saint leo mgt325 all exam latest 2016 june

Exam 1

1) Which of the following is the best measure of profit maximization​ goal?

A. risk of the investment

B. timing of the returns

C. retained earnings

D. earnings per share

2) The tax liability of a corporation with ordinary income of​ $105,000 is​ ________.

Range of taxable income Marginal rate

​ $ 0 to​ $ ​ 50,000 ​15%

50,000 to​ 75,000 25

​75,000 to​ 100,000 34

100,000 to ​ 335,000 39

​335,000 to​ 10,000,000 34

10,000,000 to​ 15,000,000 35

A. ​$24,200

B. ​$23,950

C. ​$42,000

D. ​$35,700

3) The Sarbanesminus−Oxley Act of 2002 resulted in​ ________.

A. delayed disclosure of stock sales by corporate executives

B. toughened penalties against overcompensated executives

C. tightened audit regulations and controls

D. lenient penalties against executives who commit corporate fraud

4)Which of the following is an example of a​ firm's stakeholder?

A. suppliers

B. media

C. Federal reserve

D. competitors

5) As the risk of a stock investment​ increases, investors'​ ________.

A. return will increase

B. return will decrease

C. required rate of return will increase.

D. required rate of return will decrease

6) Congress allows corporations to exclude from taxes 70 to 100 percent of dividends received from other corporations. Congress did this to​ ________.

A. lower the cost of equity financing for corporations

B. encourage corporations to invest in each other

C. eliminate most of the potential tax liability from the dividends received by the second and any subsequent corporations

D. avoid double taxation on dividends

7) Government is typically a​ ________.

A. net demander of funds because it saves more than it borrows

B. net provider of funds because it borrows more than it saves

C. net provider of funds because it can print money at will

D. net demander of funds because it borrows more than it saves

8) Incentive plans usually tie management compensation to​ ________.

A. coupon payments

B. share price

C. inventory turnover

D. dividends

9) Which of the following is one of the positive benefits of an effective ethics​ program?

A. reduce potential litigation and judgment costs

B. making sure violations are​ penalized, while at the same time not subjecting the employee to publicity

C. gain the​ loyalty, commitment, and respect of the​ firm's competitors

D. maintain and build competitor confidence

10) Corporate owners receive return​ ________.

A. by realizing gains through increases in share price and cash dividends

B. through interest earnings and earnings per share

C. through capital appreciation and retained earnings

D. by realizing gains through increases in share price and interest earnings

​11) Recently, some branches of Donut​ Shop, Inc., have dropped the practice of allowing employees to accept tips. Customers who once​ said, "Keep the​ change," now have to get used to waiting for their nickels. Management even instituted a policy of requiring that the change be thrown out if a customer drives off without it. As a frequent customer who gets coffee and doughnuts for the​ office, you notice that the lines are longer and that more mistakes are being made in your order. Explain why tips could be viewed as similar to stock options and why the delays and incorrect orders could represent a case of agency costs. If tips are gone​ forever, how could Donut Shop reduce these agency​ costs?

12) The key variables in the owner wealth maximization process are​ ________.

A. risk −free rate and share price

B. market risk premium and risk

C. cash flows and risk

D. total assets and risk

13) Which of the following is true of sole proprietorships and​ corporations?

A. Income from both forms of organizations are taxed only at the corporate level.

B. It is difficult to transfer ownership of corporations compared to that of sole proprietorships.

C. Both sole proprietorships and corporations are equally scrutinized and regulated by government bodies.

D. In sole​ proprietorships, owners have unlimited​ liability; whereas, in​ corporations, owners have limited liability.

14) A major weakness of a partnership is​ ________.

A. the double taxation of income

B. the difficulty in maintaining​ owners' control

C. its high organizational costs

D. the difficulty in liquidating or transferring ownership

15) Corporation A owns 15 percent of the stock of corporation B. Corporation B pays corporation A​ $100,000 in dividends in 2002. Corporation A must pay tax on​ ________.

A. $ 70,000 of capital gain

B. $ 70,000 of ordinary income

C.​$ 30,000 of ordinary income

D. $100,000 of ordinary income

16) The conflict between the goals of a​ firm's owners and the goals of its non−owner managers is​ ________.

A. the agency problem

B. the window−dressing

C. serious only when profits decline

D. incompatibility

17) Which of the following legal forms of organization is most expensive to​ organize?

A. limited partnership

B. sole proprietorships

C. partnerships

D. corporations

18) The​ ________ has/have the ultimate responsibility in guiding corporate affairs and carrying out policies.

A. stockholders

B. creditors

C. board of directors

D. chief financial officer

19) Investment banks are institutions that​ ________.

A. are exempted from Securities and Exchange Commission regulations

B. are only limited to capital market activities

C. perform all activities of commercial banks and retail banks

D. engage in trading and market making activities

Exam 2

1) A firm has a current ratio of​ 1; in order to improve its liquidity​ ratios, this firm might​ ________.

