ALC EXAM 5 QUESTIONS & ANSWERS LATEST UPDATE

ALC EXAM 5 QUESTIONS & ANSWERS LATEST UPDATE 1. For both managers and external financial analysts, is the single most important accounting number found on the income statement. a. net income (net profit after tax) b. earnings before interest and taxes (EBIT) c. gross profit d. operating profit 2. When a firm has no "other income," its operating profit and blank are equal. a. net income b. net profit after taxes c. EPS d. EBIT 3. When evaluating financial ratios, analysts typically first examine a firm's ratio . a. compared to firms in other industries b. compared to the firm's previous years' ratios c. compared to regional averages d. compared to firms with similar net profit margins 4. ratios would provide the best information regarding total return to common stockholders. a. Profitability b. Activity c. Liquidity d. Debt 5. Which of the following is an inflow of cash to a corporation? a. Paying a cash dividend b. Increasing treasury stock c. Decreasing inventory d. Purchasing treasury bills 6. The key input required to build a cash budget is blank . a. the cash disbursements plan b. the strategic plan c. the firm's sales forecast d. the sustainable growth model 7. Which of the following is NOT a cash disbursement? a. rent and lease payments b. interest payments c. payments of accounts payable d. depreciation expenses 8. Most pro forma statements begin with a sales forecast. One approach to deriving a sales forecast is the top-down approach. Top-down sales forecasts rely heavily on blank . a. macroeconomic and industry forecasts b. customer input c. forecasts from the sales force d. Board of Directors input 9. A speedup in blank will a firm's financing needs; whereas, a slowdown in will a firm's financing needs. a. collections; decrease; payments; increase b. payments; increase; collections; decrease c. collections; increase; payments; decrease d. payments; increase; collections; increase 10. Most firms, when planning for growth, focus on blank . a. maintaining ROI over the firm's cost of capital b. maximizing Economic Value Added c. meeting asset target growth rates d. meeting sales target growth rates 11. Which of the following is not generally considered to be an advantage of term loans over publicly issued bonds? a. Lower flotation (issuance) costs. b. Speed, or how long it takes to bring the issue to market. c. Liquidity, or how easily investors can trade them in the secondary markets. d. Flexibility, or the ability to adjust the bond's terms after it has been issued. 12. Which of the following statements is false? a. Any bond sold outside the country of the borrower is called an international bond. b. Foreign bonds and Eurobonds are two important types of international bonds. c. Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold. d. The term Eurobond specifically applies to any foreign bonds denominated in U.S. currency. 13. Which of the following is NOT an example of a financial asset? a. convertible bond b. certificate of deposit c. preferred stock d. inventory 14. Which of the following is NOT a source of equity on a firm’s balance sheet? a. additional paid-in capital b. retained earnings c. common stock d. property, plant, and equipment 15. Bond ratings of blank and higher are considered to be investment grade bonds. a. AAA b. AA c. A d. BBB 16. Which of the following statements is most correct? Other things held constant, . a. The "liquidity preference theory" would generally lead to an upward sloping yield curve. b. The "market segmentation theory" would generally lead to an upward sloping yield curve. c. The "expectations theory" would generally lead to an upward sloping yield curve. d. The yield curve under "normal" conditions should be horizontal (i.e., flat.). 17. Your uncle would like to restrict his interest rate risk and his default risk, but he still would like to invest in corporate bonds. Which of the possible bonds listed below best satisfies your uncle's criteria? a. AA bond with 10 years to maturity. b. BBB perpetual bond. c. BBB bond with 10 years to maturity. d. AAA bond with 5 years to maturity. 18. Which of the following is not one of the fundamental factors that affect the cost of money? a. Production opportunities b. Time preferences for consumption c. Exchange rates d. Risk 1. Which of the following assets is the most liquid? a. Stock b. Treasury bills c. Corporate bonds d. Cash 2. The premium is compensation for the possibility that the borrower will not be able to pay the debt’s interest and principal on time. a. inflation risk b. maturity risk c. liquidity risk d. default risk 3. Which of the following statements is correct? a. Large costs occur at the end of nuclear power plants' lives because these plants have to be closed down, and shutdown costs are high due to the difficulty of handling radioactive materials. For this reason, it is possible that a nuclear plant project could have two IRRs. b. If the Federal Reserve Board lowered interest rates, this would, other things held constant, tend to favor short-term as opposed to long-term projects. c. For NPV versus IRR ranking conflicts to occur, the projects under consideration must have NPV profiles which cross one another. Crossing profiles can occur only if the two projects differ in the size of the required investment outlay. d. All of the above statements are false.