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C214 Financial Management > Practice Exam Questions > Flashcards

Practice Exam Questions Flashcards

1
Q
  1. The matching principle in accrual accounting requires that:
    a. Expenses are matched to revenue recognition.
    b. Expenses are matched to the year in which they are incurred
    c. Revenues are matched to the year in which they are booked
    d. Revenues should be large enough to match expenses
A

a.Expenses are matched to revenue recognition.

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2
Q
  1. The addition to retained earnings each year is:
    a. Net Income
    b. Net Income minus dividends
    c. Net Income plus dividends
    d. Net Income times the Payout Ratio
A

b. Net Income minus dividends

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3
Q
  1. Which financial statement is referred to as a “snapshot”?
    a. Income statement
    b. Balance sheet
    c. Statement of cash flows
    d. None of the above.
A

b. Balance sheet

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4
Q
  1. Net working capital equals:
    a. Current assets
    b. Current liabilities
    c. Current assets minus current liabilities
    d. None of the above
A

c. Current assets minus current liabilities

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5
Q
  1. What does the Sarbanes-Oxley Act require companies to do?
    a. Have a board of directors
    b. Register all foreign sales
    c. Make estimated tax payments
    d. Transparent accurate financial statements
A

d. Transparent accurate financial statements

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6
Q

6 If a company produces and sells a product only in the U.S., what international developments may affect its sales?

a. Fluctuating exchange rates
b. Imports of competing products
c. Immigration policy
d. Inflation in Europe

A

b. Imports of competing products

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7
Q
  1. What is the IFRS intended to do?
    a. Provide liquidity for foreign companies in the U.S.
    b. Rationalize statements since GAAP and the IASB standards vary
    c. Impose IASB standards on Dodd Frank banking legislation
    d. To regulate companies under the Sarbanes-Oxley.
A

b. Rationalize statements since GAAP and the IASB standards vary

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8
Q
  1. If a firm’s goal is to maximize stockholder wealth, which would the firm avoid?
    a. Stock buybacks
    b. Risky long-term investments
    c. Investments with negative NPV
    d. Transparency in financial statements
A

c. Investments with negative NPV

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9
Q
  1. In which market transaction is the corporation not involved?
    a. Primary Markets
    b. Secondary Markets
    c. IPO
    d. Buy Backs
A

b. Secondary Markets

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10
Q
  1. What does Beta measure?
    a. The yield on the S&P 500
    b. The relative riskiness of an individual stock
    c. Indicates the market value of the stock
    d. Stocks to avoid purchasing
A

b. The relative riskiness of an individual stock

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11
Q
  1. Which accounting decision uses estimates?
    a. Life of a new asset
    b. Accounts payable
    c. Amortization schedule for a loan
    d. Cost of a new machine
A

a. Life of a new asset

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12
Q
  1. An investment with a term of less than one year is:
    a. A current liability
    b. A current asset
    c. Is in retained earnings
    d. Is a long-term liability
A

b. A current asset

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13
Q
  1. Which does not affect the required yield on a bond?
    a. Riskiness of the issuer
    b. Collateralization
    c. Treasury yields
    d. Beta
A

d. Beta

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14
Q
  1. What is the impact of rising U.S. interest rates on foreign exchange?
    a. Makes USD decline in value
    b. Has no impact on USD
    c. Increases the value of USD
    d. Increases the value of EUR
A

c. Increases the value of USD

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15
Q
  1. Why would a company buy back outstanding stock?
    a. To boost the price of the stock
    b. To increase financial leverage
    c. Lack of investment opportunities
    d. All of the above
A

d. All of the above

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16
Q
  1. Which cash flow statement contains income statement items?
    a. CFO
    b. CFI
    c. CFF
    d. None of above
A

a. CFO

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17
Q
  1. Short-term secuties issued by the U.S. Treasury are called:
    a. Bonds
    b. Bills
    c. Debentures
    d. Federal Funds
A

b. Bills

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18
Q
  1. If a firm cannot access markets sufficiently to meet their DFN, what strategies might they use?
    a. Slow sales growth
    b. Lower dividend payout
    c. Increase the net margin
    d. All of the above.
A

d. All of the above.

