McqMate
| 701. |
Which would be an appropriate investment for temporarily idle corporate cash that will be used to pay quarterly dividends three months from now? |
| A. | A long-term AAA-rated corporate bond with a current annual yield of 9.4 percent. |
| B. | A 30-year Treasury bond with a current annual yield of 8.7 percent. |
| C. | Ninety-day commercial paper with a current annual yield of 6.2 percent. |
| D. | Common stock that has been appreciating in price 8 percent annually, on average, and paying a quarterly dividend that is the equivalent of a 5 percent annual yield. |
| Answer» C. Ninety-day commercial paper with a current annual yield of 6.2 percent. | |
| 702. |
Which of the following marketable securities is the obligation of a commercial bank? |
| A. | Commercial paper |
| B. | Negotiable certificate of deposit |
| C. | Repurchase agreement |
| D. | T-bills |
| Answer» B. Negotiable certificate of deposit | |
| 703. |
The basic requirement for a firm's marketable securities. |
| A. | Safety |
| B. | Yield |
| C. | Marketability |
| D. | All of the above. |
| Answer» D. All of the above. | |
| 704. |
Ninety-percent of X company's total sales of $600,000 is on credit. If its year-end receivables turnover is 5, the average collection period (based on a 365-day year) and the year-end receivables are, respectively: |
| A. | 365 days and $108,000. |
| B. | 73 days and $120,000. |
| C. | 73 days and $108,000. |
| D. | 81 days and $108,000. |
| Answer» C. 73 days and $108,000. | |
| 705. |
Costs of not carrying enough inventory include: |
| A. | lost sales. |
| B. | customer disappointment. |
| C. | possible worker layoffs. |
| D. | all of these. |
| Answer» D. all of these. | |
| 706. |
Which of the following relationships hold true for safety stock? |
| A. | the greater the risk of running out of stock, the smaller the safety of stock. |
| B. | the larger the opportunity cost of the funds invested in inventory, the larger the safety stock. |
| C. | the greater the uncertainty associated with forecasted demand, the smaller the safety stock. |
| D. | the higher the profit margin per unit, the higher the safety stock necessary. |
| Answer» D. the higher the profit margin per unit, the higher the safety stock necessary. | |
| 707. |
Increasing the credit period from 30 to 60 days, in response to a similar action taken by all of our competitors, would likely result in: |
| A. | an increase in the average collection period. |
| B. | a decrease in bad debt losses. |
| C. | an increase in sales. |
| D. | higher profits. |
| Answer» A. an increase in the average collection period. | |
| 708. |
The credit policy of Spurling Products is "1.5/10, net 35." At present 30% of the customers take the discount, 62% pay within the net period, and the rest pay within 45 days of invoice. What would receivables be if all customers took the cash discount? |
| A. | Lower than the present level. |
| B. | No change from the present level. |
| C. | Higher than the present level. |
| D. | Unable to determine without more information. |
| Answer» A. Lower than the present level. | |
| 709. |
An increase in the firm's receivable turnover ratio means that: |
| A. | it is collecting credit sales more quickly than before. |
| B. | cash sales have decreased. |
| C. | it has initiated more liberal credit terms. |
| D. | inventories have increased. |
| Answer» A. it is collecting credit sales more quickly than before. | |
| 710. |
A single, overall cost of capital is often used to evaluate projects because: |
| A. | it avoids the problem of computing the required rate of return for each investment proposal. |
| B. | it is the only way to measure a firm's required return. |
| C. | it acknowledges that most new investment projects have about the same degree of risk. |
| D. | it acknowledges that most new investment projects offer about the same expected return. |
| Answer» A. it avoids the problem of computing the required rate of return for each investment proposal. | |
| 711. |
The cost of equity capital is all of the following EXCEPT: |