A. improve its collection practices by providing extended credit policy.

B. decrease current liabilities by utilizing more longminus−term ​debt, thereby increasing the current and quick ratios.

C. increase​ inventory, thereby increasing current assets and the current and quick ratios.

D. improve its collection practices and pay accounts​ payable, thereby decreasing current liabilities and decreasing the current and quick ratios

​2) ________ is a term used to describe the magnification of risk and return introduced through the use of fixed−cost ​financing, such as preferred stock and debt.

A. Financial leverage

B. Benchmarking

C. Fixed−payment coverage

D. Operating leverage

3) If a firm expects short−term cash​ surpluses, it can plan​ ________.

A. short−term borrowing

B. leverage decisions

C. short−term investments

D. long−term investments

​4) P/E ratio measures the​ ________.

A. intrinsic value of the stock to earnings per share

B. market price of the stock to retained earnings

C. market value of the stock to earnings per share

D. book value of the stock to earnings per share

5) Which of the following is a source of cash​ flows?

A. repurchase of stock

B. increase in accounts payable

C. decrease in notes payable

D. increase in marketable securities

​6)________ analysis involves the comparison of different​ firms' financial ratios at the same point in time.

A. Technical

B. Cross−sectional

C. Time−series

D. Marginal

7) The depreciable value of an​ asset, under​ MACRS, is the​ ________.

A. current cost minus salvage value

B. the original cost plus installation

C. the original cost plus installation​ costs, minus salvage value

D. current cost

​8) ________ generally​ reflect(s) the anticipated financial impact of planned long−term actions.

A. A cash budget

B. Operating financial plans

C. Strategic financial plans

D. A pro forma income statement

9) The modified DuPont formula relates the​ firm's return on total assets​ (ROA) to its​ ________.

A. operating leverage multiplier

B. total asset turnover

C. return on equity​ (ROE)

D. net profit margin

10) An internal forecast is based on​ ________.

A. the prediction of a​ firm's sales over a given period through surveys sent to financial analysts

B. the relationships between a​ firm's sales and certain economic indicators

C. a ​ build-up, or​ consensus, of sales forecasts through a​ firm's own sales​ channels, adjusted for additional factors such as production capabilities

D. developing the pro forma income statement to forecast sales and then express the various income statement items as percentage of projected sales

11) Which of the following is a limitation of ratio​ analysis?

A. Ratios that reveal large deviations from the norm merely indicate the possibility of a problem.

B. It is difficult to access audited financial statements for ratio analysis.

C. Ratio analysis assumes that inflation has no effect on a​ firm's business.

D. Financial ratios cannot reveal certain specific aspects of a​ firm's financial position

12) The best way to adjust for the presence of fixed costs when using the simplified approach for pro forma income statement preparation is​ ________.

A. to proportionately vary the fixed costs with the change in sales

B. to break the​ firm's historical costs into fixed and variable components

C. to disproportionately vary the costs with the change in sales

D. to adjust for projected fixed−asset outlays

13) ________ measures the percentage of profit earned on each sales dollar before interest and taxes but after all costs and expenses.

A. Gross profit margin

B. Net profit margin

C. Operating profit margin

D. Earnings available to common shareholders

14) Review Question​ 3-20​ (LO3-6) What three areas of analysis are combined in the modified DuPont formula​? Explain how the DuPont formula is used to dissect the​ firm's results and isolate their causes.

15) The cash flows from operating activities section of the statement of cash flows includes​ ________.

A. labor expense

B. dividends paid

C. principal paid

D. proceeds from the sale of fixed assets

16) A firm plans to retire outstanding bonds in the next planning period. Which of the following gets​ affected?

A. previous year income statement and previous year balance sheet

B. previous year income statement and statement of retained earnings

C. pro forma income statement and pro forma balance sheet

D. pro forma income statement and proxy statement

17) A firm with a low net profit margin can improve its return on total assets by​ ________.

A. decreasing its fixed asset turnover

B. increasing its total asset turnover

C. decreasing its total asset turnover

D. increasing its debt ratio

18) If an inventory turnover is divided into​ 365, it becomes a measure of​ ________.

A. sales turnover

B. the average age of the inventory

C. financial efficiency

D. the average collection period

19) A weakness of the percent−of−sales method of preparing a pro forma income statement is​ ________.

A. the assumption that the​ firm's past financial condition is an accurate predictor of its future

B. the difficulty faced in calculation and preparation of such statements

C. that it forecasts income and then expresses the various income statement items as percentages of projected income.

D. the assumption that the firm faces linear total revenue and total operating cost functions

Exam 3

1) The future value of​ $200 received today and deposited at 8 percent for three years is​ ________.

A.​$248

B. $200

C.​$158

D.​$252

2) The riskiness of publicly traded bond issues is rated by independent agencies. According to​ Moody's rating​ system, an Aaa bond and a Caa bond are​ ________ and​ ________ respectively.

A. ​speculative; investment grade

B. prime​ quality; medium grade

C. medium​ grade; lowest grade

D. prime​ quality; speculative

​3) A(n) ________ is a paid​ individual, corporation, or a commercial bank trust department that acts as a third party to a bond indenture.

A. bond rating agency

B. bond issuer

C. investment banker

D. trustee

4) The future value of an ordinary annuity of​ $2,000 each year for 10​ years, deposited at 12​ percent, is​ ________.

