A. It Is a Market Where Securities Are Issued Through Private Placement

1. Which of the following is true of a secondary market?

A. It is a market where securities are issued through private placement

B. It is a market in which short-term money market instruments such as Treasury bills are traded.

C. It is a market for an unlisted company to raise equity capital.

D. It is a market in which preowned securities are traded.

2. Pro forma financial statements are used for ______.

A. auditing

B. profit planning

C . cash budgeting

D. preparing financial statements

3. Which of the following represents a way of coping with uncertainty in a cash budget?
A. using scenario analysis, or "what if" approach, to analyze cash flows under a variety of circumstances

B. Always using the prior year's data for estimates of the future

C. developing a pro forma income statement to forecast sales and then express the various income statement items as percentage of projected sales

D.careful estimation of cash budgets outputs

4. Which of the following represents a way of coping with uncertainty in a cash budget?

A. using scenario analysis, or "what if" approach, to analyze cash flows under a variety of circumstances

B. always using the prior year's data for estimates of the future

C. developing a pro forma income statement to forecast sales and then express the various income statement items as percentage of projected sales

D. careful estimation of cash budgets outputs

5. Time-series analysis is often used to ______.

A. standardize results

B. evaluate the value of a firm or its assets

C. assess developing trends

D. correct errors of judgment

6. Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A $100,000 in dividends in 2002. Corporation A must pay tax on ______.
A. $ 30,000 of ordinary income

B $ 70,000 of ordinary income

C. $ 70,000 of capital gain

D.$100,000 of ordinary income

7. A ______is responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.

A. foreign exchange manager

B. treasurer

C. controller

D. pension fund manager

8. Ratios provide a ______measure of a company's performance and condition.

A.relative

B. absolute

C. gross

D. definitive

9. An efficient market is one where ______.

A. prices of stocks move up and down widely without apparent reason

B.prices of stocks remain low for long periods of time

C. prices of stocks are unaffected by market news

D.the price of a security is an unbiased estimate of its true value

10. The key input to any cash budget is ______.

A. the sales forecast

B. the production plan

C. the pro forma balance sheet

D. the current tax laws

11. An ethics program is expected to have ______impact on a firm's share price.

a positive
no impact
an unpredictable
. a negative

12. The primary risk of mortgage-backed securities is ______.

A. that the government will not be able to meet the guarantees on the cash flows

B. that the prices of have high volatality

C. that homeowners may not be able to, or choose not to, repay their loans

D. that the prices of housing will increase

13. The present value of a $25,000 perpetuity at a 14 percent discount rate is ______.

A.$285,000

B. $178,571

C. $350,000

D. $219,298

14. Which of the following is a source of cash flows?

A. decrease in notes payable

B. increase in accounts payable

C. increase in marketable securities

D. repurchase of stock

15. Firm ABC had operating profits of $100,000, taxes of $17,000, interest expense of $34,000, and preferred dividends of $5,000. What was the firm's net profit after taxes?

A. $83,000

B. $49,000

C. $66,000

D. $44,000

16. The tax deductibility of various expenses such as general and administrative expenses ______.

A. has an unpredictable effect on their after-tax cost

B. has no effect on their after-tax cost

C. reduces their after-tax cost

D. increases their pretax cost

17. During 2015, NICO Corporation had EBIT of $100,000, a change in net fixed assets of $400,000, an increase in net current assets of
18. $100,000, an increase in spontaneous current liabilities of $400,000, a depreciation expense of $50,000, and a tax rate of 30%. Based on this information, NICO's free cash flow is ______.

A -$630,000

B. $650,000

C. -$30,000

D. -$50,000

19. Which of the following is true of a primary market?

A. It is the only market in which the issuer is directly involved in the transaction.

B. It is an organized market in which all financial derivatives are traded.

C. It is a market where smaller, unlisted securities are traded.

D. It is regulated by The Sarbanes-Oxley Act.

20. In the DuPont system of analysis, the return on equity is equal to ______.

A. (return on total assets) × (total asset turnover)

B. (net profit margin) × (total asset turnover)

C. (return on total assets) × (financial leverage multiplier)

D. (stockholders' equity) × (financial leverage multiplier)

21. A firm's year-end retained earnings balances are $320,000 and $400,000, for 2014 and 2015 respectively. The firm reported net profits after taxes of $100,000 in 2015. The firm's dividend payment for 2015 is ______.

A. $20,000

B. $100,000

C. $80,000

D. $0

22. The future value of $200 received today and deposited at 8 percent for three years is ______.
A. $158
B. $248
C. $200

D. $252

23. If you expect to retire in 30 years, live on $50,000 per year and expect the inflation to average 3% over the next 30 years, what amount of annual income will you need to live at the same comfort level in 30 years?

