1 The best definition of capital structure is:
Multiple Choice
How a firm is financed through different proportions of debt and equity.
The possibility of conflicts between shareholders and management in a large corporation.
A venue where buyers and sellers of capital equipment come together to trade such assets.
A venue where long-term debt and equity securities are bought and sold.
The process of planning and managing a firm's long-term investments.
2 Double taxation refers to which of the following scenarios?
Multiple Choice
The corporation pays taxes on earnings, and creditors pay taxes on interest received.
Both bondholders and shareholders must pay taxes.
The corporation pays taxes on its earnings, and shareholders pay taxes on dividends.
The corporation pays taxes on revenues and expenses.
The corporation pays taxes on revenues and earnings.
3 The best definition of REIT is:
Multiple Choice
Financial markets where foreign currency is exchanged for real estate.
A company that owns or finances income-producing real estate.
Financial markets where long-term debt and equity securities are bought and sold.
Financial markets where long-term debt securities are bought and sold.
Financial markets where short-term debt securities are bought and sold.
4 Which of the following statements is false concerning limited partnerships?
Multiple Choice
Limited partnerships have limited liability (to the extent of their investment).
Limited partnerships can bring in more partners.
In a limited partnership, all partners share is limited to the amount contributed to the partnership.
Limited partners generally do not manage the partnership.
Limited partners are responsible for all debts of the partnership.
5 Which of the following statement is correct regarding control of the firm?
Multiple Choice
Control of the firm rests with government agencies and regulatory bodies working in unison with the board of directors.
Control of the firm rests with regulatory bodies working in unison with executives.
Control of the firm ultimately rests with shareholders. They elect the board of directors, who then hire and fire managemen
Control of the firm ultimately rests with board of directors. They elect the management, who lead the company.
Control of the firm rests with the executives that oversea the strategic planning.
6 Which of the following is not a capital budgeting decision?
Multiple Choice
The risk associated with the expected cash inflows.
The amount of cash flows which will be required or obtained.
The timing of all cash inflows and outflows.
The amount of debt versus the amount of equity which should be obtained.
The currency and exchange rates of cash inflows and outflows.
7 The best definition of capital markets is:
Multiple Choice
A venue where long-term debt and equity securities are bought and sold.
The possibility of conflicts between shareholders and management in a large corporation.
The process of planning and managing a firm's long-term investments.
The purchase or sale of securities whose value derives from the price of another, underlying, asset.
A venue where buyers and sellers of capital equipment come together to trade such assets.
8 NASDAQ is:
Multiple Choice
Both an OTC and an auction market.
The largest financial market in the U.S. in terms of the total value of listed stocks.
A market with far fewer listings than the NYSE.
An electronic market which has no physical location.
An electronic market trading solely in corporate and government bonds.
9 The best definition of agency problem is:
Multiple Choice
The purchase or sale of securities whose value derives from the price of another, underlying, asset.
Determining who should be the agent of corporate executives.
The possibility of conflicts between shareholders and management in a large corporation.
Determining the optimal mix of internal and external board of directors.
The process of planning and managing a firm's long-term investments.
10 Which one of the following actions by a financial manager creates an agency problem?
Multiple Choice
Refusing to lower selling prices if doing so will reduce the net profits.
Increasing current costs to increase the market value of the stockholders' equity.
Refusing to borrow money when doing so will create losses for the firm.
Agreeing to expand the company at the expense of stockholders' value.
Agreeing to pay bonuses based on the market value of the company stock.
11 An Alberta resident earned $40,000 in interest income and $60,000 in eligible dividends. Calculate the total tax paid.
Combined marginal tax rates for individuals in top provincial tax brackets
Provinces/Territories Interest andCapital
RegularGains
Income
Eligible
(%) (%)
Dividends
Non-eligible
(%) Dividends (%)
British Columbia 45.8 22.9 28.68 37.98
Alberta 39 19.5 19.29 29.36
Saskatchewan 44 22 24.81 34.91
Manitoba 46.4 23.2 32.27 40.77
Ontario 49.53 24.77 33.82 40.13
Quebec 49.97 24.99 35.22 39.79
New Brunswick 46.84 23.42 27.35 36.02
Nova Scotia 50 25 36.06 39.07
Prince Edward Island 47.37 23.69 28.71 38.74
Newfoundland and Labrador 42.3 21.15 30.2 32.08
Multiple Choice
$29,125
$26,204
$26,895
$27,174
$28,975
12 All else constant, the cash flow to stockholders:
Multiple Choice
Remains unchanged when the firm repurchases shares of outstanding stock.
Increases when the dividends per share are increased.
Increases as the common stock account balance increases.
