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Finance Flashcards

personal finance

a Which one of the following investments offers the greatest liquidity? A. savings accountB. common stockC. corporate bondD. real estateE. collectibles
e What is the primary goal of asset allocation? A. investment incomeB. growthC. liquidityD. returnE. risk reduction
c Which one of the following individuals should have a higher tolerance for risk? A. Joan Cummings who is a single mother with two small childrenB. Darren Carter who works for American Airlines and is worried that he is going to be laid off soonC. Barry Parks, a 26-year old investment banker who earns over $200,000 per year and is saving for retirementD. Michael Clark who is 74 years old and has been retired for 6 yearsE. Fred Funderbunk who is a pizza delivery person and makes about $15,000 per year
c Based on historical performance, which one of the following investments is most apt to provide an average return of 10 percent a year between now and the year 2025? A. U.S. Treasury billsB. corporate bondsC. stocksD. optionsE. zero-coupon bonds
a Which one of the following investments would rank the highest with regard to safety? A. government bondB. common stockC. preferred stockD. corporate bondE. real estate
a The money obtained by a company from selling corporate bonds: A. is obtained from lenders.B. is obtained from the owners of the business.C. is obtained from employee stock option programs.D. does not have to be repaid.E. must be allocated to retirement programs.
d Which one of the following is false? A. Most mutual funds invest in stocks, bonds, and other securities.B. Diversification provided by a mutual fund reduces risk.C. The goals of one mutual fund investor may differ from those of another.D. Since mutual fund managers are professionals, there is no need to evaluate a mutual fund.E. Mutual fund investments range from very conservative to very speculative investments.
e Jeff Goldblum has just purchased a security which has no maturity date and no promised payments. He can recoup his investment by either selling the security to another individual or to the issuer, if the issuer ever makes an offer to buy it. What type of security did Jeff purchase? A. stock optionB. corporate bondC. government bondD. preferred stockE. common stock
d James Green just bought a security which he expects will provide him with a quarterly cash payment, although that payment is not guaranteed. In fact, he expects the amount of the payment to vary over time. What type of payment is he expecting to receive? A. option premiumB. interestC. capital gainD. dividendE. rebate
b Equity financing is a popular choice to provide long-term financing for a corporation because: A. a lender is always available to provide this type of financing.B. it does not have to be repaid.C. repayment doesn’t have to be made for ten years or more.D. only interest must be paid for the first five years.E. it does not cost anything to sell in the primary market.
d If the board of directors approves a two-for-one stock split, an investor who owns 150 shares before the split will own ____________ shares after the split. A. 75B. 150C. 225D. 300E. 450
a Which one of the following statements is true? A. It is possible to obtain financial information about a corporation that issues stock by using the Internet.B. While it is possible to obtain information about a company by accessing the Internet, the information is usually out of date.C. You can use an Internet search engine to only access a company’s price information.D. Corporations have web pages but do not provide any financial information on them.E. By using the Yahoo! Finance web site, investors can access financial information only about the economy as a whole
b Assume that you purchase a $1,000 corporate bond at par value that has a 9.25 percent coupon rate of interest. What is the amount of interest income that you would receive each year? A. $1,000.00B. $92.50C. $92.00D. $90.00E. $9.25
b A corporate bond that is secured by various assets of the issuing firm is called a(n) ____________ bond. A. debentureB. mortgageC. indentureD. preemptiveE. treasury
c A call feature: A. allows bondholders to convert their bond to a specified number of shares of common stock.B. is not available on corporate bonds.C. allows the corporation to buy outstanding bonds from current bondholders before the maturity date.D. is only available with government securities.E. is guaranteed by the corporation.
b If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally: A. increase in value.B. decrease in value.C. remain unchanged.D. become worthless.E. be returned to the corporation.
c What is the approximate market value of a $1,000 corporate bond that pays 8 percent interest when comparable bonds are paying 9 percent interest? A. $80B. $90C. $889D. $1,000E. $1,125
a When investors build a portfolio of bonds that mature at regular intervals in order to increase liquidity and raise portfolio return, they are creating a: A. laddered bond portfolio.B. staggered investment program.C. incremental investment program.D. step-up allocation program.E. guaranteed investment program.
c You are a taxpayer in the 30 percent tax bracket and you own a tax-exempt bond that pays 5 percent. What is your taxable equivalent yield? A. 4.00 percentB. 5.00 percentC. 7.14 percentD. 9.20 percentE. 14.40 percent
d Which one of the following statements is false? A. An exchange-traded fund invests in the stocks or securities contained in a stock or securities index.B. With an exchange-traded fund, an investor can purchase as little as one share.C. The return on shares in an exchange-traded fund tends to mirror the performance of the index.D. A passively-managed exchange-traded fund manager needs to make more decisions than an actively-managed mutual fund manager.E. Exchange-traded funds are increasing in popularity.
b A mutual fund in which shares are issued and outstanding and trade without direct relation to the assets in the fund is called a(n) ____________ fund. A. closed-endB. open-endC. loadD. no-loadE. convertible
c A mutual fund in which investors pay a commission every time they purchase shares is called a(n) ____________ fund. A. closed-endB. open-endC. loadD. no-loadE. convertible
b All the different fees and fund operating costs are often referred to as a(n): A. investment ratio.B. expense ratio.C. financial ratio.D. expense turnover.E. management ratio.
b A mutual fund that invests in common stocks of rapidly growing corporations with higher-than-average revenue and earnings growth is called a(n) ____________ fund. A. balancedB. growthC. industryD. incomeE. money market
d Which one of the following statements is false? A. The responsibility for choosing the right mutual fund rests with the individual investor.B. Professional fund managers do make mistakes.C. Although investing in mutual funds provides professional management, individual investors should continually evaluate their mutual fund investments.D. There is no need to evaluate mutual fund investments because investment companies hire the best professional managers they can to manage their funds.E. Individual investors should be involved in choosing a mutual fund because they know how the objectives of a mutual fund match their own investment objectives.
e Which of the following is an advantage of an exchange traded fund (ETF)? A. no minimum investment amountB. buying and selling shares through a broker at any time at the current market priceC. low management feesD. using limit orders to both buy and sellE. all of the other answers
d Real estate investments are classified as: A. participating or nonparticipating.B. common or preferred.C. cumulative or noncumulative.D. direct or indirect.E. none of the other answers.
b An example of a direct real estate investment is a: A. limited partnership.B. commercial office building.C. real estate syndicate.D. real estate investment trust.E. mortgage pool.
a The prices of single-family houses: A. tend to rise over time, the rate of inflation is a good estimate for the rate of increase, thereby acting as a hedge against inflation.B. rise less than the Consumer Price Index.C. always increase in value.D. tend to be countercyclical, thereby acting as a hedge against the business cycle.E. remain constant over time.
c An example of an indirect real estate investment is: A. a single-family home.B. a duplex.C. a real estate investment trust (REIT).D. land.E. an apartment building
b Andrea Mitchell has joined a real estate syndicate. The syndicate she belongs to was formed by one individual who sold participation units to Andrea and several others. The individual who sold the participation units has unlimited liability and manages the property. Andrea and the others can only lose their initial investment. What type of real estate syndicate has Andrea joined? A. one organized as a corporationB. limited partnershipC. trustD. REITE. real estate mutual fund
e For the average individual, which one of the following statements is most likely correct regarding retirement? A. My costs of daily living will decrease significantly once I retire.B. I can only expect to live about ten years in retirement, so I don’t need to save all that much money.C. Once I retire, all my medical bills will be paid by Medicare.D. My employer’s pension plan will provide sufficient income to meet all my retirement needs.E. I should be aware to save what I can, even if it’s a small amount, to help cover my retirement costs.
e Which of the following is a true statement about retirement planning? A. You can expect to spend about 16 to 30 years in retirement.B. It’s never too early to begin planning for retirement.C. You should not let your 45th birthday roll by without a comprehensive retirement plan.D. Retirement planning has both emotional and financial components.E. All of the other statements are true
d Which statement is most likely correct about retirement planning? A. Social Security will cover most of your expenses.B. Your employer’s pension combined with your Social Security will cover your retirement expenses.C. Most retirees don’t need to worry about inflation.D. Your pension may remain constant even in an inflationary environment.E. Your living costs will remain constant once you retire.
e Why is financial planning for retirement vitally important? A. You can expect to live in retirement for many years.B. Social Security and your private pension may be insufficient to cover the cost of living.C. Inflation may diminish the purchasing power of your retirement savings.D. Knowing that you are financially prepared for retirement gives you peace of mind.E. All of the listed factors are vitally important.
a Which one of the following expenditures for retirees is most likely to increase? A. health careB. federal income taxesC. clothing expensesD. work-related expensesE. state income taxes
e Which employer retirement plan specifies the benefits promised to the employee at the normal retirement age? A. defined-contribution planB. SEP IRAC. 401(k)D. Roth IRAE. defined-benefit plan
e Possible sources of income for many retirees include: A. Social Security.B. other public pension plans.C. employer pension plans.D. personal retirement plans and annuities.E. all of the sources listed in the other answers.
e Estate planning involves which of the following? A. managing your property while you are aliveB. dealing with what happens to your property after your deathC. your family’s financial security in the event of your deathD. your family’s financial security in the event of your spouse’s deathE. all of the activities listed in the other answers
a Estate planning has two parts. The first part consists of: A. building your estate through savings, investments, and insurance.B. transferring your estate to heirs in the manner you have specified.C. deciding who is going to get what.D. evaluating your assets and liabilities.E. planning for the period right after you die.
b Estate planning has two parts. The second part of estate planning consists of: A. building your estate through savings.B. transferring your estate in the manner you have specified.C. deciding who should be your attorney.D. evaluating your assets and liabilities.E. buying life insurance.
a A will is: A. the legal declaration of a person’s wishes as to the disposition of his or her property after his or her death.B. a synonym for a prenuptial agreement.C. a legal document authorizing someone to act on your behalf.D. a synonym for a letter of last instruction.E. a legal arrangement through which your assets are held by someone else.
e If you die without a valid will (intestate): A. the IRS confiscates your property.B. a federal court decides how your property will be distributed.C. your closest relative will receive all your property according to federal law.D. your letter of instruction becomes your will.E. your state’s law of descent and distribution becomes your will and determines distribution of your assets.
a Which one of the following wills is called an “I love you” will and leaves everything to your spouse? A. simple willB. traditional marital shareC. exemption trustD. stated dollar amountE. living
e Which of the following would be a benefit of establishing a trust? A. It can reduce or provide payment for estate taxes.B. It can allow you to avoid probate and transfer assets immediately to beneficiaries.C. It can free you from managing your assets, while providing you a regular income.D. It can ensure that your property serves a desired purpose after you die.E. A trust can do everything listed in the other answers.
e A federal tax levied on a deceased person’s property being transmitted to his or her heirs at death is called a(n) ____________ tax. A. exemption B. trust incomeC. inheritanceD. giftE. estate
Categories
Finance Flashcards