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19
Q
  1. Which bond would have the lowest market price?
    a. Asset-backed bond
    b. Zero Coupon bond
    c. Muni Bond
    d. Subordinated debenture
A

b. Zero Coupon bond

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20
Q
  1. The interest rate on a corporate bond does not reflect
    a. Risk
    b. Inflation
    c. Face Value
    d. U.S. Treasury rates
A

c. Face Value

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21
Q
  1. If a bond’s yield is less than the market yield, then
    a. No sellers
    b. No buyers
    c. Price is too low
    d. None of above
A

b. No buyers

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22
Q
  1. Junk bonds are those whose rating is below
    a. AAA
    b. AA
    c. A
    d. BBB
A

d. BBB

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23
Q
  1. Diversification protects against
    a. Recession
    b. Market risk
    c. Individual firm risk
    d. Inflation risk
A

c. Individual firm risk

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24
Q
  1. If you are assessing a firm’s ability to meet short term obligations, you would use which ratio?
    a. Debt ratio
    b. Quick ratio
    c. Gross margin
    d. Financial leverage
A

b. Quick ratio

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25
Q
  1. To assess firm efficiency, which ratio would you use?
    a. Asset turnover
    b. Operating margin
    c. Debt ratio
    d. None of the above
A

a. Asset turnover

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26
Q
  1. Which term describes the sensitivity of price to interest rate increases?
    a. Duration
    b. Periodicity
    c. APY
    d. PE
A

a. Duration

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27
Q
  1. When is a company a good investment?
    a. When it is profitable
    b. When it market price is less than intrinsic value
    c. When earnings are growing rapidly
    d. Stock price is very stable
A

b. When it market price is less than intrinsic value

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28
Q
  1. If Accounts Receivable increase, what is impact on cash flow?
    a. Increases
    b. Decreases
    c. No change
    d. Insufficient information to determine
A

b. Decreases

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29
Q
  1. Which of the following is not a cost of holding inventory?
    a. Opportunity Cost
    b. Product Cost
    c. Storage Cost
    d. Leverage Cost
A

d. Leverage Cost

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30
Q
  1. WACC is based on
    a. Book value of equity
    b. Proforma balance sheet
    c. Current market prices & yields
    d. The firm’s ROE
A

c. Current market prices & yields

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31
Q
  1. Export-oriented firms should favor
    a. Strong dollar
    b. Weak dollar
    c. High tariffs
    d. High interest rates
A

b. Weak dollar

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32
Q
  1. A prudent investor would:
    a. Buy growth stocks
    b. Minimize risk
    c. Select a portfolio consistent with risk-return preferences
    d. Maximize returns regardless of risk
A

c. Select a portfolio consistent with risk-return preferences

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33
Q
  1. Why are accurate forecasts important for a firm?
    a. Borrowing costs may be affected
    b. To plan for production capacity
    c. WACC will decrease
    d. SEC requires it
A

b. To plan for production capacity

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34
Q
  1. Which does not affect a bond’s required yield?
    a. Treasury yields
    b. Firm riskiness
    c. Term to maturity
    d. Face value
A

d. Face value

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35
Q
  1. Which is not a feature of efficient markets?
    a. Prices reflect fair value
    b. Prices reflect all available information
    c. Prices are stable
    d. Deviation from fair value are quickly eliminated
A

c. Prices are stable

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36
Q
  1. The “market return” is best described as:
    a. Yield on Treasury securities
    b. Expected return on stocks
    c. The risk premium
    d. Relative riskiness of a specific stock
A

b. Expected return on stocks

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37
Q
  1. What is the difference between common and preferred stock?
    a. Preferred stock has a maturity date
    b. Preferred stock dividends are fixed
    c. Common stock has priority of claims in bankruptcy
    d. Preferred stock cannot be bought back
A

b. Preferred stock dividends are fixed

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38
Q
  1. What is the key term that identifies a “single period” stock valuation question?
    a. One year
    b. Growth
    c. Beta
    d. Equity
A

a. One year

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39
Q
  1. What is the key term that identifies a Gordon Model stock valuation question?
    a. One year
    b. Growth
    c. Beta
    d. Equity
A

