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Determine if the statements below are true or false.

1. Primary goal of a manager is cutting cost of the firm.


True False
2. Major source of income for investors is dividend.
True False
3. A corporation is a legal entity that is separate from its owners.
True False
4. A time line shows the timing of cash flows.
True False
5. Inflations does not affect the market interest rate.
True False
6. Companies can use different depreciation method for tax purpose.
True False
7. The order of different items on balance sheet does not matter.
True False
8. Amortization and depreciation are interchangeable terms.
True False
9. Depreciation is added to the income while calculating cash flows.
True False
10. Working capital changes are important for evaluating company’s liquidity.
True False
11. Interest rates remain unaffected by changes in the risk level.
True False
12. Net income is always equal to cash flow from operations.
True False
13. Short term interest rates are not equal to long term interest rates.
True False
14. Par value of the bond is equal to its face value.
True False
15. A coupon bond is the bond that makes the payment of coupon only.
True False
16. All fixed income securities are subject to interest rate risk.
True False
17. Cost of retained earnings is also included in the cost of capital.
True False
18. Preferred stock holders receive their dividend before debt holders.
True False
19. The discount rate that forces a project’s NPV to equal zero is called internal rate of return.
True False
20. Discounted payback period is more useful than simple payback period.
True False
21. Cash conversion cycle is equal to operating cycle.
True False
22. Average collection period is the time in which a company converts its receivables in cash.
True False
23. Preferred stock is a debt instrument.
True False
24. Equity has a fixed maturity.
True False
25. Prepaid expenses are recorded in income statement.
True False
26. All long-term securities are traded in capital market.
True False
27. 60/40 is an ideal debt/equity ratio.
True False
28. Primary market is the market where securities are issued for the first time.
True False
29. A zero-coupon bond is also called a discount bond.
True False
30. A simple bank loan is similar to zero coupon bond.
True False
Choose the right option from below questions.
1. An annuity makes ___________________ .
a) annual payments b) equal payments
c) separate payments of interest and principal d) interest payments only
2. Quick ratio excludes ___________ from current assets.
a) inventory b) prepaid expenses
c) a & b d) marketable securities
3. Return on equity is mainly important for _______________ .
a) suppliers of the company b) shareholders of the company
c) creditors of the company d) all of the above
4. Debt increases __________ of the company.
a) business risk b) financial risk
c) credit risk d) liquidity risk
5. The law of demand states that ___________________ .
a) as the quantity demanded rises, the price rises b) as the price rises, the quantity demanded rises
c) as the price rises, the quantity demanded falls d) as supply rises, the demand rises
6. Which of the following is a characteristic of pure monopoly?
a) one seller of the product b) low entry barriers
c) few sellers of product d) perfect market information
7. If nominal interest rate is 6% and inflation rate in 2%, real interest rate is __________
a) 8% b) 3%
c) 4% d) 6%
8. Which of the following is most liquid?
a) Water b) a 6-month certificate of deposit
c) A submarine d) a saving account
9. An increase in money supply will cause the interest rate
a) to rise b) to fall
c) remain unchanged
10. Deciding about the money supply is part of ______________ .
a) monetary policy b) fiscal policy
c) government budget d) None of the above
11. You purchased a book. What is your opportunity cost?
a) the amount you paid for the book b) the cost of producing book
c) the time you spend studying the book d) you have spent the same amount elsewhere
12. Fundamental of problem of economics is ______________________ .
a) scarcity b) unemployment
c) inequality d) poverty
13. Maturity of a debt instruments refers to the time when
a) instrument expires b) makes the first payment to the holder
c) investor takes the possession of the instrument
14. Equities are issued with _______________ .
a) no maturity b) maturity of 10 years
c) maturity of 30 years d) a coupon of payment.
15. Securities are issued in the primary market through _________________ .
a) a broker b) an investment bank
c) an agent d) directly
16. Having some overall goal in mind, financial management is concerned with:
a) acquisition of assets b) financing of assets
c) management of assets d) all of the above
17. Annual cash dividend divided by annual earnings is termed as:
a) earning per share b) dividend payout
c) dividend per share d) proposed dividend ratio
18. Value maximization is the maximizing firm’s earnings _________________________ .
a) after tax b) before tax
c) earnings before interest and taxes d) None of the above
19. Stakeholders of a firm includes:
a) Shareholders b) employees
c) suppliers d) all of the above
20. The system by which corporations are controlled and managed is known as:
a) corporate governance b) management system
c) strategic management d) internal system
21. The average beta of all stocks in a market is ________ .
a) -1 b) 1
c) 1.5 d) 0
22. The value of correlations is always between ________ .
a) -1 and +1 b) 0 and 1
c) -1 and 0 d) None of these
23. Operating income is:
a) Income before interest and taxes b) net income
c) gross income d) Income before tax
24. Efficiency of a firm is evaluated through _______ .
a) profit margin b) debt/equity ratio
c) total asset turnover d) dividend payout ratio
25. Capital gain is _________ .
a) dividend received from company b) appreciation in the share price
c) market share price d) none of these
26. A company have a current ratio of 1 will have a net working capital of
a) negative b) positive
c) equal to current assets d) zero
27. Which of the following refers to the financing decision of the company?
a) capital structure b) capita budgeting
c) capital rationing d) working capital management
28. A group of stocks and bonds held by an investor is called ____________ .
a) portfolio b) stock bundle
c) capital structure d) none of these
29. A model that assume the constant growth of dividend for the valuation of stock is called
a) zero growth model b) dividend price model
c) dividend growth model d) all of the options
30. Which of the following ratio is used to evaluate solvency of the company?
a) acid-test ratio b) profit margin
c) total asset turnover d) debt to assets ratio