1.
The Securities Investor Protection Corporation protects individuals from
- brokerage firm
failures
- making poor
investment decisions
- fraud by
corporations
- other investors
who fail to make delivery
2.
You just purchased a parcel of land for $10,000. If you expect a 12% annual
rate of return on your investment, how much will you sell the land for in 10
years?
- $38,720
- $39,720
- $31,060
- $25,000
3.
When calculating the weighted average cost of capital, which of the following
has to be adjusted for taxes?
- Debt
- Preferred stock
- Retained
earnings
- Common stock
4.
Buying and selling in more than one market to make a riskless profit is called:
- profit
maximization.
- globalization
- arbitrage.
- international
trading.
5.
Which of the following is true about bonds?
- They have a
fixed maturity, and they pay an amount equal to the maturity value times
the coupon rate each year.
- At maturity of
the bond, the investor receives the market price of the bond.
- They are
obligations from the investor to the corporation.
- Their interest
rate always varies with the Consumer Price Index
6.
Compute the payback period for a project with the following cash flows, if the
company's discount rate is 12%.
Initial
outlay = $450
Cash
flows: Year 1 = $325
Year 2 = $65
Year 3 = $100
- 3.17 years
- 2.6 years
- 2.88 years
- 3.43 years
7.
Which of the following best describes why cash flows are utilized rather than
accounting profits when evaluating capital projects?
- Cash flows have
a greater present value than accounting profits.
- Cash flows
improve the tax position of a firm more than accounting profits.
- Cash flows are
more stable than accounting profits.
- Cash flows
reflect the timing of benefits and costs more accurately than accounting
profits.
8.
Delta Inc. is considering the purchase of a new machine which is expected to
increase sales by $10,000 in addition to increasing non-depreciation expenses
by $3,000 annually. Due to the sales increase, Delta expects its working
capital to increase $1,000 during the life of the project. Delta will
depreciate the machine using the straight-line method over the project's five
year life to a salvage value of zero. The machine's purchase price is $20,000.
The firm has a marginal tax rate of 34 percent, and its required rate of return
is 12 percent. The machine's initial cash outflow is:
- $23,000.
- $20,000.
- $27,000.
- $21,000.
9.
Which of the following is most likely to occur if a firm over-invests in net
working capital?
- The return on
investment will be lower than it should be.
- The times
interest earned ratio will be lower than it should be.
- The current
ratio will be lower than it should be.
- The quick ratio
will be lower than it should be.
10.
Metals Corp. has $2,575,000 of debt, $550,000 of preferred stock, and
$18,125,000 of common equity. Metals Corp.'s after-tax cost of debt is 5.25%,
preferred stock has a cost of 6.35%, and newly issued common stock has a cost
of 14.05%. What is Metals Corp.'s weighted average cost of capital?
- 8.32%
- 6.56%
- 10.84%
- 12.78%
11.
Which of the following financial ratios is the best measure of the operating
effectiveness of a firm's management?
- Return on
investment
- Gross profit
margin
- Current ratio
- Quick ratio
12.
We compute the profitability index of a capital-budgeting proposal by Initial
outlay = $1,748.80
- dividing the
present value of the annual after-tax cash flows by the cost of capital.
- multiplying the
cash inflow by the IRR.
- multiplying the
IRR by the cost of capital.
- dividing the
present value of the annual after-tax cash flows by the cost of the
project.
13.
A company collects 60% of its sales during the month of the sale, 30% one month
after the sale, and 10% two months after the sale. The company expects sales of
$10,000 in August, $20,000 in September, $30,000 in October, and $40,000 in
November. How much money is expected to be collected in October?
- $15,000
- $35,000
- $25,000
- $45,000
14.
Which of the following could offset the higher risk exposure a company would
face if it’s current ratio and net working capital were relatively low?
- Its accounts
receivable collection policy could increase the average collection period.
- It could offer
no discounts for early payment by its customers.
- It could buy
back some of its shares in the open market in order to reduce its equity.
- Its current
assets would need to be highly liquid.
15.
The Oviedo Thespians are planning to present performances of their Florida
Revue on 2 consecutive nights in January. It will cost them $5,000 per night
for theater rental, event insurance and professional musicians. The theater
will also take 10% of gross ticket sales. How many tickets must they sell at
$10.00 per ticket to raise $1,000 for their organization?