Personal family finance final

If someone dies without a will, who handles the distribution of the person’s estate? The state
You should always read the fine print before signing a contract. True
Everyone has the same amount of risk. False
If someone dies without a will, a situation known as intestate, the state will step in to handle the distribution of the estate, even if it is not what you may have wanted. True
When you want to add coverage for something not included in an insurance policy, what would you add to your policy? A rider
Who agrees to pay for certain types of losses in exchange for payments on a policy? Insurer
Contracts are really only used for business; most people do not have contracts for their personal finances. False
What document details the type of medical care that you wish to receive if you become incapacitated due to a physical or mental illness? Living will
What is the amount of money that the policy holder will pay before the insurance company will pay on an insured loss? Deductable
Negligence is typically thought of as a failure to take reasonable actions to prevent injury or damage. True
What is a failure to take reasonable actions to prevent injury or damage? Negligence
The specific protection that the insurer provides to the policy holder is known as which of the following? Coverage
With a contract, consideration is something of value offered by one party in exchange for something of value from the second party. True
Consensus ad idem means which of the following? Meeting of the minds
Experts recommend that you only use insurance if the item is worth more than $100,000. False
What is an advantage of a savings account? The money is available for an emergencyThe money can double or triple in a short period of timeThe account is riskier that investing in stocks
T-bills are offered in what monetary increment? $1000
Although stocks can generate greater revenue, they are also more risky than many forms of investments. True
All investments carry the same amount of risk. False
Municipal bonds are issued by whom? Federal government
Preferred stocks share characteristics with which of the following? Common stocks and corporal bonds
Individuals have to choose whether to save or invest, since it is not recommended to do both. False
One of the advantages of having a savings account is that it is money that can be used for emergency purposes, whereas money in bonds, CDs, or investments may not be readily available. True
Real estate is a great investment for everyone, particularly since the money is more liquid than common stocks. False
Common stocks are considered to be lower risk than municipal bonds. False
What is a disadvantage of government bonds? They are difficult to find
What is true about preferred stocks? They give owners a share of ownership in the company
A stock is a share of what? Ownership
The broad types of investments are known as which of the following? Asset classes
If you have a financial professional advising you on investments, it is not necessary to do your own research. False
What is a typical grace period for a credit card? 20 to 25 days
What type of card includes a computer chip with additional information on it? Smart card
One advantage of credit is that it can give you a “float” time between buying the product and when you need to pay for the product. True
Consumer credit has very few advantages and is best avoided at all times. False
Smart cards are also known as gift cards. False
Individuals who do not pay off their credit card balances each month are known as which of the following? Borrowers
A bank line of credit is a prearranged loan amount that you can access by writing specific checks. True
Something of value that is used to back up a loan is known as what? Collateral
What is true about the payments with closed-end credit? They remain the same until the credit is paid off
What is one of the best ways to avoid credit problems? Pay your credit bills on time each month
What is a reason why someone would use a secured credit card? To help overcome a bad credit history
Those who pay off their credit balances in full each month and avoid the finance and interest charges are known as convenience users. True
Credit cards all use the same interest and finance charges. False
In regards to credit, what does capacity mean? Your perceived ability to repay your loans and debt.
The assets that you currently own are known as which of the following? Capital
Financial goals should not be considered when creating a budget. False
What is an assessment of what you own and what you owe? Personal balance statement
What types of records are best kept in safe deposit boxes? Valuable records like marriage records or stock certificates
What is a reason for keeping organized financial records? Paying bills Filing taxes Measuring financial status
What budgeting option is best used only with limited resources and expenses? Mental budgeting
Only individuals that make over $50,000 per year should worry about creating a cash flow statement. False
What is a characteristic of a successful budget? Realistic
The first step in creating a budget is to identify your expenses. False
A home file is the place where you should keep financial records that you may need to access regularly. True
What is a record of income and expenditures for a particular period? Cast flow statement
It is not important to keep financial records since they can all be found online. False
Net worth is the difference between your assets and your liabilities. True
What type of budget involves placing money into envelops? Physical budget
A budget variance is any difference between what was actually spent during the time period and the budget. True
Liabilities are the amounts of money due to others that need to be paid now. True
Smaller bags of items are generally lower priced per unit than larger bags. False
In the United States, over 9 million are victims of identity theft each year. True
Weasel Words involve advertising all of the good things about a product while ignoring the negative aspects of the product. False
One of the first steps that you can take is to place a fraud alert on your credit reports from Equifax, Experian, and TransUnion. True
What might be a consideration in deciding where to buy something? The location of the storeThe price of the item you wish to buyCustomer service
Experts recommend that you don’t wait for sales before buying an item, since the item is likely to rise in price in the time you wait. False
Which of the following issues credit reports? Equifax
Advertisements are paid for by whom? Sponsors
If you receive a phone call and the caller asks for personal information, what should you do? Refuse to give the information and hang up
It is hard for identity thieves to steal any identity in today’s society. False
The Glittering Generalities technique involves using appealing words to sell the product. True
If you believe that your identity has been stolen, you should close the accounts that have been compromised. True
What advertising technique focuses on the positive and ignores any negative aspects in the product? Card stacking
Fraud alerts and credit freezers are the same thing. False
Credit freezes prevent anyone from viewing your credit report, essentially blocking the creation of new credit accounts in your name. True
Categories
Finance Flashcards