A. ​$11,300

B. ​$20,000

C. ​$39,310

D. ​$35,098

5) What is the approximate yield to maturity for a​ $1,000 par value bond selling for​ $1,120 that matures in 6 years and pays 12 percent interest​ annually?

A. 12.0 percent

B. 9.3 percent

C.13.2 percent

D.8.5 percent

6) The future value of an annuity of​ $1,000 each quarter for 10​ years, deposited at 12 percent compounded quarterly is​ ________.

A.​$11,200

B.​$17,549

C. ​$75,401

D.​$93,049

​7) ________ means that subsequent creditors agree to wait until all claims of the are senior debt satisfied before having their claims satisfied.

A. Security interest

B. Bond indenture

C. Subordination

D. Sinking fund requirement

8) The return expected from an asset is fully defined by its​ ________.

A. discount rate

B. cash flow and timing

C. risk and cash flow

D. beta

9)The present value of a​ $25,000 perpetuity at a 14 percent discount rate is​ ________.

A. ​$285,000

B. ​$219,298

C. ​$178,571

D. ​$350,000

10) Review Question​ 6-12 and​ 6-13(LO6-6) Why is it important for financial managers to understand the valuation​ process? What are the

three key inputs to the valuation​ process?

11) The rate of return earned on an investment of​ $50,000 today that guarantees an annuity of​ $10,489 for six years is approximately​ ________.

A.​12%

B.​5%

C.​7%

D.​10%

12) ​$1,200 is received at the beginning of year​ 1, $2,200 is received at the beginning of year​ 2, and​ $3,300 is received at the beginning of year 3. If these cash flows are deposited at 12​ percent, their combined future value at the end of year 3 is​ ________.

A. ​$ 6,700

B. ​$12,510

C. ​$ 8,142

D. ​$17,072

13) The term structure of interest rates is the relationship between​ ________.

A. the maturity and rate of return for bonds with similar level of risk

B. the general expectation of inflation and nominal rate of return for bonds

C. the present value of principal and coupon rate of the bonds

D. the general expectation of inflation and real rate of return for bonds

14) The price of a bond with a fixed coupon rate and the required return have a relationship that is best described as​ ________.

A. direct

B. inverse

C. constant

D. perfect positive correlation

15) The present value of​ $100 received at the end of year​ 1, $200 received at the end of year​ 2, and​ $300 received at the end of year​ 3, assuming an opportunity cost of 13​ percent, is​ ________.

A. ​$ 453

B.​$ 416

C.​$1,181

D.​$ 500

16) If a United States Savings bond can be purchased for​ $14.60 and has a maturity value at the end of 25 years of​ $100, what is the annual rate of return on the​ bond?

A. 9 percent

B. 8 percent

C. 7 percent

D. 6 percent

17) The​ ________ feature permits the issuer to repurchase bonds at a stated price prior to maturity.

A. put

B. call

C. swap

D. conversion

18) A type of long−term financing used by both corporations and government entities is​ ________.

A. retained earnings

B. common stocks

C. bonds

D. preferred stocks

19) ​ ________ rate of interest is the actual rate charged by the supplier and paid by the demander of funds.

A. Nominal

B. Inflationary

C. Risk−free

D. Real

Exam 4

1) Common stockholders are sometimes referred to as​ ________.

A. managers

B. creditors

C. non preemptive right holders

D. residual owners

2) Risk that affects all firms is called​ ________.

A. maturity risk

B. unsystematic risk

C. nondiversifiable risk

D. reinvestment risk

3) Asset P has a beta of 0.9. The risk−free rate of return is 8​ percent, while the return on the market portfolio of assets is 14 percent. The​ asset's required rate of return is​ ________.

A. 6.0 percent

B. 22.0 percent

C. 13.4 percent

D. 15.4 percent

4) An increase in the Treasury Bill rate​ ________.

A. has no effect on the required rate of return of a common stock

B. doubles the required rate of return of a common stock

C. increases the beta of a common stock

D. increases the required rate of return of a common stock

5) An efficient portfolio is one that​ ________.

A. maximizes return for a given level of risk

B. consists of a single​ asset, which gives maximum return

C. maximizes return at all risk levels

D. guarantees a predetermined rate of return

6) Which of the following is a marketable​ security?

A. provident fund

B. forward contracts

C. Treasury bill

D. mutual funds

7) Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are​ ________.

A. convertible

B. participating

C. nonparticipating

D. cumulative

8) Preferred stock is valued as if it were a​ ________.

A. perpetuity

B. bond

C. fixed−income obligation

D. common stock

9) Rational buyers and sellers use their assessment of an​ asset's risk and return to determine its value. Relative to this​ concept, which of the following is​ true?

A. To a seller the​ asset's value represents the price at which he acquired the asset.

B. To a buyer the​ asset's value represents the minimum price that he or she would pay to acquire it.

C. To a seller the​ asset's value represents the maximum sale price.

D. To a buyer the​ asset's value represents the maximum price that he or she would pay to acquire it.

10) The use of the​ ________ is especially helpful in valuing firms that are not publicly traded.

