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Review1

1. Which one of the following best states the primary goal of financial management?

A. maximize current dividends per share

B. maximize the current value per share

C. increase cash flow and avoid financial distress

D. minimize operational costs while maximizing firm efficiency

2. Which of the following is not the decision that financial manager must be concerned with?

A capital budgeting

B marketing strategy

C capital structure

D working capital management

3. Corporations can raise large amounts of capital generally easier than partnership can T

4. A firm has $520 in inventory,$1860 in fixed assets,$190 in accounts receivables,$210in accounts payable,and$70 in cash What’s the mount of the current assets?

A 710 B2430 C990 D780

5. On a common-size balance sheet all accounts are expressed as a percentage of :

A sales of the period

B cost of goods sold for the period

C total equity for the base years

D total assets for the currents years

6. If a firm has cash flow from assets of $12000,dividends paid of $4000,net new equity sales of $4000,cash flow to creditors must be $4000 F

7. The interest rate charged per period multiplied by the number of per year called the effective annual rate F

8 The internal growth rate of a firm is best described as the:

A minimum growth rate achievable assuming a 100 percent retention ratio

B minimum growth rate achievable if the firm maintains a constant equity multiplier

C maximum growth rate achievable excluding external financing of any kind

D maximum growth rate achievable excluding any external equity financing while maintaining a constant debt-equity ratio

9. The present value of a perpetuity(永续年金) cannot be computed ,but the future value can F

10. All else constant a bond will sell at ____when the coupon rate is ______the yield to maturity.

A. a premium ; less than B a premium ; equal to

C a discount ; less than Da discount ; equal to

11. Which of the following bonds is the least sensitive to interest rate risk?

A 3-year ; 4 percent coupon B. 3-year ; 6 percent coupon

C.5-year ; 6 percent coupon

D. 7-year ; 6 percent coupon

12.A project has an initial cost of $6500,The cash inflow are $900 $2200 $3600 $4100 over the next 4year respectively What is the payback period:

A1.73 B2.51 C2.94 D3.51

13. Payback period is a primary decision rule in capital budgeting F

14. Sensitivity analysis helps you determine the degree to which the net present value reacts to change in a single variable T 15. By definition , which one of the following must equal zero at the cash break-even point?

A net present value

B internal rate of return

C operating cash flow

D net income

16.The coffee Express has computed its fixed costs to be $0.34 for ever cup of coffee it sells given annual sales of 212000 cups .The sales price is $1.4 per cup while the variable cost per cup is $0.63 How many cups of coffee must it sell to break-even on a cash flow?

A 83814

B 96470

C 123910

D 167630

17. In efficient market new information will gradually be reflected in a stock’s price to avoid any sudden change in the price of the stock F 18. Which one of the following measures the amount of systematic risk present in a particular risky asset relative to systematic risk present in an average risky asset?

A beta

B variance

C price-earnings ratio

D standard deviation

19. Jerilu Market has a beta of 1.9 The risk free rate of return is 2.75 percent and the market rate of return is 9.8 percent. What is the risk premium on this stock:

A 6.47 percent

B 7.03percent

C 7.68percent D8.99percent

20.The weight average cost of capital for a firm is the discount rate which the firm should apply to all of the project it undertakes F 1.M&M Proposition I state that the value of a firm is unrelated to the firm’s capital structure T

22. A firm should select the capital structure that:

A. produces the highest cost of capital

B. maximizes the value of the firm

C. minimizes taxes

D. is fully unlevered

23. A stock repurchase program decreases both the human of shares outstanding and the market price per share F 24. Which form of the financing do firms prefers to use first according to the pecking-order theory

A. regular debt

B. convertible debt

C. common stock

D. internal funds

25. Increase the accounts payable period increase the cash cycle F

26. Metal Products Co. has an inventory period of 53 days, an accounts payable period of 68 days, and an accounts receivable turnover rate of 18 per year. What is the length of the cash cycle?