Real Estate 101 Finances Final Exam Questions

What type of tenancy exists when a tenant wrongfully remains without the landlord’s consent after the expiration of a lease?Periodic tenancyEstate at willLife estateEstate at sufferance Estate at sufferance
When a borrower assumes a loan, he or she does all of the following except which?Maintains the propertyMakes payments on the propertyBecomes liable for the provisions of the loanRelieves the original mortgagor of his or her liability for the loan Relieves the original mortgagor of his or her liability for the loan
Most mutual saving banks are located in what part of the country?EastSouthNortheastSouthwest Northeast
What portion of a loan is covered by private mortgage insurance?AllLowerMiddleUpper Upper
Financing for farms depends on all of the following except which?Land productivityCounty code restrictionsWeather conditionsManagement skills County code restrictions
When calculating an interest rate, what is a lender’s “mark-up”?CapTermAdjustmentMargin Margin
Who are the major participants in the secondary mortgage market?Freddie Mae, Ginnie Mac and the FedFannie Mae, Ginnie Mae and Freddie MacFHA, VA and the FedGMAC, FHA, FNMA Fannie Mae, Ginnie Mae and Freddie Mac
What happens after the underwriter approves a loan?The documents go to the escrow company.The tile search is initiated.The case file goes to the lender’s closing department.The underwriter orders a property survey. The case file goes to the lender’s closing department.
What is an abstract of title?A property surveyThe method of transferring ownershipA title insurance policyA historical summary of a property’s title A historical summary of a property’s title
Which of the following actions is a technical default that rarely results in a foreclosure?Failure to maintain the propertyFailure to pay hazard insurance premiumsFailure to pay taxesFailure to meet an installment payment Failure to pay hazard insurance premiums
When an income property investor’s debt is very high, what is the most likely financial impact?Management issuesPositive cash flowExcess depreciationNegative cash flow Negative cash flow
Which of the following properties would be considered recreational?HotelShopping centerMarinaOffice building Marina
The highest price a buyer is willing to pay and the lowest price the seller will accept for a property is known as what?Market priceCostMarket valueExchange value Market value
Which item would typically not be part of a loan that is seller financed?Higher front end feesLower interest rateLonger loan termQuicker credit approval Lower interest rate
Which of the following would NOT be a reason for an equity investor to purchase an income property?To obtain a tax exemptionFor property appreciationFor the return rateFor the tax benefits To obtain a tax exemption
Which of the following is not a cycle associated with a syndication?OrganizationDevelopmentOperationLiquidation Development
What is the cost recovery period for nonresidential buildings purchased after May 12, 1993?15 years25 years27.5 years39 years 39 years
Jim got a $3,000 savings account at 5 percent interest compounded annually. What will his balance be after four years?$3,646.52$3,600.00$3,472.88$3,307.50 $3,472.88
If the Fed wants to expand the money supply using an open market operation, which of the following actions would it take?Cut taxesBuy securitiesIncrease the government’s spendingSell securities Buy securities
Under which of the following rights would a borrower be able to redeem his or her property after a foreclosure sale?Statute of fraudsStatutory right of redemptionStrict foreclosure rightEquitable right of redemption Equitable right of redemption
Dallas County is issuing bonds to fund a new high school project. What kind of bonds are these?DebenturesCorporate bondsRevenue bondsGeneral obligation bonds General obligation bonds
According to the formula for calculating the down payment on an FHA loan, what would be the minimum down payment on a home that sold for $110,000?$1,375.00$3,585.00$3,135.00$3,850.00 $3,850.00
Developer Pete is working on a plan for a new subdivision. In which case will it be subject to the Interstate Land Sales Full Disclosure Act?The subdivision will have more than 25 lots.The subdivision will be marketed locally.All of the lots in the subdivision will be more than 15 acres each.The subdivision will be marketed out of state. The subdivision will be marketed out of state.
Amanda and Ralph Halpern have lived in their current home for over 35 years. They are in their 70s and Ralph has had some medical problems that have caused them to incur some very high medical bills. Which type of loan could be a viable solution for them?GEMPAMRAMARM ARM
What is the primary role of Fannie Mae?To purchase FHA and VA loansTo guarantee all FHA and VA loansTo originate FHA and VA loansTo insure FHA and VA loans To guarantee all FHA and VA loans
Which of the following items would not be considered a red flag on the Verification of Employment form gathered by an underwriter?Three-month time gap between current and previous employmentIncome out of line with type of employmentNo prior year earningsMost income comes from gambling Most income comes from gambling
Which of the following would probably not be discovered through a property survey?An easementA restrictionAn encroachmentA chain of title defect A chain of title defect
After a foreclosure sale, who would receive any surplus proceeds after payment of costs, fees, expenses, and liens?BidderTrusteeLenderDebtor Trustee
What is the term used to describe being able to purchase an investment property with less cash down and a good loan-to-value ratio?LeverageProgressionEquity purchaseContribution Contribution
All of the following factors will affect the market rent on an office building except which one?How likely it is that new firms will locate to the areaMedian income of families in the building’s locationNumber of employees that are currently employed or will be employed in the near futureAmount of space the firm needs for its employees to do their job Amount of space the firm needs for its employees to do their job
When using the sales comparison approach to estimating value, the appraiser will make an adjustment in which of the following circumstances?The comparable sold within the past two weeks.The seller is offering market-rate owner-financing.The subject property was closer to the mall.The subject property has a lesser effective age than a comparable. The comparable sold within the past two weeks.
Which of the following statements is FALSE about a combination construction loan?It requires only one closing.The lender advances one lump sum payment at the start of the construction.The permanent loan will take over at a time specified in the loan document.The permanent loan start should coincide with the completion of the construction. The lender advances one lump sum payment at the start of the construction.
Investor Sam bought a property directly in a private market transaction and then he was able to earn a profit by creating a publicly-traded entity and issuing stock to the public. What investment strategy did Sam use?TurnaroundArbitrageGrowthMarket timing Arbitrage
What is the most significant financial feature of a REIT?Ownership by at least a dozen investorsGuaranteed growth in valuePotential for tax-free statusFiduciary relationship to its investors Potential for tax-free status
FIRTPA allows an exception of its withholding rule in all of the following cases except which?The property is worth less than $300,000 and the purchasers are buying it as personal residence.The transaction is not subject to tax because of a US tax treaty with another country, and the buyer and seller are not related.The seller or buyer gets a “withholding certificate” from the IRS, which decreases the amount to be withheld.The seller is not a US citizen. The seller is not a US citizen.
Robert and Pam get a $175,000 mortgage for 30 years at a fixed rate of 6.75%. Their monthly payment amount is $1,135.05. What will the principal payment be when they make their fourth payment?$151.52$152.37$153.23$154.09 $153.23
Which of the following is not a provision of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)?Placed the 12 district Federal Home Loan Banks under control of the Federal Housing Finance BoardAbolished the defunct Federal Savings and Loan Insurance Corporation (FSLIC)Established two new federal deposit insurance funds to be managed by the Federal Deposit Insurance CorporationTransferred the regulatory powers of the Federal Home Loan Bank Board to the Federal Reserve Established two new federal deposit insurance funds to be managed by the Federal Deposit Insurance Corporation
A provision in a real estate loan that prohibits any prepayment is called what?Prepayment penaltyDue-on-sale clauseDefeasance clauseLock-in clause Prepayment penalty
Mortgage brokers generally do all but which of the following?Collect a placement fee.Service the loan.Check the soundness of the investment.Bring borrowers and lenders together. Service the loan.
Which of the following would not be considered a junior loan?First deed of trustSecond deed of trustEquity loanHome improvement loan First deed of trust
ECOA requires that a lender send a denial notice within30 days.60 days.90 days.120 days 30 days.
When are funds dispersed on a construction loan?Whenever the builder needs themAt closingWhen the building is completeAt specified intervals called draws At specified intervals called draws
Freddie Mac was originally charted to create a secondary market for which type of mortgage loans?FHAVAConventionalSecond trusts Conventional
Tim and Sue have the smallest home in a sought-after neighborhood. The value of their home is increased because of the higher value of the other homes in the neighborhood. This is an example of what principle?RegressionSubstitutionAnticipationProgression Progression
Which of these items would not need to be prorated on the day of closing?Property taxesHomeowner’s association feesRents for investment propertyAttorney fees Attorney fees
What is the most common technique lenders use when dealing with an FHA loan that is in default due to circumstances beyond the borrower’s control?Loan recastingOne year forbearanceAssignment of loan to FHAImmediate foreclosure Loan recasting
How are most apartment properties financed?Private lendersConventional lendersGovernment lendersForeign lenders Conventional lenders
Building owner Carl has entered into a lease agreement with retail shop owner Sara that says Carl will pay all operating expenses up to a certain amount and then Sara will be responsible for anything over that amount. What is this called?Step upPass throughPercentageAbove net Pass through
A property valued at $350,000 has an annual net operating income of $43,750. What is the capitalization rate?0.080.1050.110.125 0.08
Which document separates a regular real estate loan from a construction loan?Building loan agreementPromissory noteAppraisal reportCredit report Promissory note
Greg bought an apartment building two years ago. He found out recently that the building will become rent-controlled. Greg is a victim of what kind of risk?BusinessLiquidityManagementRegulatory Business
Amanda Green has invested in a real estate trust that will get income from mortgage interest, loan origination fees and buying and selling mortgages. Amanda has invested in what kind of trust?REITREMTHybridJoint venture REMT
Jim and Sue have three children. What is the maximum amount they can give each year without having to pay a gift tax?$12,000.00$24,000.00$36,000.00$78,000.00 $78,000.00
Paul and Jenny purchased a home from Fernando and Kris. The closing is set for September 2. The real estate taxes of $1,575 will be due at the end of the year. Using the 12-month/30-day method, what will be Fernando and Kris’s share of the taxes?$516.39$1,052.00$1,058.76$1,181.25 $1,181.25
Which of the following is not a valid instrument for transferring property from a seller to a buyer?Quitclaim deedGeneral warranty deedDeed of releaseSpecial warranty deed General warranty deed
Harry Samson wanted the purchaser of his property to assume his loan, but the lender refused. The lender was exercising his rights under what clause?Prepayment clauseSubordination clauseDue-on-sale clauseRelease clause Due-on-sale clause
Sally and Dan Monroe are applying for a mortgage. They have selected Tim Steele to work with. Tim will prequalify the Monroes, find an appropriate loan product for them, and work with them through loan approval. After settlement, Tim’s company will service the loan. What is Tim?Financial advisorMortgage brokerMortgage bankerPrivate party lender Mortgage banker
What is the basic entitlement of a VA loan?$36,000.00$60,000.00$104,250.00$144,000.00 $36,000.00
Regulation Z applies to which of these?$35,000 farm loan$50,000 restaurant loan$75,000 condominium loan$85,000 warehouse loan $75,000 condominium loan
Under which type of loan does the lender reduce the interest rate in exchange for part of the future profits?Shared appreciationPledged accountBuydownRenegotiable rate Shared appreciation
Which of the following is TRUE about Ginnie Mae’s fully modified pass-through securities?They guarantee principal and interest payments to the investors regardless of the actual payments collected.They vary the yields to the investors as the market interest rates fluctuate.They maintain constant yields by paying only the interest to the investors.They are no longer viable options and have been eliminated. They guarantee principal and interest payments to the investors regardless of the actual payments collected.
The type of appraisal that uses comparable properties as a basis and is the primary approach used for resale homes is known as which?Cost approachIncome approachComparable approachSales comparison approach Sales comparison approach
What law says that borrowers must receive a good faith estimate of the closing costs within three business days of the loan application?Real Estate Settlement Procedures ActTruth in Lending ActEqual Credit Opportunity ActHome Mortgage Disclosure Act Real Estate Settlement Procedures Act
From a real estate agent’s point of view, when should the planning for financing of an investment property begin?At the time of listingWhen an offer is madeAfter the offer is acceptedWhen the appraisal is done At the time of listing
What is the effective rental income for a company that has a potential rental income of $172,000, vacancies equaling $12,000, operating expenses of $28,400, and debt service of $15,000?$116,600$131,600$160,000$172,000 $116,600
Contractor Phil is trying to determine what a building would cost new. He estimates the costs of all the needed materials, the labor, supplies, overhead, all expenses and even profit. What is the method Phil is using?Index methodSquare-foot methodUnit-in-place methodQuantity survey method Quantity survey method
If a developer has signed a blanket deed of trust covering all lots of the subdivision, what is true about partial releases?A partial release cannot be required, unless it’s provided for specifically in the deed of trust.A partial release can always be obtained, even if it’s not specifically provided for.It can be obtained only if there is a subordination agreement incorporated into the deed of trust.It cannot be obtained until at least 50 percent of the lots in the subdivision are sold. A partial release cannot be required, unless it’s provided for specifically in the deed of trust.
Which of the following is not a procedure for controlling risk?Careful selectionRefinancingHedgingDiversifying Refinancing
Swapping operating partnership units for other interests is an example of growing income for a REIT through which method?AcquisitionFinancial engineeringDevelopmentProvision of services Acquisition
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Finance Flashcards

Personal Finance Ch 5: Savings Account

Consider the following incomplete deposit ticket:What was the value of the third check Tony deposited?a.$617.60b.$105.20c.$31.28d.$36.76 B
Ruby wants to start her own business taking photographs. She already has her own camera, but needs to purchase lights, a photo printer, and photo paper. If the cost of the photo printer is $251.99, the cost of lighting is $150.00, and the cost for 100 sheets of photo paper is $30.98, determine how much of her savings will be used to start her company, given that she has $840.32 in savings. NOT c
Maggie noticed that her financial record is missing information. She recalls that on October 15th, she purchased gasoline in the amount of $32.51 and on October 16th, she and her friends went out for dinner, where she spent $25.62. Given this information, and the image below, determine her balance as of October 26th. A
Having a savings account can contribute to a person’s overall financial well-being. Which one of the following is NOT a benefit of maintaining a savings account? a.A savings account provides security in tough financial timesb.With a savings account, you can invest when the opportunity presents itselfc.Having a savings account gives individuals the ability to borrow money from members in the communityd.A savings account allows an individual to fulfill life long dreams C
Manny has just filled out his deposit ticket for his savings account. He hands it to the teller and the teller hands it back to Manny. The teller explains to Manny that the deposit ticket cannot be accepted in its current form. What must Manny do to the deposit ticket in order for the teller to process the deposit ticket?a.Manny forgot to sign the deposit ticket for less cash backb.The subtotal is calculated incorrectlyc.The total is calculated incorrectlyd.Manny forgot to date the deposit ticket A
Consider the following incomplete deposit ticket.What was the subtotal of Rachel’s deposit?a.$1,145.39b.$746.23c.$399.16d.$1,075.95 A
What does it mean for a savings account to have a minimum balance?a.If you do not keep at least that much money in the account, you will be assessed fees.b.If the amount of money you have in the account drops below the minimum, the interest rate will increase to replenish your savings to the minimum.c.You must have the minimum amount of money in a separate account before you are allowed to open a savings account.d.You must deposit that much money into the account every month or your account will be closed. A
Roger wants to make a deposit into his savings account. He is depositing 2 checks, one for $125.62 and the other for $532.50. He would like to receive $40.00 in cash after the deposit. Calculate the amount that he will be depositing into his savings account.a.$658.12b.$618.12c.$743.74d.$698.12 B
Consider the following incomplete deposit ticket:How much cash did Liz receive? $458.57
You have decided both to open a savings account and to purchase a vehicle. You would like a savings account with the highest interest rate and a vehicle loan with a low interest rate. You currently have a checking account at Bank A. From the banks listed below, determine with which bank you should open a savings account and at which bank should you apply for your vehicle loan. a.Bank A for the car loan and Bank B for the savings accountb.Bank C for the car loan and Bank C for the savings accountc.Bank B for the car loan and Bank A for the savings accountd.Bank B for the car loan and Bank B for the savings account C
Consider the following incomplete deposit ticket:How much did Kay deposit in cash and coins?a.$404.57b.$213.51c.$93.44d.$284.50 C
Consider the following incomplete deposit ticket:Which of the following are possible amounts for the third check and the cash that Cindy deposited?a.no cash and a $303.68 checkb.$140.50 in cash and a $267.14 checkc.$99.32 in cash and a $155.55 checkd.$122.04 in cash and a $205.64 check D
Consider the following incomplete deposit ticket:What was Art’s total deposit?a.$1,701.23b.$1,545.83c.$1,856.63d.$1516.35 B
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Finance Flashcards