A. present value of the dividends

B. book value

C. liquidation value

D. ​P/E multiple

11) If bankruptcy were to​ occur, ________ would have the first claim on assets.

A. unsecured creditors

B. secured creditors

C. preferred stockholders

D. equity stockholders

12) Combining two assets having perfectly negatively correlated returns will result in the creation of a portfolio with an overall risk that​ ________.

A. remains unchanged

B. increases to a level above that of either asset

C. decreases to a level below that of either asset

D. stabilizes to a level between the asset with the higher risk and the asset with the lower risk

13) If a manager prefers investments with greater risk even if they have lower expected​ returns, then he is following a​ ________ strategy.

A. risk−averse

B. risk−seeking

C. risk−neutral

D. risk−indifferent

14) Review Question​ 8-11 How are total​ risk, nondiversifiable​ risk, and diversifiable risk​ related? Why is nondiversifiable risk the only relevant risk​?

15) Milton Glasses recently paid a dividend of​ $1.70 per​ share, is currently expected to grow at a constant rate of​ 5%, and has a required return of​ 11%. Milton Glasses has been approached to buy a new company. Milton estimates if it buys the​ company, its constant growth rate would increase to​ 6.5%, but the firm would also be​ riskier, therefore increasing the required return of the company to​ 12%. Should Milton go ahead with the purchase of the new​ company?

A. ​Yes, because the value of the Milton Co. will increase by​ $4..59 per share

B. ​Yes, because the value of the Milton Co. will increase by​ $3.17 per share

C. ​No, because the value of the Milton Co. will decrease by​ $3.17 per share

D. ​Yes, because the value of the Milton Co. will increase by​ $2.56 per share

16) An increase in the beta of a​ corporation, all else being the​ same, indicates​ ________.

A. a decrease in​ risk, a lower required rate of​ return, and hence a higher share price

B. a decrease in​ risk, a higher required rate of​ return, and hence a lower share price

C. an increase in​ risk, a lower required rate of​ return, and hence a higher share price

D. an increase in​ risk, a higher required rate of​ return, and hence a lower share price

​17) Strikes, lawsuits, regulatory​ actions, or the loss of a key account are all examples of​ ________.

A. market risk

B. diversifiable risk

C. economic risk

D. systematic risk

18) A proxy battle is the attempt by​ ________.

A. a non management group to unseat the existing management and gain control of the firm

B. the management to dismiss the board of directors for their incapability to manage the operations

C. the creditors of a bankrupt corporation to seize assets of the corporation

D. the employees to form trade unions to influence decisions on behalf of members

19) The​ ________ of a given outcome is its chance of occurring.

A. reliability

B. dispersion

C. probability

D. standard deviation

Exam 5

1) In comparing the internal rate of return and net present value methods of​ evaluation, ________.

A. financial managers prefer net present​ value, because it is presented as a rate of return

B. internal rate of return is theoretically​ superior, but financial managers prefer net present value

C. net present value is theoretically​ superior, but financial managers prefer to use internal rate of return

D. financial managers prefer net present​ value, because it measures benefits relative to the amount invested

2) Cost of common stock equity—CAPM  ​ J&M Corporation common stock has a​ beta, b​, of 1.6. The​ risk-free rate is 8%​, and the market return is 16​%.

a. Determine the risk premium on​ J&M common stock.

b. Determine the required return that​ J&M common stock should provide.

c. Determine​ J&M's cost of common stock equity using the CAPM.

a. The risk premium on​ J&M common stock is 12.8​%. ​(Round to one decimal​ place)

b. The required return that​ J&M common stock should provide is 20.8​%. ​(Round to one decimal​ place)

c. ​ J&M's cost of common stock equity using the CAPM is 20.8​%. ​(Round to one decimal​ place)

3) Fixed assets that provide the basis for a​ firm's earning and value are often called​ ________.

A. book assets

B. earning assets

C. tangible assets

D. noncurrent assets

4) The first step in the capital budgeting process is​ ________.

A. implementation

B. review and analysis

C. proposal generation

D. decision making

5) If a​ project's IRR is greater than​ zero, the project should be accepted.

True

False

6) The minimum return that must be earned on a project in order to leave the​ firm's value unchanged is​ ________.

A. the compound rate

B. the internal rate of return

C. the cost of capital

D. the interest rate

7) Payback period Jordan Enterprises is considering a capital expenditure that requires an initial investment of ​$23,000 and returns​ after-tax cash inflows of ​$4,367 per year for 10 years. The firm has a maximum acceptable payback period of 8 years.

a. Determine the payback period for this project.

b. Should the company accept the​ project?

a. The payback period for this project is _______ years.  ​(Round to two decimal​ places.)

b. Should the company accept the​ project?  ​(Select the best answer​ below.)

A. The company should accept the project since the payback period is less than the maximum.

B. The company should reject the project since the payback period is less than the number of years of the​ after-tax cash flows.

C. The company should reject the project since the​ after-tax cash flows occur for more years than the maximum acceptable payback.

D. The company should accept the project since the​ after-tax cash flows occur for more years than the maximum acceptable payback.

