1) Commercial paper offers which of the following advantages to the issuer?

It may be issued below the prime rate.

It requires no compensating balances.

It is secured by corporate assets to protect the buyer.

It may be issued below the prime rate and requires no compensating balances. 2) In the past, the study of finance has included

mergers and acquisitions.

raising capital.

bankruptcy.

All of the options 3) One of the major disadvantages of a sole proprietorship is

that there is unlimited liability to the owner.

the simplicity of decision making.

low organizational costs.

low operating costs. 4)

One advantage of level production is that

manpower and equipment are used efficiently at lower cost.

current assets fluctuate more than with seasonal production.

seasonal bulges and sharp declines in current assets occur.

None of the options are advantageous. 5)

A "normal" term structure of interest rates would depict

short-term rates higher than long-term rates.

long-term rates higher than short-term rates.

no general relationship between short- and long-term rates.

intermediate rates (one to five years) lower than both short-term and long-term rates. 6)

Bank loans to business firms

are usually short-term in nature.

are preferred by the banker to be self-liquidating.

may require compensating balances.

All of these options 7)

Agency theory examines the relationship between the

shareholders of the firm and the firm's investment banker.

owners of the firm and the managers of the firm.

board of directors and large institutional investors.

shareholders and the firm's transfer agent. 8)

Asset accounts on the balance sheet are listed in order of

liquidity.

profitability.

size.

importance. 9)

Which of the following securities represents an unsecured promissory note issued by a corporation?

Certificates of deposit

Savings accounts

Commercial paper

Money market fund 10)

The Internet has affected the financial markets by

creating more competition between markets.

pushing the cost of trading down.

forcing brokerage companies to consolidate.

All of the options 11)

Money markets include which of the following securities?

Common stock and corporate bonds.

Treasury bills and commercial paper.

Certificates of deposit and preferred stock.

All of the options 12)

If EBIT equals $200,000 and interest equals $40,000, what is the degree of financial leverage?

5.33x

1.25x

.8125x

4.33x 13)

Which of the following is not subtracted in arriving at operating income?

Interest expense

Cost of goods sold

Depreciation

Selling and administrative expense 14)

A corporation is

owned by stockholders who enjoy the privilege of limited liability.

easily divisible between owners.

a separate legal entity with perpetual life.

All of the above

15)

In break-even analysis, the contribution margin is defined as

price minus variable cost.

price minus fixed cost.

variable cost minus fixed cost.

fixed cost minus variable cost 16)

Ideally, which of the following type of assets should be financed with long-term financing?

Fixed assets only

Fixed assets and temporary current assets

Fixed assets and permanent current assets

Temporary and permanent current assets 17)

How will widespread adoption of electronic funds transfer affect the use of "float"?

It will increase its use somewhat.

It will decrease its use somewhat.

It will virtually eliminate its use.

It will have no effect on its use. 18)

Which account represents the cumulative earnings of the firm since its formation, minus dividends paid?

Paid-in capital

Common stock

Retained earnings

Accumulated depreciation 19)

The difference between total receipts and total payments is referred to as

cumulative cash flow

net cash flow.

beginning cash flow.

cash balance. 20)

In examining the liquidity ratios, the primary emphasis is the firm's

ability to effectively employ its resources.

overall debt position.

ability to pay short-term obligations on time.

ability to earn an adequate return.

21)

"Float" takes place because

a firm is early in paying its bills.

the level of cash on the firm's books is equal to the level of cash in the bank.

a lag exists between writing a check and clearing it through the banking system.

a customer writes checks without adequate supporting balances. 22)

Assuming proper accounting disclosure is used, a large extraordinary loss has what effect on the cost of goods sold?

It raises it.

It lowers it.

It has no effect.

More information is needed to determine the effect. 23)

A term loan is usually characterized by

a maturity of one to seven years.

a variable interest rate.

monthly or quarterly installment payments.

All of these options 24)

Future financial managers will need to understand

international cash flows.

computerized funds transfers.

international currency hedging strategies.

All of the options 25)

One of the first considerations in cash management is

to have as much cash as possible on hand.

synchronization of cash inflows and cash outflows.

profitability.

to put any excess cash into accounts receivable.