QN=1 (3784) (20263) Profitability of a firm can be negatively affected by

a. (i) too much inventory.

b. (ii) too little inventory.
c. either (i) or (ii).
d. neither (i) nor (ii).

QN=2 (3782) (20280) Corruption in business

a. creates inefficiencies in an economy.
b. inhibits growth in an economy.
c. slows the rate of economic growth in a country.
d. all of these

QN=3 (3761) (20276) Shareholders elect ______________ to represent their interest in the firm.
a. a chairman
b. CEO
c. a board of directors
d. all of these

QN=4 (3793) (20287) Accounting standards prescribed by GAAP are important because
a. they make the financial statements of all firms standardized.
b. they allow one to examine a firm's performance over time.
c. they make it possible for management or analysts to compare the firm's performance to
that of other competitors.
d. all of these.

QN=5 (3817) (20304) Clarity Music Company has a marginal tax rate of 34 percent and an average
tax rate of 32 percent this year. It is planning to construct a new recording studio next
year. The appropriate tax rate to be applied on the income generated from the new
studio is
a. the average tax rate.
b. the marginal tax rate.
c. either one.
d. none of these.

QN=6 (3806) (20294) The conventional way of preparing a balance sheet is to list all assets in the
order of their
a. market value.
b. risk.
c. liquidity.
d. historical cost.

QN=7 (3812) (20292) According to the realization principle, revenue from a sale of the firm's
products are recognized
a. when the products are shipped to the buyer.
b. when the buyer orders the goods.
c. when cash is realized from the sale of the products.
d. at the time of the sale.

QN=8 (3833) (20341) Why is the quick ratio considered by some to be a better measure of liquidity
than the current ratio?
a. The quick ratio more accurately reflects a firm's profitability.
b. It omits the least liquid current asset from the numerator of the ratio.
c. The current ratio does not include accounts receivable.
d. It measures how "quickly" cash flows through the firm.

QN=9 (3862) (20360) Which of the following statements is false with respect to the present value of a
future amount?
a. The higher the discount rate, the lower the present value of a single sum for a given
time period.
b. The relation between present value and time is exponential.
c. The greater the time period, the lower the present value of a single sum for a given
interest rate.
d. The lower the discount rate, the lower the present value of a single sum for a given time
period.

QN=10 (3856) (20357) Using lower interest rates will

a. decrease the future value of any investment.
b. increase the future value of any investment.
c. not affect the future value of the investment.
d. None of these.

QN=11 (3873) (20378) Your investment in a small business venture will produce cash flows that
increase by 15 percent every year for the next 25 years. This cash flow stream is called
a. an annuity due.
b. a growing perpetuity.
c. an ordinary annuity.
d. a growing annuity.

QN=12 (3876) (20376) The annuity transformation method is used to transform

a. a present value annuity to a future value annuity.
b. a present value annuity to an annuity due.
c. an ordinary annuity to an annuity due.
d. a perpetuity to an annuity.

QN=13 (3908) (20408) If a bond's coupon rate is equal to the market rate, then the bond will sell
a. at a price equal to its face value.
b. at a price greater than its face value.
c. at a price less than its face value.
d. None of these are true.

QN=14 (3889) (20371) If your investment pays the same amount at the end of each year forever, the
cash flow stream is called
a. a perpetuity.
b. an ordinary annuity.
c. an annuity due.
d. none of these.

QN=15 (3897) (20387) Which of the following investment classes had the greatest average return based
on recent historical data?
a. Intermediate-Term Government Bonds
b. Long-Term Government Bonds
c. Large U.S. Stocks
d. Small U.S. Stocks

QN=16 (3895) (20386) If you are dealing with percentage returns, then which of the following is
generally true?
a. The variance of the return distribution is generally smaller than the standard deviation.
b. The variance of the return distribution is generally larger than the standard deviation.
c. The variance of the return distribution is measured in the same units as expected return.
d. None of these is generally true.

QN=17 (3927) (20428) Which of the following statements is true?

a. Investment grade bonds are those rated single B and higher.
b. Federal laws typically allow insurance companies and pension funds to purchase non-
investment grade bonds.
c. Because investors are risk averse, they require a premium to purchase a security that
exposes them to default risk.
d. All else equal, the higher a bond's rating the higher the coupon rate.

QN=18 (3937) (20460) Which of the following statements about preferred stock is false?
a. Preferred stock has a higher-priority claim on the firm's assets than common stock.
b. Failure to pay dividends will result in default.
c. Preferred stock has a lower-priority claim on the firm's assets than the firm's creditors in
the event of default.
d. Preferred stock typically pays a fixed dividend.