b. Growth

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40
Q
  1. What is the key term that identifies a CAPM stock valuation question?
    a. One year
    b. Growth
    c. Beta
    d. Equity
A

c. Beta

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41
Q
  1. Which is not a technique for changing the bond-stock funding mix?
    a. Stock buy-backs
    b. Change Payout ratio
    c. Increase Operating Leverage
    d. Bond maturities
A

c. Increase Operating Leverage

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42
Q
  1. Which is not a means of eliminating idiosyncratic risk?
    a. A diversified portfolio
    b. Hold only Treasury bonds
    c. Buy a low beta stock
    d. Hold a portfolio of high beta stocks
A

c. Buy a low beta stock

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43
Q
  1. In evaluation of investments, how is the terminal cash flow treated?
    a. Added to last differential cash flow
    b. Added as an additional year of cash flow
    c. It is not used.
    d. It is subtracted from the last differential cash flow
A

a. Added to last differential cash flow

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44
Q
  1. If IRR is greater than WACC, an adopted project,
    a. Decreases shareholder value
    b. Does not affect shareholder value
    c. Increases shareholder value
    d. Cannot be determined
A

c. Increases shareholder value

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45
Q
  1. The Payout Ratio is defined as
    a. Dividend-to-equity
    b. Dividends-to-net income
    c. Dividends-to-EBIT
    d. Dividends-to-sales
A

b. Dividends-to-net income

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46
Q
  1. The Volker rule affects what activity
    a. Interstate bank branching
    b. Hedge funds
    c. Bonus compensation
    d. “Too big to fail”
A

b. Hedge funds

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47
Q
  1. If a firm increases leverage to increase EPS, the stock price will
    a. Increase
    b. Be unaffected
    c. Decrease
    d. Depends on risk-return trade-off
A

d. Depends on risk-return trade-off

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48
Q
  1. If a firm believes that the market under-values its stock, it should
    a. Hold a press conference to express their view
    b. Buy back stock
    c. Issue more stock
    d. State that opinion in the Annual Report
A

b. Buy back stock

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49
Q
  1. Which is the best metric for evaluation investments?
    a. IRR
    b. NPV
    c. Payback
    d. None of the above
A

b. NPV

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50
Q
  1. What is meant by “risk-return trade-off”?
    a. As risk increases, expected return increases
    b. As risk increases, expected return decreases
    c. As risk increases, stock prices increase
    d. As risk increases, expected return is unchanged
A

a. As risk increases, expected return increases

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51
Q
  1. Which is a means to hedge foreign exchange risk?
    a. FX forward contracts
    b. FX futures contracts
    c. Wise FX forecasting
    d. A and B
A

d. A and B

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52
Q
  1. Which ratio would have the higest value?
    a. Cash ratio
    b. Current ratio
    c. Quick ratio
    d. Inventory ratio
A

b. Current ratio

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53
Q
  1. Which type of ratio analysis compares a firm to its competitors?
    a. Trend
    b. Cross section
    c. Geographic
    d. None of the above
A

b. Cross section

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54
Q
  1. Which ratio best compares dissimilar firms througout the economy?
    a. ROA
    b. ROE
    c. Mark-up
    d. Capital ratio
A

b. ROE

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55
Q
  1. Reg. S refers to:
    a. The information in a Prospectus
    b. Sales of private investors to “accredited investors”
    c. Sales to foreign investors in Europe
    d. Stock trades on the NYSE
A

c. Sales to foreign investors in Europe

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56
Q
  1. Which ratio do firms try to minimize?
    a. Current ratio
    b. Average collection period
    c. Times interest earned
    d. Operating leverage
A

b. Average collection period

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57
Q
  1. What feature of an “earnings announcement” would cause a firms stock price to increase?
    a. High EPS
    b. Higher than expected EPS
    c. Lower operating margin
    d. Announcements have no impact on price
A

b. Higher than expected EPS

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58
Q
  1. “Agency Cost” refers to the result of what practice?
    a. The use of an agent to purchase stock
    b. The bid/ask spread in trading
    c. Corporate managers acting personal interest
    d. The fees charged in stock issuance
A

