Chương 1

1. All of the following are stakeholders of a firm, except

a. Employees
b. Suppliers.
c. The government.
d.Stockholders.
2. Which of the following forms of business organization is subject to double
taxation?
a.A corporation.
b.A sole proprietorship.
c.A limited partnership.
d.A limited liability partnership (LLP).
3. Profit maximization is not an appropriate goal for a firm because
a. It is difficult to define.
b. All of these.
c.It does not directly account for a firm's cash flows.
d.It does not consider the timing and riskiness of the firm's cash flows.
4. Which one of the following is a capital structure decision?
a. determining how much inventory will be needed to support a project.
b. determining how much debt should be assumed to fund a project.
c.determining which one of two projects to accept.
d.determining how to allocate investment funds to multiple projects.
e. determining the amount of funds needed to finance customer purchases of a new
product.
5. Which one of the following business types is best suited to raising large
amounts of capital?
a. limited liability company
b. corporation
c.general partnership
d.limited partnership
e. sole proprietorship
6. A hybrid business organization is one that
a. Makes its owners personally liable for the firm's debts while providing them
with the benefit of no double taxation.
b. Has issued common stock as well as debt.
c.Combines limited liability benefits with no double taxation for its owners.
d.Is organized like a sole proprietorship but is taxed like a partnership.

7. Capital budgeting involves

a. Determining how much money should be invested in current assets.

b. Determining how a firm should finance or pay for its assets.

c.Determining which productive assets a firm should buy.
d.Making decisions about how much debt a firm should have in its capital
structure.
8. The main objective of a firm's management should be to
a. Minimize its risk exposure.
b. Maximize its stock price.
c.Maximize its profits.
d.Reduce its debt level.
9. Money markets are markets were
a. Short-term financial instruments are traded.
b. Stocks are sold for immediate delivery of cash.
c.Options and futures are traded.
d.Foreign currencies are traded.
10. Why should financial managers strive to maximize the current value per
share of the existing stock?
a. because they have been hired to represent the interests of the current
shareholders.
b. because this will increase the current dividends per share.
c.doing so increases employee salaries.
d.doing so guarantees the company will grow in size at the maximum possible rate.
e. because managers often receive shares of stock as part of their compensation.
11. Which one of the following is a capital budgeting decision
a. deciding whether or not to purchase a new machine for the production line.
b. determining how much money should be kept in the checking account.
c.determining how many shares of stock to issue.
d.deciding how to refinance a debt issue that is maturing.
e. determining how much inventory to keep on hand.
12. Which one of the following terms is defined as the management of a firm's
long-term investments?
a. agency cost analysis
b. capital structure
c.capital budgeting
d.working capital management
e. inancial allocation
13. Which of the following matters most to investors?
a.A firm's debt level.
b.A firm's assets.
c.A firm's cash flows.
d.A firm's profits.
14. The level of interest rates tends to ... during periods of economic expansion
and ... during periods of economic contractions.
a. Rise; stay the same.
b. Decline; rise.
c.Rise; decline.
d.Decline; stay the same.
15. Brokers
a. Bring buyers and sellers together usually for a commission.
b. “Make markets” for securities.
c.Buy and sell securities from their own inventory.
d.Bear the risk of loss from trading securities.
16.Which of the following statements does not apply to capital markets?
a. Allow investors to trade securities that typically have high liquidity.
b. Allow investors to trade securities that typically carry high default risk.
c.Allow investors to trade securities that typically have low denominations.
d.Allow investors to trade securities that are typically less marketable.
17. Within the finance function of a large organization, the executive who is
responsible for preparation of the financial statements is the
a. Chief financial officer (CFO).
b. Internal auditor.
c.Treasurer.
d.Controller.

18. Which one of the following is not true regarding the New York Stock
Exchange?
a. It has listing requirements.
b. It has membership requirements.
c.It is an organized market.
d.It has no central trading location.
19. Which one of the following is a working capital management decision ?
a. determining whether or not a project should be accepted.
b. determining whether to pay cash for a purchase or use the credit offered by the
supplier.
c.determining the number of shares of stock to issue to fund an acquisition.
d.determining the amount of equipment needed to complete a job.
e. determining the amount of long-term debt required to complete a project
20.Which of the following transactions is not a secondary market transaction?
a. Mary sells 100 bonds of IBM through her broker.
b.IBM buys back 100,000 shares on the NYSE.
c.Apple Computers sells $1,000,000 worth of bonds to AIG Corp.
d.Johnny Appleseed buys 1000 shares via his E-trade account.

21. A primary market is a market for

a. New securities that are sold by companies directly to investors.
b. Investors to sell stocks to each other.
c.Investment bankers who are not allowed to trade.
d.Companies to buy back their own previously issued shares.
22. If your investment increased 12% this year and inflation for that period
was 4%, what was your real rate of return?
a.12.0%
b.9.3%
 c.7.7%
d.8.0%
Chương 2

1. Treasury stock represents stock that

a. Is being held to purchase treasury securities.
b. The firm has purchased back from investors.
c.The firm has sold to the U.S. Treasury Department.
d.None of these.
2. If Toronto Motors Had an EBIT of $22.5M, interest of $7M and is taxed at an
average rate of 32% what is their Net Income?
a.$10.5M
b.$5.0M
c.$8.3M
d.$15.5M
3. The Wexler Corp. had the following for the past fiscal year: Net Income
$17,000, EBIT $32,000, Taxes $6,000, Changes in working capital $7,000
increase, Depreciation $11,000. What is Wexler Corporation's Cash Flow to
Investors from Operating Activity?
a.$27,000
b.$21,000
c.$35,000
d.$37,000

4. Munin Manufacturing has the following amounts on their 12/31/10 Balance

sheet: Cash $125, Other current assets $331, Property, plant & Equipment, net
of depreciation $448, Current liabilities $270, Total Liabilities $420. What was
Munin Manufacturing's Net Working Capital on 12/31/10?
a.$186.0.
b.$359.
c.$61.
d.$214.
5. The income statement is
a. Like a financial snapshot of a firm's expenses and revenues at a point in time.
b. None of these
c.Like a video recording of a firm's revenues and expenses during a period of time.
d.A summary of the firm's cash expenses and sales.
6. Munin Manufacturing has the following amounts on their 12/31/10 Balance
sheet: Cash $125; Other current assets $331, Property, plant & Equipment, net
of depreciation $448, Current liabilities $270, Total Liabilities $420. What was
Munin Manufacturing's Equity on 12/31/2010?
a.$359
b.$214
c.None of these
d.$484
7. Which of the following is not a section of the Statement of Cash Flows?
a. Cash Flow from Financing Activities.
b. Cash Flow from Operations.
c.Cash Reconciliation.
d.Cash Budget.
8. Accounting statements are:
a. Based on historical data.
b. Based on inflation-adjusted data.
c.None of these.
d.Based on current cost data.
9. Hadlock Industries has the following amounts for the year ending 6/30/2011:
Increase in inventories $28, Purchased treasury stock $17, Purchased Property
and equipment $18, Net income $330; Decrease in accrued income taxes $42,
Depreciation and amortization $112; Decrease in accounts payable $10;
Increase in accounts receivable $26; Increase in Long-term debt $100. What
was Hadlock Industries' Cash Flow from Investing for the year ending
6/30/2011?
a.-$18
b.-$17
c.-$35
d.-$135
10. Net working capital is a measure of a firm's
a. Creditability.
b. Solvency.
c.Leverage.
d.Liquidity.

11. Net cash flow

a. Is the difference between a firm's total expenses and total revenues.
b. Is the same as a firm's net income.
c.Is the difference between a firm's operating cash flow and its financing cash flow.
d.Is the difference between a firm's actual cash receipts and cash payments in a
given period.

12. Hadlock Industries has the following amounts for the year ending
6/30/2011: Increase in inventories $28, Purchased treasury stock $17, Purchased
Property and equipment $18; Net income $330, Decrease in accrued income
taxes $42, Depreciation and amortization $112, Decrease in accounts payable
$10, Increase in accounts receivable $26, Increase in Long-term debt $100.
What was Hadlock Industries' Cash Flow from Financing for the year ending
6/30/2011?
a.$65
b.-$117
 c.-$17
d.$83
13. The average tax rate is
a. Calculated by dividing the total taxes paid by the taxable income.
b. The tax rate that is paid on the last dollar of income earned.
c.Always higher than the marginal tax rate.
d.None of these.
Chương 3
1. Kelvy & Sons has a current ratio of 1.2, current assets of $508,315, and
inventory of $98,666. What is the firm's quick ratio?
a. None of these
b.0.97
c.0.67
d.0.81
2. Which of the following is not a category of financial ratios?
a. Liquidity ratios.
b. Market value ratios.
c.Efficiency ratios.
d.Productivity ratios.