QN=19 (3941) (20448) Applying the valuation procedure to common stocks is more difficult than
applying it to bonds because
a. the size and timing of the dividend cash flows are less certain than the coupon payments
for bonds.
b. common stocks have no final maturity date.
c. unlike the rate of return, or yield, on bonds, the rate of return on common stock is not
directly observable.
d. All of these are true.

QN=20 (3919) (20419) Which ONE of the following statements is true?

a. The lower the transaction costs are, the greater a security's marketability.
b. The interest rate, or yield, on a security varies inversely with its degree of marketability.
c. U.S. Treasury bills have the largest and most active secondary market and are
considered to be the most marketable of all securities.
d. All of these are true.

QN=21 (3984) (20462) Which of the following are aspects of independent projects?
a. Their cash flows are related.
b. Their cash flows are unrelated.
c. Selecting one would automatically eliminate accepting the other.
d. None of these.

QN=22 (3988) (20482) In evaluating capital projects, the decisions using the NPV method and the IRR
method may disagree if
a. (i) the projects are independent.
b. (ii) the cash flows pattern is unconventional.
c. (iii) the projects are mutually exclusive.
d. both (ii) and (iii).

QN=23 (3961) (20445) Which ONE of the following statements is NOT true about preferred stock?
a. Preferred dividend payments are fixed amounts paid regularly by the firm, similar to the
interest payments on corporate bonds.
b. Preferred dividends are deductable from taxable income just like the interest on bonds.
c. Preferred stock holders have limited voting privileges relative to common-stock owners.
d. While preferred stock is legally classified as perpetuities, some issues do have a fixed
maturity.

QN=24 (3965) (20430) The largest holders of equity securities are

a. mutual funds.
b. pension funds.
c. foreign investors.
d. households.

QN=25 (3993) (20502) In order for a project to generate a positive net working capital cash flow at the
conclusion of a project,
a. the project must have generated a cumulative negative cash flow during the life of the
project.
b. the project must have generated a cumulative positive cash flow during the life of the
project.
c. the project must have generated a cumulative negative cash flow at the conclusion of
the project.
d. the project could not have generated a positive cash flow at the opening of the project.
QN=26 (4219) (20711) Yield to maturity: Jenny LePlaz is looking to invest in some five-year bonds
that pay annual coupons of 6.25 percent and are currently selling at $912.34. What is
the current market yield on such bonds? (Round to the closest answer.)
a. 9.5%
b. 8.5%
c. 6.5%
d. 7.5%

QN=27 (4275) (20773) Windy Burgers is trying to determine when to harvest a herd of cows that it
currently owns. If it harvests the herd in year 1, the NPV of the project would increase
over an immediate harvest by 25 percent. A year 2 harvest would create an NPV
increase of 15 percent over that of year 1 and year 3 would create an NPV increase of 7
percent over that of year 2. If the cost of capital is 12 percent for Windy, then which
harvest year would maximize the NPV for the firm? Assume that all NPVs are
calculated from the perspective of today.
a. Harvest immediately.
b. Harvest in year 1.
c. Harvest in year 2.
d. Harvest in year 3.

QN=28 (4225) (20719) Realized yield: Rachel McGovern bought a 10-year bond for $921.77 seven
years ago. The bond pays a coupon of 15 percent semiannually. Today, the bond is
priced at $961.92. If she sold the bond today, what would be her realized yield? (Round
to the nearest percent.)
a. 17%
b. 18%
c. 9%
d. 10%

QN=29 (4279) (20784) Equivalent Annual Cost: Your firm is considering an investment that will cost
$750,000 today. The investment will produce cash flows of $250,000 in year 1,
$400,000 in year 2, and $600,000 in year 3. The discount rate that your firm uses for
projects of this type is 11.75%.

