MGT201 Solved MCQshared by Tariq Mahmood<tariq6382@gmail.com> http://groups.google.com/group/vuZs 12-The Capital Budgeting Decision
1
______________ focuses on long-term decision-making regarding the acquisition of projects.
A) Working Capital Management
B) Capital Budgeting
C) Cash Budgeting
D) none of the above
2
Since capital budgeting uses cash flows instead of accounting flows, the financial manager must add back _____________ to the analysis.
A) the cost of fixed assets
B) the cost of accounts payable
C) investments
D) depreciation
3
Which of the following capital budgeting methods focuses on firm liquidity?
A) payback method
B) net present value
C) internal rate of return
D) none of the above
4
Which of the following capital budgeting methods states the return of a project as a percentage?
A) payback period
B) net present value
C) internal rate of return
D) none of the above
5
Which of the following capital budgeting methods is the least theoretically correct?
A) payback method
B) net present value
C) internal rate of return
D) none of the above
6
Which of the following capital budgeting methods measures how long it takes to recover the initial investment in a project?
A) payback method
B) net present value
C) internal rate of return
D) none of the above
7
If two projects are independent, that means that ___________________.
A) Selection of one precludes selection of the other.
B) You should analyze the projects independently.
C) Both a and b
D) none of the above
8
According to the reinvestment rate assumption, which method of capital budgeting assumes cash flows are reinvested at the project's rate of return?
A) payback period
B) net present value
C) internal rate of return
D) none of the above
9
When a firm places a budgetary constraint on the projects it invests in, this is called:
A) capital rationing
B) working capital management
C) cash budgeting
D) none of the above
10
The benefits attributed to an investment project are:
A) tax shield benefits of depreciation
B) after-tax operating benefits
C) rate of return less than the cost of capital
D) both a and b are correct
13-Risk and Capital Budgeting
1
Because investors dislike uncertainty, they will require _________ rates of return from risky investments.
A) higher
B) lower
C) the same
D) none of the above
2
__________ is the variability of possible outcomes from a given investment.
A) Beta
B) Return
C) Risk
D) Variance
3
Generally, the larger the standard deviation of an investment's expected outcomes, the _________ the risk.
A) higher
B) lower
C) less volatile
D) none of the above
4
When stocks are held in a portfolio instead of individually, which measure of risk is appropriate?
A) standard deviation
B) beta
C) coefficient of variation
D) none of the above
5
If an individual stock's beta is higher than 1.0, that stock is:
A) exactly as risky as the market.
B) riskier than the market.
C) less risky than the market
D) none of the above
6
The component of the risk-adjusted discount rate that is derived from the risk of Treasury securities is:
A) risk premium
B) cost of capital
C) call premium
D) risk-free rate
7
The component of the risk-adjusted discount rate that compensates the investor for holding risky assets is the:
A) risk-free rate
B) cost of capital
C) risk premium
D) none of the above
8
The standard deviation measures:
A) portfolio risk
B) the risk of an individual security
C) the risk of two securities, with different expected returns, compared to each other
D) none of the above
9
Coefficient of variation measures:
A) portfolio risk
B) the risk of an individual security
C) the risk of two securities, with different expected returns, compared to each other.
D) none of the above
10
The automobile industry and the heavy manufacturing industry probably have expected returns with a ___________ correlation.
A) positive
B) perfect positive
C) negative
D) slightly negative
14-Capital Markets
1
The U.S. capital markets are composed of securities with maturities of _________.
A) less than one year
B) one year
C) one year and greater
D) none of the above
2
The following can be classified as a capital market security:
A) banker's acceptance
B) U.S. Treasury bills
C) money market mutual fund
D) common stock
3
The NAFTA agreement involved which two countries besides the U.S.?
A) Mexico and Canada
B) Cuba and Mexico
C) Panama and Cuba
D) Canada and Cuba
4
Which of the following types of securities are exempt from at least some taxes?
A) Federally sponsored agency securities
B) Municipal bonds
C) common stock
D) preferred stock
5
Which of the following financial markets is the largest in terms of volume?