Finance Final

which of the following is a capital structure decision? determining how much debt should be assumed to fund a project OR deciding whether or not to purchase a new machine for the product line
which one of the following statements concerning a sole proprietorship is correct? the owner of a sole proprietorship is personally responsible for all of the company’s debts
which one of the following statements related to liquidity is correct? liquid assets are valuable to a firm
which one of the following accounts are included in working capital management? accounts payable, accounts receivable, inventory
which one of the following is (are) included in the market value of a firm but are excluded from the firm’s book value? value of management skills, value of the firm’s reputation, value of employee’s experience
which one of the following will increase the cash flow from assets, all else equal? decrease in net capital spending
your grandmother has promised to give you $5,000 when you graduate from college. she is expecting you to graduate two years from now. what happens to the present value of this gift if you delay your graduation by one year and graduate three years from now? decreases
Sara invested $500 six years ago at a 5% interest. she spends her earnings as soon as she earns any interest so she only receives interest on her initial $500 investment. which type of interest is Sara earning? simple interest
which one of the following accurately defines a perpetuity? unending equal payments paid at equal time intervals
which one of the following statements correctly states a relationship? time and present value are inversely related, all else held constant, given positive rates
which one of the following terms is used to describe a loan wherein each payment is equal in amount and includes both interest and principal? amortized loan
you are comparing two annuities which offer monthly payments of $2,500 for five years and pay 0.75 percent interest per month. annuity A will pay you on the first day of each month while annuity B will pay you on the last day of each month. which one of the following statements is correct concerning these two annuities? annuity B has a smaller present value than annuity A
which one of the following statements related to annuities and perpetuities is correct? a perpetuity comprised of $100 monthly payments is worth more than a three year annuity comprised of $100 monthly payments, given an interest rate of 12%, compounded monthly
which one of the following statements concerning interest rates is correct? the effective annual rate equals the annual percentage rate when interest is compounded annually OR savers would prefer monthly compounding over annual compounding given the same APR
the Fisher Effect is defined as the relationship between which of the following variables? real rates, inflation rates, and nominal rates
a bond has a market price that exceeds its face value. which of the following features currently apply to this bond? premium price, yield-to-maturity that is less than the coupon rate
Green Roof Inns is preparing a bond offering with a 6%, semiannual coupon and face value of $1,000. the bonds will be repaid in 10 years and will be sold at par. given this, which one of the following statements is correct? the bonds will sell at a premium if the market rate is 5.5%
an increase in which of the following will increase the current value of a stock according to the dividend growth model? divided amount, number of future dividends (provided the current number is less than infinite), dividend growth rate
the dividend growth model: assumes that dividends increase at a constant rate forever, can be used to compute a stock price at any point in time, can be used to value zero-growth stocks, requires the growth rate to be less than the required returns
which one of the following represents the capital gains yield as used in the dividend growth model? g
the internal rate of return is: discount rate which causes the net present value of a project to equal zero
which one of the following will decrease the net present value of a project? increasing the project’s initial cost at a time zero
which one of the following is a project acceptance indicator given an independent project with conventional cash flows? internal rate of return exceeds the required rate of return
a project has a net present value of zero. which one of the following best describes this project? the project’s present value of all cash inflows equals its present value of all cash outflows
the depreciation tax shield is best defined as the: amount of tax that is saved because of the depreciation expense
which one of the following should be included in the analysis of a new product? reduction in sales for a current product once the new product is introduced, increase in inventory needed for the new product, market value of a machine owned by the firm which will be used to produce the new product
which of the following best illustrates erosion as it relates to a hot dog stand located on the beach? selling fewer hot dogs because hamburgers were added to the menu
Bayside Marina just announced it is decreasing its annual dividend from $1.64 per share to $1.50 per share effective immediately. if the dividend yield remains at its pre-announcement level, then you know the stock price: decreased proportionately with the dividend decrease
if you excel in analyzing the future outlook of firms, you would prefer the financial markets be ______ form efficient so that you can have an advantage in the marketplace weak
which of the following statements is correct in relation to a stock investment? the capital gains yield can be positive/negative/zero, the total return can be positive/negative/zero
which one of the following best states the primary goal of financial management? increase (maximize) the current market value per share
which one of the following statements is correct? corporations can raise large amounts of capital generally easier than partnerships can
which form of business structure is most associated with agency problems? corporation
the decision to issue additional shares of stock is an example of which one of the following? capital structure decision
which one of the following parties has ultimate control of a corporation? shareholders
which one of the following are advantages of the corporate form of business ownership? limited liability, ability to raise capital, unlimited firm life
you want to have $1 million in your savings account when you retire. you plan on investing a single lump sum today to fund this goal. you are planning on investing in an account which will pay 7.5% annual interest. which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire? invest in a different account paying a higher rate of interest, retire later
Steve invested $100 two years ago at 10% interest. the first year, he earned $10 interest on his $100 investment. he reinvested the $10. the second year, her earned $11 on his $110 investment. the extra $1 he earned in interest the second year is referred to as: interest on interest
which one of the following is the financial statement that shows the accounting value of a firm’s equity as of a particular date? balance sheet
a bond’s coupon rate is equal to the annual interest divided by which one of the following? face value
all else constant, a bond will sell at ______ when the coupon rate is ______ the yield to maturity a discount; less than
the Fisher Effect primarily emphasizes the effects of ______ on an investor’s rate of return inflation
National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future. given this, one share of the firm’s stock is: priced the same as a $1 perpetuity
you cannot attend the shareholder’s meeting for Alpha United so you authorized another shareholder to vote on your behalf. what is the granting of this authority called? voting by proxy
which one of the following statements is correct? the capital gains yield is the annual rate of change in a stock’s price
which one of the following represents the dividend yield as used in the dividend growth model? D1 / P0
which one of the following will increase the net present value of a project? moving each of the cash inflows forward to a sooner time period
mutually exclusive projects are best defined as projects which: both require the total use of the same limited resource
the net book value of equipment will: decrease at a constant rate when straight line depreciation is used
Tracy purchased a stock for $20 a share last year and the stock is now selling for $23 a share. she received a total of $0.75 in dividends. which one of the following statements is correct in relation to this investment? the capital gains yield is positive
which one of the following statements is correct? the greater the volatility of returns, the greater the average return
you are aware that your neighbor trades stock based on confidential information he overhears at his workplace. this information is not available to the general public. this neighbor continually brags to you about the profits he earns on these trades. given this, you would tend to argue that the financial markets are at best ______ form efficient semi strong
which one of the following terms is defined as the mixture of a firm’s debt and equity financing? capital structure
which of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers? agency problem
the percentage of the next dollar you can earn that must be paid in taxes is referred to as the ______ tax rate marginal
an ordinary annuity is best defined by which of the following? equal payments paid at regular intervals over a stated time period
what is the interest rate charged per period multiplied by the number of periods per year called? annual percentage rate
which of the following statements related to interest rates are correct? when comparing loans, you should compare the effective annual rates; annual and effective interest rates are equal when interest is compounded annually
Mary just purchased a bond which pays $60 a year in interest. what is this $60 called? coupon
Bert owns a bond that will pay him $75 a year in interest plus a $1,000 principal payment at maturity. what is the $1,000 called? face value
currently, the bond market requires a return of 11.6% on the 10-year bonds issued by Winston Industries. the 11.6% is referred to as which one of the following? yield to maturity
High Country Builders currently pays an annual dividend of $1.35 and plans on increasing that amount by 2.5% each year. Valley High Builders currently pays an annual dividend of $1.20 and plans on increasing its dividend by 3% annually. given this information, you know for certain that the stock of High Country Builders’ has a lower ______ than the stock of Valley High Builders capital gains yield
a group of individuals got together and purchased all of the outstanding shares of common stock of DL Smith, Inc. what is the return that these individuals require on this investment called? cost of equity
all else constant, which one of the following will increase a firm’s cost of equity if the firm computes that cost using the security market line approach? assume the firm currently pays an annual dividend of $1 a share and has a beta of 1.2 an increase in the dividend amount
Textile Mills borrows money at a rate of 13.5%. this interest rate is referred to as the: cost of debt
Mason Webb has funds on deposit with Iron Range bank. the funds are currently earning 6% interest. if he withdraws $15,000 to purchase an automobile, the 6% interest rate can be best thought of as a(n): opportunity cost
the difference between a firm’s future cash flows if it accepts a project and the firm’s future cash flows if it does not accept the project is referred to as the project’s: incremental cash flows
which one of the following costs was incurred in the past and cannot be recouped? sunk
which one of the following is an example of a sunk cost? $1,200 paid to repair a machine last year
last year, T-bills returned 2% while your investment in large-company stocks earned an average of 5%. which one of the following terms refers to the difference between these two rates of return? risk premium
standard deviation is a measure of which one of the following? volatility
which one of the following is represented by the slope of the security market line? reward to risk ratio OR market risk premium
which one of the following are examples of diversifiable risk? earthquake damages an entire town, toy makers are required to improve their safety standards
which one of the following indicates a portfolio is being effectively diversified? a decrease in the portfolio standard deviation
which one of the following measures the amount of systematic risk present in a particular risky asset relative to the systematic risk present in the overall market? beta
the reward to risk ratio for stock A is less than the reward to risk ratio of stock B. stock A has a beta of 0.82 and stock B has a beta of 1.29. this information implies that: either stock A is overpriced or stock B is under-priced or both
when calculating the weighted average cost of capital (WACC) an adjustment is made for taxes because: the interest on debt is tax deductible
assume that a company has equal amounts of debt and common stock. an increase in the corporate tax rate of a firm will cause its weighted average cost of capital (WACC) to: fall
which of the following are advantages of the corporate form of business ownership? limited liability for firm debt, ability to raise capital, unlimited firm life
which of the following is included in a firm’s market value but yet is excluded from the firm’s book value? good reputation of the company
Winston Co. has a dividend-paying stock with a total return for the year of -6.5%. which one of the following must be true? the stock has a negative capital gains yield
which one of the following are definite indicators of an accept decision for an independent project with conventional cash flows? positive net present value, internal rate of return greater than the required rate
which one of the following statements related to capital gains is correct? an increase in unrealized capital gain will increase the capital gains yield
which two of the following are the most likely reasons why a stock price might not react at all on the day that new information related to the stock issuer is release? the information has no bearing on the value of the firm, the information was anticipated
which of the following statements are correct concerning diversifiable risks? diversifiable risks can be reduced by adding unrelated securities to your portfolio, there is no reward for accepting diversifiable risks, diversifiable risks are generally associated with an individual firm or industry
a firm’s cost of equity is: highly dependent upon the growth rate and risk level of the firm
Categories
Finance Flashcards