Increases when the cash flow from assets decreases.
Increases when a firm increases its degree of financial leverage.
If total assets = $550, fixed assets = $375, current liabilities = $140, equity = $265, long-term debt = $145, and current asse
Multiple Choice
$265
-$265
$230
$35
$190
13 How will differentiating sources and uses of cash from past projects assist the manager in future projects?
Multiple Choice
Estimating stock price.
Better predicting cash flows.
Perfectly timing cash flows.
Identifying cash flows immediately.
Determining cash flows with perfect precision.
14 Martha's Enterprises spent $2,400 to purchase equipment three years ago. This equipment is currently valued at $1,800 on t
Multiple Choice
$800
$1,200
The answer cannot be determined from the information provided.
$1,400
$200
15 Non-cash items are:
Multiple Choice
Expenses incurred for the purchase of intangible fixed assets.
Expenses charged against revenues that do not directly affect cash flow.
The accounts payable of a firm.
All accounts on the statement of financial position other than cash on hand.
The credit sales of a firm.
16 Loss carry-back is best described as:
Multiple Choice
Using a year's capital losses to offset capital gains in future years.
Restatement of all prior years' financial statements if material errors are found
Restatement of retained earnings if past losses are discovered.
Using a year's capital losses to offset capital gains in past years.
The taxable difference between adjusted cost of disposal and UCC, when UCC is smaller.
17 RST, Inc. 2018 Statement of comprehensive income
Net sales $8,769
Cost of goods sold $6,128
Depreciation $1,364
Earnings before interest and taxes $1,277
Interest paid $730
Taxable income $547
Taxes $186
Net income $361
Dividends paid $?
Addition to retained earnings $?
18 RST, Inc. Statement of financial positions as of December 31, 2017 and 2018
2017 2018 2017 2018
Cash $1,423 $965 Accounts p $1,007 $2,251
Accounts rec. $2,196 $2,894 Notes paya $2,100 $1,850
Inventory $1,543 $1,650 Total $3,107 $4,101
Total $5,162 $5,509 Long-term $8,670 $7,280
Net fixed assets $21,300 $22,758 Common st $7,200 $9,200
Retained e $7,485 $7,686
Total assets $26,462 $28,267 Total liabi $26,462 $28,267
19 What is the operating cash flow for the year 2018?
Multiple Choice
$1,725
$995
$2,455
$1,911
$361
20 If a firm has taxable income of $17.5 million and a total tax bill of $6.1 million, its average tax rate is _______.
Multiple Choice
42.20%
38.20%
25.90%
34.90%
15.00%
21 Cash flow to shareholders is best described as:
Multiple Choice
The net difference between total assets and total liabilities.
Cash flow to shareholders is also referred to as free cash flow.
The sum of cash flow to bondholders and shareholders
Dividends paid out by a firm less net new equity raised.
A firm's interest payments to creditors less net new borrowings.
22 In a financial plan, the __________ of a firm provide a guide for changes in liabilities and capital.
Multiple Choice
Sustainable growth rate expectations.
Financing and dividend policies.
Pro forma income statements.
Working capital policies.
Sales growth expectations.
23 Calculate the sustainable growth rate given the following information: return on equity = 15%; retention ratio = 85%.
Multiple Choice
17.61%
14.61%
16.61%
13.61%
15.61%
24 Which one of the following statements concerning the capital intensity ratio is correct?
Multiple Choice
The lower the capital intensity ratio, the greater the capital intensity level of the firm.
The capital intensity ratio tells the amount of total assets needed to generate each dollar of sales.
The capital intensity ratio is equal to one minus the total asset turnover ratio.
The capital intensity ratio is equal to sales divided by net fixed assets.
The capital intensity ratio is based on the degree of financial leverage employed by a firm.
25 Marable Comics Group Balance Sheet for the Years Ending 2014 and 2015 ($ in millions)
2014 2015 2014 2015
Cash $75 $135 Accounts p $89 $110
Accounts receivable 230 214 Notes paya 227 442
Inventory 240 188 Current liab 316 552
Current assets 545 537 Long-term 615 440
Fixed assets 788 890 Common st 55 55
Retained e 347 380
Total assets $1,333 $1,427 Total liab. $1,333 $1,427
equity
Marble Comics Group 2015 Income Statement ($ in millions)
Net sales $905
Less: Cost of goods Sold 522
Less: General & adm. expenses 93
Less: Depreciation 110
Earnings before interest and taxes 180
Less: Interest paid 61
Earnings before taxes 119
Less: Taxes 30
Net income $89
26 Suppose Marble is projecting a 20% increase in sales for the coming year, and that cost of goods sold and general/administr
Multiple Choice
$67
$30
$53
$48
$32
27 Given the following information: current assets = $400; fixed assets = $500; accounts payable = $100; notes payable = $45
Multiple Choice
$33.75
$143.75
$380.25
$66.25
$172.50
28 All else the same, sustainable growth will decrease with increases in ___________.
Multiple Choice
Profit margin.
