operating income of $4 million next year. The firm’s income tax rate is 40%. Zybeck presently has 750,000 shares of common stock which have a market value of $10 per share, no preferred stock, and no debt. The firm is considering two alternatives to finance a new product: (a) the issuance of $6 million of 10% bonds, or (b) the issuance of 60,000 new shares of common stock. If Zybeck issues common stock this year, what will be the projected EPS next year?
- A. $4.94
- B. $2.96
- C. $5.33
- D. $3.20
- 26) _________ risk is generally considered only a paper gain or loss.
- A. Transaction
- B. Translation
- C. Economic
- D. Financial
- 27) Capital markets in foreign countries
- A. offer lower returns than those obtainable in the domestic capital markets
- B. provide international diversification
- C. in general are becoming less integrated due to the widespread availability of interest rate and currency swaps
- D. have been getting smaller in the past decade
- 28) Buying and selling in more than one market to make a riskless profit is called
- A. profit maximization
- B. arbitrage
- C. international trading
- D. an efficient market
- 29) What keeps foreign exchange quotes in two different countries in line with each other?
- A. Cross rates
- B. Forward rates
- C. Arbitrage
- D. Spot rates
- 30) One reason for international investment is to reduce
- A. portfolio risk
- B. price-earnings (P/E) ratios
- C. advantages in a foreign country
- D. exchange rate risk.
- Download: http://solutionzip.com/downloads/30-mcq-1-the-goal-of-the-firm-should-be/
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