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finance exam Week 4

1. A corporation sold a fixed asset for $100,000. This isA. an investment cash flow and a source of funds.B. an operating cash flow and a source of funds.C. an operating cash flow and a use of funds.D. an investment cash flow and a use of funds.2. A proxy statement isA. a statement giving the votes of a stockholder to the CEOB. a statement giving the votes of a stockholder to the board of directorC. a statement giving the votes of a stockholder to another partyD. None of the above.3. The theory suggesting that for any given issuer, long-term interest rates tends to be higherthanshort-term rates is calledA.expectation hypothesisB. liquidity preference theoryC. Market segmentation theoryD. None of the Above4.The present value of an ordinary annuity of $350 each year for five years, assuming anopportunity cost of 4 percent, isA. $288 B. $1,896 C. $1,750 D.$1,5585.Typically the long-term capital source that is the least expensive isA. Common stock B. Current (short-term) debt C. Long-term debt D. Preferred stock6. How much is a bond with a face value of $1,000 that matures in 3 years and pays 12%annually worth? (pick the best answer)$867$1,000$823$9527.________ yield curve reflects higher expected future rates of interest.An upward­slopingA flatA downward­slopingA linear•8. The key participants in financial transactions are individuals, businesses, andgovernments. Individuals are net ________ of funds, and businesses are net ________ offunds.demanders; suppliersusers; providerssuppliers; demanders•purchasers; sellers9.The ________ are sometimes referred to as the residual owners of the corporation.preferred stockholdersunsecured creditorscommon stockholderssecured creditors••10. A firm has an outstanding issue of 1,000 shares of preferred stock with a $100 parvalue and an 8 percent annual dividend. The firm also has 5,000 shares of common stockoutstanding. If the stock is cumulative and the board of directors has passed the preferreddividend for the prior two years, how much must the preferred stockholders be paid priorto paying dividends to common stockholders?$ 8,000$16,000$24,000$25,000•11. What is the highest effective rate attainable with a 12 percent nominal rate?12.00%12.55%12.75%•12.95%12. Colin would like to send her parents on a cruise for their 25th wedding anniversary.She has priced the cruise at $15,000 and she has 5 years to accumulate this money. Howmuch must Janice deposit annually in an account paying 10 percent interest in order tohave enough money to send her parents on the cruise?$1,862$2,457$3,000$2,234•13.Which of the following is a career opportunity in managerial finance?Investment.Real Estate and Insurance.Capital Expenditures Get research paper samples and course-specific study resources under   homework for you course hero writing service – Manage ment.Personal Financial Planning.•14.The ________ represents a summary statement of the firm’s financial position at agiven point in time.income statementbalance sheetstatement of cash flowsstatement of retained earnings•15. Gross profits are defined asoperating profits minus depreciation.operating profits minus cost of goods sold.sales revenue minus operating expenses.•sales revenue minus cost of goods sold.16. When preparing a statement of cash flows, retained earnings adjustments are requiredso that which of the following are separated on the statement?Revenue and cost.Assets and liabilities.Depreciation and purchases.Net profits and dividends.•17. The legal contract setting forth the terms and provisions of a corporate bond is a(n)indenturedebentureloan documentpromissory note18. Most businesses raise money by selling their securities in apublic offering.private placement.direct placement.stock exchange19._____________ is the rate of return companies must earn on investments to support themarket value of its stock.Internal rate of returnCost of capitalNet present valueGross profit margin20. Stock represents __________ and bonds represent ____________.debt; equityretained earnings; debtequity; debtequity; current liabilities• 21. An ADR isa claim issued by a U.S. bank representing ownership of shares of a foreigncompany’s stock held on deposit by the U.S. bank and is issued in dollars to U.S.investorsa claim issued by a foreign bank representing ownership of shares of a foreigncompany’s stock held on deposit by the foreign bank and is issued in dollars toU.S. investorsa claim issued by a U.S. bank representing ownership of shares of a U.S.company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S.investorsNone of the above.•22. Allocation of the historic costs of fixed assets against the annual revenue theygenerate is callednet profits.gross profits.depreciation.amortizationA.23.is an expense that is a legal obligation of the firm.Labor expenseInterest expenseSalaries expense•Rent expense24. Nico Nelson, a management trainee at a large New York-based bank is trying toestimate the real rate of return expected by investors. He notes that the 3-month T-billcurrently yields 3 percent and has decided to use the consumer price index as a proxy forexpected inflation. What is the estimated real rate of interest if the CPI is currently 2percent?5%1%3%•2%25. One of the most influential documents issued by a publicly-held corporation is theletter to stockholders.annual report.cash flow statement.income statement.