Finance Concept Questions

We can imagine the financial manager doing several things on behalf of the firm’s stockholders. For example, the manager might do the following: a. Make shareholders as wealthy as possible by investing in real assets.b. Modify the firm’s investment plan to help shareholders achieve a particular time pattern of consumption.c. Choose high- or low-risk assets to match shareholders’ risk preferences.d. Help balance shareholders’ checkbooks.However, in well-functioning capital markets, shareholders will vote for only one of these goals. Which one will they choose? a. Make shareholders as wealthy as possible by investing in real assets
Which of the following are investment decisions, and which are financing decisions?Should we stock up with inventory ahead of the holiday season? Investment decision
Which of the following are investment decisions, and which are financing decisions?Do we need a bank loan to help buy the inventory? Financing decision
Which of the following are investment decisions, and which are financing decisions?Should we develop a new software package to manage our inventory? Investment decision
Which of the following are investment decisions, and which are financing decisions?With a new automated inventory management system, it may be possible to sell off our Birdlip warehouse. Investment decision
Which of the following are investment decisions, and which are financing decisions?With the savings we make from our new inventory system, it may be possible to increase our dividend. Financing decision
Which of the following are investment decisions, and which are financing decisions?Alternatively, we can use the savings to repay some of our long-term debt. Financing decision
Which of the following forms of compensation is most likely to align the interests of managers and shareholders?A fixed salaryA salary linked to company profitsA salary that is paid partly in the form of the company’s shares A salary that is paid partly in the form of the company’s shares
Expenditure on research and development (Financial decision or Investment decision) Investment decision
A bank loan(Real asset or Financial asset) Financial asset
Listed on a stock exchange(Closely held corporation or Public corporation) Public corporation
Has limited liability (Partnership or Corporation) Corporation
Responsible for bank relationships (The treasurer or The controller) The treasurer
Agency cost(The cost resulting from conflicts of interest between managers and shareholders or The amount charged by a company’s agents such as the auditors and lawyers) The cost resulting from conflicts of interest between managers and shareholders
Which of the following statements always apply to corporations? Unlimited liability Limited life Ownership can be transferred without affecting operationsManagers can be fired with no effect on ownership Ownership can be transferred without affecting operationsManagers can be fired with no effect on ownership
Is the following an advantage in separating ownership and management in large corporations? Managers no longer have the incentive to act in their own interests. No
Is the following an advantage in separating ownership and management in large corporations? The corporation survives even if managers are dismissed. Yes
Is the following an advantage in separating ownership and management in large corporations? Shareholders can sell their holdings without disrupting the business. Yes
Is the following an advantage in separating ownership and management in large corporations? Corporations, unlike sole proprietorships, do not pay tax; instead, shareholders are taxed on any dividends they receive. No
Is the following a real asset or a financial asset?A share of stock Financial asset
Is the following a real asset or a financial asset?A personal IOU Financial asset
Is the following a real asset or a financial asset?A trademark Real asset
Is the following a real asset or a financial asset?A truck Real asset
Is the following a real asset or a financial asset?Undeveloped land Real asset
Is the following a real asset or a financial asset?The balance in the firm’s checking account Financial asset
Is the following a real asset or a financial asset?An experienced and hardworking sales force Real asset
Is the following a real asset or a financial asset?A bank loan agreement Financial asset
Company A pays its managers a fixed salary. Company B ties compensation to the performance of the stock.Which company’s compensation would most help to mitigate conflicts of interest between managers and shareholders? Company B
Company A pays its managers a fixed salary. Company B ties compensation to the performance of the stock. Other things equal, which company would experience the greatest variation in earnings? Company A
Periodic receipts of interest by the bondholder are known as:the coupon rate.a zero-coupon.the default premium.coupon payments. coupon payments.
True or FalseA bond’s rate of return is equal to its coupon payment divided by the price paid for the bond. False
If a bond offers a current yield of 5% and a yield to maturity of 5.45%, then the:bond has a high default premium.bond is selling at a discount.promised yield is not likely to materialize.bond must be a Treasury Inflation-Protected Security. bond is selling at a discount.
True or FalseA Treasury bond’s bid price will be lower than the ask price. True
When an investor purchases a $1,000 par value bond that was quoted at 97.162, the investor:receives $971.62 upon the maturity date of the bond.pays 97.162% of face value for the bond.pays $10,971.62 for a $10,000 face value bond.receives 97.162% of the stated coupon payments. pays 97.162% of face value for the bond.
What happens to the coupon rate of a $1,000 face value bond that pays $80 annually in interest if market interest rates change from 9% to 10%?The coupon rate remains at 8%.The coupon rate increases to 10%.The coupon rate remains at 9%.The coupon rate decreases to 8%. The coupon rate remains at 8%.
Investors who purchase bonds having lower credit ratings should expect:lower coupon payments.higher purchase prices.lower yields to maturity.higher default possibilities. higher default possibilities.
True or FalseAsked yields can be guaranteed only to investors who buy a bond and hold it until maturity.TrueFalse True
Bonds that have a Standard & Poor’s rating of BBB or better are considered to be investment-grade bonds.TrueFalse True
The coupon rate of a bond equals:its yield to maturity.the yield to maturity when the bond sells at a discount.a defined percentage of its face value.the annual interest divided by the current market price. a defined percentage of its face value.
Which one of the following is fixed for the life of a given bond?Current priceYield to maturityCurrent yieldCoupon rate Coupon rate
A bond’s yield to maturity takes into consideration:price changes but not the current yield.neither the current yield nor any price changes.current yield but not any price changes.both the current yield and any price changes. both the current yield and any price changes.
The current yield of a bond can be calculated by:dividing the price by the par value.multiplying the price by the coupon rate.dividing the annual coupon payments by the price.dividing the price by the annual coupon payments. dividing the annual coupon payments by the price.
How does a bond dealer generate profits when trading bonds?By lowering the bond’s coupon rate upon resaleBy maintaining bid prices higher than ask pricesBy maintaining bid prices lower than ask pricesBy retaining the bond’s next coupon payment By maintaining bid prices lower than ask prices
Which one of the following must be correct for a bond currently selling at a premium?Its current yield is lower than its coupon rate.Its yield to maturity is higher than its coupon rate.Its coupon rate is lower than the current market rate on similar bonds.Its coupon rate is variable. Its current yield is lower than its coupon rate.
A bond’s par value can also be called its:market value.face value.present value.coupon payment. face value.
True or FalseThe current yield measures the bond’s total rate of return.TrueFalse False
True or FalseA bond’s payment at maturity is referred to as its face value.TrueFalse True
If a bond is priced at par value, then:it must be a zero-coupon bond.its coupon rate equals its yield to maturity.it has a very low level of default risk.the bond is quite close to maturity. its coupon rate equals its yield to maturity.
Use of a profitability index to evaluate mutually exclusive projects in the absence of capital rationing:will provide the same rankings as an NPV criterion.will maximize NPV, but not IRR.is technically impossible.can result in misguided selections. can result in misguided selections.
A project’s opportunity cost of capital is:equal to the average return on all company projects.the return earned by investing in the project.the foregone return from investing in the project.designed to be less than the project’s IRR. the foregone return from investing in the project.
If the opportunity cost of capital for a lending project exceeds the project’s IRR, then the project has a(n):positive profitability index.positive NPV.acceptable payback period.negative NPV. negative NPV.
When mutually exclusive projects have different lives, the project that should be selected will have the:highest NPV, discounted at the opportunity cost of capital.lowest equivalent annual cost.highest IRR.longest life. lowest equivalent annual cost.
When a project’s internal rate of return equals its opportunity cost of capital, then the:project should be rejected.net present value will be positive.net present value will be zero.project has no cash inflows. net present value will be zero.
When managers cannot determine whether to invest now or wait until costs decrease later, the rule should be to:invest now to maximize the NPV.postpone until costs reach their lowest level.invest at the date that provides the highest NPV today.postpone until the opportunity cost reaches its lowest level. invest at the date that provides the highest NPV today.
The decision rule for net present value is to:reject all projects lasting longer than 10 years.reject all projects with rates of return exceeding the opportunity cost of capital.accept all projects with positive net present values.accept all projects with cash inflows exceeding the initial cost. accept all projects with positive net present values.
Firms that make investment decisions based on the payback rule may be biased toward rejecting projects:with late cash inflows.with short lives.that have negative NPVs.with long lives. with long lives.
A project can have as many different internal rates of return as it has:changes in the sign of the cash flows.cash outflows.periods of cash flow.cash inflows. changes in the sign of the cash flows.
When projects are mutually exclusive, selection should be made according to the project with the:highest IRR.highest NPV.longer life.larger initial size. highest NPV.
Which one of the following best illustrates the problem imposed by capital rationing?Accepting projects with the highest IRRs firstBypassing projects that have positive NPVsAccepting projects with the highest NPVs firstBypassing projects that have zero IRRs Bypassing projects that have positive NPVs
The internal rate of return is most reliable when evaluating:a single project with cash outflows at time 0 and the final year and inflows in all other time periods.a single project with alternating cash inflows and outflows over several years.mutually exclusive projects of differing sizes.a single project with only cash inflows following the initial cash outflow. a single project with only cash inflows following the initial cash outflow.
When a manager does not accept a positive-NPV project, shareholders face an opportunity cost in the amount of the:soft capital rationing budget.project’s initial cost.project’s discounted cash inflows.project’s NPV. project’s NPV.
Which of the following investment decision rules tends to improperly reject long-lived projects?Payback periodProfitability indexNet present valueInternal rate of return Payback period
Soft capital rationing is imposed upon a firm from _____ sources, while hard capital rationing is imposed from _____ sources.internal; internalexternal; externalinternal; externalexternal; internal internal; external
The profitability index selects projects based on the:highest net discounted value at time zero.highest internal rate of return.largest return per dollar invested.largest dollar investment per rate of return. largest return per dollar invested.
Which one of the following changes will increase the NPV of a project?A decrease in the discount rateAn increase in the initial cost of the projectA decrease in the size of the cash inflowsA decrease in the number of cash inflows A decrease in the discount rate
Which of the following investment criteria takes the time value of money into consideration?Profitability index, internal rate of return, and net present valueInternal rate of return and net present value onlyProfitability index and net present value onlyNet present value only Profitability index, internal rate of return, and net present value
Which one of the following is a situation where a new project will require a cash investment in net working capital?Inventory levels will be reduced when the project is introduced.The project will require additional inventory which will be financed by a supplier.All sales related to the project will be cash sales to a subsidiary.The project will increase inventory more than accounts payable. The project will increase inventory more than accounts payable.
The rationale for not including sunk costs in capital budgeting decisions is that they:have no incremental effect.reduce the project’s net present value.revert at the end of the investment.are usually small in magnitude. have no incremental effect.
Which one of the following changes in working capital is least likely, given an increase in the overall level of sales?A decrease in accounts receivableAn increase in inventoriesAn increase in accounts payableAn increase in notes payable A decrease in accounts receivable
The opportunity cost of an asset:is typically ignored in capital budgeting.can differ depending on market conditions.should be depreciated annually.is important only for parcels of land. can differ depending on market conditions.
Which one of the following methods will provide a correct analysis for capital budgeting purposes?Discounting nominal cash flows with real rates.Discounting nominal cash flows with either real or nominal rates.Discounting real cash flows with real rates.Discounting real cash flows with nominal rates. Discounting real cash flows with real rates.
Which one of these represents a cash outflow for a project?Accrued expensesA sunk costDepreciationIncrease in accounts receivable Increase in accounts receivable
When a depreciable asset is ultimately sold, the sales price is:nontaxable only if accelerated depreciation was used.taxable to the extent that the sales price exceeds book value.nontaxable.fully taxable. taxable to the extent that the sales price exceeds book value.
Allocations of overhead should not affect a project’s incremental cash flows unless the:overhead will not be recovered at the end of the project.project actually changes the total amount of overhead expenses.accountant is required to allocate costs to this project.overhead is not currently fully allocated to existing projects. project actually changes the total amount of overhead expenses.
You are evaluating a new project that will introduce a revolutionary new product that will be produced by a new, highly efficient machine. Which one of these will lower the net present value of that project?The increase in annual depreciation resulting from the asset purchaseA reduction in the firm’s total variable costs due to the purchase of the new machineA loss of current sales due to the introduction of the new productThe sale of the machine after it is fully depreciated A loss of current sales due to the introduction of the new product
Which one of the following capital budgeting proposals is most apt to be associated with a conflict of interests?The proposal to solve pollution problems cited by the EPAThe proposal with the longest payback periodThe proposal with the highest IRR and quickest paybackThe proposal with the highest NPV The proposal with the highest IRR and quickest payback
If sensitivity analysis concludes that the largest impact on profits would come from changes in the sales level, then:variable costs should be traded for fixed costs.fixed costs should be traded for variable costs.additional marketing analysis may be beneficial before proceeding.the project should not be undertaken. additional marketing analysis may be beneficial before proceeding.
Which one of the following changes, if of a sufficient magnitude, could turn a negative NPV project into a positive NPV project?An increase in the discount rateA decrease in the fixed costsA decrease in the estimated annual salesAn increase in the initial investment A decrease in the fixed costs
The difference between an NPV break-even level of sales and an accounting break-even level of sales is the:consideration of opportunity cost.inclusion of income taxes.consideration of interest expense.allowance of the sales level to vary in response to changes in demand. consideration of opportunity cost.
The purpose of sensitivity analysis is to show:how price changes affect break-even volume.seasonal variation in product demand.the optimal level of capital expenditures.how variables in a project affect profitability. how variables in a project affect profitability.
Which one of the following techniques may be more appropriate to analyze projects with interrelated variables?Scenario analysisDOL analysisSensitivity analysisBreak-even analysis Scenario analysis
What effect will a reduction in the cost of capital have on the accounting break-even level of revenues?This cannot be determined without knowing the length of the investment horizon.It reduces the break-even level.It has no effect on the break-even level.It raises the break-even level. It has no effect on the break-even level.
Firms that lack competitive advantages will:be forced to operate with a high degree of operating leverage.be forced to capture larger market shares to be profitable.have difficulty finding positive NPV projects for investment.avoid the need to conduct sensitivity analyses. have difficulty finding positive NPV projects for investment.
The accounting break-even level of sales represents the point where:variable costs are covered.fixed costs, variable costs, and depreciation are covered.fixed costs and variable costs are covered.fixed costs are covered. fixed costs, variable costs, and depreciation are covered.
The likely effect of discounting nominal cash flows with real interest rates will be to:make an investment’s NPV appear more attractive.correctly calculate an investment’s NPV, regardless of expected inflation.correctly calculate an investment’s NPV if inflation is expected.make an investment’s NPV appear less attractive. make an investment’s NPV appear more attractive.
Analysis results indicate that a project’s level of success is primarily dependent upon the firm controlling the variable costs. What type of analysis was conducted?Scenario analysisSensitivity analysisReal option analysisBreak-even analysis Sensitivity analysis
The appropriate opportunity cost of capital is the return that investors give up on alternative investments that:earn the risk-free rate of return.are included in the S&P 500 index.earn the average market rate of return.possess the same level of risk. possess the same level of risk.
Which one of these is considered to be the safest investment?U.S. Treasury bondsCommon stockU.S. Treasury billPreferred stock U.S. Treasury bill
The wider the dispersion of returns on a stock, the:lower the variance.lower the expected rate of return.lower the real rate of return.higher the standard deviation. higher the standard deviation.
An estimation of the opportunity cost of capital for projects that have an “average” level of risk is the rate of return on:Treasury bills.the market portfolio minus the rate of return on Treasury bills.Treasury bonds plus a maturity premium.the market portfolio. the market portfolio.
The variance of a stock’s returns can be calculated as the:average value of squared deviations from the mean.average value of deviations from the mean.sum of the deviations from the mean.square root of the average value of deviations from the mean. average value of squared deviations from the mean.
Which one of the following security classes has the highest standard deviation of returns?Treasury billsCorporate bondsLong-term Treasury bondsCommon stocks Common stocks
If you were willing to bet that the overall stock market was heading up on a sustained basis, it would be logical to invest in:low beta stocks.high beta stocks.stocks that plot below the security market line.stocks with large amounts of unique risk. high beta stocks.
If a security plots below the security market line, it is:offering too little return to justify its risk.underpriced, a situation that should be temporary.ignoring all of the security’s unique risk.a defensive security, which expects to offer lower returns. offering too little return to justify its risk.
Macro events only are reflected in the performance of the market portfolio because:the unique risks have been diversified away.the market portfolio contains only risk-free securities.the firm-specific events would be too numerous to quantify.only macro events are tracked by economists. the unique risks have been diversified away.
When the overall market experiences a decline of 8%, investors with portfolios of aggressive stocks will probably experience portfolio:losses of less than 8%.gains of less than 8%.gains greater than 8%.losses greater than 8%. losses greater than 8%.
The return on a security includes premiums for:time value of money and market risk.unique risk and firm-specific risk.market risk and unique risk.diversification and portfolio risk. time value of money and market risk.
Treasury bonds have provided a higher historical return than Treasury bills, which can be attributed to their:greater exposure to interest rate risk.higher level of unique risk.greater default risk.illiquidity. greater exposure to interest rate risk.
Which one of the following risks is most important to a well-diversified investor in common stocks?Unsystematic riskDiversifiable riskMarket riskUnique risk Market risk
The CAPM provides a model of determining expected security returns that is:excellent for high beta stocks.precise in its calculations of risk premiums.imprecise, but generally an acceptable guideline.excellent for all well-diversified portfolios. imprecise, but generally an acceptable guideline.
he slope of the regression line that exhibits the past relationship between a stock’s returns and the market’s returns is the:market’s beta.stock’s standard deviation.stock’s beta.market risk premium. stock’s beta.
Which one of the following companies is most apt to be exposed to the least amount of macro risk?A regional airlineA large producer of flourA major commercial bankA machine tool manufacturer A large producer of flour
The basic tenet of the CAPM is that a stock’s expected risk premium should be:greater than the expected market return.proportionate to the market return.greater than the risk-free rate of return.proportionate to the stock’s beta. proportionate to the stock’s beta.
Which one of these is a specific risk?Inflation increase of 2.3%Revision to the corporate tax lawsReduction in the overall economic outputRetirement of a company executive Retirement of a company executive
Investment risk can best be described as the:elimination of macro risk through diversification.level of systematic risk for an undiversified investor.dispersion of possible returns.possibility of changes in the cost of capital. dispersion of possible returns.
What type of risk is properly reflected in a project’s discount rate?Diversifiable riskUnique riskTotal riskMarket risk Market risk
WACC can be used to determine the value of a firm by discounting the firm’s:free cash flows.cash inflows.after-tax net profits.pretax profits. free cash flows.
The company cost of capital is the return that is expected on a portfolio of the company’s:existing securities.debt securities.proposed securities.equity securities. existing securities.
To calculate the present value of a business, the firm’s free cash flows should be discounted at the firm’s:aftertax cost of debt.weighted-average cost of capital.cost of equity.pre-tax cost of debt. weighted-average cost of capital.
Which one of the following changes offers the greatest chance of changing a project’s NPV from negative to positive?Decreasing the marginal tax rateSubstituting preferred stock for debtSelling the debt at less than par valueReducing the risk level of the project Reducing the risk level of the project
A firm’s WACC:is the proper discount rate for every project the firm undertakes.is used to value all of the firm’s existing projects.is a benchmark discount rate that is adjusted for the riskiness of each project.is an informational value only and should never be used as a discount rate. is a benchmark discount rate that is adjusted for the riskiness of each project.
Which one of the following statements is incorrect concerning the equity component of the WACC?The value of retained earnings is excluded.There is a tax shield on the dividends paid.Preferred equity is a separate component of WACC.Market values should be used in the calculations. There is a tax shield on the dividends paid.
A firm is considering expanding its current operations and has determined the internal rate of return on that expansion is 12.2%. The firm’s WACC is 11.8%. Given this, you know the:appropriate discount rate for the project is between 11.8% and 12.2%.expansion should be undertaken as it has a positive net present value.project will have a lower debt-equity ratio than the firm’s current operations.project has slightly more risk than the firm’s current operations. expansion should be undertaken as it has a positive net present value.
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Finance Flashcards

