MGT201 Solved MCQshared by Tariq Mahmood<tariq6382@gmail.com> http://groups.google.com/group/vuZs
1-The Goals and Functions of Financial Management
1
Which of the following are microeconomic variables that help define and explain the discipline of finance?
A) risk and return
B) capital structure
C) inflation
D) all of the above
2
One primary macroeconomic variable that helps define and explain the discipline of finance?
A) capital structure
B) inflation
C) technology
D) risk
3
The money markets deal with _________.
A) securities with a life of more than one year
B) short-term securities
C) securities such as common stock
D) none of the above
4
The ability of a firm to convert an asset to cash is called ____________.
A) liquidity
B) solvency
C) return
D) marketability
5
Early in the history of finance, an important issue was:
A) liquidity
B) technology
C) capital structure
D) financing options
6
The ___________________ is the most common form of business organization in the U.S.
A) corporation
B) partnership
C) sole proprietorship
D) none of the above
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7
The ____________________ has more sales in dollars than any other form of business organization.
A) sole proprietorship
B) partnership
C) corporation
D) none of the above
8
One major disadvantage of the sole proprietorship is ________________.
A) simplicity of decision-making
B) unlimited liability
C) low operational costs
D) none of the above
9
The appropriate firm goal in a capitalist society is ________________.
A) profit maximization
B) shareholder wealth maximization
C) social responsibility
D) none of the above
10
The agency problem will occur in a business firm if the goals of ____________ and shareholders do not agree.
A) investors
B) the public
C) management
D) none of the above
2-Review of accounting
1
The accounting statements that a firm is required to file include all but one of these.
A) Balance Sheet
B) Statement of Accounts Receivable
C) Income Statement
D) Statement of Cash Flows
2
The _______________ shows the firm's financial position over a period of time.
A) Income Statement
B) Statement of Cash Flows
C) Balance Sheet
D) None of the above
3
All of the following except one are tax-deductible expenses.
A) interest expense
B) depreciation
C) common stock dividends
D) income taxes
4
All of the following are non-operating expenses except _____________.
A) interest expense
B) cost of goods sold
C) preferred stock dividends
D) taxes
5
Bondholders receive _____________ from the business firm.
A) preferred dividend payments
B) common stock payments
C) interest payments
D) royalties
6
The ratio of net income to common shares outstanding is called ______________.
A) price/earnings ratio
B) earnings per share
C) dividends per share
D) none of the above
7
Usually, firms with high price/earnings ratios are ____________ firms.
A) growth
B) declining
C) mature
D) none of the above
8
One of the limitations of the ____________ is that it is based on historical costs.
A) income statement
B) statement of cash flows
C) balance sheet
D) none of the above
9
A source of funds is a:
A) decrease in a current asset
B) decrease in a current liability
C) increase in a current liability
D) a and c above
10
Short-term financing for a business firm includes:
A) bonds
B) accounts payable
C) stockholder's equity
D) mortgages
3-Financial Analysis
1
Trend analysis allows a firm to compare its performance to:
A) other firms in the industry
B) other time periods within the firm
C) other industries
D) none of the above
2
Ratio analysis allows a firm to compare its performance to:
A) other firms in the industry
B) other time periods within the firm
C) other industries
D) none of the above
3
Usually, a firm's suppliers are most interested in its ________ ratios.
A) profitability
B) debt
C) asset utilization
D) liquidity
4
_______________ would be most interested in a firm's debt utilization ratios.
A) bondholders
B) stockholders
C) short-term creditors
D) managers
5
The _____________ ratio indicates the return firm shareholders are earning.
A) return on assets
B) return on investment
C) return on equity
D) net profit margin
6
Which of the following is an example of a profitability ratio?
A) Quick ratio
B) Average collection period
C) Return on equity
D) Times interest earned
7
Total asset turnover will indicate if there is a problem with the _________ ratio.
A) debt to assets
B) times interest earned
C) fixed asset turnover
D) current
8
All of the following are asset utilization ratios except:
A) average collection period
B) inventory turnover
C) receivables turnover
D) return on assets
9
If a firm's debt ratio is 55%, this means ______ of the firm's assets are financed by equity financing.