•26. ________ is concerned with the duties of the financial manager in the business firm.Financial ServicesFinancial Get research paper samples and course-specific study resources under   homework for you course hero writing service – Manage r Get research paper samples and course-specific study resources under   homework for you course hero writing service – Manage rial FinanceNone of the above••27. The treasurer is commonly responsible fortaxes.data processing.making capital expenditures.cost accounting•28. Bond prices and interest rates are:Directly relatedUnrelatedConversely relatedInversely related•29. The cost of long-term debt generally ________ that of short-term debt.is less thanis equal tois greater than•has no relation to30. A downward-sloping yield curve that indicates generally cheaper long-termborrowing costs than short-term borrowing costs is callednormal yield curveinverted yield curveflat yield curveNone of the above•31. Preferred stockholdersdo not have preference over common stockholders in the case of liquidationdo have preference over bondholders in the case of liquidationdo not have preference over bondholders in the case of liquidationTwo of the above are true statement•32. The ________ rate of interest is typically the required rate of return on a three-monthU.S. Treasury bill.nominalrealrisk-freePremium•33. The ________ is/are a graphic depiction of the term structure of interest rates.yield curvesupply and demand functionsrisk-return profileaggregate demand curve••34. How much would Sophie have in her account at the end of 10 years if she deposit$2,000 into the account today if she earned 8 percent interest and interest is compoundedcontinuously?$4,317$4,444$4,451A.35.Cash flows associated with the purchase and sale of fixed assetsand business interests are calledoperating flows.investment flows.financing flows.none of the above•36. What is the nominal rate of return on an IBM bond if the real rate of interest is 3percent, the inflation risk premium is 2 percent, the U.S. T-bill rate is 5 percent, thematurity risk premium on the IBM bond is 3 percent, the default risk premium on theIBM bond is 2 percent, and the liquidity risk premium on the bond is 1 percent?16%13%11%9•37. The Glass-Steagall Actallowed commercial and investment banks to engage in the same activities.created the Securities Exchange Commission.created the Federal Deposit Insurance program and separated the activities ofcommercial and investment banks.was intended to regulate the activities in the primary market.A.38.The ________ provides a financial summary of the firm’soperating results during a specified period.income statementbalance sheetstatement of cash flowsstatement of retained earnings•39. A corporationmust use the same depreciation method for tax and financial reporting purposes.must use different depreciation methods for tax and financial reporting purposes.may use different depreciation methods for tax and financial reporting purposes.must use different (than for tax purposes), but strictly mandated, depreciationmethods for financial reporting purposes.•40. The financial manager must determine ______________ to apply the Gordon growthmodelA growth rateA required returnThe next period’s dividendAll of the above•41. The Modified Accelerated Cost Recovery System (MACRS) is a depreciation methodused for ________ purposes.taxfinancial reportingmanagerialcost accounting•42. The officer responsible for the firm’s financial activities such as financial planningand fund raising, making capital expenditure decisions, and managing cash, credit, thepension fund, and foreign exchange istreasurer.controller.foreign exchange manager.None of the Above.•43. Which of the following serve as intermediaries channeling the savings of individuals,businesses and governments into loans and investments?Financial InstitutionsFinancial MarketsSecurities ExchangesOTC market•44. Which of the following provide savers with a secure place to invest funds and offerboth individuals and companies loans to finance investments?Investment BanksSecurities ExchangesMutual FundsCommercial Banks•45. Given the financial manager’s preference for faster receipt of cash flows,a longer depreciable life is preferred to a shorter one.a shorter depreciable life is preferred to a longer one.the manager is not concerned with depreciable lives, because depreciation is anon-cash expense.the manager is not concerned with depreciable lives, because once purchased,depreciation is considered a sunk cost.•46. Bonds sell at a __________ when the required return is greater than the coupon rate.para discounta premiumthe par value divided by expected return plus the coupon rate•47. Finance can be defined asthe system of debits and credits.the science of the production, distribution, and consumption of wealth.the art and science of managing money.the art of merchandising products and services.•48. The sale of a new security directly to an investor or a group of investors is calledthe secondary marketthe primary marketthe capital marketthe private placement market•49. The statement of cash flows provides a summary of the firm’scash flows from operating activities.cash inflows from financing activities.cash flows from investment activities.all of the above.•50. The net value of fixed assets is also called itsmarket value.par value.book value.price.

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