What is the investment's equivalent annual cost? (Round off to the nearest)
a. $163,613
b. $225,008
c. $ 68,888
d. $ 92,845

QN=30 (4036) (20539) Spartan, Inc., is a manufacturer of automobile parts located in Greenville, South
Carolina. At the end of the current fiscal year, the company had net working capital of
$157,903. The company showed accounts payables of $94,233, accounts receivables of
$83,112, inventory of $171,284, and cash and marketable securities of $12,311. What
amount of notes payables does the firm have?
a. $14,571
b. $26,882
c. $15,471
d. none of these

QN=31 (4069) (20556) Efficiency ratio: Deutsche Bearings has total sales of $9,745,923, inventories of
$2,237,435, cash and equivalents of $755,071, and days' sales outstanding of 49 days. If
the firm's management wanted its DSO to be 35 days, by how much will the accounts
receivable have to change?
a. $373,816.23
b. -$373,816.23
c. -$379,008.12
d. $379,008.12

QN=32 (4051) (20538) Tre-Bien Bakeries generated net income of $233,412 this year. At year end, the
company had accounts receivables of $47,199, inventory of $63,781, and cash of
$21,461. It also had accounts payables of $51,369, short-term notes payables of
$11,417, and accrued taxes of $6,145. The net working capital of the firm is
a. $68,931
b. $63,510
c. $69,655
d. none of these

QN=33 (4062) (20559) Coverage ratios: Fahr Company had depreciation expenses of $630,715, interest
expenses of $112,078, and an EBIT of $1,542,833 for the year ended June 30, 2006.
What are the times interest earned and cash coverage ratios for this company?
a. 19.4 times; 12.7 times
b. 17.3 time; 11.4 times
c. 13.8 times; 19.4 times
d. None of these

QN=34 (4045) (20532) Trident Corporation had the following cash flows in the current year. Which
one of the following is a financing activity cash flow?
a. Rent on a warehouse amounting to $1.1 million
b. Purchase of $125,000 worth of five-year bonds issued by Towson Utilities
c. Preferred dividends to the tune of $330,000 paid to shareholders
d. Lease income received on a piece of land

QN=35 (4061) (20550) Efficiency ratio: If Randolph Corp. has accounts receivables of $654,803 and
net sales of $1,932,349, what is its accounts receivable turnover?
a. 0.34 times
b. 1.78 times
c. 2.95 times
d. None of these
QN=36 (4116) (20573) Future value: You are interested in investing $10,000, a gift from your
grandparents, for the next four years in a mutual fund that will earn an annual return of
8 percent. What will your investment be worth at the end of four years? (Round to the
nearest dollar.)
a. $10,800
b. $13,605
c. $13,200
d. None of these

QN=37 (4091) (20578) Multiple compounding periods (FV): Your brother has asked you to help him
with choosing an investment. He has $5,000 to invest today for a period of two years.
You identify a bank CD that pays an interest rate of 4.25 percent with the interest being
paid quarterly. What will be the value of the investment in two years?
a. $5,434
b. $5,441
c. $5,107
d. $5,216

QN=38 (4112) (20614) Present Value: Juan and Carla Herman plan to buy a time-share in six years in
the amount of $16,860. In order to have adequate funds to do so, the Herman’s want to
make a deposit to their money market fund today. Assume that they will be able to earn
an investment rate of 5.75%, compounded annually. How much will Juan and Carla
need to deposit today to achieve their goal? (Round off to the nearest dollar.)
a. $19,138
b. $ 8,885
c. $12,055
d. $14,243

QN=39 (4081) (20591) Present value: Becky Sayers wants to buy a house in six years. She hopes to be
able to put down $25,000 at that time. If the bank CD she wants to invest in will pay 7.5
percent annually, how much will she have to invest today? (Round to the nearest
dollar.)
a. $18,472
b. $13,987
c. $16,199
d. $23,256

QN=40 (4088) (20596) Multiple compounding (PV): Darius Miller is seeking to accumulate $50,000 in
six years to invest in a real estate venture. He can earn 6.35 percent annual interest with
monthly compounding in a private investment. How much will he have invest today to
reach his goal? (Round to the nearest dollar.)
a. $37,527
b. $47,015
c. $34,193
d. $31,648
QN=41 (4119) (20575) Future value: Carlos Lopes is looking to invest for the next three years. He is
looking to invest $7,500 today in a bank CD that will earn interest at 5.75 percent
annually. How much will he have at the end of three years? (Round to the nearest
dollar.)
a. $8,870
b. $8,000
c. $8,681
d. None of these

QN=42 (4127) (20622) Present value of an annuity: Myers, Inc., will be making lease payments of
$3,895.50 for a 10-year period, starting at the end of this year. If the firm uses a 9
percent discount rate, what is the present value of this annuity? (Round to the nearest
dollar.)
a. $23,250
b. $29,000
c. $25,000
d. $20,000