A) 55%
B) 50%
C) 45%
D) not enough information to answer question
10
All of the following can present problems for ratio analysis except:
A) inflation
B) inventory accounting methods
C) disinflation
D) all of the above
4- Financial Forecasting
1
Planning for future growth is called:
A) capital budgeting
B) working capital management
C) financial forecasting
D) none of the above
2
Which one of the following is NOT a tool of financial forecasting?
A) cash budget
B) capital budget
C) pro forma balance sheet
D) pro forma income statement
3
The first step in developing a pro forma income statement is to:
A) build a sales forecast
B) determine the production schedule
C) determine cost of goods sold
D) none of the above
4
Pro forma statements are _______ statements.
A) actual
B) projected
C) a previous year's
D) none of the above
5
All of the following compose cost of goods sold except ________________.
A) raw material
B) labor
C) capital
D) all of the above are part of cost of goods sold
6
Financial managers use the _____________ to plan for monthly financing needs.
A) capital budget
B) cash budget
C) pro forma income statement
D) none of the above
7
The payments that a firm collects from its customers are called _______________.
A) cash disbursements
B) cash outflows
C) cash receipts
D) none of the above
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8
Examples of cash disbursements are all but _________________.
A) payment for materials purchased
B) collection of accounts receivable
C) payment of dividends
D) payment of taxes
9
In developing the pro forma balance sheet, we get common stock from _________________.
A) the firm's previous balance sheet
B) the firm's cash budget
C) the firm's income statement
D) none of the above
10
The percent of sales method of financial forecasting shows us the relationship between ___________ and financing needs.
A) changes in the level of liabilities
B) changes in the level of assets
C) changes in debt
D) changes in the level of sales
5-Operating and Financial Leverage
1
An example of a semi-variable cost is:
A) rent
B) raw material
C) depreciation
D) utilities
2
_____________ is the point at which firm profit is equal to zero.
A) breakeven
B) operating breakeven
C) financial leverage
D) combined breakeven
3
In breakeven analysis, if fixed costs rise, then the breakeven point will __________.
A) fall
B) rise
C) stay the same
D) none of the above
4
In the breakeven formula, Price - Variable Cost is called the_____________.
A) breakeven point
B) leverage
C) contribution margin
D) none of the above
5
Which of the following types of firms may operate with high operating leverage?
A) a doctor's office
B) an auto manufacturing facility
C) a mental health clinic
D) none of the above would have high operating leverage
6
The ____________________ is the percentage change in operating income that results from a percentage change in sales.
A) degree of financial leverage
B) breakeven point
C) degree of operating leverage
D) degree of combined leverage
7
If interest expenses for a firm rise, we know that firm has taken on more ______________.
A) financial leverage
B) operating leverage
C) fixed assets
D) none of the above
8
The ________________ is the percentage change in earnings per share that results from a percentage change in operating income.
A) degree of combined leverage
B) degree of financial leverage
C) breakeven point
D) degree of operating leverage
9
Combined leverage is the percentage change in relationship between sales and ____________.
A) operating income
B) operating leverage
C) earnings per share
D) breakeven point
10
A highly leveraged firm is __________ risky than its peers.
A) less
B) more
C) the same
D) none of the above
6-Working Capital and the Financing Decision
1
Working capital management involves the financing and management of the _______ assets of the firm.
A) fixed
B) total
C) current
D) none of the above
2
An asset sold at the end of a specified time period is called a _____________ asset.
A) temporary current
B) self-liquidating
C) current
D) permanent current
3
Fixed assets are usually financed with _____________ funds.
A) long-term
B) short-term
C) permanent
D) none of the above
4
______________ is usually used to finance self-liquidating assets.
A) Long-term financing
B) Short-term financing
C) Permanent financing
D) none of the above
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5
Short-term interest rates, in a normal economy, are generally ________ than long-term rates.
A) higher
B) the same
C) lower
D) none of the above
6
The expectations hypothesis says that _________ interest rates are a function of _______ interest rates.
A) short-term; long-term
B) long-term; short-term
C) short-term; short-term
D) none of the above
7
Insurance companies would tend to invest in __________ securities.