E. The company should reject the project since the payback period is less than the maximum.

8) Internal rate of return For the project shown in the following​ table, ​, calculate the internal rate of return ​(IRR). Then​ indicate, for the​ project, the maximum cost of capital that the firm could have and still find the IRR acceptable.

Initial investment ​(CF 0CF0​)	​$70,000
Year ​(t​)	Cash inflows ​(CF Subscript tCFt​)
1	​$20,000
2	​$25,000
3	​$25,000
4	​$40,000
5	​$10,000

The​ project's IRR is ______​%. ​(Round to two decimal​ places.)

The maximum cost of capital that the firm could have and still find the IRR acceptable is _______​%. ​(Round to two decimal​ places.)

9) When discussing weighing schemes for calculating the weighted average cost of​ capital, ________.

A. book value weights are preferred over market value weights and historical weights are preferred over target weights

B. book value weights are preferred over market value weights and target weights are preferred over historical weights

C. market value weights are preferred over book value weights and target weights are preferred over historical weights

D. market value weights are preferred over book value weights and historical weights are preferred over target weights

10) Review Question​ 9-2 (LO9-1) What role does the cost of capital play in the​ firm's long-term investment​ decisions? How does it relate to the firms ability to maximize shareholder​ wealth?

11) The effect of tax rate on WACC K. Bell Jewelers wishes to explore the effect on its cost of capital of the rate at which the company pays taxes. The firm wishes to maintain a capital structure of 35​% ​debt, 10​% preferred​ stock, and 55% common stock. The cost of financing with retained earnings is 15​%, the cost of preferred stock financing is 11​%, and the​ before-tax cost of debt financing is 6​%. Calculate the weighted average cost of capital ​(WACC​) given a tax rate of 40%.

The​ firm's WACC is _______ ​(Round to two decimal​ places.)

12) Herky Foods is considering acquisition of a new wrapping machine. The initial investment is estimated at ​$1.98 ​million, and the machine will have a​ 5-year life with no salvage value. Using a discount rate of 6​%, determine the net present value​ (NPV) of the machine given its expected operating cash inflows shown in the following​ table. Based on the ​project's NPV​, should Herky make this​ investment?

Year	Cash inflow
1	​$633,600
2	​$594,000
3	​$475,200
4	​$554,400
5	​$316,800

The net present value​ (NPV) of the new wrapping machine is ​$221,248.93. ​(Round to the nearest​ cent.)

Based on the​ project's NPV​, should Herky make this​ investment? ​ (Select the best answer​ below.)

Yes

No

13) Generally the least expensive source of long−term capital is​ ________.

A. common stock

B. retained earnings

C. preferred stock

D. long−term debt

14) The before−tax cost of debt for a​ firm, which has a marginal tax rate of 40​ percent, is 12 percent. The after−tax cost of debt is​ ________.

A. 4.8 percent

B. 12 percent

C. 7.2 percent

D. 6.0 percent

15) The​ ________ is a weighted average of the cost of funds which reflects the interrelationship of financing decisions.

A. sunk cost

B. internal rate of return

C. risk−free rate

D. cost of capital

16) Your​ firm, People's Consulting​ Group, has been asked to consult on a potential preferred stock offering by Brave New World. This 11​% preferred stock issue would be sold at its par value of ​$40 per share. Flotation costs would total ​$2.50 per share. Calculate the cost of this preferred stock.

The cost of preferred stock is ______​%. ​(Round to two decimal​ places.)

​17) Before-tax cost of debt and​ after-tax cost of debt Personal Finance Problem David Abbot is interested in purchasing a bond issued by Sony. He has obtained the following information on the​ security:

Sony Bond
Par value ​ $1000	Coupon interest rate 6.0​%	Corporate tax rate 20​%
Cost $910	Years to maturity 10

Answer the following​ questions:

a. Calculate the ​before-tax cost of the Sony bond using the​ bond's yield to maturity​ (YTM).

b. Calculate the ​after-tax cost of the Sony bond given the corporate tax rate.

18) Retained earnings versus new common stock Using the data for a firm shown in the following​ table, calculate the cost of retained earnings and the cost of new common stock using the​ constant-growth valuation model.  ​(Click on the icon located on the​ top-right corner of the data table below in order to copy its contents into a​ spreadsheet.)

Current market price per share	Dividend growth rate	Projected dividend per share next year	Underpricing per share	Flotation cost per share
​$57.00	7​%	​$3.99	​$2.00	​$2.00

The cost of retained earnings is ______. ​(Round to two decimal​ places.)

The cost of new common stock is _____ ​(Round to two decimal​ places.)

19) Which of the following is true of NPV​ profile?

A. It shows an inverse relationship between a​ project's IRR and NPV.

B. It charts the net present value of a project as a function of the cost of capital.

C. It is used for evaluating and comparing independent projects when conflicting ranking exists.

D. It is a graph that illustrates a​ project's IRR against various values of NPV.

Exam 6

1) In the traditional approach to capital​ structure, as the amount of debt increases in a​ firm's capital​ structure, ________.

