50 multiple choice for finance
50 multiple choice for finance
1. Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
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A. |
articles of incorporation |
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B. |
corporate breakdown |
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C. |
agency problem |
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D. |
bylaws |
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E. |
legal liability |
2. 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?
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A. |
I and IV only |
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B. |
II and III only |
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C. |
I, II, and III only |
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D. |
II, III, and IV only |
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E. |
I, II, III, and IV |
3. Which one of the following is a capital budgeting decision?
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A. |
determining how many shares of stock to issue |
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B. |
deciding whether or not to purchase a new machine for the production line |
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C. |
deciding how to refinance a debt issue that is maturing |
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D. |
determining how much inventory to keep on hand |
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E. |
determining how much money should be kept in the checking account |
4. Decisions made by financial managers should primarily focus on increasing which one of the following?
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A. |
size of the firm |
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B. |
growth rate of the firm |
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C. |
gross profit per unit produced |
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D. |
market value per share of outstanding stock |
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E. |
total sales |
5. Essay
List and briefly describe the three general areas of responsibility for a financial manager.
Section II: Financial Statements, Taxes and Cash Flow
6. The book value of a firm is:
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A. |
equivalent to the firm’s market value provided that the firm has some fixed assets. |
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B. |
based on historical cost. |
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C. |
generally greater than the market value when fixed assets are included. |
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D. |
more of a financial than an accounting valuation. |
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E. |
adjusted to the market value whenever the market value exceeds the stated book value. |
7. Which of the following are expenses for accounting purposes but are not operating cash flows for financial purposes?
I. interest expense
II. taxes
III. costs of goods sold
IV. depreciation
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A. |
IV only |
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B. |
II and IV only |
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C. |
I and III only |
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D. |
I and IV only |
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E. |
I, II, and IV only |
8. A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets?
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A. |
$710 |
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B. |
$780 |
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C. |
$990 |
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D. |
$2,430 |
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E. |
$2,640 |
9. Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700 and the tax rate is 34 percent. The firm does not have any interest expense. What is the operating cash flow?
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A. |
$129,152 |
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B. |
$171,852 |
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C. |
$179,924 |
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D. |
$281,417 |
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E. |
$309,076 |
10.
What is the change in the net working capital from 2010 to 2011?
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A. |
-$1,194 |
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B. |
$1,306 |
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C. |
$1,887 |
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D. |
$4,780 |
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E. |
$5,172 |
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11. |
Relationships determined from a firm’s financial information and used for comparison purposes are known as:
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12. |
According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities.
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13. |
The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm’s financial ratios in which one of the following ways?
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14. |
Shareholders probably have the most interest in which one of the following sets of ratios?
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15. |
Al’s Sport Store has sales of $897,400, costs of goods sold of $628,300, inventory of $208,400, and accounts receivable of $74,100. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?
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Essay Question
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16. |
You need to analyze a firm’s performance in relation to its peers. You can do this either by comparing the firms’ balance sheets and income statements or by comparing the firms’ ratios. If you only had time to use one means of comparison which method would you use and why? |
Section III: Valuation of Future Cash Flows
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17. |
The process of determining the present value of future cash flows in order to know their worth today is called which one of the following?
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18. |
You invested $1,400 in an account that pays 5 percent simple interest. How much more could you have earned over a 20-year period if the interest had compounded annually?
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19. |
You just received $225,000 from an insurance settlement. You have decided to set this money aside and invest it for your retirement. Currently, your goal is to retire 25 years from today. How much more will you have in your account on the day you retire if you can earn an average return of 10.5 percent rather than just 8 percent?
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20. |
When you retire 40 years from now, you want to have $1.2 million. You think you can earn an average of 12 percent on your investments. To meet your goal, you are trying to decide whether to deposit a lump sum today, or to wait and deposit a lump sum 2 years from today. How much more will you have to deposit as a lump sum if you wait for 2 years before making the deposit?
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Essay Question
21. You are considering two lottery payment options: Option A pays $10,000 today and Option B pays $20,000 at the end of ten years. Assume you can earn 6 percent on your savings. Which option will you choose if you base your decision on present values? Which option will you choose if you base your decision on future values? Explain why your answers are either the same or different.
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22. |
An ordinary annuity is best defined by which one of the following?
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23. |
You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $200,000 today or receive payments of $1,400 a month for 20 years. You can earn 6 percent on your money. Which option should you take and why?
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