A) derivatives market
B) stock market
C) bond market
D) commercial paper market
6
Which of the following is a source of internal capital for the business firm?
A) retained earnings
B) depreciation
C) common stock
D) a and b above
7
Which of the following is not an organized exchange?
A) AMEX
B) NASDAQ
C) NYSE
D) none of the above
8
Recently stock exchanges have moved toward share prices stated in _________.
A) fractions
B) whole numbers
C) decimals
D) none of the above
9
The regulatory body for the New York Stock Exchange is ___________.
A) U.S. Treasury
B) Securities and Exchange Commission
C) National Association of Securities Dealers
D) all of the above
10
Which piece of legislation was enacted in order to establish a national securities market?
A) Securities Act of 1933
B) Securities Exchange Act of 1934
C) Securities Acts Amendments of 1975
D) none of the above
15-Investment Banking: Public and Private Placement
1
Investment bankers are intermediaries between business firms and ___________.
A) banks
B) securities dealers
C) the investing public
D) none of the above
2
Leveraged buyouts rely on ________ to purchase a firm.
A) Debt
B) Equity
C) Cash
D) none of the above
3
The Gramm-Leach-Bliley Act repealed the _________________.
A) McFadden Act
B) Securities Act of 1933
C) The Federal Reserve Act
D) The Glass-Stegall Act
4
Which of the following pieces of legislation required that banks keep their commercial and investment functions separate?
A) McFadden Act
B) Gramm-Leach-Bliley Act
C) Glass-Steagall Act
D) none of the above
5
An investment banker may engage in buying and selling a new issue of securities in order to ensure a liquid market. This function is called ______________.
A) market making
B) advising
C) agency function
D) underwriting
6
_______________ of earnings may occur after a new stock issue is made.
A) Maximization
B) Dilution
C) Termination
D) Stabilization
7
How long does an investment banker usually try to stabilize the market after an initial public offering?
A) 2-3 days
B) 2-3 months
C) 1 month
D) none of the above
8
A disadvantage of being a public company is:
A) the ability to have greater access to the capital markets
B) having the ability to engage in merger
C) disclosure of information to the SEC
D) all of the above are advantages
9
______________ is the most popular way of raising debt capital for most corporations.
A) Bank loans
B) Public debt issues
C) Private debt issues
D) None of the above
10
Which of the following are functions of an investment banker?
A) underwriter
B) market maker
C) advisor
D) all of the above
16-Long-Term Debt and Lease Financing
1
The principal value of a bond is called the:
A) the coupon rate
B) the par value
C) the maturity value
D) none of the above
2
The _________ is the stated interest rate at the time the bond was issued.
A) coupon rate
B) effective rate
C) yield to maturity
D) internal rate of return
3
A ___________ is a long-term senior bond without collateral.
A) subordinated debenture
B) debenture
C) junior debenture
D) indenture
4
The method of bond repayment where bonds are paid off in installments over the life of the bond issue is called:
A) sinking fund provision
B) call provision
C) serial repayment
D) conversion
5
The method of bond repayment where debt is converted to shares of common stock in the company is called:
A) serial repayment
B) conversion
C) sinking fund provision
D) call feature
6
Firms generally decide to call their bonds when interest rates:
A) rise
B) drop
C) remain the same
D) there is no relationship between interest rates and the call provision
7
The current yield on a bond worth $900 with a par value of $1000 and a coupon rate of 10% is:
A) 10%
B) 11.11%
C) 12.05%
D) none of the above
8
Zero coupon bonds:
A) are sold at par.
B) pay no interest payment
C) are sold at a deep discount.
D) b and c above
9
An advantage of debt financing is:
A) interest payments are tax deductible
B) the use of debt, up to a point, lowers the firm's cost of capital
C) does not dilute owner's earnings
D) all of the above
10
A capital lease:
A) is generally used by corporations more often than an operating lease.
B) is placed on the balance sheet.
C) is capitalized.
