You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z, as follows:
45)
Given the information in Table 5.2, what is the expected annual return of this portfolio?
45)
______
A)
10.0%
B)
11.7%
C)
11.4%
D)
11.0%
46)
A partnership between a multinational company and a foreign investor in which contractually specified amounts of money and expertise are contributed by the participants for stated proportions of ownership and profit is a
46)
______
A)
consolidation.
B)
multinational corporation.
C)
floating relationship.
D)
joint venture.
47)
Mary will receive $12,000 per year for the next 10 years as royalty for her work on a finance book. What is the present value of her royalty income if the opportunity cost is 12 percent?
47)
______
A)
$120,000
B)
$ 67,800
C)
$ 38,640
D)
None of the above.
48)
Gross profits are defined as
48)
______
A)
sales revenue minus operating expenses.
B)
operating profits minus depreciation.
C)
operating profits minus cost of goods sold.
D)
sales revenue minus cost of goods sold.
49)
The risk resulting from the effects of changes in foreign exchange rates on the translated value of a firm’s accounts denominated in a given foreign currency is
49)
______
A)
macro political risk.
B)
micro political risk.
C)
economic exposure.
D)
accounting exposure.
50)
The agency problem may result from a manager’s concerns about any of the following EXCEPT
50)
______
A)
personal wealth.
B)
job security.
C)
corporate goals.
D)
company-provided perquisites.
51)
One way often used to insure that management decisions are in the best interest of the stockholders is to
51)
______
A)
tie management compensation to the performance of the company’s common stock price.
B)
threaten to fire managers who are seen as not performing adequately.
C)
remove management’s perquisites.
D)
tie management compensation to the level of earnings per share.
52)
What is the IRR for the following project if its initial after tax cost is $5,000,000 and it is expected to provide after-tax operating cash inflows of $1,800,000 in year 1, $1,900,000 in year 2, $1,700,000 in year 3 and $1,300,000 in year 4?
52)
______
A)
15.57%.
B)
0.00%.
C)
13.57%.
D)
None of the above.
53)
Corporate ethics policies typically apply to ________ in dealing with ________.
53)
______
A)
employee actions; customers and creditors
B)
management actions; all corporate constituents
C)
employee actions; all corporate constituents
D)
employee actions; customers, vendors, and regulators
54)
Comprehensive rules, regulations, and incentives aimed at regulating the inflow of direct foreign investments involving MNCs and at extracting more benefits from their presence are termed
54)
______
A)
Eurocurrency markets.
B)
foreign direct investments.
C)
national entry control systems.
D)
unitary tax laws.
Table 9.2
A firm must choose from six capital budgeting proposals outlined below. The firm is subject to capital rationing and has a capital budget of $1,000,000; the firm’s cost of capital is 15 percent.
55)
Using the internal rate of return approach to ranking projects, which projects should the firm accept? (See Table 9.2)
55)
______
A)
1, 2, 3, and 5
B)
2, 3, 4, and 6
C)
1, 2, 3, 4, and 5
D)
1, 3, 4, and 6
56)
The DuPont system merges the income statement and balance sheet into two summary measures of profitability:
56)
______
A)
return on total assets and return on equity.
B)
net profit margin and return on total assets.
C)
net profit margin and return on equity.
D)
net profit margin and price/earning ratio.
57)
The current price of DEF Corporation stock is $26.50 per share. Earnings next year should be $2 per share and it should pay a $1 dividend. The P/E multiple is 15 times on average. What price would you expect for DEF’s stock in the future?
57)
______
A)
$13.50
B)
$15.00
C)
$26.50
D)
$30.00
58)
The center of the Euro-equity market, which deals in international equity issues is
58)
______
A)
New York.
B)
Geneva.
C)
London.
D)
Tokyo.
59)
A firm with a gross profit margin which meets industry standard and a net profit margin which is below industry standard must have excessive
59)
______
A)
dividend payments.
B)
principal payments.
C)
general and administrative expenses.
D)
cost of goods sold.
60)
As fixed operating costs increase and all other factors are held constant, the degree of operating leverage will
60)
______
A)
decrease.