- 1,314 tickets
- 1,112 tickets
- 1,223 tickets
- 1000 tickets
16.
Aspects of demand risk controllable by the firm include:
- product
quality.
- interest rates.
- entry of
external competitors.
- status of the
regional and national economy.
17.
Which of the following is true regarding Investment Banks?
- As of 2010,
stand alone Investment banks are numerous.
- Under the
Glass-Steagal act, commercial banks were allowed to operate as Investment
banks.
- As a result of
the financial crisis of 2008, all stand-alone Investment banks either
failed, were merged into commercial banks, or became commercial banks.
- When
Glass-Steagal was repealed in 1999, commercial banks and Investment banks
had to be separate entities.
18.
Given an accounts receivable turnover of 8 and annual credit sales of $362,000,
the average collection period (360-day year) is
- 60 days.
- 75 days
- 90 days.
- 45 days.
19.
When the impact of taxes is considered, as the firm takes on more debt
- there will be
no change in total cash flows.
- cash flows will
increase because taxes will decrease.
- the weighted
average cost of capital will increase.
- both taxes and
total cash flow to stockholders and bondholders will decrease.
20.
If you have $20,000 in an account earning 8% annually, what constant amount
could you withdraw each year and have nothing remaining at the end of five
years?
- $5,008.76
- $3,525.62
- $3,408.88
- $2,465.78
21.
Apple Two Enterprises expects to generate sales of $5,950,000 for fiscal 2014;
sales were $3,450,000 in fiscal 2013. Assume the following figures for the
fiscal year ending 2013: cash $70,000; accounts receivable $250,000; inventory
$400,000; net fixed assets $520,000; accounts payable $235,000; and accruals
$155,000. Use the percent-of-sales method to forecast cash for the fiscal year
ending 2014.
- $75,003
- $216,418
- $120,725
- $319,604
22.
If managers are making decisions to maximize shareholder wealth, then they are
primarily concerned with making decisions that should:
- maximize sales
revenues
- either increase
or have no effect on the value of the firm's common stock.
- increase the
market value of the firm's common stock.
- positively
affect profits.
23.
Project Sigma requires an investment of $1 million and has a NPV of $10.
Project Delta requires an investment of $500,000 and has a NPV of $150,000. The
projects involve unrelated new product lines. What is your evaluation of these
two projects?
- Only project
Delta should be accepted. Alpha's NPV is too low for the investment.
- Neither project
should be accepted because they might compete with one another
- The company
should look at other investment criteria, not just NPV.
- Both projects
should be accepted because they have positive NPV's
24.
Capital Structure Theory in general assumes that:
- A firm's value
is determined by discounting the firm's expected cash flows by the WACC.
- A firm's cost
of capital rises as a firm uses more financial leverage.
- A firm's value
is determined by capitalizing (discounting) the firm's expected net income
by the firm's cost of equity.
- A firm's cash
flows will grow indefinitely at a constant rate.
25.
Which of the following best describes why cash flows are utilized rather than
accounting profits when evaluating capital projects?
- Cash flows
reflect the timing of benefits and costs more accurately than accounting profits.
- Cash flows have
a greater present value than accounting profits.
- Cash flows
improve the tax position of a firm more than accounting profits.
- Cash flows are
more stable than accounting profits.
26.
Which of the following is not part of the underwriting process?
- the syndicate
- the prospectus
- the Federal
Reserve
- the Securities
and Exchange Commission
27.
Long-term financial plans typically encompass:
- 6 to 12 months.
- 5 to 10 years.
- about 5 years.
- the entire
lifecycle of the corporation.
28.
Accounting break-even analysis solves for the level of sales that will result
in:
- IRR = Cost of
Capital.
- net income =
$0.00.
- Free cash flow
= $0.00.
- NPV = $0.00.
29.
Which of the following statements best represents what finance is about?
- How political,
social, and economic forces affect corporations
- Reducing
risk
- Creation and
maintenance of economic wealth
- Maximizing
profits
30.
Which of the following goals is in the best long-term interest of stockholders?
- Risk
minimization
- Maximizing of
the market value of the existing shareholders' common stock
- Maximizing
sales revenues
- Profit
maximization
About
Author
This article covers the topic for the
University Of Phoenix FIN
571 Final Exam . The author is working in the field of education from last 5
years. This article covers the basic of FIN 571 Final
Exam Assignment from UOP. Other topics in the
class are as follows:
