View the step-by-step solution to:


"1. As mergers, acquisitions, and restructuring have increased in importance, agency theory has become more important in assessing whether
a. a stock repurchase should be undertaken.
b. shareholder goals are truly being achieved by managers in the long run.
c. managers are actually agents or only employees of the firm.
d. managers and owners are actually the same people with the same interests. B

2. Insider trading occurs when
a. someone has information not available to the public which they use to profit from trading in stocks.
b. corporate officers buy stock in their company.
c. lawyers, investment bankers, and others buy common stock in companies represented by their firms.
d. any stock transactions occur in violation of the Federal Trade Commissions restrictions on monopolies. A

3. The major difficulty in most insider-trading cases has been
a. that lenient judges have simply released the guilty individuals.
b. that insider trading, even though illegal, actually serves a beneficial economic and financial purpose.
c. that inside trades have not been legally well defined.
d. inside trades actually have a beneficial effect on the wealth of all stockholders. C

4. Professor Merton Miller received the Nobel prize in economics for his work on
a. dividend policy.
b. investment theory.
c. working capital management.
d. capital structure theory.D

5. The residual income of the firm belongs to
a. creditors.
b. preferred stockholders.
c. common stockholders.
d. bondholders.

6. The best indication of the operational efficiency of management is
a. net income.
b. earnings per share.
c. earnings before interest and taxes (EBIT).
d. gross profit.

7. Which account represents the cumulative earnings of the firm since its formation, minus dividends paid?
a. Paid-in capital
b. Common stock
c. Retained earnings
d. Accumulated depreciation

8. A firm has $1,000,000 in its common stock account and $2,500,000 in its paid-in capital account. The firm issued 100,000 shares of common stock. What was the original issue price if only one stock issue has ever been sold?
a. $35 per share
b. $25 per share
c. $10 per share
d. Not enough information to tell

9. Asset utilization ratios
a. relate balance sheet assets to income statement sales.
b. measure how much cash is available for reinvestment into current assets.
c. are most important to stockholders.
d. measures the firm's ability to generate a profit on sales. B

10. Which of the following is a potential problem of utilizing ratio analysis?
a. trends and industry averages are historical in nature.
b. financial data may be distorted due to price-level changes.
c. firms within an industry may not use similar accounting methods.
d. all of the above

11. Replacement cost accounting (current cost method) will usually
a. increase assets, decrease net income before taxes, and lower the return on equity.
b. increase assets, increase net income before taxes, and increase the return on equity.
c. decrease assets, increase net income before taxes, and increase the return on equity.
d. None of the above apply. B

12. Income can be distorted by factors other than inflation. The most important causes of distortion for inter-industry comparisons are:
a. timing of revenue receipts and nonrecurring gains or losses.
b. tax write-off policy and use of different inventory methods.
c. All of the above
d. None of the above C

13. The percent-of-sales method of financial forecasting
a. is more detailed than a cash budget approach.
b. requires more time than a cash budget approach.
c. assumes that balance sheet accounts maintain a constant relationship to sales.
d. provides a month-to-month breakdown of data. C

14. In the percent-of-sales method
a. as the dividend payout ratio goes up, the required new funds also rise.
b. as the dividend payout ratio rises, required new funds decline.
c. the dividend payout ratio does not affect new funds.
d. None of the above A

15. In forecasting a firm's cash needs for some future period
a. the percent-of-sales method is a "broad-brush" approach. p101
b. cash budgets are more exact than the percent-of-sales method.
c. a cash budget approach can deal effectively with both level and seasonal production schedules.
d. all of the above C

16. When using the percent-of-sales method in forecasting funds needed, which of the following is not true?
a. As the dividend payout ratio decreases, the required new funds also increase.
b. Required new funds decrease as profits margins increase.
c. Required new funds increase as the dividend payout decreases.
d. As the tax rate increases, the required new funds increase.

17. Firm A employs a high degree of operating leverage; Firm B takes a more conservative approach. Which of the following comparative statements about firms A and B is true?
a. A has a lower break-even point than B, but A's profit grows faster after the break-even.
b. A has a higher break-even point than B, but A's profit grows slower after the break-even.
c. B has a lower break-even point than A, but A's profit grows faster after break-even.
d. B has a lower break-even point than A, and profit grows the same rate for both companies after the breakeven point. B

18. Firms with a high degree of operating leverage are
a. easily capable of surviving large changes in sales volume
b. usually trading off lower levels of risk for higher profits.
c. significantly affected by changes in interest rates.
d. trading off higher fixed costs for lower per-unit variable costs.

19. If EBIT equals $160,000 and interest equals $30,000, what is the degree of financial leverage?
a. 5.33x
b. 1.23x
c. .8125x
d. 4.33x B

20. Financial leverage is concerned with the relation between
a. changes in volume and changes in EPS.
b. changes in volume and changes in EBIT.
c. changes in EBIT and changes in EPS. Pg 124
d. changes in EBIT and changes in operating income. C
21. If the inflation premium for a bond goes up, the price of the bond
a. is unaffected.
b. goes down.
c. goes up.
d. need more information.B

22. If in determining the yield to maturity on a bond at a given interest rate, you get a value below the current market price, in the next calculation you should use
a. a higher interest rate.
b. a lower interest rate.
c. a longer maturity.
d. a higher coupon payment.A

23. Which of the following is not a condition under which a prudent manager would accept some risk in financing?
a. Predictable cash-flow patterns
b. Inventory is highly perishable
c. Price of inventory is stable
d. Easy access to capital marketsC

24. Risk exposure due to heavy short-term borrowing can be compensated for by
a. carrying highly liquid assets.
b. carrying illiquid assets.
c. carrying longer term, more profitable current assets.
d. carrying more receivables to increase cash flow. A

25. Companies that are mostly influenced by seasonal sales have to make a choice between
a. level production and inventory buildup.
b. seasonal production and an uneven workforce.
c. a stable workforce and a fluctuating workforce.
d. All of the above D

26. All of the following are benefits of just-in-time inventory ordering systems except
a. reduces warehouse space.
b. saves utility and manpower costs.
c. reduces inventory costs.
d. prevents stock outs.C

27. You will deposit $2,000 today. It will grow for 6 years at 10% interest compounded semiannually. You will then withdraw the funds annually over the next 4 years. The annual interest rate is 8%. Your annual withdrawal will be:
a. $2,340
b. $4,332
c. $797
d. $1,085

28. The shorter the length of time between a present value and its corresponding future value,
a. the lower the present value, relative to the future value.
b. the higher the present value, relative to the future value.
c. the higher the interest rate used in the present-valuation.
d. none of the above.

29. Analog Computers needs to borrow $800,000 from the Midland Bank. The bank requires a 15% compensating balance. How much money will Analog need to borrow in order to end up with $800,000 spendable cash?
a. $920,000
b. $1,058,264
c. $941,177
d. none of the above

30. If Analog computers can borrow at 9.5% for 3 years, what is the effective rate of interest on a $800,000 loan where a 15% compensating balance is required?
a. 11.18%
b. 17.27%
c. 9.50%
d. none of the above

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.


Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question