c. Corporate managers acting personal interest

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59
Q
  1. Which type of bond has tax exempt interest payments?
    a. Muni bond
    b. Mortgage bond
    c. Euro bond
    d. Subordinated debentures
A

a. Muni bond

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60
Q
  1. What is a leverage buyout?
    a. Issuing debt to acquire another company
    b. Repurchasing stock to increase leverage
    c. Repurchasing all of a firm’s outstanding debt
    d. Issuing debt for a stock buyback
A

a. Issuing debt to acquire another company

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61
Q
  1. What type of cost should never be a component of financial decisions?
    a. Opportunity cost
    b. Sunk cost
    c. Incremental cost
    d. Contingency costs
A

b. Sunk cost

62
Q
  1. What is a 10-K?
    a. Offering circular for new stock issuance
    b. A firm’s quarterly report
    c. A firm’s earnings announcement
    d. A firm’s annual report to the SEC
A

d. A firm’s annual report to the SEC

63
Q
  1. The most likely source of equity capital for a start-up firm would be
    a. Commercial bank
    b. Hedge fund
    c. Venture capitalist
    d. The SBA
A

c. Venture capitalist

64
Q
  1. How does collateralization impact the yield of a bond?
    a. Higher yield due to complexity of tracking collateral
    b. Lower yield due to less default risk
    c. No impact
    d. Lower yield due to structure simplicity
A

b. Lower yield due to less default risk

65
Q
  1. If Gross PPE increases, what other balance sheet account will change?
    a. Equity
    b. Net PPE
    c. Long Term debt
    d. Accrued Expenses
A

b. Net PPE

66
Q
  1. If Gross PPE increases, what P&L account will change?
    a. Sales
    b. Cost of Goods Sold
    c. Net Margin
    d. None of the above
A

d. None of the above

67
Q
  1. If Gross PPE increases, what Cash Flow Statement account will change?
    a. CFO
    b. CFI
    c. CFF
    d. None of the above
A

b. CFI

68
Q
  1. Gross PPE equals
    a. Change in Net PPE
    b. Net PPE plus depreciation expense
    c. Net PPE plus accumulated depreciation
    d. Net PPE minus depreciation
A

c. Net PPE plus accumulated depreciation

69
Q
  1. What is the main difficulty in using accounting data for financial decisions?
    a. It does not reflect market values
    b. It uses subjective judgments
    c. It uses incorrect discount rates
    d. There is no problem
A

a. It does not reflect market values

70
Q
  1. Which items on a balance sheet are based on current market values?
    a. Gross PPE
    b. Net PPE
    c. Long Term Debt
    d. None of the above.
A

d. None of the above.

71
Q
  1. Financial ratios are
    a. Defined by GAAP
    b. Based on NPV
    c. Uses only cash accounting
    d. Rule-of-thumb type analysis
A

d. Rule-of-thumb type analysis

72
Q
  1. Which is not a difficulty in using financial ratios?
    a. Firms using different accounting policies
    b. Different fiscal years
    c. Defining ratios differently
    d. Being in the same industry
A

d. Being in the same industry

73
Q
  1. What is the primary difference between accounting income and income for tax purposes?
    a. They are the same
    b. Income for tax is based on GAAP
    c. Income for tax based on IRS rules
    d. There is no difference
A

c. Income for tax based on IRS rules

74
Q
  1. Which is an important financial ratio in working capital management?
    a. Float
    b. ROE
    c. Net Margin
    d. Leverage
A

a. Float

75
Q
  1. If a firm’s combined leverage is high, what is the implication?
    a. High equity ratio
    b. Profits are more volatile as sales fluctuate
    c. The firm is less profitable
    d. The two leverages offset each other - - neutral impact
A

b. Profits are more volatile as sales fluctuate

76
Q
  1. Which ratio analysis compares a firm’s ratio to last year’s ratios?
    a. Trend
    b. Cross section
    c. Geographic
    d. None of the above
A

a. Trend

77
Q
  1. The return to stock holders does not include:
    a. Dividend payments
    b. Capital gains
    c. Return of principal
    d. None of the above
A