| A. | the minimum rate that a firm should earn on the equity-financed part of an investment. |
| B. | a return on the equity-financed portion of an investment that, at worst, leaves the market price of the stock unchanged. |
| C. | by far the most difficult component cost to estimate. |
| D. | generally lower than the before-tax cost of debt. |
| Answer» D. generally lower than the before-tax cost of debt. | |
| 712. |
In calculating the proportional amount of equity financing employed by a firm, we should use: |
| A. | the common stock equity account on the firm's balance sheet. |
| B. | the sum of common stock and preferred stock on the balance sheet. |
| C. | the book value of the firm. |
| D. | the current market price per share of common stock times the number of shares outstanding. |
| Answer» D. the current market price per share of common stock times the number of shares outstanding. | |
| 713. |
In calculating the costs of the individual components of a firm's financing, the corporate tax rate is important to which of the following component cost formulas? |
| A. | common stock. |
| B. | debt. |
| C. | preferred stock. |
| D. | none of the above. |
| Answer» B. debt. | |
| 714. |
The common stock of a company must provide a higher expected return than the debt of the same company because |
| A. | there is less demand for stock than for bonds. |
| B. | there is greater demand for stock than for bonds. |
| C. | there is more systematic risk involved for the common stock. |
| D. | there is a market premium required for bonds. |
| Answer» C. there is more systematic risk involved for the common stock. | |
| 715. |
A quick approximation of the typical firm's cost of equity may be calculated by |
| A. | adding a 5 percent risk premium to the firm's before-tax cost of debt. |
| B. | adding a 5 percent risk premium to the firm's after-tax cost of debt. |
| C. | subtracting a 5 percent risk discount from the firm's before-tax cost of debt. |
| D. | subtracting a 5 percent risk discount from the firm's after-tax cost of debt. |
| Answer» A. adding a 5 percent risk premium to the firm's before-tax cost of debt. | |
| 716. |
Market values are often used in computing the weighted average cost of capital because |
| A. | this is the simplest way to do the calculation. |
| B. | this is consistent with the goal of maximizing shareholder value. |
| C. | this is required in the U.S. by the Securities and Exchange Commission. |
| D. | this is a very common mistake. |
| Answer» B. this is consistent with the goal of maximizing shareholder value. | |
| 717. |
Rank in ascending order (i.e., 1 = lowest, while 3 = highest) the likely after-tax component costs of a Company's long-term financing. |
| A. | 1 = bonds; 2 = common stock; 3 = preferred stock. |
| B. | 1 = bonds; 2 = preferred stock; 3 = common stock. |
| C. | 1 = common stock; 2 = preferred stock; 3 = bonds. |
| D. | 1 = preferred stock; 2 = common stock; 3 = bonds. |
| Answer» B. 1 = bonds; 2 = preferred stock; 3 = common stock. | |
| 718. |
Lei-Feng, Inc.'s $100 par value preferred stock just paid its $10 per share annual dividend. The preferred stock has a current market price of $96 a share. The firm's marginal tax rate (combined federal and state) is 40 percent, and the firm plans to maintain its current capital structure relationship into the future. The component cost of preferred stock to Lei-Feng, Inc. would be closest to . |
| A. | 6 percent |
| B. | 6.25 percent |
| C. | 10 percent |
| D. | 10.4 percent |
| Answer» D. 10.4 percent | |
| 719. |
The term "capital structure" refers to: |
| A. | long-term debt, preferred stock, and common stock equity. |
| B. | current assets and current liabilities. |
| C. | total assets minus liabilities. |
| D. | shareholders' equity. |
| Answer» A. long-term debt, preferred stock, and common stock equity. | |
| 720. |
A critical assumption of the net operating income (NOI) approach to valuation is: |
| A. | that debt and equity levels remain unchanged. |