D) all of the above
17-Common and Preferred Stock Financing
1
________________ have a claim to the residual income of the firm.
A) Bondholders
B) Preferred Stockholders
C) Common Stockholders
D) none of the above
2
_______________ voting elects a member of the board of directors of a firm with a 51% vote.
A) Cumulative
B) Preferred
C) Majority
D) none of the above
3
Which of the following types of voting includes minority shareholders?
A) Cumulative
B) Preferred
C) Majority
D) none of the above
4
If a corporate charter says that current stockholders must be given the first option to purchase new stock, then that is a __________ rights offering.
A) Pre-emptive
B) Rights-on
C) Ex-rights
D) none of the above
5
When a rights offering is announced, the stock initially trades:
A) Ex-rights
B) Rights-on
C) No-rights
D) Pre-emptive right
6
_____________ makes a firm unattractive in case of a takeover bid.
A) Rights offering
B) Greenmail
C) Poison Pill
D) Black Knight
7
________________ are certificates that have a legal claim on an ownership interest in a foreign company's stock.
A) Stock certificates
B) Preferred stock
C) Bond indentures
D) American Depository Receipts
8
Securities that have a mandatory dividend are:
A) bonds
B) preferred stock
C) common stock
D) none of the above
9
One provision of preferred stock is that they can participate in the firm's yield during good years. That provision is ________________.
A) the call provision
B) cumulative dividends
C) the participation provision
D) the conversion provision
10
Which of the following have ownership interest in the firm?
A) Common stockholders
B) Preferred stockholders
C) Bondholders
D) All of the above
18-Dividend Policy and Retained Earnings
1
The Board of Directors may do which of the following with net income?
A) put it in the cash account
B) retain it
C) pay it out as dividends
D) B & C above
2
One desire of stockholders regarding dividend policy is:
A) stable dividends
B) frequent dividends
C) low dividends
D) high dividends
3
A stock dividend:
A) increases the value of stockholder's equity.
B) decreases the value of stockholder's equity
C) does not change the value of stockholder's equity.
D) none of the above
4
The purpose of a stock split is usually to:
A) increase the investor's wealth
B) bring down the stock price into a lower trading range.
C) reduce of threat of takeover
D) decrease the number of shares outstanding
5
As a result of the Jobs and Growth Tax Relief Act of 2003, dividends and capital gains are taxed at a maximum rate of:
A) 38.6%
B) 20%
C) 15%
D) none of the above
6
Which of the following balance sheet accounts will be affected by a stock dividend but not by a stock split?
A) dividends in arrears
B) cash
C) common stock
D) retained earnings
7
A firm may repurchase its own stock because:
A) it provides positive information about the firm.
B) the firm has inadequate capital budgeting alternatives
C) it will increase shareholder's wealth
D) all of the above
8
A stock split:
A) does not change the amount in the common stock account
B) is treated by accountants just like a stock dividend
C) reduces retained earnings
D) none of the above
9
The ex-dividend date is the date:
A) on which recipients of the dividend are determined
B) the dividend is declared
C) which no longer includes dividend payments for stock bought on that date.
D) none of the above
10
Individuals in a high tax bracket typically prefer for a firm to:
A) issue dividends
B) retain earnings
C) hold cash
D) none of the above
19-Convertibles, Warrants and Derivatives
1
The conversion ratio is the:
A) ratio of the conversion premium to market value of the convertible security.
B) price at which a convertible security is exchanged for common stock.
C) number of shares of common stock in to which the convertible may be converted.
D) none of the above
2
The floor value for a convertible bond is:
A) the conversion value
B) the pure bond value
C) the conversion price
D) none of the above
3
A convertible security is:
A) a security that can be converted into debt at the option of the owner.
B) a security that can be converted into preferred stock at the option of the owner.
C) a security that can be converted into common stock at the option of the owner.
D) none of the above
4
The conversion price is usually _______ than the market price of the common stock at the time the bond issue is sold.
A) higher
B) lower
C) the same as
D) none of the above
5
The interest rate on convertibles is generally __________ the interest rate on nonconvertible securities.
