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1. The chief financial officer of Smith glass Inc. follows the d.

d. The firm may be able to lease the asset when it


policy of matching the maturity of assets with the does not have the credit capacity to purchase the
maturity of financing. The implication of this policy asset.
includes all of the following except that 5. Marigold has a bond issue that matures in 15 years.
a. The seasonal expansion of cash, receivables and Recently, the company’s bond rating has gone from B to
inventory should be financed by short term debt Bea. How with this affect the market price of the
such as vendor payables and bank debt. bonds?
b. The minimum level of cash, receivables, and a. Increase
inventory required to stay in business can be b. Decrease
considered permanent, and financed with long c. Remain the same
term debt or equity. d. The effect cannot be predicted
c. Cash, receivables and inventory should be financed 6. Which of the following is an advantage of equity
with long term debt or equity. financing in comparison to debt financing?
d. Long term assets, like plant and equipment, should a. Issuance costs are greater than for debt.
be financed with long term debt or equity. b. Ownership is given up with respect to the issuance
2. With respect to the use of commercial paper by an of common stock.
industrial firm, which one of the following statements is c. Dividends are not tax deductible by the corporation
most likely to be true? whereas interest is tax deductible.
a. The commercial paper is issued through a bank d. The company has no firm obligation to pay
b. The commercial paper has a maturity of 60-270 dividends to common shareholders.
days. 7. In general, it is more expensive for a company to
c. The commercial paper is secured by the issuer’s finance with equity than with debt because
assets. a. Long term bonds have a maturity date and must,
d. The commercial paper issuer is a small company. therefore, be repaid in the future.
3. A manufacturing firm wants to obtain a short term loan b. Investors are exposed to greater risk with equity
and has approached several lending institutions. All the capital.
potential lenders are offering the same nominal interest c. The interest on debt is a legal obligation.
rate but the terms of the loan vary. Which of the d. Equity capital is in greater demand than debt
following combinations of loan terms will be most capital.
attractive for the borrowing firm? 8. A working capital technique that increases the payable
a. Simple interest, no compensating balance float and therefore delays the outflow of cash is
b. Discount interest, no compensating balance a. Concentration banking.
c. Simple interest, 20% compensating balance b. A draft.
required c. Electronic Data interchange
d. Discount interest, 20% compensating balance d. A lockbox system
required 9. A minimum checking account balance that a firm must
4. Which of the following is not an advantage of leasing as maintain with a commercial bank is a
a form of financing? a. Transaction balance
a. Upfront costs may be less. b. Compensating balance
b. The provisions of the agreement may be less c. Precautionary balance
stringent than for other debt agreements. d. Speculative balance
c. The peso cost.
10. Which of the following is not a characteristic of a a. Have higher ordering costs
negotiable certificate of deposit? Negotiable certificate b. Have higher carrying costs
of deposit c. Have higher ordering costs and carrying costs
a. Have a secondary market to investors. d. Have lower ordering costs and carrying costs
b. Are regulated by the Federal Reserve System. 17. The amount of inventory that a company would tend to
c. Are usually sold in denominations of a minimum of hold in stock would increase as the
P100,000. a. Sales level falls to a permanently lower level.
d. Have yields considerably greater than the bankers’ b. Costs of carrying inventory decreases.
acceptances and commercial paper. c. Variability of sales decreases.
11. The procedures followed by the firm for ensuring d. Cost of running out of stock decreases.
payment of its accounts receivables are called its 18. A company has a bottleneck operation that slows
a. Discount policy production. Which of the following tools or approaches
b. Credit policy could the firm use to determine the most cost effective
c. Collection policy ways to eliminate this problem?
d. Payables policy a. Linear programming
12. The London Interbank Offered Rate(LIBOR) represents b. Theory of constraints
an example of a c. Decision-tree diagrams
a. Risk-free d. Payoff matrices
b. Nominal rate 19. Which tool would most likely be used to determine the
c. Credit risk adjusted rate best course of action under conditions of uncertainty?
d. Long-term rate a. CVP Analysis
13. If an investor is concerned about interest rate risk, the b. Expected Value(EV)
investor should consider investing in c. PERT
a. A. serial bonds d. Scattergraph method
b. Sinking bonds 20. If the value of the US dollar in foreign currency markets
c. Convertible bonds changes from $1= 6 marks to 1$= 4 marks.
d. Floating rate bonds a. The german mark has depreciated against the
14. Which of the following techniques recognizes that dollor
management often faces a series of decisions that may b. German imported products in the US will become
affect the value of an investment? more expensive
a. Probability analysis c. US tourists in Germany will find their dollars will
b. Risk-adjusted discount rate buy more German products.
c. Decision tree d. US exports to Germany should decrease.
d. Sensitivity analysis 21. What factor explains the difference between real and
15. The economic order quantity for inventory is higher for nominal interest rates?
an organization that has a. Inflation risk
a. Lower annual unit sales b. Credit risk
b. Higher fixed inventory ordering costs. c. Default risk
c. Higher annual carrying costs as a percentage of d. Market risk
inventory value. 22. If the US dollar declines in value relative to the
d. A higher purchase price per unit of inventory currencies of many of its trading partners, the likely
16. Firms that maintain very low or no inventory levels result is that
a. Foreign currencies will depreciate against the dollar
b. The US balance of payments deficit will become worse
c. US exports will tend to increase
d. US exports will tend to decrease
23. A company has a policy of frequently cutting prices to
increase sales, product demand is significantly elastic.
What impact would this have on the company’s
situation?
a. Quantity increases proportionally more than the
price declines
b. Quantity increases proportionally less than the
price declines
c. Price increases proportionally more than the price
declines
d. Price increases proportionally less than the price
declines
24. A market analyst has estimated the equity beta of
Modern Homes Inc. to be 1.4. This beta implies that the
company’s
a. Systematic risk is lower than that of the market
portfolio.
b. Systematic risk is higher than that of the market
portfolio.
c. Unsystematic risk is higher than that of the market
portfolio.
d. Total risk is higher than that of the market portfolio.
25.