QRB 501 FINAL EXAM

QRB 501 FINAL EXAM 1. one disadvantage of the corporate form of business ownership is the: double taxation of profits 2. which one of the following statements is false? An aging schedule includes only overdue accounts 3. A firm has a debt-equity ratio of .64, a pretax cost of debt of 8.5 percent, and a required return on assets of 12.6 percent. What is the cost of equity if you ignore taxes? 15.22% 4. Which one of these statements is correct concerning the cash cycle? The longer the cash cycle, the more likely a firm will need external financing. 5. You plan to invest $6,500 for three years at 4 percent simple interest. What will your investment be worth at the end of the three years? $7,311.62 (OG) $7,280 (NEW) 6. Which one of the following statements about preferred stock is true? Preferred stock usually has a stated liquidating value of $100 per share 7. A firm has a total debt ratio of .47. This means the firm has 47 cents in debt for every: $1 in fixed assets (OG) $.53 in total equity (NEW) 8. The costs of avoiding a bankruptcy filing by a financially distressed firm are classified as ______ costs. Indirect bankruptcy 9. All else held constant, interest rate risk will increase when the time to maturity: Increases or the coupon rate decreases. 10. What is the present value of $6,811 to be received in one year if the discount rate is 6.5 percent? $7,253.72 (OG) $6,395.31 (NEW) 11. All else equal, the contribution margin must increase as: The variable cost per unit declines 12. The process of planning and managing a firm’s long-term assets is called: Capital budgeting 13. Book value: Is based on historical cost 14. The cash flow resulting from a firm’s ongoing, normal business activities is referred to as the: Operating cash flow 15. The underlying assumption of the dividend growth model is that a stock is worth: An amount computed as the next annual dividend divided by the required rate of return. (OG) The present value of the future income that the stock is expected to generate. (NEW) 16. Under the ____ method, the underwriter buys the securities for less than the offering price and accepts the risk of not selling the issue, while under the _____ method, the underwriter does not purchase the shares but merely acts as an agent. Firm commitment, best efforts 17. Futures contracts contrast with forward contracts by: Allowing the parties to negotiate the contract size 18. Lois is purchasing an annuity that will pay $5,000 annually for 20 years, with the first annuity payment made on the date of purchase. What is the value of the annuity on the purchase date given a discount rate of 7 percent? $52,970.07 (OG) $56,677.98 (NEW) 19. Which one of the following is an example of a nondiversifiable risk? A well-managed firm reduces its work force and automates several jobs (OG) A well-respected chairman of the Federal Reserve suddenly resigns (NEW) 20. An interest rate that is compounded monthly but is expressed as if the rate were compounded annually, is called the _____ rate. Compound interest (OG) Effective annual (NEW) 21. The market price of a bond increases when the: Discount rate decreases 22. The higher the inventory turnover, the: less time inventory items remain on the shelf 23. Which one of these is a correct definition? Current assets are assets with short lives, such as inventory. 24. Which term defines the tax rate that applies to the next dollar of taxable income earned? Marginal 25. An efficient capital market is one in which: security prices reflect all available information 26. Ratios that measure a firm’s ability to pay its bills over the short run without undue stress are known as: Liquidity measures 27. A project has an initial cost of $2.50. The cash inflows are $0, $500, $900, and $700 for years 1 to 4, respectively. What is the payback period? Never 28. The excess return you earn by moving from a relatively risk-free investment to a risky investment is called the: Time premium (OG) Risk Premium (NEW) 29. The primary goal of financial management is to: Maximize the current value per share of the existing stock 30. The discount rate that makes the net present value of an investment exactly equal to zero is called the: Internal rate of return