| B. | that dividends increase at a constant rate. |
| C. | that ko remains constant regardless of changes in leverage. |
| D. | that interest expense and taxes are included in the calculation. |
| Answer» C. that ko remains constant regardless of changes in leverage. | |
| 721. |
The traditional approach towards the valuation of a company assumes: |
| A. | that the overall capitalization rate holds constant with changes in financial leverage. |
| B. | that there is an optimum capital structure. |
| C. | that total risk is not altered by changes in the capital structure. |
| D. | that markets are perfect. |
| Answer» B. that there is an optimum capital structure. | |
| 722. |
Two firms that are virtually identical except for their capital structure are selling in the market at different values. According to M&M |
| A. | one will be at greater risk of bankruptcy. |
| B. | the firm with greater financial leverage will have the higher value. |
| C. | this proves that markets cannot be efficient. |
| D. | this will not continue because arbitrage will eventually cause the firms to sell at the same value. |
| Answer» D. this will not continue because arbitrage will eventually cause the firms to sell at the same value. | |
| 723. |
What is the value of the tax shield if the value of the firm is $5 million, its value if unlevered would be $4.78 million, and the present value of bankruptcy and agency costs is $360,000? |
| A. | $140,000 |
| B. | $220,000 |
| C. | $360,000 |
| D. | $580,000 |
| Answer» D. $580,000 | |
| 724. |
Reserves & Surplus are which form of financing? |
| A. | Security Financing |
| B. | Internal Financing |
| C. | Loans Financing |
| D. | International Financing |
| Answer» B. Internal Financing | |
| 725. |
What are the different options other than cash used for distributing profits to shareholders? |
| A. | Bonus shares |
| B. | Stock split |
| C. | Stock purchase |
| D. | All of these |
| Answer» D. All of these | |
| 726. |
In Walter model formula D stands for |
| A. | Dividend per share |
| B. | Direct Dividend |
| C. | Dividend Earning |
| D. | None of these |
| Answer» A. Dividend per share | |
| 727. |
In MM model MM stands for... |
| A. | M.Khan and Modigiliani |
| B. | Miller and M.Khan |
| C. | Modigiliani and M.Khan |
| D. | Miller and Modigliani |
| Answer» D. Miller and Modigliani | |
| 728. |
The addition of all current assets investment is known as... |
| A. | Net Working Capital |
| B. | Gross Working capital |
| C. | Temporary Working Capital |
| D. | All of these |
| Answer» B. Gross Working capital | |
| 729. |
When total current assets exceeds total current liabilities it refers to. |
| A. | Gross Working Capital |
| B. | Temporary Working Capital |
| C. | Both a and b |
| D. | Net Working Capital |
| Answer» D. Net Working Capital | |
| 730. |
If the weighting of equity in total capital is 1/3, that of debt is 2/3, the return on equity is 15% that of debt is 10% and the corporate tax rate is 32%, what is the Weighted Average Cost of Capital (WACC)? |
| A. | 10.533% |
| B. | 7.533% |
| C. | 9.533% |
| D. | 11.350% |
| Answer» C. 9.533% | |
| 731. |
Which of the following would not be financed from working capital? |
| A. | Cash float. |
| B. | Accounts receivable. |
| C. | Credit sales. |
| D. | A new personal computer for the office. |
| Answer» D. A new personal computer for the office. | |
| 732. |
What is the difference between the current ratio and the quick ratio? |
| A. | The current ratio includes inventories and the quick ratio does not. |
| B. | The current ratio does not include inventories and the quick ratio does. |
| C. | The current ratio includes physical capital and the quick ratio does not. |
| D. | The current ratio does not include physical capital and the quick ratio does. |
| Answer» A. The current ratio includes inventories and the quick ratio does not. | |
| 733. |
Which of the following working capital strategies is the most aggressive? |
| A. | Making greater use of short term finance and maximizing net short term asset. |