A) greater than
B) less than
C) the same as
D) none of the above
6
The conversion premium will be large:
A) if investors think the price of the stock will rise.
B) if interest rates decline
C) when the stock price is falling
D) none of the above
7
The price of a convertible bond:
A) has upside and downside limits
B) has only downside limits
C) has only upside limits
D) none of the above
8
Warrants are:
A) investments whose value is directly related to the price of the underlying stock.
B) the same as call options
C) the same as put options
D) none of the above
9
Which of the following is an advantage of a convertible bond?
A) downside protection is ineffectual if the bond is bought at a large premium over par value
B) conversion may be forced on the bondholder by call provisions on the convertible bond
C) there is downside risk for the investor
D) none of the above
10
A step-up in the conversion price refers to:
A) the ability of the company to step up the maturity of the bond to an earlier date.
B) a shorter time to call
C) the provision that decreases the conversion ratio the longer the bond is held
D) none of the above
20-External Growth through Mergers
1
Which of the following is NOT a potential benefit of merger?
A) Synergy
B) Portfolio Effect
C) Dilution of EPS
D) tax loss carry forward
2
A business combination where the two firms who are merging develop a new firm is called:
A) a horizontal merger
B) a vertical merger
C) a business consolidation
D) none of the above
3
The price that an acquiring company must pay for the acquired company is:
A) book value
B) market value
C) a higher price than market value
D) none of the above
4
The typical merger premium is:
A) 20%
B) 20-40%
C) 40-60%
D) none of the above
5
Merging with an unrelated company is called a ___________ merger.
A) conglomerate
B) horizontal
C) vertical
D) none of the above
6
A business combination where the resulting firm maintains the identity of the acquiring firm is called a:
A) conglomerate
B) merger
C) consolidation
D) none of the above
7
Which of the following is a tender offer that uses debt to buy the firm?
A) hostile takeover
B) negotiated merger
C) two-step buyout
D) leveraged buyout
8
The financial motives for merger include all of the following except:
A) the portfolio effect
B) improved access to the capital markets
C) tax loss carry forwards
D) synergy
9
The elimination of overlapping functions and the meshing of two firms' strong areas creates the managerial incentive for merger that is called:
A) pooling of interest
B) purchase of assets
C) synergy
D) None of the above
10
Which of the following kinds of mergers lead to diversification benefits?
A) vertical
B) conglomerate
C) horizontal
D) none of the above
21-International Financial Management
1
What type of MNC produces a product domestically and ships it to a foreign market?
A) joint venture
B) fully owned foreign subsidiary
C) exporter
D) importer
2
When an MNC cannot produce an actual product in a foreign subsidiary due to political restrictions, it can export technology and knowledge through:
A) an exporter
B) a joint venture
C) an importer
D) a licensing agreement
3
Many MNCs prefer ____________ above all other methods of establishing a foreign presence.
A) exporting
B) joint ventures
C) fully owned foreign subsidiaries
D) none of the above
4
What one currency is worth in terms of another currency is called a(n) __________.
A) euro
B) exchange rate
C) spot rate
D) forward rate
5
Currency exchange rates tend to vary inversely with their ____________.
A) interest rates
B) cross rate
C) purchasing power
D) economic power
6
The system of government accounts that catalog the flow of economic transactions between the residents of one country and the residents of other countries is called ________________.
A) a joint venture
B) current account
C) balance of payments
D) balance of interest rates
7
The exchange rate that is paid for a currency for immediate delivery is the:
A) spot rate
B) cross rate
C) forward rate
D) none of the above
8
The exchange rate between two currencies outside the American dollar is called the:
A) forward rate
B) cross rate
C) spot rate
D) none of the above
9
A multinational corporation may be defined as:
A) a company that imports foreign products
B) a company that hires foreign labor
C) a company which carries on business activity outside the U.S.
D) none of the above
10
A fully owned foreign subsidiary is a form of MNC in which:
A) the MNC owns and operates the firm by itself.
B) the MNC has a partner in the foreign country.
C) the foreign government is cooperative.
D) none of the above