A. debt becomes less risky

B. equity cost is unaffected

C. the cost of debt rises faster than the cost of equity

D. the cost of equity rises faster than the cost of debt

2) After satisfying obligations to​ creditors, the​ government, and preferred​ stockholders, any remaining earnings will most likely be allocated to any of the following EXCEPT

A. common shareholders as stock dividends.

B. retained by the firm for future investment.

C. a combination of retained earnings and cash dividends.

D. common shareholders as cash dividends.

3) Poor capital structure decisions can result in​ ________ the cost of​ capital, resulting in​ ________ acceptable investments.

A. decreasing; more

B.​decreasing; fewer

C.​increasing; fewer

D. increasing; more

4) Earnings before interest and taxes​ (EBIT) is a descriptive label for​ ________.

A. net profits before taxes

B. earnings per share

C. gross profits

D. operating profits

5) Asymmetric information often affects the capital structure decisions of a firm. How do a​ firm's financing actions in capital structure decisions give investors signals that reflect​ management's view of stock​ value?

6) In​ theory, a firm should maintain financial leverage consistent with a capital structure that​ ________.

A. meets the industry standards

B. meets the investor expectations

C. maximizes the​ owner's wealth

D. maximizes dividends

7) Which of the following is true of​ leverage?

A. It refers to the effects that operating and financial fixed costs have on the returns that shareholders earn.

B. It is associated with risks which are out of the control of managers.

C. It is used to evaluate the profitability associated with various levels of sales.

D. It includes the effect of operating fixed costs on the returns of shareholders and not the financial fixed costs.

8) In​ theory, the firm should maintain financial leverage consistent with a capital structure that

A. maximizes the​ owner's wealth.

B. maximizes dividends.

C. meets the industry standard.

D. maximizes the earnings per share.

9) The basic shortcoming of the EBIT−EPS approach to capital structure is

A. that it concentrates on the maximization of EPS rather than the maximization of​ owner's wealth.

B. its disregard for the presence of preferred stock in the capital structure.

C. its disregard for the​ firm's dividend policy.

D. that the optimal capital structure is difficult to compute.

10) Cash outlays that had been previously made and have no effect on the cash flows relevant to a current decision are called​ ________.

A. incremental past expenses

B. opportunity costs foregone

C. incremental historical costs

D. sunk costs

11) Book value Find the book value for the asset shown in the accompanying​ table, assuming that MACRS depreciation is being used

Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes
	Percentage by recovery​ year*
Recovery year	3 years	5 years	7 years	10 years
1	33​%	20​%	14​%	10​%
2	45​%	32​%	25​%	18​%
3	15​%	19​%	18​%	14​%
4	7​%	12​%	12​%	12​%
5		12​%	9​%	9​%
6		5​%	9​%	8​%
7			9​%	7​%
8			4​%	6​%
9				6​%
10				6​%
11				4​%
Totals	100​%	100​%	100​%	100​%
​*These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax​ purposes, be sure to apply the actual unrounded percentages or directly apply​ double-declining balance​ (200%) depreciation using the​ half-year convention.

Asset Installed cost Recovery period​(years) Elapsed time since purchase​(year)

A $823,000 5 3

The remaining book value is ​$____________. ​(Round to the nearest​ dollar.)

12) Which of the following must be considered in computing the terminal value of a replacement​ project?

A. before−tax proceeds from the sale of a new asset

B. before−tax proceeds from the sale of an old asset

C. operating cash flow for the final year

D. after−tax proceeds from the sale of a new asset

13) In evaluating the initial investment for a capital budgeting​ project, ________.

A. an increase in net working capital is considered a cash inflow

B. net working capital does not have to be considered

C. a decrease in net working capital is considered a cash outflow

D. an increase in net working capital is considered a cash outflow

14) The tax treatment regarding the sale of existing assets that are sold for less than the book value results in​ ________.

A. recaptured depreciation taxed as ordinary income

B. a capital loss tax benefit

C. a capital gain tax liability and recaptured depreciation taxed as ordinary income

D. an ordinary tax benefit

15) In the EBIT−EPS approach to capital​ structure, risk is represented by

A. shifts in the times−interest−earned ratio.

B. shifts in the cost of debt capital.

C. shifts in the cost of equity capital.

D. the slope of the capital structure line.

16) The tax treatment regarding the sale of existing assets that are sold for more than the book value but less than the original purchase price results in​ a(n) ________.

A. recaptured depreciation taxed as ordinary income

B. capital gain tax liability and recaptured depreciation taxed as ordinary income

C. ordinary tax benefit

D. capital gain tax liability

​17) ________ is the potential use of fixed operating costs to magnify the effects of changes in sales on earnings before interest and taxes.

A. Ratio analysis

B. Operating budget

C. Operating leverage

D. Financial leverage

18) If Halley Industries reimburses employees who earn​ master's degrees and who agree to remain with the firm for an additional 33 ​years, should the expense of the tuition reimbursement be categorized as a capital expenditure or an operating expenditure​?

A. The tuition reimbursement should be categorized as a capital expenditure since the outlay of funds represents an expense incurred in transacting normal business operations.

B. The tuition reimbursement should be categorized as a operating expenditure since the outlay of funds represents an expense incurred in transacting normal business operations.

