D076 Unit 2 Practice Questions

A company is trying to finance a project with a mortgage loan from a bank. The company's assessment of the project indicates that the company may experience several years of loss until the project becomes profitable. This means that the company might lose its ability to pay back the loan and the interest on the mortgage. What action might the bank take to protect its interest? -Let the company manipulate accounting procedures. -Set a strict covenant that the company cannot easily achieve. -Push the company to pay dividends to the shareholders. -Let the company take the mortgage loan because of its long partnership with the bank. - B A financial manager at a company is trying to determine whether to issue new stocks or new bonds to cover the costs of a project the company is doing the next year. Which main task in business finance is this situation an example of? -Making investment decisions -Making financing decisions -Managing interdepartmental loans -Managing working capital - B A large corporation is looking to merge with another large corporation. Which financial institution can help them do this? -Investment bank -Private equity institution -Pension fund -Central bank - A A local start-up company just hit its five-year anniversary and is planning an initial public offering sometime this year. In order to issue public stock, which market will the company use? -Dealer market -Primary market -Secondary market -Futures and options market - B A sign company is planning to have an initial public offering (IPO). In which type of market will its stock first be sold to the public? -Money market -Secondary market -Primary market -Efficient market - C About a year ago, the short-term Treasury bill had 1.54% interest and the long-term Treasury note had 2.54% interest. This week, the 1-year Treasury bill has an interest rate of 3.13%, while the 10-year Treasury note has an interest rate of 2.28%. What does this information indicate about the future economy? -It may indicate an economic downturn. -It may indicate a decreasing unemployment rate along with higher wages. -It may indicate that the economy is in a steady state. -It may reflect an expectation that the economy will grow in the future along with higher inflation. - A Endothon Company has decided to move its production from the United States to a foreign country. Which situation below would constitute an unethical action by the company? -Monitoring public perception of the company -Telling current employees about the decision early on -Lowering costs while keeping prices the same for customers -Saving money by paying inadequate wages to workers overseas - D