Personal Finance Quiz 2

Money management refers to Day-to-day financial activities.
Which of the following is a component of money management? Storing and maintaining personal financial records and documents. Creating a balance sheet. Creating and implementing a plan for spending and saving. Creating a cash flow statement. All of these choices are components of money management.Answer: All of these choices are components of money management.
A personal balance sheet reports Items owned, amounts owed, and your net worth.
Which of the following is a liquid asset? Savings/money market accounts Cash surrender value of life insurance Checking account balance Money market accounts All of these are liquid assetsAnswer: All of these are liquid assets.
The amount you would have left if all assets were sold and all debts were paid in full is called your Net worth.
The equation to calculate net worth is Assets minus Liabilities = Net worth.
Which of the following situations describes a person who could be insolvent? Assets $56,000; annual expenses $60,000 Assets $78,000; net worth $22,000 Liabilities $45,000; net worth $6,000 Assets $40,000; liabilities $55,000Annual cash inflows $45,000; liabilities $50,000Insolvency occurs when liabilities, $55,000, far exceed assets, $40,000.
Which of the following is a cash inflow? Payment for rent Purchase of groceries Payment for loan Income from employment (correct)Payment for medical expenses
A current ratio of 2 means $2 in liquid assets are available for every $1 of current liabilities.
A debt ratio of 0.5 indicates For every dollar of net worth, debt equals $0.50.
Which of the following ratios indicates that liquid assets are available to pay current liabilities for a household? Current ratio
Discretionary income equals Money left over after paying for housing, food, and other necessities.
An example of a variable expense is a(n) Mortgage or rent payment. Installment loan payment. Monthly train ticket for commuting to work. Monthly allocation for life insurance. Electric bill. (correct)
An example of a fixed expense is Medical expenses. Gifts. Utilities. Home rental payment. (Correct)Recreation.
When household budgets must be cut, which of the following categories would be most difficult to cut? Auto insuranceWhen household budgets must be cut, spending is most frequently reduced for vacations, dining out, cleaning and lawn services, cable/internet service, and charitable donations.
The document that would tell you what you received and spent over the past month is the Cash flow statement.
A family with $100,000 in assets and $60,000 of liabilities would have a net worth of $40,000.Assets minus Liabilities = $100,000 − 60,000 = $40,000.
Given the following information, calculate the net worth: Assets = $8,000Cash inflows = $6,000Cash outflows = $4,500Liabilities = $5,000 $3,000
Given the following information, calculate the debt ratio percentage: Liabilities = $25,000Liquid assets = $5,000Monthly credit payments = $800Monthly savings = $760Net worth = $75,000Take-home pay = $2,300Gross income = $3,500Monthly expenses = $2,050 33.33 percentLiabilities/Net worth = $25,000/$75,000 = 0.3333 = 33.33%.
Given the following information, calculate the current ratio: Liquid assets = $5,000Monthly credit payments = $800Monthly savings = $760Net worth = $75,000Current liabilities = $2,000Take-home pay = $2,300Gross income = $3,500Monthly expenses = $2,050 2.50Liquid assets/Current liabilities = $5,000/$2,000 = 2.50.
Given the following information, calculate the liquidity ratio: Liabilities = $25,000Liquid assets = $5,000Monthly credit payments = $800Monthly savings = $760Net worth = $75,000Current liabilities = $2,600Take-home pay = $2,300Gross income = $3,500Monthly expenses = $2,050 2.44Liquid assets/Monthly expenses = $5,000/$2,050 = 2.44.
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Finance Flashcards