A 3days B5.28days C26.28days D71days

27. A flexible financing policy tends to increase the risk of encountering financial distress. F

28. With the terms of 2/10, net 30,the net credit period days is 20 T

29. The target cash balance increase as the interest rate rises F

30. Stock splits can be used to adjust the market a price of a stock such that it falls within a preferred trading range. T

Review 2

1Both sole proprietorship and partnership income is taxed as individual income. T 2. According to the theory EMH, studying historical stock price movements to identify mispriced stocks is effective provided the market is only weak form efficient. F

3. A firm’s cost of capital will decrease as the risk level of the firm increase F

4. Managements desire to maintain a low cash balance has no effect on the borrowing needs of a firm. F

5. The value shown on the balance sheet for the firm’s assets are not always equal to firm’s market value T

6. Free cash flow equal net income plus depreciation F

7. According to the CAPM, the more standard deviation of a stock return the expected return. F

8. Whether or not a firm ever pays a dividend is irrelevant to equity valuation in prefect market T

9. At the cash break-even point .The NPV is negative and equal to the initial cash outlay. F

10. M&M Proposition I with no tax supports the argument that the debt-equity ratio of a firm is completely irrelevant T

11.Marketing a steady dividend is a key to goal of most dividend-paying firms T

12.Money market accounts are low-risk, high-return investment. F

13.Decision made by financial managers should primary focus on increasing which one of the following

A. size of the firm

B. growth rate of the firm

C. gross profit per unit product

D. market value per share of outstanding stock

14.Your firm has total assets of $4900,fixed assets $3200,long-term debt of $2900 ,and total liabilities of $4300.What is the amount of net working capital?

A.-100

B.300

C.600

D.1700

15.A common-size income statement is an accounting statement that express all of

a firm’s expense as percentage of:

A. total assets

B. net income

C. sales

D. taxable income

16.A 6-year,$1000 face value bond issued by Taylor Tools pays interest semiannually on February 1 and August 1.Assume today is October 1.What will the difference, if any, be between this bond’s clean and dirty prices today?

A. no difference

B. one month’s interest

C. two month’s interest

D. four month’s interest

17. A newly issued bond has a 7 percent coupon with semiannually interest payments. The bonds are currently priced at par value .The effective annual rate provided by these bonds must be:

A. 3.5 percent

B. greater than 3.5 percent but less than 7 percent

C. 7percent

D. greater than 7 percent

18. Which of the following is defined as the sales level that corresponds to a zero NPV?

A. financial break-even

B. accounting break-even

C. marginal break-even

D. cash break-even

19.Which is the beta of the following portfolio?

Stock invested Beta

A $6700 1.58

B $4900 1.23

C $8500 0.79

A. 1.04

B. 1.07

C.1.16

D. 1.13

20. The optimal capital structure has been achieved when the :

A. debt-equity ratio is equity to 1

B. debt-equity ratio results in the lowest possible weighted average cost of capital.

C. cost of equity is maximized given a pre-tax cost of debt.

D.Debt-equity ratio is such that the cost of debt exceeds the cost of debt exceeds the cost of equity.

21. The length of time between the purchase of inventory and the receipt of cash

from the sale of that inventory is called the:

A. operating cycle

B. inventory period

C. accounts receivable period

D. accounts payable period

22.The value of a firm is maximized when the:

A. weighted average cost of capital is minimized

B. debt-equity ratio is minimized

C. levered cost of capital is maximized

D. cost of equity is maxmized

23. Which of the following does not affect the total equity of a firm but does increase the number of shares outstanding?

A. special dividend

B. stock split

C. share repurchase

D. liquidating dividend

24.An investor is more likely to prefer a high dividend payout if a firm:

A. has high flotation cost.

B. has few ,if any ,positive net present value project

C. has lower tax rates than the investor

D. has a stock price that is increasing rapidly.