C214 Financial Management Overview Concept Quiz Answers

1. The goal of the corporation is to: a. Maximize profits b. Maximize market share c. Maximize stock price d. Minimize risk - correct answer c. Maximize stock price 2. Risk premium is best described as a. Return on risky securities b. Compensation for risk-taking c. Return on stocks d. Expected return on securities - correct answer b. Compensation for risk-taking 3. What is the relationship between risk and required return? a. The two are independent b. Higher required return causes lower risk c. Higher risk causes higher required return d. None of the above - correct answer c. Higher risk causes higher required return 4. The value of money depends upon a. The timing of the receipt b. The certainty of receipt c. The size of the receipt d. All of the above - correct answer d. All of the above 5. What is the purpose of the SEC 10-K filing requirement? a. Promote transparency and efficiency b. Prevent insider trading c. Regulate sales practices d. Prevent monopolies - correct answer a. Promote transparency and efficiency 6. Which line item is not part of net working capital? a. Inventory b. Bonds c. Accounts Payable d. Accrued expenses - correct answer b. Bonds 7. Which action causes a cash outflow? a. Increase in accounts payable b. Decrease in accounts receivable c. Increase in inventory d. None of the above - correct answer c. Increase in inventory 8. Which of the following is correct? a. Gross PPE equals Net PPE plus depreciation expense b. Gross PPE equals Net PPE plus accumulated depreciation c. Net PPE equals Gross PPE plus depreciation expense d. None of the above - correct answer c. Net PPE equals Gross PPE plus depreciation expense 9. Net Margin is defined as: a. Net Income divided by sales b. EBIT divided by sales c. Dividends divided by net income d. Retained earnings divided by sales. - correct answer a. Net Income divided by sales 10. Which item is added to the balance sheet? a. Depreciation expense b. Dividends paid c. Addition to retained earnings d. Both a and c - correct answer d. Both a and c 11. What item is added to net income to calculate net cash flow? a. Taxes b. Depreciation expense c. Dividends paid d. None of the above - correct answer b. Depreciation expense 12. Which represents cash earned by producing and selling the product a. Cash flow operations b. Cash flow financing c. Cash flow investing d. None of the above - correct answer a. Cash flow operations 13. Which ratio reflects a firm's reliance on debt financing? a. Quick ratio b. Net Margin c. Financial leverage d. Asset turnover - correct answer c. Financial leverage 14. If two firms use different inventory valuation methods, it is called: a. Timing issue b. Seasonal effect c. Cross industry effect d. Accounting difference - correct answer d. Accounting difference 15. What affects the required return on a security? a. Perceived riskiness of the security b. Degree of investor risk aversion c. Trading in financial markets d. All of the above - correct answer d. All of the above 16. Which is the most frequent type of transaction in financial markets? a. IPO's b. Secondary market trades c. Primary market trades d. Venture capitalist trades - correct answer b. Secondary market trades 17. Which of the 5 white financial function keys represents a series of cash disbursements? a. N b. PV c. I/Y d. PMT - correct answer d. PMT 18. If payments are made semi-annually, which key inputs must be adjusted? a. PMT b. I/Y c. N d. All of the above - correct answer d. All of the above 19. Which can be defined as "change in value of cash over time"? a. Interest rate b. Yield c. Expected return d. All of the above - correct answer d. All of the above 20. Which signifies a need to change the calculator to Begin mode? a. Cash deposited at the beginning of the year b. Recurring payments made at the beginning of each year c. Payments are made more frequently than annually d. None of the above - correct answer b. Recurring payments made at the beginning of each year 21. Why is an annuity due more valuable than an ordinary annuity? a. Payments are received earlier b. Interest is compounded c. It is not more valuable; they are the same d. Use different interest rates. - correct answer a. Payments are received earlier 23. Which annuity provides increasing payments over time? a. Annuity Due b. Ordinary Annuity c. Perpetual Annuity d. Perpetual Growth Annuity - correct answer d. Perpetual Growth Annuity 24. What causes uncertainty in financial decisions? a. GAAP changes b. Erroneous future projections c. Computer error d. Both b and c - correct answer b. Erroneous future projections 25. An increase in net working causes a. A cash inflow b. A cash outflow c. Does not affect cash flow d. Depends upon accrual accounting - correct answer b. A cash outflow 26. What feature distinguishes bonds from stock? a. Price determined in market trading b. Required cash payments to investors c. Mandatory redemption date d. Both b and c - correct answer d. Both b and c 27. Which bond feature is not a legal obligation? a. Face value b. Price c. Maturity Date d. Coupon Rate - correct answer b. Price 28. Yield on a bond can best be described as: a. Interest received by the investor b. The coupon rate c. Rate of increase in value of investment d. Cash return to the investor - correct answer c. Rate of increase in value of investment 29. When is the bond yield equal to the coupon rate? a. At premium price b. At par price c. At discount price d. Never - correct answer b. At par price 30. For a semi-annual pay bond, which inputs must be adjusted? a. N and I/Y b. N and PMT c. N, I/Y, and PMT d. PV and FV - correct answer c. N, I/Y, and PMT 31. Which describes the relationship between price and yield a. Both change in the same direction b. Price increases cause yield decreases c. The two are independent d. Indenture sets yield; trading sets price - correct answer b. Price increases cause yield decreases