A) short-term
B) intermediate term
C) long-term
D) not enough information to answer
8
The ______________ theory says that investors must be paid a premium to hold long-term securities.
A) expectations hypothesis
B) time value theory
C) segmentation
D) liquidity premium
9
Short-term financing plans with high liquidity have:
A) high return and high risk
B) moderate return and moderate risk
C) low profit and low risk
D) none of the above
10
Long-term financing plans with low liquidity have:
A) high return and high risk
B) moderate return and moderate risk
C) low return and low risk
D) none of the above
7-Current Asset Management
1
The transaction motive for holding cash is for
A) a safety cushion
B) daily operating requirements
C) compensating balance requirements
D) none of the above
2
Which of the following motives for holding cash is required by the bank before loaning money?
A) compensating balance motive
B) transactions motive
C) precautionary motive
D) none of the above
3
The difference between the cash balance on the firm's books and the balance shown on the bank's books is called:
A) the compensating balance
B) float
C) a safety cushion
D) none of the above
4
Electronic funds transfer has __________ the use of float.
A) reduced
B) increased
C) had no effect on
D) none of the above
5
The most utilized marketable security by most firms is the:
A) Treasury bond
B) Agency security
C) Certificate of Deposit
D) Treasury bill
6
Of the following marketable securities, which are guaranteed by the Federal government?
A) agency securities
B) negotiable certificates of deposit
C) banker's acceptances
D) none of the above
7
The 5 C's of credit include:
A) conditions
B) collateral
C) character
D) all of the above
8
The use of safety stock by a firm will:
A) reduce inventory costs
B) increase inventory costs
C) have no effect on inventory costs
D) none of the above
9
All of these factors are used in credit policy administration except:
A) credit standards
B) terms of trade
C) dollar amount of receivables
D) collection policy
10
Firms aim to hold ______ cash balances since cash is a non-interest earning asset.
A) low
B) average
C) high
D) none of the above
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8-Sources of Short-Term Financing
1
The largest provider of short-term credit for a business is:
A) banking organizations
B) suppliers to the firm
C) commercial paper
D) Eurodollars
2
The number of days until the firm is past due to a supplier is called the:
A) discount period
B) term to credit
C) payment period
D) none of the above
3
If a firm is given trade credit terms of 2/10, net 30, then the cost of the firm failing to take the discount is:
A) 2%
B) 30%
C) 36.72%
D) 10%
4
The interest rate given by a bank to its most creditworthy customers is the:
A) prime rate
B) LIBOR rate
C) federal funds rate
D) discount rate
5
Which of the following types of bank loans generally have the highest effective rate of interest?
A) simple interest loan
B) discount interest loan
C) loan with a compensating balance
D) installment loan
6
If a firm needs to borrow $100,000, at 8% interest, to finance working capital needs and a 20% compensating is required, then the firm should borrow __________.
A) $100,000
B) $80,000
C) $125,000
D) $108,000
7
If a bank offers a firm a simple interest $1000 loan at 6% interest and the loan is outstanding for 120 days, what is the effective rate of interest on the loan?
A) 18.00%
B) 6.00%
C) 20.00%
D) none of the above
8
If a company raises money to finance short-term needs by selling its accounts receivable to another party, this is called ___________.
A) pledging
B) warehousing
C) factoring
D) none of the above
9
The most restrictive policy for using inventory as collateral for short-term borrowing is called:
A) blanket inventory lien
B) warehousing inventory
C) trust receipt
D) factoring
10
A type of accounts receivable financing where a firm uses its receivables as collateral is called:
A) pledging
B) securitization
C) factoring
D) warehousing
9-The Time Value of Money
1
Both the future and present value of a sum of money are based on:
A) interest rate
B) number of time periods
C) both a and b
D) none of the above
2
An annuity is ___________________.
A) more than one payment
B) a series of unequal but consecutive payments
C) a series of equal and consecutive payments
D) a series of equal and non-consecutive payments
3
If you have $1000 and you plan to save it for 4 years with an interest rate of 10%, what is the future value of your savings?