c. Return of principal

78
Q
  1. The Prospectus is:
    a. Audited financial statements filed with SEC
    b. Firm’s Annual Report
    c. Financial disclosure for security issuance
    d. Press release about prospective projects
A

c. Financial disclosure for security issuance

79
Q
  1. The Prospectus requirement was established in
    a. Dodd-Frank
    b. Sarbanes-Oxley
    c. Securities Act of 1933
    d. FINRE
A

c. Securities Act of 1933

80
Q
  1. The SEC requires the following to file audited financial statements:
    a. All companies
    b. All for-profit companies
    c. All publicly-traded corporations
    d. There is no such requirement
A

c. All publicly-traded corporations

81
Q
  1. What is a “market order”?
    a. Order to sell stock only as long as the market is open today
    b. Order to sell stock with no price limitations
    c. Order to sell stock at a specified market level
    d. None of the above
A

b. Order to sell stock with no price limitations

82
Q
  1. What is the cash cycle?
    a. The speed of collecting cash from customers
    b. The amount of cash kept in banks
    c. The comparison of debt to cash
    d. The amount of time to regenerate cash
A

d.The amount of time to regenerate cash

83
Q
  1. To evaluate a non-public company, what sources would you use?
    a. The financial statements filed with the SEC
    b. The latest stock price quoted in the Wall Street Journal
    c. The PE of a comparable public company
    d. The book value of equity in its balance sheet
A

c. The PE of a comparable public company

84
Q
  1. Why is float important to understand?
    a. To know how to keep the company profitable
    b. To know why the company needs cash
    c. To determine when to buy fixed assets
    d. To time cash expenditures
A

d. To time cash expenditures

85
Q
  1. What should a company do to manage its working capital?
    a. Collect quickly and pay slowly
    b. Keep a large cash balance
    c. Maximize the use of long term investment
    d. Depreciate assets more slowly
A

a. Collect quickly and pay slowly

86
Q
  1. Company A offers trade credit of 2% 10 / net 30 and Company B offers trade credit at net 30. What can be said about the credit policies of each company?
    a. Company B has a looser credit policy
    b. Company A keeps more of its Accounts Receivable
    c. Company A can attract more customers
    d. Company B can attract more customer
A

c. Company A can attract more customers

87
Q
  1. If interest payment periodicity increases,
    a. APR increases
    b. APY increases
    c. APY is not affected
    d. APR becomes greater than APY
A

b. APY increases

88
Q
  1. In regards to Accounts Payable balances, which of the following is true:
    a. Higher Accounts Payable is better than a lower balance
    b. Paying off A/P as soon as possible is good policy
    c. Increased Accounts Payable means faster collections
    d. Paying off A/P on the last day due is good policy
A

d. Paying off A/P on the last day due is good policy

89
Q
  1. What is an asset-backed bond?
    a. Bond used to finance assets
    b. Bond collateralized by assets
    c. Subordinated debenture
    d. Debenture
A

b. Bond collateralized by assets

90
Q
  1. What is a competitive market?
    a. No buyer or seller controls prices
    b. Prices are stable
    c. Prices are low
    d. Product has high quality
A

a. No buyer or seller controls prices

91
Q
  1. What is a “covenant”?
    a. Collateral backing a bond
    b. Common stock voting rights
    c. Restrictions on subsequent debt issuance
    d. Restrictions on common stock dividends
A

c. Restrictions on subsequent debt issuance

92
Q
  1. What is a “cumulative dividends” requirement?
    a. Must pay common stock dividends before preferred
    b. Must pay preferred stock dividends before common
    c. Must pay previously skipped preferred dividends before common
    d. A term for total of historical dividend payments
A

c. Must pay previously skipped preferred dividends before common

93
Q
  1. What affects a firm’s dividend payout ratio?
    a. Availability of profitable investments
    b. Access to market financing
    c. Federal tax rules
    d. All of the above
A

d. All of the above

94
Q
  1. What is an index fund?
    a. A futures contract on a market index
    b. A mutual fund that mimics a market index such as S&P
    c. A stock fund that is actively managed by professionals
    d. A stock fund managed by the individual investor
A

b. A mutual fund that mimics a market index such as S&P

95
Q
  1. What is the “market risk premium”?
    a. Spread between Treasury rates and corporate bond rates
    b. Average expected yield on stocks
    c. Average expected yield on stocks versus Treasury rates.
    d. Same as Beta
A

c. Average expected yield on stocks versus Treasury rates.

