Finance Questions

Which of the following statements is FALSE?A. The current ratio provides a measure of the short-term solvency of the firm.B. Price-earnings ratio reflects the book value per share per dollar of accounting earnings for a firm.C. Total asset turnover measures how much in sales is generated by each dollar of firm assets.D. Times interest earned, also known as the interest coverage ratio, provides a relative measure of how well the firm's operating earnings can cover current interest obligations

Which of the following statements is FALSE?A. The average tax rate is the total tax expense divided by the total taxable income.B. The marginal tax rate is the tax rate that applies to the next dollar of taxable income that a firm earns.C. The average tax rate is always less than or equal to, and often considerably less than, the marginal tax rate.D. Managers should use the average tax rate when making decisions regarding new investments and financing choices.

Operating cash flow is defined as:A. a firm's net profit over a specified period of time.B. the cash that a firm generates from its normal business activities using its existing assets.C. the change in the net working capital over a stated period of time.D. the cash that is generated and added to retained earnings.

Which of the following statements is FALSE?A. The effect of compounding is great over short time periods, but then it begins to decline as the horizon grows.B. Moving cash flows to the left on a time line is called discounting, and values are additive at any one point in time.C. Future value refers to the amount of money an investment will grow to over some period of time at some given interest rate.D. To estimate the present value of future cash flows, the discount rate should be adjusted for both the timing or maturity of that cash flow and the inherent risk of that cash flow.

Which of the following statements is FALSE?A. Market capitalization is the number of shares outstanding times the market price.B. A company with a .05x interest coverage ratio would be at less risk of missing payments on interest than a company with a 4.9x interest coverage ratio.C. The DuPont Identity is an expression that breaks the return on equity into three parts that measure operating efficiency, asset use efficiency, and financial leverage.D. Sometimes book equity can become negative, and when that happens, positive ROE is not a good sign.

Which of the following will increase the sustainable rate of growth for a firm?A. Decreasing the profit marginB. Increasing the dividend payout ratioC. Decreasing the asset turnoverD. Increasing the target debt-equity ratio

Which of the following statements is CORRECT?A. Shareholder's equity is the residual value of a firmB. Net working capital must be a positive valueC. An increase in cash reduces the liquidity of a firmD. Equipment is generally considered a highly liquid asset

BMG Industries is considering an extension to an existing product line. The following costs should be treated as incremental costs when deciding whether to go ahead with the project exceptA) the consequent reduction in sales of the company's existing products.B) interest payments on debt incurred to finance the project.C) the value of equipment that will be transferred to the project from the company'sexisting plants instead of being sold.D) the expenditure on new equipment.

Which of the following statements is TRUE?A. Bank loans, private placements to funds and insurance companies, and investment bank transactions are all activities in the secondary markets.B. Like general partners, the owners of a corporation have unlimited liability for business debts.C. While maximizing stockholder wealth is the relevant goal of the corporation, sometimes management goals are pursued at the expense of the stockholders.D. The Sarbanes-Oxley Act of 2002 dramatically streamlined American corporate regulations resulting in billions of dollars in overall savings.

Which of the following statements is TRUE?A. All secondary markets are dealer markets.B. All secondary markets are broker markets.C. All stock trades between existing shareholders are secondary market transactions.D. All stock transactions are secondary market transactions.

One should consider net working capital (NWC) in project cash flows becauseA) typically firms must invest cash in short-term assets to produce finished goods. B) NWC represents sunk costs.C) firms need positive NPV projects for investment.D) inclusion of NWC typically increases calculated NPV.

PCG Corporation has 1,000,000 shares outstanding at $30/share. If the firm wishes to raise $13.5 million at a subscription price of $27/share, calculate the value of a right (assuming a European-style rights issue).A: $1.50/rightB: $4/rightC: $3/rightD: $2/right

The following are characteristics of preferred stock except itA. pays fixed dividends.B. pays fixed dividends and can demand payments of cumulative dividends.C. has voting rights.D. can demand payments of cumulative dividends.

Which one of the following is most apt to align management's priorities with shareholders' interests?A. Compensating managers with shares of stock that must be held for 3 years before the shares can be soldB. Allowing a manager to decorate his or her own office once he or she has been in that office for a period of 3 years or moreC. Increasing the number of paid holidays that long-term employees are entitled to receiveD. Allowing employees to retire early with full retirement benefits

Hon just bought 800 shares of TYUJ stock, which has been trading for some time on the NYSE. In which market did Hon's purchase occur?A. Dealer marketB. Secondary marketC. Derivative marketD. Primary market

Which of the following statements is FALSE?A. Liquidity measures the speed and ease with which assets can be converted to cash without significant loss of value, and 'fortress' balance sheets are especially liquid.B. Even though depreciation is not a cash expense, it affects taxes, and corporations prefer to depreciate assets using accelerated over straight-line methods for tax purposes.C. The marginal tax rate is the tax rate payable on the next dollar earned and is always higher than the average tax rate.D. Operating Cash Flow is generated from utilizing existing assets after deducting interest expense

Which one of the following situations is most apt to create an agency conflict?A. Giving all employees a bonus if a certain level of efficiency is maintainedB. Hiring an independent consultant to study the operating efficiency of the firmC. Rejecting a profitable project to protect employee jobsD. Selling an under producing segment of the firm

Which of the following statements about the corporate form of ownership is FALSE?A. The shareholders are the owners of the firm and hold the top priority claim among all stakeholders.B. The shareholders elect the directors of the corporation, usually in uncontested elections.C. The directors appoint the firm's management, and yet managers usually participate in nominating new candidates for directors.D. Separation of ownership from control can cause agency problems where managers act in their own interests, rather than shareholders' interests.

Which of the following statements is FALSE?A. The market value of any asset is what an item is actually worth if sold and must always be a positive value.B. Even though depreciation is not a cash expense, it affects taxes, and corporations prefer to depreciate assets using accelerated over straight-line methods for tax purposes.C. The marginal tax rate is the tax rate payable on the next dollar earned and, due to deductions and credits, the marginal tax rate is always higher than the average tax rate.D. Priority measures the speed and ease with which assets can be converted to cash without significant loss of value.

Firms that compile financial statements according to GAAP:A. record income and expenses at the time they affect the firm's cash flowsB. have no discretion of recording either revenue or expense itemsC. must record all expenses when incurredD. can still manipulate their earnings to some degree