| B. | Making greater use of long term finance and minimizing net short term asset. |
| C. | Making greater use of short term finance and minimizing net short term asset. |
| D. | Making greater use of long term finance and maximizing net short term asset. |
| Answer» C. Making greater use of short term finance and minimizing net short term asset. | |
| 734. |
Which of the following is not a metric to use for measuring the length of the cash cycle? |
| A. | Acid test days. |
| B. | Accounts receivable days. |
| C. | Accounts payable days. |
| D. | Inventory days. |
| Answer» A. Acid test days. | |
| 735. |
Which of the following is not the responsibility of financial management? |
| A. | allocation of funds to current and capital assets |
| B. | obtaining the best mix of financing alternatives |
| C. | preparation of the firm's accounting statements |
| D. | development of an appropriate dividend policy |
| Answer» C. preparation of the firm's accounting statements | |
| 736. |
Which of the following are not among the daily activities of financial management? |
| A. | sale of shares and bonds |
| B. | credit management |
| C. | inventory control |
| D. | the receipt and disbursement of funds |
| Answer» A. sale of shares and bonds | |
| 737. |
Debt Equity Ratio is 3:1,the amount of total assets Rs.20 lac,current ratio is 1.5:1 and owned funds Rs.3 lac.What is the amount of current asset? |
| A. | Rs.5 lac |
| B. | Rs.3 lac |
| C. | Rs.12 lac |
| D. | none of the above. |
| Answer» C. Rs.12 lac | |
| 738. |
Banks generally prefer Debt Equity Ratio at : |
| A. | 1:1 |
| B. | 1:3 |
| C. | 2:1 |
| D. | 3:1 |
| Answer» C. 2:1 | |
| 739. |
An asset is a |
| A. | Source of fund |
| B. | Use of fund |
| C. | Inflow of funds |
| D. | none of the above. |
| Answer» B. Use of fund | |
| 740. |
If a company issues bonus shares the debt equity ratio will |
| A. | Remain unaffected |
| B. | Will be affected |
| C. | Will improve |
| D. | none of the above. |
| Answer» C. Will improve | |
| 741. |
In the balance sheet amount of total assets is Rs.10 lac, current liabilities Rs.5 lac & capital & reserves are Rs.2 lac . What is the debt-equity ratio? |
| A. | 1;1 |
| B. | 1.5:1 |
| C. | 2:1 |
| D. | none of the above. |
| Answer» D. none of the above. | |
| 742. |
In last year the current ratio was 3:1 and quick ratio was 2:1.Presently current ratio is 3:1 but quick ratio is 1:1.This indicates comparably |
| A. | high liquidity |
| B. | higher stock |
| C. | lower stock |
| D. | low liquidity |
| Answer» B. higher stock | |
| 743. |
Authorised capital of a company is Rs.5 lac, 40% of it is paid up. Loss incurred during the year is Rs.50,000. Accumulated loss carried from last year is Rs.2 lac. The company has a Tangible Net Worth of |
| A. | Nil |
| B. | Rs.2.50 lac |
| C. | (-)Rs.50,000 |
| D. | Rs.1 lac. |
| Answer» C. (-)Rs.50,000 | |
| 744. |
Proprietary ratio is calculated by |
| A. | Total assets/Total outside liability |
| B. | Total outside liability/Total tangible assets |
| C. | Fixed assets/Long term source of fund |
| D. | Proprietors’’ Funds/Total |
| Answer» D. Proprietors’’ Funds/Total | |
| 745. |
Current ratio of a concern is 1,its net working capital will be |
| A. | Positive |
| B. | Negative |
| C. | Nil |
| D. | None of the above |
| Answer» C. Nil | |
| 746. |
Current ratio is 4:1.Net Working Capital is Rs.30,000.Find the amount of current Assets. |
| A. | Rs.10,000 |
| B. | Rs.40,000 |
| C. | Rs.24,000 |
| D. | Rs.6,000 |
| Answer» B. Rs.40,000 | |
| 747. |
Current ratio is 2:5.Current liability is Rs.30000.The Net working capital is |
| A. | Rs.18,000 |
| B. | Rs.45,000 |
| C. | Rs.(-) 45,000 |
| D. | Rs.(-)18000 |
| Answer» D. Rs.(-)18000 | |
| 748. |
Quick assets do not include |
| A. | Govt.bond |
| B. | Book debts |
| C. | Advance for supply of raw materials |
| D. | Inventories. |
| Answer» D. Inventories. | |
| 749. |
The ideal quick ratio is |
| A. | 2:1 |
| B. | 1:1 |
| C. | 5:1 |
| D. | None of the above |
| Answer» B. 1:1 | |
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