Final Exam Part A (T/F and MC)
Started: May 12, 2010 8:54 AM
Questions: 32
1.
(Points: 2)
The ______is the annual rate of interest earned on a security purchased on a given date and held to maturity.
1. a. term structure
2. b. yield to maturity
3. c. yield curve
4. d. risk-free rate
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2.
(Points: 2)
If a new asset is being considered as a replacement for an old asset, the relevant cash flows would be found by adding the expected cash flows attributed to old asset and the expected cash flows for new asset.
1. a. True
2. b. False
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3.
(Points: 2)
A firm with limited dollars available for capital expenditures is subject to
1. a. working capital constraints.
2. b. capital rationing.
3. c. mutually exclusive projects.
4. d. capital dependency.
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4.
(Points: 2)
The credit applicant's ______is its ability to repay the requested credit.
1. a. collateral
2. b. capacity
3. c. capital
4. d. character
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5.
(Points: 2)
When managing accounts receivable, a good strategy to employ without losing future sales is to
1. a. make frequent personal visits to the customer.
2. b. send the accounts to a collection agency.
3. c. offer cash discount.
4. d. tighten the credit terms.
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6.
(Points: 2)
The ______rate of interest is typically the required rate of return on a three-month U.S. Treasury bill.
1. a. premium
2. b. risk-free
3. c. nominal
4. d. real
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7.
(Points: 2)
The risk premium consists of a number of components, including all of the following EXCEPT
1. a. default risk.
2. b. tax treatment risk.
3. c. liquidity risk.
4. d. inflationary risk.
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8.
(Points: 2)
The ______is the amount of time it takes the firm to recover its initial investment.
1. a. net present value
2. b. average rate of return
3. c. internal rate of return
4. d. payback period
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9.
(Points: 2)
The legal contract setting forth the terms and provisions of a corporate bond is a(n)
1. a. promissory note.
2. b. debenture.
3. c. loan document.
4. d. indenture.
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10.
(Points: 2)
As an outstanding bond approaches maturity, the price of the bond will always trend toward par value until, at maturity, the bond is worth its face value.
1. a. True
2. b. False
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11.
(Points: 2)
The ______is the discount rate that equates the present value of the cash inflows with the initial investment.
1. a. internal rate of return
2. b. payback period
3. c. cost of capital
4. d. average rate of return
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12.
(Points: 2)
If the required return is less than the coupon rate, a bond will sell at
1. a. par.
2. b. book value.
3. c. a premium.
4. d. a discount.
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13.
(Points: 2)
Sunk costs are cash outlays that have already been made and therefore have no effect on the cash flows relevant to the current decision. As a result, sunk costs should not be included in a project's incremental cash flows.
1. a. True
2. b. False
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14.
(Points: 2)
______yield curve reflects higher expected future rates of interest.
1. a. A flat
2. b. A downward-sloping
3. c. A linear
4. d. An upward-sloping
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15.
(Points: 2)
If a firm is subject to capital rationing, it is able to accept all independent projects that provide an acceptable return.
1. a. False
2. b. True
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16.
(Points: 2)
Bonds are
1. a. long-term debt instruments.
2. b. a series of short-term debt instruments.
3. c. a hybrid form of financing used to raise large sums of money from a diverse group of lenders.
4. d. a form of equity financing that pays interest.
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17.
(Points: 2)
______is the process of evaluating and selecting long-term investments consistent with the firm's goal of owner wealth maximization.
1. a. Ratio analysis
2. b. Capital budgeting
3. c. Recapitalizing assets
4. d. Restructuring debt
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18.
(Points: 2)
Mutually exclusive projects are those whose cash flows compete with one another; the acceptance of one does not eliminate the others from further consideration.
1. a. True
2. b. False
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19.
(Points: 2)
As credit standards are relaxed, sales are expected to ______and the investment in accounts receivable is expected to ______.
1. a. increase; increase
2. b. decrease; increase
3. c. decrease; decrease
4. d. increase; decrease
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20.
(Points: 2)
The aggressive financing strategy is ______method while the conservative financing strategy is ______method.
1. a. a low-profit, low-risk; a high-profit, high-risk
2. b. a high-profit, low-risk; a low-profit, high-risk
3. c. a low-profit, high-risk; a high-profit, low-risk
4. d. a high-profit, high-risk; a low-profit, low-risk
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21.
(Points: 2)
The ______feature permits the issuer to repurchase bonds at a stated price prior to maturity.
1. a. put
2. b. conversion
3. c. capitalization
4. d. call
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22.
(Points: 2)
The ABC company has two bonds outstanding that are the same except for the maturity date. Bond D matures in 4 years, while Bond E matures in 7 years. If the required return changes by 15 percent
1. a. Bond E will have a greater change in price.
2. b. Bond D will have a greater change in price.
3. c. the price change for the bonds will be equal.
4. d. the price of the bonds will be constant.
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23.
(Points: 2)
If the payback period is less than the maximum acceptable payback period, we would accept a project.
1. a. True
2. b. False
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24.
(Points: 2)
One way to improve the cash conversion cycle is to
1. a. speed up collections.
2. b. borrow funds.
3. c. slow down credit approvals.
4. d. reduce inventory turnover.
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25.
(Points: 2)
Certain financing plans are termed conservative when
1. a. working capital is relatively low.
2. b. short-term financing is used frequently.
3. c. working capital is relatively high.
4. d. risk is increased.
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26.
(Points: 2)
The ______is an inventory management technique that minimizes inventory investment by having materials inputs arrive at exactly the time they are needed for production.
1. a. EOQ model
2. b. MRP system
3. c. ABC system
4. d. JIT system
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27.
(Points: 2)
An aging schedule breaks down accounts receivable into groups on the basis of the first letter of the name of the company that owes on the account.
1. a. False
2. b. True
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28.
(Points: 2)
In the EOQ model, if carrying costs increase while all other costs remain unchanged, the number of orders placed would be expected to
1. a. change without regard to carrying costs.
2. b. increase.
3. c. decrease.
4. d. remain unchanged.
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29.
(Points: 2)
2/15 net 45 translates as
a. 15 percent cash discount if paid in 2 days, net 45-day credit period.
b. 45 percent of account due in 15 days, payment prior to day 15 receives a 2 percent discount.
c. 2 percent cash discount if paid prior to 15 days, if customer does not take a cash discount, the balance is due in 45 days.
d. 2 percent of the balance is due in 15 days, the remaining balance is due in 45 days.
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30.
(Points: 2)
A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years. The payback period of the project is approximately:
1. a. 1.5 years.
2. b. 2 years.
3. c. 3.3 years.
4. d. 4 years.
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31.
(Points: 2)
What is the approximate yield to maturity for a $1,000 par value bond selling for $1,120 that matures in 6 years and pays 12 percent interest annually?
1. a. 8.5 percent
2. b. 13.2 percent
3. c. 9.4 percent
4. d. 12.0 percent
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32.
(Points: 2)
A firm has an average age of inventory of 20 days, an average collection period of 30 days, and an average payment period of 60 days. The firm's cash conversion cycle is ______days.
1. a. -10
2. b. 50
3. c. 110
4. d. 70
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