3. The most useful way to prepare a common size income statement is to express
each account item as a percentage of
a.Net sales.
b. Total assets.
cTotal debt.
d.Total income.
4. Contrary Computer Corp. has reported that its net income for 2010 is
$2,700,000. The firm has 600,000 shares outstanding and a P-E ratio of 15.8 times.
What is the firm's share price?
a.$22.68
b.$49.50
c.$71.10
d.$4.50
5. ReelTime Video has reported a total asset turnover of 2.3 times and an ROA of
17% and ROE of 25%. What is the firm's net profit margin?
a.10.9%.
b.9.2%.
c.39.1%.
d.7.4%.

6. The Du Pont system identifies all of the following areas where a firm's
management should focus its efforts in order to maximize the firm's ROE, except
a. How efficient management is in using the firm's assets.
b. How much profit management can earn on sales.
c.How much financial leverage is management using in its capital structure?
d.How liquid are the assets at management's disposal?

7. To create a common size balance sheet, we divide each of the asset, liability, and
equity account items by
a. Sales.
b. Cost of goods sold.
c.Total debt.
d.Total assets.

8. Which of the following aspects about a company's health does the current ratio
measure?
a. Short-term solvency.
b. Leverage.
c.Profitability.
d.Efficiency.
9. Which of the following statements is not true regarding common-size financial
statements?
a. In a common size cash flow statement each item is divided by the cash balance.
b. Common size financial statements are useful in comparing different sized firms.
c.In a common size balance sheet, each item is divided by total assets.
d.A common size income statement is one in which each item is divided by net sales.

10. What will be a firm's equity multiplier given a debt ratio of 0.65?
a.1.53
b.2.28
c.None of these
d.2.85
11.The Du Pont equation is
a.An assessment tool.
b.A diagnostic tool.
c.Both a diagnostic tool and an assessment tool.
d.A valuation tool.
12. Which one of the following is not an efficiency ratio?
a. Fixed asset turnover.
b. Days sales outstanding.
c.Price-earnings ratio
d.Inventory turnover ratio.
13. Sawaya Company had depreciation and amortization expenses of $522,311,
interest expenses of $114,077, and an EBITDA of $1,521,087 for the year ended
June 30, 2010. What is the Times Interest Earned for this company?
a. None of these
b.8.8 times
c.0.6 times
d.13.3 times

14. Jet, Inc., has net sales of $326,352, accounts receivables of $98,765, and
inventory of $72,989. What is the firm's accounts receivables turnover?
a.4.4 times
b.3.3 times
c.0.3 times
d.None of these
15. Which of the following ratios is an indicator of market value ?
a. Total asset turnover ratio.
b. Return on Equity.
c.Price-earnings ratio.
d.Quick ratio.

Chương 5
1.The amount of interest earned on the original principal amount is known as
a. Continuous interest
b. Simple interest
c.Interest on interest
d.Compound interest
2.If you want to have $15,000 in 3 years, how much do you need to put in a
savings account today that pays 5% compounded annually?
a.$12,939.13
b.$12,957.56
c.$17,364.38
d.$12,750.00
3. If you invested $1000 for 5 years and your return was 12%, how much interest
on interest did you earn?
a.$762.34
b.$162.34
c.$600.00
d.$120.00
4. Which one of the following processes do we use when calculating the price of an
asset?
a. Amortizing.
b. Averaging.
c.Discounting.
d.Compounding.
5.If you can invest $10,000 at a 7% annual rate, compounded monthly, how long
will it take to have $13,050 ?
a.16 months
b.19 months
c.46 months
d.52 months
6.Using the “Rule of 72”, about how long will it take to double your money if you
can expect to earn 8% per year?
a.15 years
b.9 years

c.8 years
d.12 years
7.If you put $8,000 in a savings account today, how much will it grow to in 3 years
if the bank pays 6% annual interest compounded continuously?
a.$9,528.12
b.$9,577.74
c.$9,440.00
d.$8,494.69
8.Which of the following statements is true?
a. The compound factor, FVIF = [1/(1+i)n] .
b. The compound factor cannot be less than 1.
c.The compound factor increases as the interest rate increases.
d.The compound factor decreases as the number of periods increases.
9.Under which of the following discounting methods will the present value of an
investment be the highest, assuming the same annual interest rate ?
a. Yearly.
b. Continuous.
c.Quarterly.
d.Monthly.
10.The future value of $1000 invested at a 7% annual rate, compounded quarterly
for 3 years is :
a.$949.29
b.$1,231.44
c.$2,252.19
d.$1,053.42
11.Which of the following is a similar concept to the compound growth rate of
money?
a. All of these.
b. The yield on a bond.
c.The internal rate of return on an investment.
d.The discount rate on a capital budgeting project.
12.A company issues zero coupon bonds which mature in 30 years. These bonds
can be bought for $99.38 and then pay no annual interest payments, only $1000 at
maturity. What is the annual percentage cost of these bonds to the issuing
company?
a.12%
b.17%
c.30%
d.8%
13.Total compound interest is the:
a. Sum of the principal and the simple interest.
b. Sum of the principal and the interest on interest.
c.Sum of the simple interest and the interest on interest.

d.Difference between the future value and the simple interest.