96
Q
  1. In cash flow statements, which section usually has negative cash flow ?
    a. Cash flow operations
    b. Cash flow investing
    c. Cash flow financing
    d. Cash flow disbursements
A

b. Cash flow investing

97
Q
  1. What factor determines the “market risk premium” on stocks?
    a. Earnings growth rate
    b. The investor-perceived riskiness of stocks
    c. Seasonality
    d. Earnings per share
A

b. The investor-perceived riskiness of stocks

98
Q
  1. Why would a company buy back outstanding stock?
    a. To boost the price of the stock
    b. To increase financial leverage
    c. Lack of investment opportunities
    d. All of the above
A

d. All of the above

99
Q
  1. Which is not a legal provision of a bond?
    a. Price
    b. Coupon rate
    c. Maturity date
    d. Payment dates
A

a. Price

100
Q
  1. What is the “payback” method?
    a. A method for evaluating investment projects
    b. A financial ratio analysis
    c. Another term for IRR
    d. All of the above
A

a. A method for evaluating investment projects

101
Q
  1. Which statement about a PE ratio is false?
    a. High PE ratios reflect higher expected growth rates
    b. Low PE stocks are cheap
    c. PE is the ratio of price to earnings
    d. All are false
A

b. Low PE stocks are cheap

102
Q
  1. If a firm cannot access markets sufficiently to meet their DFN, what strategies might they use?
    a. Slow sales growth
    b. Lower dividend payout
    c. Increase the net margin
    d. All of the above.
A

d. All of the above.

103
Q
  1. What is price “transparency”?
    a. Prices revealed after trade execution
    b. Prices that only security dealers see
    c. Prices of recently completed trades
    d. Prices investors see for potential trades
A

d. Prices investors see for potential trades

104
Q
  1. Which is not true of both stocks and bonds
    a. Market value derived from expected cash flows
    b. Market value varies over time
    c. Have voting rights
    d. Trade in both primary and secondary markets
A

c. Have voting rights

105
Q
  1. The value of a corporation is best measured by
    a. Total Assets
    b. Assets minus Liabilities on the Balance Sheet
    c. Market prices
    d. Its book value
A

c. Market prices

106
Q
  1. The “risk free rate” is typically represented by:
    a. AAA corporate yields
    b. Federal agency yields
    c. Treasury yields
    d. LIBOR
A

c. Treasury yields

107
Q
  1. What is Rule 144A?
    a. SEC rule governing private security sales
    b. FINRE rule on profit mark-ups
    c. CFTC rule on futures contractss
    d. None of the above
A

a. SEC rule governing private security sales

108
Q
  1. Salvage value includes:
    a. Sales price of old equipment
    b. Shipping and Installation expense
    c. Change in Net Working Capital
    d. All of the above
A

a. Sales price of old equipment

109
Q
  1. In which does Net Working Capital cause a cash inflow?
    a. Cash Flow Operations
    b. Terminal Cash Flow
    c. Initial Cash Flow
    d. None of the above
A

b. Terminal Cash Flow

110
Q
  1. What is systematic risk?
    a. Risk hedged by diversification
    b. Risk not reduced by diversification
    c. Firm event risk
    d. None of the above
A

b. Risk not reduced by diversification

111
Q
  1. If a firm is downgraded by rating agencies, what happens?
    a. Must declare bankruptcy
    b. Its financing costs increase
    c. Its financing costs decrease
    d. No impact since the coupon rate is fixed
A

b. Its financing costs increase

112
Q
  1. What are implications of Reg S and Rule 144A
    a. Stocks can be converted to bonds
    b. Both required a Prospectus
    c. Stocks can be sold, but not in SEC regulated markets
    d. None of the above
A