Earnings retention.
Net income.
Total equity.
Total asset turnover.
29 Calculate retention ratio given the following information: net income = $90,000; cash dividends paid = $76,500.
Multiple Choice
15%
25%
85%
75%
50%
30 Calculate retention ratio given the following information: EBIT $150,000; interest expense $16,000; tax rate 30%; dividend
Multiple Choice
35.55%
36.43%
65.45%
68.23%
57.36%
31 Which of the following are constant under the percentage of sales approach?
Multiple Choice
Costs as a percentage of sales and the addition to retained earnings.
Dividends paid and the profit margin.
Costs as a percentage of sales and dividends paid.
Addition to retained earnings and net income.
Profit margin and dividend payout ratio.
Delalo, Inc. 2015 Income Statement
Net sales $12,400
Cost of goods sold 9,100
Depreciation 1,800
Earnings before interest and taxes 1,500
Interest paid 340
Taxable Income $1,160
Taxes 406
Net Income $754
Dividends $301.60
Addition to retained earnings $452.40
Delalo, Inc. 2015 Balance Sheet
Cash $990 Accounts P $1,330
Accounts Rec. 840 Long-term 3,700
Inventory 620 Common st 4,600
Total $2,450 Retained e 2,840
Net fixed assets 10,020
Total assets $12,470 Total Liabi $12,470
32 What is the pro forma retained earnings if Delalo, Inc. grows at a rate of 3.76% and both the profit margin and the dividend
Multiple Choice
$3,321.67
$2,946.90
$3.416.33
$3,023.75
$3,309.41
33 Many financial calculators require that:
Multiple Choice
The present value be input as a negative number when solving for the interest rate.
Interest be compounded on an annual basis.
Either the present value or the future value be input as a negative number when solving for the number of periods.
The interest rate be input as a decimal, such as 0.07.
Interest be computed on a monthly basis.
34 A customer makes two offers to settle a disputed account. He will either pay you $500 today or pay you $650 in three years
Multiple Choice
The company should accept the $500 offer as it is worth $512.42 today.
The company should accept the $650 offer as it is worth $12.42 more today.
The company should accept the $500 offer as it is worth $18.24 more today.
The company should accept the $650 offer as it pays $150 more.
The company should accept the $650 offer as it is worth more today.
35 Tishie invests $3,000 today at a 9% rate of return. She wants to have $24,000 to give to her granddaughter Kathy for colleg
Multiple Choice
Tishie will only have approximately $12,000 sixteen years from now.
Tishie will have the $24,000 when she wants it.
Tishie would have to wait an additional ten years to have $24,000.
Tishie would have to earn a 10% rate of return to have $24,000 in 16 years.
Tishie should plan on only giving Kathy $10,000 in sixteen years.
36 Neal wants to borrow $2,500 and has received the offers from his local banks. Which offer should Neal accept if he wants t
Multiple Choice
Bank B, which offers a simple rate of 5%.
Bank D, which offers a rate of 5% compounded annually.
Bank C, which offers a rate of 4% compounded annually.
Bank A, which offers a simple rate of 4%.
Bank E, which offers a rate of 5% compounded monthly.
37 You deposit $500,000 in a higher risk investment. Three years later, you receive $711,900 and withdraw your funds. Given
Multiple Choice
$78,806
$81,096
$79,096
$80,806
$77,096
38 An account was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the account paid interest compo
Multiple Choice
$102.39
$500.00
$86.20
$93.10
$130.28
39 The present value factor will decrease:
Multiple Choice
The longer the period of time.
The lower the interest rate.
The higher the future value.
The higher the present value.
The slower the rate of growth.
40 Monika has $6,000 in her investment account. She wants to withdraw her funds when her account reaches $10,000. A decre
Multiple Choice
Cause the compounding effect to increase.
Cause her to wait longer before withdrawing her money.
Allow her to withdraw more money sooner.
Cause the present value of her account to decrease.
Increase the value of her account faster.
41 Alpo, Inc. invested $500,000 to help fund a company expansion project scheduled for eight years from now. How much add
Multiple Choice
$86,991.91
$137,188.23
$118,009.42
$126,745.19
$58,829.69
42 You deposit $500,000 in a higher risk investment. Three years later, you receive $711,900 and withdraw your funds. Given
Multiple Choice
$693,303
$636,549
$632,804
$665,202
$687,702
43 Which one of the following is true concerning amortized loans?
Multiple Choice
A loan where annual payments include the interest due plus some set amount of principal is an amortized loan.
