1. Which would be an appropriate investment for temporarily idle corporate cash that will
be used to pay quarterly dividends three months from now?
Correct : C. Ninety-day commercial paper with a current annual yield of 6.2 percent.
2. Which of the following marketable securities is the obligation of a commercial bank?
Correct : B. Negotiable certificate of deposit
3. The basic requirement for a firm's marketable securities.
Correct : D. All of the above.
4. Ninety-percent of X company's total sales of $600,000 is on credit. If its year-end receivables turnover is 5, the average collection period (based on a 365-day year) and the year-end receivables are, respectively:
Correct : C. 73 days and $108,000.
5. Costs of not carrying enough inventory include:
Correct : D. all of these.
6. Which of the following relationships hold true for safety stock?
Correct : D. the higher the profit margin per unit, the higher the safety stock necessary.
7. Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in:
Correct : A. an increase in the average collection period.
8. The credit policy of Spurling Products is "1.5/10, net 35." At present 30% of the customers take the discount, 62% pay within the net period, and the rest pay within 45 days of invoice. What would receivables be if all customers took the cash discount?
Correct : A. Lower than the present level.
9. An increase in the firm's receivable turnover ratio means that:
Correct : A. it is collecting credit sales more quickly than before.
10. A single, overall cost of capital is often used to evaluate projects because:
Correct : A. it avoids the problem of computing the required rate of return for each investment proposal.
11. The cost of equity capital is all of the following EXCEPT:
Correct : D. generally lower than the before-tax cost of debt.
12. In calculating the proportional amount of equity financing employed by a firm, we should use:
Correct : D. the current market price per share of common stock times the number of shares outstanding.
13. In calculating the costs of the individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas?
Correct : B. debt.
14. The common stock of a company must provide a higher expected return than the debt of the same company because
Correct : C. there is more systematic risk involved for the common stock.
15. A quick approximation of the typical firm's cost of equity may be calculated by
Correct : A. adding a 5 percent risk premium to the firm's before-tax cost of debt.
16. Market values are often used in computing the weighted average cost of capital because
Correct : B. this is consistent with the goal of maximizing shareholder value.
17. Rank in ascending order (i.e., 1 = lowest, while 3 = highest) the likely after-tax component costs of a Company's long-term financing.
Correct : B. 1 = bonds; 2 = preferred stock; 3 = common stock.
18. Lei-Feng, Inc.'s $100 par value preferred stock just paid its $10 per share annual dividend. The preferred stock has a current market price of $96 a share. The firm's marginal tax rate (combined federal and state) is 40 percent, and the firm plans to maintain its current capital structure relationship into the future. The component cost of preferred stock to Lei-Feng, Inc. would be closest to .
Correct : D. 10.4 percent
19. The term "capital structure" refers to:
Correct : A. long-term debt, preferred stock, and common stock equity.
20. A critical assumption of the net operating income (NOI) approach to valuation is:
Correct : C. that ko remains constant regardless of changes in leverage.
21. The traditional approach towards the valuation of a company assumes:
Correct : B. that there is an optimum capital structure.
22. Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M
Correct : D. this will not continue because arbitrage will eventually cause the firms to sell at the same value.
23. What is the value of the tax shield if the value of the firm is $5 million, its value if unlevered would be $4.78 million, and the present value of bankruptcy and agency costs is $360,000?
Correct : D. $580,000
24. Reserves & Surplus are which form of financing?
Correct : B. Internal Financing
25. What are the different options other than cash used for distributing profits to shareholders?
Correct : D. All of these
26. In Walter model formula D stands for
Correct : A. Dividend per share
27. In MM model MM stands for...
Correct : D. Miller and Modigliani
28. The addition of all current assets investment is known as...
Correct : B. Gross Working capital
29. When total current assets exceeds total current liabilities it refers to.
Correct : D. Net Working Capital
30. If the weighting of equity in total capital is 1/3, that of debt is 2/3, the return on equity is 15% that of debt is 10% and the corporate tax rate is 32%, what is the Weighted Average Cost of Capital (WACC)?
Correct : C. 9.533%
31. Which of the following would not be financed from working capital?
Correct : D. A new personal computer for the office.
32. What is the difference between the current ratio and the quick ratio?
Correct : A. The current ratio includes inventories and the quick ratio does not.
33. Which of the following working capital strategies is the most aggressive?
Correct : C. Making greater use of short term finance and minimizing net short term asset.
34. Which of the following is not a metric to use for measuring the length of the cash cycle?
Correct : A. Acid test days.
35. Which of the following is not the responsibility of financial management?
Correct : C. preparation of the firm's accounting statements
36. Which of the following are not among the daily activities of financial management?
Correct : A. sale of shares and bonds
37. Debt Equity Ratio is 3:1,the amount of total assets Rs.20 lac,current ratio is 1.5:1 and owned funds Rs.3 lac.What is the amount of current asset?
Correct : C. Rs.12 lac
38. Banks generally prefer Debt Equity Ratio at :
Correct : C. 2:1
39. An asset is a
Correct : B. Use of fund
40. If a company issues bonus shares the debt equity ratio will
Correct : C. Will improve
41. In the balance sheet amount of total assets is Rs.10 lac, current liabilities Rs.5 lac & capital & reserves are Rs.2 lac . What is the debt-equity ratio?
Correct : D. none of the above.
42. In last year the current ratio was 3:1 and quick ratio was 2:1.Presently current ratio is 3:1 but quick ratio is 1:1.This indicates comparably
Correct : B. higher stock
43. Authorised capital of a company is Rs.5 lac, 40% of it is paid up. Loss incurred during the year is Rs.50,000. Accumulated loss carried from last year is Rs.2 lac. The company has a Tangible Net Worth of
Correct : C. (-)Rs.50,000
44. Proprietary ratio is calculated by
Correct : D. Proprietors’’ Funds/Total
45. Current ratio of a concern is 1,its net working capital will be
Correct : C. Nil
46. Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of current
Assets.
Correct : B. Rs.40,000
47. Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is