c. Stocks can be sold, but not in SEC regulated markets

113
Q
  1. Which is the best diversification for stock investment?
    a. Auto company and grocery chain
    b. Walmart and Costco
    c. Home buider and auto company
    d. Boeing and Lockheed
A

a. Auto company and grocery chain

114
Q
  1. If you are assessing a firm’s ability to meet short term obligations, you would use which ratio?
    a. Cash balances
    b . Quick ratio
    c. Operating leverage
    d. Financial leverage
A

b . Quick ratio

115
Q
  1. To assess firm efficiency, which ratio would you use?
    a. Asset turnover
    b. Operating margin
    c. Debt ratio
    d. None of the above
A

a. Asset turnover

116
Q
  1. What attributes of cash should be considered in evaluating investments?
    a. Size of cash flow
    b. Timing of the cash flow
    c. Risk of cash flows
    d. All of the above
A

d. All of the above

117
Q
  1. “Agency cost” refers to the result of what practice?
    a. The use of an agent to purchase stock
    b. The bid/ask spread in trading
    c. Corporate managers acting personal interest
    d. The fees charged in stock issuance
A

c. Corporate managers acting personal interest

118
Q
  1. If Accounts Payable increase, what is impact on cash flow?
    a. Increases
    b. Decreases
    c. No change
    d. Insufficient information to determine
A

a. Increases

119
Q
  1. What section of the Statement of Cash Flows reflects the production and sale of the firm’s product?
    a. Cash flow operations
    b. Cash flow investing
    c. Cash flow financing
    d. Cash flow production
A

a. Cash flow operations

120
Q
  1. WACC is calculated based on
    a. Accrual accounting
    b. Audited financial statements
    c. Market values and yields of debt and equity
    d. GAAP measures
A

c. Market values and yields of debt and equity

121
Q
  1. What is impact of tariffs imposed on imports?
    a. Free trade is enhanced
    b. Consumers are benefitted
    c. Imports increase
    d. Special interests benefit; the nation is hurt
A

d. Special interests benefit; the nation is hurt

122
Q
  1. If market rates of interest increase, what is impact on bond price
    a. Decreases if currently selling at a premium price
    b. Decreases regardless of price
    c. Increases
    d. Depends on the term to maturity
A

b. Decreases regardless of price

123
Q
  1. How are stock prices determined?
    a. Investment bank expert opinion
    b. Trading in financial markets
    c. Audited financial statements
    d. Comparables method
A

b. Trading in financial markets

124
Q
  1. Which analytical model derives the required return on a specific stock?
    a. CAPM
    b. Gordon Growth Model
    c. Single Holding Period Model
    d. IRR
A

a. CAPM

125
Q
  1. Net Margin is defined as:
    a. EBIT-to-Sales
    b. Net Income-to-Sales
    c. Net Income plus Depreciation-to-Sales
    d. Net Income minus Dividends Paid
A

b. Net Income-to-Sales

126
Q
  1. Why do you need WACC in capital budgeting?
    a. To calculate IRR
    b. To evaluate profitability
    c. WACC is the yield on the investment project
    d. WACC is not used
A

b. To evaluate profitability

127
Q
  1. If Jackel has a DOL of 5.0 and Lion has a DOL of 3.2,
    a. Jackel’s profits are less volatile
    b. Jackel’s profits are more volatile
    c. Jackel’s share price will be higher
    d. Lion’s share price will be higher
A

b. Jackel’s profits are more volatile

128
Q
  1. Which is not a method of adjusting financial leverage?
    a. Stock buy backs
    b. Bond buy backs
    c. Dividends
    d. Automation
A

d. Automation

129
Q
  1. Which type of firm is most likely to use high financial leverage?
    a. Auto manufacturers
    b. Home builders
    c. Grocery chains
    d. All will use high leverage
A

c. Grocery chains

130
Q
  1. Firms use “sensitivity analysis” because:
    a. Required by the SEC
    b. To anticipate impact of erroneous forecasts
    c. To detect computer code errors
    d. To double check analyst calculations
A

b. To anticipate impact of erroneous forecasts

131
Q
  1. For a bond to trade in the market, its yield must be:
    a. Less than the market yield
    b. Greater than the market yield
    c. Equal to the market yield
    d. Equal to the Coupon Rate
A