C. The tuition reimbursement should be categorized as an operating expenditure since the outlay of funds is expected to produce benefits over a period of time greater than 1 year.

D. The tuition reimbursement should be categorized as a capital expenditure since the outlay of funds is expected to produce benefits over a period of time greater than 1 year.

19) Canvas Reproductions has fixed operating costs of $ 12,600 and variable operating costs of $8.22 per unit and sells its paintings for $27.12 each. At what level of unit sales will the company break even in terms of​ EBIT?

The operating breakeven point is ______ units. ​ (Round to the nearest​ integer.)

Exam 7

1) Stock dividends are​ ________.

A. non taxable

B. taxable at a lower level than dividend taxes

C. are taxable only to the shareholders

D. taxable at a higher level than dividend taxes

2) When a firm pays a stated dollar dividend and adjusts the payment as earnings​ increase, its dividend policy can be called​ ________.

A. a low−regular−and−extra dividend policy

B. a target dividend−payout ratio policy

C. a constant−payout−ratio dividend policy

D. a regular dividend policy

​3) ________ float results from the delay between the time when a customer deducts a payment from the checking account ledger and the time when the vendor actually receives the funds in a spendable form.

A. Disbursement

B. Collection

C. Processing

D. Mail

4) The objective for managing inventory is to​ ________.

A. reduce the time taken to process inventory into finished goods and increase sales

B. turn over inventory as quickly as possible without losing sales from stockouts

C. make payment for the inventory as slowly as possible without losing suppliers

D. improve the average collection period without affecting the sales

5) Which of the following is true of credit scoring of​ suppliers?

A. It is frequently used in business because scoring standards are too flexible.

B. It is frequently used in business because the scoring information is easy to obtain.

C. It is frequently used in business because mercantile credit decisions are easily quantifiable.

D. It is frequently not used in business because most business transactions involve mercantile credit which cannot be scored.

6) Modigliani and Miller argue that when a firm has no acceptable investment​ opportunities, it should​ ________.

A. retain the funds until an acceptable project arises

B. preserve the funds and not declare dividends

C. lower its cost of capital

D. distribute the surplus funds to the owners

7) Which of the following is true of credit​ scoring?

A. It specifies the terms of sale for customers who have been extended credit by a firm.

B. It audits the amount of assets the applicant has available for use in securing the credit.

C. It is an ongoing review of a​ firm's accounts receivable to determine whether customers are paying according to the stated credit terms.

D. It applies statistically derived weights to an​ applicant's scores on key financial and credit characteristics.

8) The net effect of a stock repurchase is​ ________.

A. similar to a reverse stock split

B. similar to a cash dividend

C. similar to a stock split

D. similar to an interest payment

9) A firm has the following​ stockholders' equity​ balances:

In states where the​ firm's legal capital is defined as the par value of its common​ stock, the maximum cash dividend the firm could pay is​ ________.

A. $3,200,000

B. ​$400,000

C. ​$3,600,000

D. ​$1,600,000

10) The​ ________ of a firm is the amount of time that elapses from the point when the firm inputs material and labor into the production process to the point when cash is collected from the sale of the finished product that contains these production inputs.

A. operating cycle

B. cash conversion cycle

C. average age of inventory

D. average collection period

11) The philosophy of the​ ________ is that a firm would have only work−in−process inventory.

A. basic economic order quantity system

B. materials requirement planning system

C. LIFO method

D. just−in−time system

12) Which of the following is true of the impact of cash flows on net working​ capital?

A. The more predictable the cash inflows of a​ firm, the more current assets a firm needs.

B. The higher the cash inflows lower is the net working capital.

C. The lower the cash outflows lower is the net working capital.

D. The more predictable the cash inflows of a​ firm, the easier is the working capital management.

13) Other factors remaining​ constant, a decrease in the average age of inventory will result in​ _____.

A. a decrease in the average collection period

B. an increase in the cash conversion cycle

C. a decrease in the cash conversion cycle

D. an increase in the average collection period

14) The goal of working capital management is to​ ________.

A. achieve a balance between short−term and long−term assets so that they add to the achievement of a​ firm's overall goals

B. achieve a balance between profitability and risk that contributes positively to a​ firm's value

C. achieve a balance between a​ firm's non−current assets and non−current liabilities

D. achieve a balance between short−term and long−term liabilities so that they add to the achievement of a​ firm's overall goals

15) A stock split has​ ________.

A. no effect on a​ firm's capital structure

B. a detrimental effect on a​ firm's capital structure

C. a measurable effect on a​ firm's capital structure

D. little effect on a​ firm's capital structure

16) A firm has current after−tax earnings of​ $1,000,000 and has declared a cash dividend of​ $400,000. The​ firm's dividend payout ratio is​ ________.

A. 4.0 percent

B. 2.5 percent

C. 40 percent

D. 2.0 percent

17) When a firm initiates or increases a cash​ discount, sales are expected to​ ________, the investment in accounts receivable is expected to​ ________, the bad debt expense is expected to​ ________, and the profit per unit is expected to​ ________.