Finance Chapters 9,10, and 11

The pattern of cash flow stream that is the most difficult to use when evaluating projects? Noncoventional Flow
A conventional cash flow pattern associated with capital investment projects consists of an initial ___________ outflow followed by a series of inflows
Cash outlays that had been previously made and have no effect on the cash flows relevant to a current decision are called _________ sunk cost
_________ projects have the same function; the acceptance of one ________ the others from consideration Mutually exclusive; eliminates
A firm with limited dollars available for capital expenditures is subject to _________ capital rationing
A non – conventional cash flow pattern associated with capital investment projects consists of an initial outflow followed by a series of both cash inflows and outflows
The _________ reflects the return that must be earned on the given project to compensate the firm’s owners adequately according to the project’s variability of cash flows risk – adjusted discount rate
A tax adjustment must be made in determining the cost of _________ long – term debt
A $60,000 outlay for a new machine with a usable life of 15 years is called ________ capital expenditure
The ________ is the rate of return a firm must earn on its investments in projects in order to maintain the market value of its stock cost of capital
The cost of capital reflects the cost of funds over a long – run time period
All of the following are motives for capital budgeting expenditures EXCEPT invention
Relevant cash flows for a project are best described as _________ incremental cash flows
Examples of sophisticated capital budgeting techniques include all of the following EXCEPT payback period
__________ projects do not compete with each other; the acceptance of one _________ the others from consideration Independent; does not eliminate
Initial cash flows and subsequent operating cash flows for a project are sometimes referred to as relevant cash flows
__________ is the process of evaluating and selecting long – term investments consistent with the firm’s goal of owner wealth maximization Capital budgeting
The __________ approach is used to convert the net present value of unequal – lived projects into an equivalent annual amount (in net present value terms) annualized net present value
The first step in the capital budgeting process is proposal generation
Some firms use the payback period as a decision criterion or as a supplement to sophisticated decision techniques, because it can be viewed as a measure of risk exposure because of its focus on liquidity
The __________ is the firm’s desired optimal mix of debt and equity financing target capital structure
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Finance Flashcards

Personal Finance Unit 1

The actual cost-of-living increase for household will be Either greater than or less than inflation rate reported by cpi depending on household necessities purchased
And example of a personal opportunity cost would be Time comparing several brands of computers
The saving component of financial planning focuses on long-term security and includes A regular savings plan for emergencies
First step of financial planning process Determine your current financial situation
Attempts to increase income through employment are parts of the ____ Component of financial planning
The risk or falling of prices that causes changes in buying power is referred to as ____ risk Inflation
Every decision involves uncertainty which is referred to as Evaluating risk
Wilson wants to deposit $150 into account earning 4% for next three years what type of computation would he use to determine amount he will have Future value of annuity
Davis deposit money for vacation after graduate school which formula to determine amount for vacation Future value of a single amount
If you begin saving $2000 a year at 5% for nine years what will funds grow Use exhibit 1-3 page 12$22,054
The tangible and intangible factors that create a less than desirable situation is referred to as____ risk Personal
The problem of bankruptcy is associated with overuse and miss use of credit in the ___component of financial planning Borrowing
If Melinda estimates her $100 weekly grocery bill will increase at an annual inflation rate of 4% what will it be in three years $112.50
Future value computations are often referred to as Compounding
The difficulty of converting savings and investments to cash is referred to as____ ridj Liquidity
Increased consumer saving and investing is likely to be accompanied by Lower interest-rates
______ goals related to infrequently purchase expensive items Durable product
The time value of money refers to Increases in an amount of money as a result of interest earned
Brown wants to go to a concert but is scheduled to work if you get it covered what kind of cost is he incurring Personal opportunity costs relating to time
Rhonda wants to take out a four-year loan for a car what type of computation what she used to calculate monthly payments Present value of an annuity
To develop financial goals one should Identify specific realistic goals that are measurable with a timeframe an action plan
Who is less likely to be harmed by inflation Borrowers
Which is an example of financial opportunity cost Saving money instead of spending it today
The rule of 72 is Used to estimate how fast prices will double using a given annual inflation rate using a given anyone inflation rate
Opportunity cost refers to Trade off of a decision
The step in the personal financial planning process that follows” create and implement your final action plan” is Review and revise the plan
The cpi measures Average change in prices of goods and services of urban consumers
Changes in the cost of money is referred to as ____ risk Interest-rate
Annual earnings on a $500 certificate of deposit earnings 3% would be $15
The major function of personal finance planning is to Achieve personal economic satisfaction
The borrowing component in a financial plan relates to Maintaining control over credit buying habits
A savor or investor should expect to receive a risk premium for Higher uncertainty of getting his or her money back
If an inflation is expected to be 8% how long will it take prices to double Nine years
Using services a financial institutions or specialist to seek relevant info is done in which step in financial planning Evaluate your alternations
If a $10,000 investment earns interest of $500 in one year what is rate of return ((10,500-10,000)/10,000)•100= .5%
Financial experts recommend a debt/ payments ratio of less than ____ of take home pay 20%
The document that tells you what you received and spent over the past month is Cash flow statement
What appears as a cash outflow on a cash flow statement Variable expenses
A Home file should be used to keep Financial records for current needs
Which of the following ratios indicates that liquid assets are available to pay current liabilities Current ratio
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Finance Flashcards