c. Equal to the market yield

132
Q
  1. In capital budgeting, which cash flow is negative?
    a. Initial cash flow
    b. Differential cash flow
    c. Terminal cash flow
    d. All are positive
A

a. Initial cash flow

133
Q
  1. The Efficient Frontier contains points with:
    a. Minimum risk
    b. Maximum return
    c. Maximum return for a given risk
    d. Maximum risk
A

c. Maximum return for a given risk

134
Q
  1. What authority monitors banking systematic risk?
    a. FSOC
    b. SEC
    c. FINRA
    d. Federal Reserve
A

a. FSOC

135
Q
  1. If IRR is greater than WACC, an adopted project,
    a. Decreases shareholder value
    b. Reduces Beta
    c. Increases shareholder value
    d. Increases leverage
A

c. Increases shareholder value

136
Q
  1. How would a company execute a leverage buyout?
    a. Sell stock
    b. Issue more debt
    c. Execute a stock swap
    d. Restrict dividends
A

b. Issue more debt

137
Q
  1. The goal of a corporation is:
    a. Maximize profits
    b. Maximize shareholder value
    c. Produce the best product possible
    d. Minimize operating expenses
A

b. Maximize shareholder value

138
Q
  1. To whom do you complain about stock broker sales practices?
    a. SEC
    b. FINRA
    c. FDIC
    d. New York Stock Exchange
A

b. FINRA

139
Q
  1. Which has priority of claims in bankruptcy?
    a. Preferred stock holders
    b. Common stock holders
    c. Bond holders
    d. Subordinated debenture holders
A

c. Bond holders

140
Q
  1. Which ratio would have the greatest value?
    a. Operating Margin
    b. Gross Margin
    c. Net Margin
    d. Cannot be determined
A

b. Gross Margin

141
Q
  1. Which does not affect the yield on a bond?
    a. Face Value
    b. Treasury security yields
    c. Riskiness of the bond
    d. Maturity date
A

a. Face Value

142
Q
  1. If a corporation issues stock, where may it be sold?
    a. Chicago Board of Trade
    b. New York Stock Exchange
    c. At your local commercial bank
    d. Amazon
A

b. New York Stock Exchange

143
Q
  1. What is a bid/ask spread?
    a. Difference between sell price and buy price
    b. Broker-dealer profit spread
    c. Measure of market liquidity
    d. All of the above
A

a. Difference between sell price and buy price

144
Q
  1. Which regulation pertains to “accredited investors”?
    a. 144A
    b. Reg. S
    c. Reg. P
    d. None of the above
A

a. 144A

145
Q
  1. What is the difference between primary and secondary markets?
    a. Primary markets are for stocks in the Dow Jones Index
    b. Secondary markets are for the firm’s second stock issuance
    c. Secondary markets are for trading existing stock outstanding
    d. Primary markets are for “primary dealers”
A

c. Secondary markets are for trading existing stock outstanding

146
Q
  1. What is the difference between fair value and historical cost?
    a. Fair value refers to current market value
    b. Historical cost refers to prior year-end market prices
    c. Fair value adjusts market prices for subjective factors
    d. Both are the same
A

a. Fair value refers to current market value

147
Q
  1. Working capital management refers to
    a. Management of the product manufacturing process
    b. Management of stock issuance
    c. Management of cash used in daily operations
    d. None of the above
A

c. Management of cash used in daily operations

148
Q
  1. The operating balance refers to
    a. Cash available to pay immediate bills
    b. Cash to buy raw materials
    c. Net Working Capital
    d. None of the above
A

a. Cash available to pay immediate bills

149
Q
  1. Which is the best investment?
    a. 90-day Treasury bills with 2% yield
    b. 10-year Treasury bonds with a 5% yield
    c. Stocks with a 12% expected return
    d. Depends upon investor preferences
A

d. Depends upon investor preferences

150
Q
  1. A firms’ WACC is impacted by
    a. Debt-equity mix
    b. Riskiness of firm
    c. Growth rate of earnings
    d. All of the above
A

d. All of the above

C214 Financial Management (4 decks)

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