A. ​decrease; increase;​ increase; increase

B. ​increase; decrease;​ decrease; decrease

C. ​increase; increase;​ decrease; decrease

D. ​decrease; decrease;​ increase; increase

18) Review Question​ 15-1 (LO15-1) Why is working capital management one of the most important​ time-consuming activities of the financial​ manger? What is net working capit​al?

19) Tender offer repurchase is a repurchase program in which a firm​ ________.

A. offers to repurchase a fixed number of​ shares, usually at a discount relative to the market value

B. offers to repurchase a fixed number of​ shares, usually at a premium relative to the market value

C. offers to repurchase a fixed number of​ shares, usually at par relative to the market value

D. has a right to repurchase a fixed number of shares at a premium relative to the market value

Exam 8

1) The responsibilities of a debtor in possession include​ ________.

A. repurchase of equity from open market

B. change in management

C. change in operational activities

D. recommending a recapitalization plan

2) Harry​ Mining, a U.S.−based MNC has a foreign subsidiary that earns​ $1,050,000 before local​ taxes, with all the after tax funds to be available to the parent in the form of dividends. The foreign income tax rate is 30​ percent, the foreign dividend withholding tax rate is 15​ percent, and the​ firm's U.S. tax rate is 35 percent. What are the funds available to the parent MNC if foreign taxes can be applied as a credit against the​ MNC's U.S. tax​ liability?

A. ​$425,250

B. ​$257,250

C. ​$735,000

D. ​$624,750

3) In terms of inventory​ management, multinational firms​ ________.

A. have only political factors to​ consider, since inventory is minimally affected by foreign economic factors

B. have only economic factors to​ consider, since this is a fixed asset and is minimally affected by political factors

C. must deal with a wide number of​ factors, including exchange rate​ fluctuations, tariffs, nontariff​ barriers, integration schemes such as the​ EU, and other rules and regulations

D. have only economic factors to​ consider, since this is a current asset and is minimally affected by political factors

4) When a firm undertakes a merger to improve its sources and supply of raw​ materials, this is an example of a​ ________.

A. hostile takeover

B. strategic merger

C. divestiture

D. financial merger

5) Which of the following factors can influence the operations of an​ MNC?

A. debt and equity structures based on home​ country's capital market

B. foreign ownership of portions of equity

C. dividend payout policy

D. consolidation of financial statements based on only one currency

6) A Eurobond is​ ________.

A. a bond sold primarily to Europeans

B. a bond issued by European Union

C. a bond sold primarily in countries other than the country of the currency in which the issue is denominated

D. a debt instrument sold exclusively in Europe

7) When fewer units of a foreign currency are required to buy one​ dollar, the currency is said to have​ ________.

A. depreciated with respect to the dollar

B. appreciated with respect to the dollar

C. appreciated with respect to the home currency

D. appreciated with respect to the average rate of the home currency

8) The transfer of​ capital, managerial, and technical assets by a multinational firm from its home country to a foreign country is termed​ ________.

A. an SDI

B. an MNC

C. a CAPM

D. an FDI

​9) ________ is an international body that polices world commercial trading practices and mediates disputes among two or more member countries.

A. NAFTA

B. WTO

C. GATT

D.CAFTA

10) A​ ________ is a method of structuring a financial​ merger, whereas a​ ________ involves the sale of the​ firm's assets.

A. congeneric​ buyout; divestiture

B. horizontal​ merger; leveraged divestiture

C. leveraged​ buyout; divestiture

D. leveraged​ buyout; bankruptcy

11) In defending against a hostile​ takeover, the strategy involving the payment of a​ large, debt−​financed, cash dividend is the​ ________ strategy.

A. dividend restructuring

B. shark repellent

C. golden parachute

D. leveraged recapitalization

12) Which of the following is a positive approach of coping with political​ risk?

A. joint venture with government or local private sector

B. license or patent restrictions under international agreement

C. control of downstream processing

D. control of transportation to external markets

13) Which of the following increases the chances of business​ failures?

A. decreasing​ days' sales outstanding

B. current ratio of​ 2:1

C. corporate maturity

D. solvency ratio of greater than​ 20%

14) If the​ P/E paid for a target company is less than the​ P/E of the acquiring​ company, the effect on the earnings per share of the acquired company will be​ ________.

A. positive

B. neutral

C. negative

D. uncorrelated

15) A combination of two or more companies that results in a firm maintaining the identity of one of the firms is​ ________.

A. merger

B. consolidation

C. amalgamation

D. a holding company

16) The selling of some of a​ firm's assets is called​ ________.

A. divestiture

B. leverage buyout

C. reverse merger

D. consolidation

17) Review Question​ 19-16 (LO19-1) What are some of the major reasons for the rapid expansion in international mergers and joint ventures of ​firms?

18) Cash acquisitions of going concerns are best analyzed using​ ________.

A. capital budgeting techniques

B. an investment opportunity schedule

C. the weighted marginal cost of capital theory

D. ratio analysis

19) In defending against hostile takeover​ attempts, a company will approve anti−takeover amendments to the corporate charter that constrain the​ firm's ability to transfer managerial control of the firm as a result of a merger. This is called the​ ________ strategy.

A. shark repellent

B. poison pill

C. greenmail

D. golden parachute