Finance 301 Quiz 2

Which of the following is true regarding balance sheets?A. They report, for a certain interval of time, the net assets generated, the net assets consumed, and the net income. B. They report, for a certain interval of time, the resources of a company, the obligations of a company, and the equity of the owners. C. They report, for a certain interval of time, the amount of cash generated and consumed by a company. D. They report, as of a certain point in time, the resources of a company, the obligations of a company, and the equity of the owners.E. They report, as of a certain point in time, the resources and net income of a company. D. They report, as of a certain point in time, the resources of a company, the obligations of a company, and the equity of the owners.
Which of the following is true regarding income statements?A. They report, as of a certain point in time, the company’s assets, liabilities, and net incomeB. They report, for a certain interval of time, the net assets generated, the net assets consumed, and the net incomeC. They report, as of a certain point in time, the amount of cash and net income generatedD. They report, as of a certain point in time, the net assets generated, the net assets consumed, and the net incomeE. They report, for a certain interval of time, the resources of a company, the obligations of a company, and the equity of the owners B. They report, for a certain interval of time, the net assets generated, the net assets consumed, and the net income
The Matching Principle in GAAP:A. Matches sales to inventory shipmentsB. Matches the expenses related to a sale in the same periodC. Matches ROE to a firm’s capital investmentD. Matches costs of goods sold with the inventory on the balance sheetE. Matches revenues with profits on the income statement B. Matches the expenses related to a sale in the same period
According to the Revenue Recognition Principle in GAAP:A. Dividends can be paid only after taxable income is positiveB. Expenses can be realized when cash payment is madeC. Companies can realize revenue only if the transaction is profitableD. Revenue is recognized when a good or service is provided, not when the money is receivedE. Companies can realize certain gains on their operating books, while omitting them from their tax books D. Revenue is recognized when a good or service is provided, not when the money is received
Given the following data, identify the correct gross profit and operating profit. Assume no outside information other than that which is provided. Sales: $2000Depreciation: $100Interest Expense: $200Cost of Goods Sold: $1100SG&A: $300Taxes: $100 A. Gross Profit = $900, Operating Profit = $500B. Gross Profit = $900, Operating Profit = $300C. Gross Profit = $600, Operating Profit = $200D. Gross Profit = $600, Operating Profit = $300E. Gross Profit = $800, Operating Profit = $200 A. Gross Profit = $900, Operating Profit = $500
Which of the following statements regarding the cash flow statement is true?A. Working capital changes are accounted for as cash flows from operating activities.B. Financing activities include ONLY long-term borrowings.C. A typical company has a positive cash flow from investing activities.D. The purchase of property, plant, and equipment is classified as a financing activity.E. Accounts Payable is classified as a cash flow from financing activities. A. Working capital changes are accounted for as cash flows from operating activities.
Which of the following statements regarding the cash flow statement is true?A. Changes in accounts receivables is a financing activity B. The disposal or acquisition of plant, property & equipment is classified as an investing activity.C. Depreciation is classified as an investing activity.D. Investing activities are the main source of a company’s positive cash flow.E. Changes in cash flow perfectly match with a company’s net income. B. The disposal or acquisition of plant, property & equipment is classified as an investing activity.
A common size income statement expresses all accounts as a percentage of _______?A. Cost of Goods SoldB. Net IncomeC. Operating IncomeD. ExpensesE. Net Sales E. Net Sales
A common size balance sheet expresses all accounts as a percentage of______?A. RevenuesB. Total AssetsC. Retained EarningsD. Total Current LiabilitiesE. Cash B. Total Assets
11. Which current asset is omitted when calculating the Quick Ratio?A. CashB. Accounts ReceivableC. InventoryD. Short Term InvestmentsE. Property, Plant & Equipment C. Inventory
Which of the following a measure of profitability?A. Operating MarginB. Days Sales OutstandingC. Days Payables OutstandingD. Fixed Asset TurnoverE. Current Ratio A. Operating Margin
Which of the following is a measure of company’s liquidity?A. Fixed Assets TurnoverB. Profit MarginC. Return on EquityD. Quick RatioE. Return on Assets D. Quick Ratio
On the income statement, which of the following line-items represents the amount the company’s suppliers receive? A. RevenueB. Selling, general, and administrative expensesC. Interest expenseD. Cost of goods soldE. Taxes D. Cost of goods sold
On the income statement, which of the following line-items represents the amount the company’s creditors receive? A. Selling, general, and administrative expensesB. Interest expenseC. Cost of goods soldD. Profit before taxesE. Taxes B. Interest expense
If lenders want to assess the likelihood of borrowers being able to make interest payments, they would most likely look at which ratios?A. Activity ratiosB. Liquidity ratiosC. Inventory ratiosD. Profitability ratiosE. Receivables ratios B. Liquidity ratios
If investors want to assess how efficient a company is at using its productive resources, they would most likely look at which ratios? A. Activity ratiosB. Leverage ratiosC. Liquidity ratiosD. Profitability ratiosE. Inventory ratios A. Activity ratios
Given the following information from Chase Corporation’s Balance Sheet, calculate its Current Liabilities.Current Assets = $250,000Fixed Assets = $900,000Long-term debt = $350,000Shareholder’s equity = $700,000A. $50,000B. $100,000C. $150,000D. $200,000E. $250,000 B. $100,000
On the Balance Sheet, what reflects that owners residual interest in the firm?A. Current AssetsB. Fixed AssetsC. Current LiabilitiesD. Long Term DebtE. Shareholder Equity E. Shareholder Equity
On the Income Statement, what is the difference between revenues and cost of goods sold during a particular accounting period?A. Gross MarginB. Net IncomeC. Income Tax ExpenseD. Non-Operating ExpenseE. Operating Margin (EBIT) A. Gross Margin
Calculate the ROE using the DuPont Model for a company with the following data:Profit margin= 15%Total Asset Turnover= 2.0Inventory Turnover= 1.5Equity Multiplier=1.2Current Ratio = .5A. 36%B. 30%C. 45%D. 7.5%E. 54% A. 36%
Calculate cash flows from operations for Company ABC during 2010 given the following information (all values in millions):Revenue: $850Cost of Goods Sold: $450Gross Profit Margin: $400Sales, General & Administrative Expense (SG&A): $100Depreciation: $50Operating Profit: $250Taxes: $100Net Income: $150A. $50 mnB. $150 mnC. $200 mnD. $250 mnE. $300 mn C. $200 mn
In general, a stock with a high P/E ratio as compared to other companies in the same industry implies:A. that investors have high growth expectations for the companyB. that investors believe the company’s stock is overpricedC. that investors have low growth expectations for the companyD. that the company’s stock is inexpensive compared to its earningsE. that investors are only willing to pay a low price for the stock A. that investors have high growth expectations for the company
Which of the following activities is classified as Operating Activities on the Statement of Cash Flows?A. Dividends ReceivedB. Sale of PlantC. Proceeds from Stock IssuanceD. Sale of Long-Term AssetsE. Dividend Payments to Shareholders A. Dividends Received
2. Which of the following activities is classified as Investing Activities on the Statement of Cash Flows?A. Dividends ReceivedB. Payments to SuppliersC. Proceeds from Stock IssuanceD. Sale of Long-Term AssetsE. Dividend Payments to Shareholders D. Sale of Long-Term Assets
33. The annual report publicly traded companies must file with the SEC is the _______A. 10QB. 8KC. 4CD. 10KE. 401K D. 10K
34. The quarterly report publicly traded companies must file with the SEC is the _______A. 10QB. 8KC. 4CD. 10KE. 401K A. 10Q
Calculate the Times Interest Earned ratio for a company with the following data:Sales: $1,000,000EBIT: $250,000Net Income: $50,000Interest expense: $125,000Tax expense: $75,000A. 2B. 8C. 20D. 4E. 3.33 A. 2EBIT/Interest Expense
A general rule used by companies in determining whether or not to make an investment is:A. Invest when cost of capital is equal to expected return on investment.B. Invest when there is a positive expected return on investment.C. Invest when cost of capital is greater than return on investment.D. Invest when net present value of cash flows is negative.E. Invest when expected return on investment is greater than cost of capital. E. Invest when expected return on investment is greater than cost of capital.
Given the following information, which company collects payments from its customers the fastest?Barnes & Royalty: Inventory Turnover = 4; Days Sales Outstanding = 25; Profit Margin = 5%JC Quarters: Inventory Turnover = 2.75; Days Sales Outstanding = 45; Profit Margin = 3.3%Motherboard City: Inventory Turnover = 10; Days Sales Outstanding = 30; Profit Margin = 7.5%Bullseye: Inventory Turnover = 25; Days Sales Outstanding = 50; Profit Margin = 12%American Hawk: Inventory Turnover = 75; Days Sales Outstanding = 35; Profit Margin = 15%A. Barnes & RoyaltyB. JC QuartersC. Motherboard CityD. BullseyeE. American Hawk A. Barnes & Royalty
Given the following information, which company collects manages its inventory the best?Barnes & Royalty: Inventory Turnover = 4; Days Sales Outstanding = 25; Profit Margin = 5%JC Quarters: Inventory Turnover = 2.75; Days Sales Outstanding = 45; Profit Margin = 3.3%Motherboard City: Inventory Turnover = 10; Days Sales Outstanding = 30; Profit Margin = 7.5%Bullseye: Inventory Turnover = 40; Days Sales Outstanding = 50; Profit Margin = 12%American Hawk: Inventory Turnover = 15; Days Sales Outstanding = 35; Profit Margin = 15%A. Barnes & RoyaltyB. JC QuartersC. Motherboard CityD. BullseyeE. American Hawk D. BullseyeHighest Inventory Turnover
Given the following information, which company is the most liquid?CNP Bank: Current Ratio = 2.25; Asset Turnover = 1.25; Debt/Equity Ratio = 1.5Wells Dakota: Current Ratio = 2.75; Asset Turnover = 3; Debt/Equity Ratio = 1MetroBank: Current Ratio = .75; Asset Turnover = 4.5; Debt/Equity Ratio = 2.5PJWebb Chase: Current Ratio = 1.25; Asset Turnover = .75; Debt/Equity Ratio = .5Bank of the States: Current Ratio = 1; Asset Turnover = .25; Debt/Equity Ratio = 2.25A. CNP BankB. Wells DakotaC. MetroBankD. PJWebb ChaseE. Bank of the States B. Wells Dakota
Given the following information, which company is the best at generating income from its assets?CNP Bank: Current Ratio = 2.25; Asset Turnover = 1.25; Debt/Equity Ratio = 1.5Wells Dakota: Current Ratio = 2.75; Asset Turnover = 3; Debt/Equity Ratio = 1MetroBank: Current Ratio = .75; Asset Turnover = 4.5; Debt/Equity Ratio = 2.5PJWebb Chase: Current Ratio = 1.25; Asset Turnover = .75; Debt/Equity Ratio = .5Bank of the States: Current Ratio = 1; Asset Turnover = .25; Debt/Equity Ratio = 2.25A. CNP BankB. Wells DakotaC. MetroBankD. PJWebb ChaseE. Bank of the States C. MetroBankHighest Asset turnover
Using the following data, calculate the gross margin:Sales: $800,000Cost of Goods Sold: $400,000Interest Expense: $25,000Operating Expenses: $75,000 Tax expense: $100,000A. 25%B. 40%C. 30%D. 20%E. 50% E. 50%
You are analyzing the financial statements of Dell and notice that the company’s receivables turnover ratio has increased over time. What might you conclude from this observation?A. This is good because it indicates suppliers are getting paid faster.B. This is good because it suggests that less funds are invested in inventoriesC. This is bad because it indicates that customers cannot pay their billsD. This is bad because it indicates detrimental cash flow for the companyE. This is good because it indicates that customers are paying their bills faster E. This is good because it indicates that customers are paying their bills faster
Company A has a D/E ratio of 2 and Company B has a D/E ratio of 0.5. Based on that information, which of the following is true regarding their financing decisions?A. Company B is more highly leveraged than Company A.B. Company A has assumed less risk than Company B.C. Company A and B assume the same level of riskD. Company A is more highly leveraged than Company B.E. Company A is raising more capital through stock than debt. D. Company A is more highly leveraged than Company B.
Company A has a D/E ratio of 2 and Company B has a D/E ratio of 0.5. Based on that information, which of the following is true regarding their financing decisions?A. Company A is raising more capital through stock, so it can expect higher upside potential than Company B.B. Company A is raising more capital through debt, so it can expect higher upside potential than Company B.C. Company B is raising more capital through debt, so it is inherently riskier than company A.D. Company B is less attractive to creditors than Company A.E. Both Companies A and B have the same level of financial leverage. B. Company A is raising more capital through debt, so it can expect higher upside potential than Company B.
Given the following information for PSU Credit Union, calculate its Total Assets TurnoverNet Sales = $25,000,000Net Profit = $15,000,000Total Assets = $125,000,000Shareholder’s equity = $25,000,000A. 0.12B. 0.2C. 0.4D. 2.0E. 10.0 B. 0.2Net Sales/Total Assets
Which statement is the most accurate given the following table: A B CCurrent Ratio 2.2 0.9 1.0Inventory Turnover 5.1 6.3 6.4Days Sales Outstanding 93.1 12.5 167.9Total Asset Turnover 0.64 0.54 0.74Profit Margin 28.4% 7.1% 1.7%Return on Assets 18.0% 4.0% 1.0%Return on Equity 31.4% 8.1% 7.0%Debt/Equity 0.17 0.21 1.22Price/Earnings Ratio 23.3 18.9 10.2A. Company A manages its inventories bestB. Company B uses more debt than company CC. Company C is expected to grow faster than A or BD. Company B has better overall performance than company AE. Company B collects payments for goods sold faster than A or C E. Company B collects payments for goods sold faster than A or C
Which statement is the most accurate given the following table: A B CCurrent Ratio 2.2 0.9 1.0Inventory Turnover 5.1 6.3 6.4Days Sales Outstanding 93.1 12.5 167.9Total Asset Turnover 0.64 0.54 0.74Profit Margin 28.4% 7.1% 1.7%Return on Assets 18.0% 4.0% 1.0%Return on Equity 31.4% 8.1% 7.0%Debt/Equity 0.17 0.21 1.22Price/Earnings Ratio 23.3 18.9 10.2A. Company A manages its inventories bestB. Company B uses more debt than company CC. Company C generates the least income for every dollar of assetsD. Company B has better overall performance than company AE. Company C collects payments for goods sold faster than A or B C. Company C generates the least income for every dollar of assets
Which statement is the most accurate given the following table: A B CCurrent Ratio 2.2 0.9 1.0Inventory Turnover 5.1 6.3 6.4Days Sales Outstanding 93.1 12.5 167.9Total Asset Turnover 0.64 0.54 0.74Profit Margin 28.4% 7.1% 1.7%Return on Assets 18.0% 4.0% 1.0%Return on Equity 31.4% 8.1% 7.0%Debt/Equity 0.17 0.21 1.22Price/Earnings Ratio 23.3 18.9 10.2A. Company C has the highest profitabilityB. Company B has the highest liquidityC. Company A is the best at managing inventoryD. Company C is the best at collecting its accounts receivables E. Company A is the best at generating Income from its assets E. Company A is the best at generating Income from its assets
Which statement is the most accurate given the following table: A B CCurrent Ratio 2.2 0.9 1.0Inventory Turnover 5.1 6.3 6.4Days Sales Outstanding 93.1 12.5 167.9Total Asset Turnover 0.64 0.54 0.74Profit Margin 28.4% 7.1% 1.7%Return on Assets 18.0% 4.0% 1.0%Return on Equity 31.4% 8.1% 7.0%Debt/Equity 0.17 0.21 1.22Price/Earnings Ratio 23.3 18.9 10.2A. Company A has the lowest profitabilityB. Company B has the highest liquidityC. Company A is the best at managing inventoryD. Company B is the worst at collecting its accounts receivables E. Company C is the best at generating Sales from its assets E. Company C is the best at generating Sales from its assets