Amortized loan payments consist of interest only.
Amortized loans all have a balloon payment at the end of the loan term.
An amortized loan is a type of a pure discount loan.
An amortized loan requires only one lump sum payment at the end of the loan term.
44 Which one of the following would have the greatest present value, assuming a positive discount rate?
Multiple Choice
$2,200 today plus $100 a month for a year.
$1,000 today plus $100 a month for 2 years.
$1,000 today plus $200 a month for a year.
$2,200 today plus $200 a month for six months.
$1,000 today plus $400 a month for six months.
45 You initially deposit $25,000 and contribute $250 per quarter for the next 10 years. If the rate of interest is 4% compounded
Multiple Choice
$45,443
$49,443
$43,443
$40,443
$47,443
46 What is the future value of the following cash flows at the end of year 3 if the interest rate is 6%? The cash flows occur at t
Year 1 Year 2 Year 3
$5,180 $9,600 $2,250
Multiple Choice
$18,109.08
$15,916.78
$19,341.02
$18,246.25
$19,608.07
45 Westover Industries is considering purchasing the Eastward Co. Westover believes that Eastward can generate cash flows o
Multiple Choice
$32,021.51
$38,911.06
$37,617.01
$37,143.79
$43,086.80
46 You currently have $185,000 in an interest-earning account, and from this account you wish to withdraw $15,000 annually
Multiple Choice
6.38%
7.38%
8.38%
9.38%
5.38%
47 An insurance company is offering monthly payments of $250 for the next twenty years in exchange for a one-time payment
Multiple Choice
4.36%
6.39%
7.50%
5.21%
3.63%
48 Which is the best definition of an effective annual rate?
Multiple Choice
The interest rate charged per period multiplied by the number of periods per year.
The interest rate expressed in terms of the interest payment made each period. Also, quoted interest rate
The interest rate expressed as if it were compounded once per year.
An annuity for which the cash flows occur at the beginning of the period.
A level stream of cash flows for a fixed period of time.
49 You are planning to save your Christmas bonuses from work and are comparing savings accounts: Account A compounds s
Multiple Choice
Account A because you will pay less in taxes.
Account B because it is compounded more often.
Either since you would be indifferent between the two.
Account A because it has a higher APR.
Account B because it has a higher APR.
50 Suzette is going to receive $10,000 today as the result of an insurance settlement. In addition, she will receive $15,000 one
Multiple Choice
$546,072.91
$541,414.14
$536,124.93
$570,008.77
$595,098.67
51 Bastion Corporation issued $100 million bonds that mature in 30 years and have a 5% coupon rate that is paid annually. If t
Multiple Choice
$97,606,824
$95,958,151
$98,287,192
$94,581,667
$95,500,206
52 Jackson Central has a 6-year, 8% annual coupon bond with a $1,000 par value. Earls Enterprises has a 12-year, 8% annual c
Multiple Choice
The Jackson bond will increase in value by 4.61%.
The Earls bond will decrease in value by $50.68.
The Earls bond will increase in value by $88.25.
Both bonds would decrease in value by 4.61%.
The Earls bond will decrease in value by 7.56%.
53 Martha owns a 7% coupon bond that has 13 years to maturity. The bond pays interest annually and is currently selling for $
Multiple Choice
6.50%
6.88%
6.60%
6.77%
6.66%
54 You purchase a bond with an invoice price of $988. The bond has a coupon rate of 7.4%, and there are five months to the n
Multiple Choice
$978.14
$980.55
$981.83
$974.65
$976.82
55 The bonds offered by Fast Moving Pumps are callable in 4 years at a quoted price of 101.5. What is the amount of the call p
Multiple Choice
$0.15
$0.02
$150.00
$15.00
$1.50
56 XYZ Co. zero-coupon bonds have a face value of $1,000 and mature in 18 years. They currently sell for $179.86 today. By
Multiple Choice
99%
131%
175%
231%
137%
57 The bonds issued by B&H Enterprises bear a 7% coupon which is payable semi-annually. The bonds mature in 11 years an
Multiple Choice
7.35%
6.25%
6.87%
5.65%
7.00%
58 This morning Tim purchased a 15-year, $1,000 face value zero-coupon bond for $394.34. Assume the yield-to-maturity rem
Multiple Choice
$505.40
$544.44
$561.33
$555.85
$515.60
59 Micalah's Crafts needs $225,000 today to purchase some new equipment. They are planning on issuing 10-year bonds with
Multiple Choice
231
226
234
225
216
60 Which one of the following is the correct bond pricing equation?
Multiple Choice
Bond value = {C}{[1 - 1/(1 + r)]/rt} + F - 1/(1 + r)t]/r
Bond value = {C}{[1 + 1/(1 + r)t]/r} + [F - (1 + rt)/r]
Bond value = {C}{[1 + 1/(1 + r)t]/r} + F/(1 + r)t
Bond value = {C}{[1 + 1/(1 + r)]/rt} + F/(1 + r)
Bond value = {C}{[1 - 1/(1 + r)t]/r} + F/(1 + r)t
he board of directors.