B)
remain unchanged.
C)
increase.
D)
change in an undetermined direction.
Table 11.2
A firm has determined its optimal structure which is composed of the following sources and target market value proportions.
Debt: The firm can sell a 15-year, $1,000 par value, 8 percent bond for $1,050. A flotation cost of 2 percent of the face value would be required in addition to the premium of $50.
Common Stock: A firm’s common stock is currently selling for $75 per share. The dividend expected to be paid at the end of the coming year is $5. Its dividend payments have been growing at a constant rate for the last five years. Five years ago, the dividend was $3.10. It is expected that to sell, a new common stock issue must be underpriced $2 per share and the firm must pay $1 per share in flotation costs. Additionally, the firm has a marginal tax rate of 40 percent.
61)
The firm’s cost of a new issue of common stock is (See Table 11.2.)
61)
______
A)
14.3 percent.
B)
10.2 percent.
C)
17.0 percent.
D)
16.7 percent.
62)
Current liabilities are
62)
______
A)
easy to obtain.
B)
lower in cost than long-term liabilities.
C)
a function of collection policy.
D)
tied to the level of fixed assets.
63)
The two categories of ratios that should be utilized to assess a firm’s true liquidity are the
63)
______
A)
liquidity and profitability ratios.
B)
liquidity and activity ratios.
C)
current and quick ratios.
D)
liquidity and debt ratios.
64)
An ADR is
64)
______
A)
a claim issued by a foreign bank representing ownership of shares of a foreign company’s stock held on deposit by the foreign bank and is issued in dollars to U.S. investors.
B)
a claim issued by a U.S. bank representing ownership of shares of a foreign company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors.
C)
a claim issued by a U.S. bank representing ownership of shares of a U.S. company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S. investors.
D)
none of the above.
65)
Initial cash flows and subsequent operating cash flows for a project are sometimes referred to as
65)
______
A)
consistent cash flows.
B)
necessary cash flows.
C)
relevant cash flows.
D)
ordinary cash flows.
66)
The primary economic principle used in managerial finance is
66)
______
A)
the crowding out effect.
B)
the liquidity trap.
C)
supply and demand.
D)
marginal analysis.
67)
The amount of money that would have to be invested today at a given interest rate over a specified period in order to equal a future amount is called
67)
______
A)
present value interest factor.
B)
present value.
C)
future value interest factor.
D)
future value.
68)
The future value of a $10,000 annuity due deposited at 12 percent compounded annually for each of the next 5 years is
68)
______
A)
$63,530.
B)
$71,154.
C)
$40,376.
D)
$36,050.
69)
An example of an external factor that affects a corporation’s risk or beta, and hence required rate of return would be
69)
______
A)
asset mix.
B)
toxic spills.
C)
financing mix.
D)
change in top management.
70)
In the capital asset pricing model, the beta coefficient is a measure of
70)
______
A)
diversifiable risk.
B)
unsystematic risk.
C)
economic risk.
D)
nondiversifiable risk.
71)
The depth of a market is determined by
71)
______
A)
the ability to absorb the purchase or sale of a large number of securities.
B)
the safety of principal.
C)
the number of participants.
D)
the ability to absorb the purchase or sale of a large dollar amount of securities.
72)
A ________ is a type of financial intermediary that pools savings of individuals and makes them available to business and government demanders. Funds are obtained through the sale of shares.
72)
______
A)
credit union
B)
savings bank
C)
savings and loans
D)
mutual fund
73)
The preferred approach to breakeven analysis for the multiproduct firm is the
73)
______
A)
breakeven point expressed in units.
B)
breakeven point expressed in dollars.
C)
cash breakeven point.
D)
overall breakeven point.
74)
The first step in the collection of overdue accounts is
74)
______
A)
contacting a collection agency.
B)
a letter.
C)
a personal visit.
D)
legal actions.
75)
The future value of an ordinary annuity of $1,000 each year for 10 years, deposited at 3 percent, is
75)
______
A)
$11,808.
B)
$10,000.
C)
$ 8,530.
D)
$11,464.