A) $1464.00
B) $1000.00
C) $1331.00
D) cannot be determined
4
Time value of money is an important finance concept because:
A) it takes risk into account
B) it takes time into account
C) it takes compound interest into account
D) all of the above
5
The present value of a dollar to be received in the future is:
A) more than a dollar
B) equal to a dollar
C) less than a dollar
D) none of the above
6
The future value of a dollar that you invest today is:
A) more than a dollar
B) equal to a dollar
C) less than a dollar
D) none of the above
7
The future value of an annuity is:
A) less than each annuity payment
B) equal to each annuity payment
C) more than each annuity payment
D) none of the above
8
The concepts of present value and future value are:
A) directly related to each other
B) not related to each other
C) proportionately related to each other
D) inversely related to each other
9
If you win the lottery and you choose to have your proceeds distributed to you over a twenty-year time period, which calculation would you use to calculate the worth of those proceeds to you today?
A) future value of a lump sum
B) future value of an annuity
C) present value of a lump sum
D) present value of an annuity
10
You have $1000 you want to save. If four different banks offer four different compounding methods for interest, which method should you choose to maximize your $1000?
A) compounded daily
B) compounded quarterly
C) compounded semi-annually
D) compounded annually
10-Valuation and Rates of Return
1
In valuing a financial asset, you use these variables:
A) present value of future cash flows
B) discount rate
C) required rate of return
D) all of the above
2
The principal amount of a bond at issue is called:
A) par value
B) coupon value
C) present value of an annuity
D) present value of a lump sum
3
If a bond's value rises above its par value during its life, interest rates have:
A) gone up
B) gone down
C) stayed the same
D) there is no correlation with interest rates
4
The basic "rent" that you are charged when you borrow money is called:
A) inflation premium
B) risk premium
C) real rate of return
D) none of the above
5
As time to maturity draws near, a bond's value approaches:
A) zero
B) par
C) the coupon payment
D) none of the above
6
One characteristic of preferred stock is that:
A) it has no maturity date
B) it is a hybrid security with characteristics of both common stock and debt
C) it pays a fixed dividend payment
D) all of the above
7
Common stock that has no growth in dividends is valued as if it were:
A) preferred stock
B) a bond
C) an option
D) none of the above
8
A high price/earnings ratio usually indicates that a firm is a:
A) value stock
B) growth stock
C) convertible security
D) constant security
9
A low price/earnings ratio usually means that a firm:
A) is a growth stock
B) has positive expectations for the future
C) is a mature firm
D) is doomed in the marketplace.
10
The premium to compensate an investor for the eroding effect of rising prices is called the:
A) risk premium
B) inflation premium
C) real rate of return
D) none of the above
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11-Cost of Capital
1
A firm's cost of capital is the:
A) cost of borrowing money
B) cost of issuing stock
C) cost of bonds
D) overall cost of financing to the firm
2
The cost of debt financing is generally __________ the cost of preferred or common equity financing.
A) less than
B) more than
C) equal to
D) not enough information to tell
3
The cost of preferred stock is usually more than the cost of debt because of:
A) low dividends
B) tax deductibility of interest payments on debt
C) high stock price
D) none of the above
4
The cost of issuing new stock is called:
A) the cost of equity
B) flotation costs
C) marginal cost of capital
D) none of the above
5
The cost of retained earnings does not consider _________ in the equation.
A) flotation costs
B) the dividend in the next time period
C) the value of the common equity
D) the growth rate of dividends
6
The most expensive source of financing for a firm is:
A) debt
B) preferred stock
C) retained earnings
D) new common stock
7
The cost of capital at the retained earnings breakpoint is the:
A) weighted average cost of capital
B) marginal cost of capital
C) cost of new stock
D) none of the above
8
The cost of each component of a firm's capital structure multiplied by its weight in the capital structure is called the:
A) marginal cost of capital
B) cost of debt
C) weighted average cost of capital
D) none of the above
9
When establishing their optimal capital structure, firms should strive to:
A) minimize the weighted average cost of capital
B) minimize the amount of debt financing used
C) maximize the marginal cost of capital
D) none of the above
10
The overall cost of financing for the firm is called the:
A) weighted average cost of capital
B) cost of preferred stock
C) retained earnings breakpoint
D) none of the above