QN=43 (4140) (20644) Growing perpetuity: Jack Benny is planning to invest in an insurance company
product. The product will pay $10,000 at the end of this year. Thereafter, the payments
will grow annually at a 3 percent rate forever. Jack will be able to invest his cash flows
at a rate of 6.5 percent. What is the present value of this investment cash flow stream?
(Round to the nearest dollar.)
a. $326,908
b. $312,766
c. $285,714
d. $258,133

QN=44 (4136) (20632) Computing annuity payment: Jackson Electricals has borrowed $27,850 from
its bank at an annual rate of 8.5 percent. It plans to repay the loan in eight equal
installments, beginning in a year. What is its annual loan payment? (Round to the
nearest dollar.)
a. $4,708
b. $5,134
c. $4,939
d. $4,748

QN=45 (4131) (20642) Annuity due: Jenny Abel is investing $2,500 today and will do so at the
beginning of each of the next six years for a total of seven payments. If her investment
can earn 12 percent, how much will she have at the end of seven years? (Round to the
nearest dollar.)
a. $25,223
b. $28,249
c. $31,127
d. $29,460
QN=46 (4161) (20672) If a random variable is drawn from a normal distribution, what is the
probability that the random variable is larger than 1.96 standard deviations below the
mean?
a. 95.00%
b. 96.25%
c. 97.50%
d. 98.75%

QN=47 (4184) (20659) Ahmet purchased a stock for $45 one year ago. The stock is now worth $65.
During the year, the stock paid a dividend of $2.50. What is the total return to Ahmet
from owning the stock? (Round your answer to the nearest whole percent.)
a. 5%
b. 44%
c. 35%
d. 50%

QN=48 (4171) (20668) Serox stock was selling for $20 two years ago. The stock sold for $25 one year
ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was
the rate of return for owning Serox in the most recent year? (Round to the nearest
percent.)
a. 12%
b. 16%
c. 32%
d. 40%

QN=49 (4179) (20655) The expected return for the asset shown in the following table is 18.75 percent.
If the return distribution for the asset is described as below, what is the standard
deviation for the asset's returns?

Return Probability

0.1 0.25
0.2 0.5
0.25 0.25
a. 0.002969
b. 0.000613
c. 0.015195
d. 0.054486

QN=50 (4159) (20692) The risk-free rate of return is currently 3 percent, whereas the market risk
premium is 6 percent. If the beta of Lenz, Inc., stock is 1.8, then what is the expected
return on Lenz?
a. 8.40%
b. 10.80%
c. 13.80%
d. 19.20%
[id=3784, Mark=1]1. C
[id=3782, Mark=1]2. D
[id=3761, Mark=1]3. C
[id=3793, Mark=1]4. D
[id=3817, Mark=1]5. B
[id=3806, Mark=1]6. C
[id=3812, Mark=1]7. D
[id=3833, Mark=1]8. B
[id=3862, Mark=1]9. D
[id=3856, Mark=1]10. A
[id=3873, Mark=1]11. D
[id=3876, Mark=1]12. C
[id=3908, Mark=1]13. A
[id=3889, Mark=1]14. A
[id=3897, Mark=1]15. D
[id=3895, Mark=1]16. D
[id=3927, Mark=1]17. C
[id=3937, Mark=1]18. B
[id=3941, Mark=1]19. D
[id=3919, Mark=1]20. D
[id=3984, Mark=1]21. B
[id=3988, Mark=1]22. D
[id=3961, Mark=1]23. B
[id=3965, Mark=1]24. D
[id=3993, Mark=1]25. A
[id=4219, Mark=1]26. B
[id=4275, Mark=1]27. C
[id=4225, Mark=1]28. A
[id=4279, Mark=1]29. D
[id=4036, Mark=1]30. A
[id=4069, Mark=1]31. B
[id=4051, Mark=1]32. B
[id=4062, Mark=1]33. C
[id=4045, Mark=1]34. C
[id=4061, Mark=1]35. C
[id=4116, Mark=1]36. B
[id=4091, Mark=1]37. B
[id=4112, Mark=1]38. C
[id=4081, Mark=1]39. C
[id=4088, Mark=1]40. C
[id=4119, Mark=1]41. A
[id=4127, Mark=1]42. C
[id=4140, Mark=1]43. C
[id=4136, Mark=1]44. C
[id=4131, Mark=1]45. B
[id=4161, Mark=1]46. C
[id=4184, Mark=1]47. D
[id=4171, Mark=1]48. B
[id=4179, Mark=1]49. D
[id=4159, Mark=1]50. C