A. $121,363

B .$95,000

C. $20,599

D. $51,500

24. Which of the following is a duty of a financial manager in a business firm?

A. developing marketing plans

B. raising financial resources

C. auditing financial records

D. controlling the stock price

25. Which of the following acts regulates the primary market in which securities are originally issued to the public?

A. The Securities Exchange Act of 1934

B. The Glass-Steagall Act

CThe Gramm-Leach-Bliley Act

D. The Securities Act of 1933

26. Which of the following is the best measure to ensure that management decisions are in the best interest of the stockholders?

tie management compensation to the performance of the company's common stock price
remove management's perquisites

C. tie management compensation to the level of dividend per share

D. fire managers who are inefficient

27. Bill plans to fund his individual retirement account (IRA) with the maximum contribution of $2,000 at the end of each year for the next 20 years. If Bill can earn 12 percent on his contributions, how much will he have at the end of the twentieth year?

A. $19,292

B. $14,938

C. $144,104

D. $40,000

28. Corporate owners receive return ______.

A. by realizing gains through increases in share price and cash dividends

B. by realizing gains through increases in share price and interest earnings

C. through capital appreciation and retained earnings

D. through interest earnings and earnings per share

29. Finance is ______.

A. the art of merchandising products and services

B. the art and science of managing money

C. the system of verifying, analyzing, and recording business transactions

D. the science of the production, distribution, and consumption of goods and services

30. Given a financial manager's preference for faster receipt of cash flows, ______.

A. a shorter depreciable life is preferred to a longer one

B. the manager is not concerned with depreciable life, because once purchased, depreciation is considered a sunk cost

C. the manager is not concerned with depreciable life, because depreciation is a noncash expense

D. a longer depreciable life is preferred to a shorter one

31. As a key participant in financial transactions, individuals are ______.

net demanders of funds because they save more money than they borrow

B. net suppliers of funds because they save more money than they borrow

C. net purchasers of funds because they save more money than they borrow

D. net users of funds because they save less money than they borrow

32. In a period of rising sales, utilizing past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements will tend to ______.

A. overstate costs and understate profits

B. overstate costs and overstate profits

C. understate costs and overstate profits

D. understate costs and understate profits

33. The present value of $100 to be received 10 years from today, assuming an opportunity cost of 9 percent, is ______.
A. $236
B. $ 75

C. $699

D. $ 42

34. The key variables in the owner wealth maximization process are ______.

A. risk-free rate and share price

B. cash flows and risk

C. market risk premium and risk

D. total assets and risk

35. The present value of an ordinary annuity of $2,350 each year for eight years, assuming an opportunity cost of 11 percent, is ______.

A. $12,093

B. $18,800

C. $27,869

D. $ 1,020

36. Nico Corporation has cost of goods sold of $300,000 and inventory of $30,000, then the inventory turnover is ______and the average age of inventory is ______.

A. 36.5; 10

B. 30; 36.0

C. 36.0; 10

D. 10; 36.5

37. Under the judgmental approach for developing a pro forma balance sheet, the "plug" figure required to bring the statement into balance may be called the ______.

accounts receivable

B. cash balance

C. retained earnings

D. external financing required

38. As the risk of a stock investment increases, investors' ______.

A. return will decrease

B. required rate of return will increase

C. return will increase

D. required rate of return will decrease

39. The 2002 Sarbanes-Oxley Act was designed to ______.

A. limit the compensation that could be paid to corporate CEOs

B. eliminate the many disclosure and conflict-of-interest problems of corporations

C. provide the guidelines to minimize the tax

D. provide uniform international accounting standards

40. the Federal Deposit Insurance Corporation (FDIC) ______.

A. is an agency, created by the Glass-Steagall Act, that monitors banks on a regular basis to ensure that they were safe and sound

B. guarantees individuals will not lose any money, up to a specified amount, held at any type of financial institution that fails

C. guarantees individuals will not lose any money held at any type of financial institution that fails

D. is an agency that monitors business combinations between commercial banks, investment banks, and insurance companies

41. ______is a term used to describe the magnification of risk and return introduced through the use of fixed-cost financing, such as preferred stock and debt.

A. Fixed-payment coverage

B. Benchmarking

C. Financial leverage

D. Operating leverage

42. Which of the following is true?

A. The process of pooling mortgages or other types of loans and then selling claims or securities against that pool in a secondary market is called capitalization.

B. Corporations may pay taxes depending on their percentage of ownership.

C. Capital gains are treated separately from ordinary corporate income for tax purposes.

D. Corporations pay taxes on all dividends received from other corporations, no matter their share of ownership.