hire and fire management.
the company.
e the total tax paid.
= $145, and current assets is the only remaining item on the statement of financial position, what is the value of net working capital?
ntly valued at $1,800 on today's statement of financial position but could actually be sold for $2,000. Net working capital is $200 and long-t
e is _______.
ention ratio = 85%.
old and general/administrative expenses remain a constant percentage of sales. Also assume that depreciation, interest paid, and the firm's ta
100; notes payable = $45; long-term debt = $455; equity = $300; sales = $450; costs = $400; tax rate = 34%. Suppose that current assets, co
aid = $76,500.
0; tax rate 30%; dividends paid $40,000.
margin and the dividend payout ratio remain constant?
mber of periods.
y you $650 in three years. Which one of the following is correct if your company earns 10.5% on its surplus funds?
daughter Kathy for college 16 years from now. Which one of the following statements is correct concerning Tishie's situation?
Neal accept if he wants to repay the loan in one single payment two years from now?
hdraw your funds. Given this information calculate the interest earned in year 3.
count paid interest compounded annually, how much interest on interest was earned?
reaches $10,000. A decrease in the rate of return she earns will:
rom now. How much additional money will they have eight years from now if they can earn 9% rather than 7% on this money?
hdraw your funds. Given this information calculate the balance at the end of year two.
ortized loan.
nterest is 4% compounded quarterly, calculate the future value.
The cash flows occur at the end of each year.
can generate cash flows of $21,000, $17,000, and $10,000 over the next three years, respectively. After that time, Westover feels the Eastwa
hdraw $15,000 annually for 25 years. What annual rate of return must you make on this account to meet your objective?
e for a one-time payment of $40,000 today. What is the rate of return on this offer?
Account A compounds semi-annually while account B compounds monthly. If both accounts have the same effective annual rate of interes
will receive $15,000 one year from today and $25,000 two years from today. She plans on saving all of this money and investing it for her r
that is paid annually. If the bonds were sold to yield 5.4%, determine the price of the bonds at the end of year 25.
as a 12-year, 8% annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 6%. Which of the following
d is currently selling for $1,034.50. What is the yield to maturity on this bond?
e are five months to the next semiannual coupon date. What is the clean price of the bond?
s the amount of the call premium on a $1,000 face value bond?
ell for $179.86 today. By what percentage will the market price rise if the market's required return falls by half?
ds mature in 11 years and have a $1,000 face value. Currently, the bonds sell at par. What is the yield to maturity?
the yield-to-maturity remains constant over the life of the bond. What price should Tim receive for his bond if he wants to sell it 4 years fro
uing 10-year bonds with a 6% coupon rate and semi-annual interest payments. The current market rate of interest is 6.5%. How many bond
ue of net working capital?
rking capital is $200 and long-term debt is $800. What is the book value of shareholders' equity?
n, interest paid, and the firm's tax rate remain unchanged. What will the firm pay out in dividends in 2018? Assume the firm's dividend payo
Suppose that current assets, costs, and accounts payable maintain a constant ratio to sales. If the firm is producing at 80% capacity, what is
Tishie's situation?
7% on this money?
ime, Westover feels the Eastward Co. will be worthless. Westover has determined that a 16% rate of return is applicable to this potential pu
ur objective?
effective annual rate of interest and you place only the bonuses in the account, you should choose ___________.
money and investing it for her retirement. If Suzette can earn an average of 11% on her investments, how much will she have in her accoun
of 6%. Which of the following statements are correct if the market yield increases to 7%?
if he wants to sell it 4 years from today?
terest is 6.5%. How many bonds must Micalah's Crafts sell to raise the money they need?
Assume the firm's dividend payout is 40%.
ducing at 80% capacity, what is the total external financing needed if sales increase 25%? Assume the firm pays no dividends.
is applicable to this potential purchase. What is the maximum amount Westover should pay to acquire the Eastward Co.?
uch will she have in her account if she retires 25 years from today?
pays no dividends.
astward Co.?