14.Which of the following situations will result in an increase in the future value
of an investment?
a. An increase in the length of the holding period.
b.A decrease in the frequency with which interest is being compounded.
c.A decrease in the rate of interest.
d.None of these
15.The U.S. population was 309M in 2010 and is expected to grow to 392M in
2050. What annual growth rate is implied by these numbers?
a.0.6%
b.2%
c.3%
d.6%
16.Which of the following statements is not true?
a.The present value factor is also known as the discount factor.
b.The present value factor is the reciprocal of the future value factor.
c.The present value factor can be greater than 1.
d.The present value factor decreases as the interest rate increases.
Chương 6

1. You are invited to participate in a new company. The company is projected to

pay out $5,000 in the first year, and after that the payouts will grow by an annual
rate of 3 percent forever. If you can invest the cash flows at 7 percent, how much
will you be willing to pay for this perpetuity? (Round to the nearest dollar.)
a.$71,429
b.$15,000
c.$125,000
d.$166,667
2. You are purchasing a used car and will make 5 annual payments of $3,500
starting one year from today. If your funds could be invested at 9%, what is the
present value of the car (Round to the nearest dollar) ?
a.$14,839
b.$17,500
c.$13,614
d.$20,946
3 The EAR will equal the APR if interest is compounded.
a. Annually.
b. Daily.
c.Monthly.
d.Quarterly.
4. Which of the following interest rates is annualized using simple interest?
a. The adjusted interest rate (AIR).
b. The discounted interest rate (DIR).
c.The effective annual rate (EAR)
d.The annual percentage rate (APR).

5.A modern day example of a perpetuity is a

a. Share of common stock.
b. Share of preferred stock.
c.Corporate bond.
d.Treasury bond.
6.Which of the following is not a typical way in which interest rates are quoted in
the marketplace?
a.APR
b. The quoted interest rate
c.EAR.
d.Discounted interest.

7.You have received a share of preferred stock that pays an annual dividend of $5.
Similar preferred stock issues are yielding 7.5%. What is the value of this share of
preferred stock?
a.$6.67
b.$15.00
c.$66.67
d.$1.50
8. To prepare a loan amortization schedule, we must first compute the
a. Total amount of all the payments.
b. Amount of interest that would be paid each period.
c.Amount of each payment.
d.The total amount of interest that would be paid over the life of the loan.
9.Which of the following equations is correct?
a. Annuity due value = Ordinary annuity value + (1+i).
b. Annuity due value = Ordinary annuity value / (1+i).
c.Annuity due value = Ordinary annuity value /i.
d.Annuity due value = Ordinary annuity value * (1+i).

10.A consol issued by the British government to finance the Napoleonic Wars is an
example of
a.A perpetuity
b.A growing annuity.
c.None of these.
d.An annuity.
11.What is the value of this 20-year lease? The first payment, due one year from
today is $2,000 and each annual payment will increase by 4%. The discount rate
used to evaluate similar leases is 9%. (Round to the nearest dollar.)
a.$39,856
b.$68,000
c.$24,361
d.$40,000
12.The Truth-in-Lending Act requires lenders to disclose the
a. Compound interest rate.
b.EAR.
c.APR.
d.Discount interest rate.
13.Which of the following statements is not true about a typical loan amortization
schedule?
a. The amount of interest paid each period remains constant.
b. The amount of money paid towards reducing the loan balance increases over time.
c.The amount of each payment remains constant.
d.The amount of interest paid each period decreases over time.

14.The future value of an annuity is typically used when analyzing

a. Loan amortiation schedules.
b. Retirement plans.
c.The price of common stock.
d.Alternative capital budgeting proposals.
15.Which of the following interest rates will result in the highest amount of
interest being charged?
a.7.5% per year, compounded quarterly.
b.7.8% per year, compounded daily.
c.8% per year, compounded annually.
d.7% per year, compounded daily.
16.Which of the following examples represents a growing annuity?
a. An inflation-adjusted 25-year lease
b.A consol.
c.A 30-year mortgage.
d.A share of preferred stock
17.The typical present value of an annuity formula assumes that
a. Cash flows occur at the beginning of each period.
b. Cash flows occur at the end of each period.
c.Cash flows are adjusted for inflation.
d.Cash flows occur randomly.