[1] Short-term finance: [A] ensures that sufficient equipment is available to produce the amount of product desired on a daily basis.

[B] ensures that dividends are paid to all stockholders on an annual basis.

[C] is concerned with managing net working capital.

[2] Net working capital is best defined as: [A] excess cash on hand.

[B] a firm's current assets.

[C] current assets minus current liabilities.

[3] A business entity formed by two or more individuals who each have unlimited liability for business debts is called a: [A] corporation.

[B] general partnership.

[C] sole proprietorship.

[4] Which form(s) of business is a treated as a distinct legal entity separate from its owners? [A] Sole proprietorship

[B] General partnership

[C] Corporation

[5] The primary goal of financial management is to: [A] maximize current dividends per share of the existing stock.

[B] minimize operational costs and maximize firm efficiency.

[C] maximize the current value per share of the existing stock.

[6] Which one of these terms refers to a conflict of interest between the stockholders and managers of a corporation? [A] Corporate activism

[B] Breach of indemnity

[C] Agency problem

[7] The long-term debts of a firm are liabilities: [A] owed to the firm's shareholders.

[B] that do not come due for at least 12 months.

[C] owed to the firm's suppliers.

[8] Your _____ tax rate measures the total taxes you pay divided by your total taxable income. [A] average

[B] marginal

[C] total

[9] Book value is: [A] based on historical cost.

[B] equivalent to market value for firms with fixed assets.

[C] the amount a willing buyer will pay for an asset.

[10] The quick ratio is calculated as: [A] current assets divided by current liabilities.

[B] current assets minus inventory, divided by current liabilities.

[C] net working capital divided by current liabilities.

[11] Which ratio calculates the amount of sales generated by each $1 invested in assets? [A] Total asset turnover

[B] Return on equity

[C] Return on assets

[12] Which ratio computes the amount of net income generated per each $1 of sales? [A] EV multiple

[B] Return on equity

[C] Profit margin

[13] Which ratio identifies the amount shareholders are willing to pay for each $1 per share of earnings a firm generates? [A] Equity multiplier

[B] Return on equity

[C] Price-earnings ratio

[14] The value of a firm can be defined as the total present value of the firm's future cash flows.

[A] True

[B] False

[15] An annuity stream where the payments occur forever is called a(n): [A] annuity due.

[B] indemnity.

[C] perpetuity.

[16] A perpetuity differs from an annuity because: [A] perpetuity payments vary with the rate of inflation.

[B] perpetuity payments vary with the market rate of interest.

[C] perpetuity payments never cease.

[17] Discounting cash flows involves: [A] taking the cash discount offered on trade merchandise.

[B] discounting only those cash flows that occur at least ten years in the future.

[C] adjusting all expected future cash flows to their current value.

[18] An annuity: [A] is a stream of payments that fluctuate with current market interest rates.

[B] is a stream of equal payments that occur in equal periods of time for a finite period.

[C] has a longer life span than a perpetuity.

[18] Which term is defined as the present value of all future cash flows minus the initial cost? [A] Future value

[B] Net present value

[C] Simple value

[19] The yield to maturity on a bond is the rate: [A] computed as annual interest divided by the bond's market price.

[B] of return currently required by the market.

[C] of annual interest paid on the bond.

[20] A bond with both a face value and a market value of $1,000 is called a _____ bond. [A] par value

[B] premium

[C] discount

[21] A deferred call provision is designed to: [A] guarantee a bond will be repaid on a certain date prior to maturity.

[B] prohibit the calling of a bond prior to a certain date.

[C] ensure bond holders receive full value when a bond is called.

[22] Which type of bond grants its holder the right to force repayment of the bond at a stated price prior to maturity? [A] Call

[B] Put

[23] The _____ premium is that portion of a nominal interest rate or bond yield that represents compensation for the possibility of nonpayment by the bond issuer. [A] interest rate risk

[B] liquidity

[C] default risk

[24] Bondholders are generally granted voting rights.

[A] True

[B] False

[25] Protective covenants: [A] are primarily designed to protect bondholders from future actions of the bond issuer.

[B] only apply to bonds that have a deferred call provision.

[C] are designed to protect the issuer should it default.

[26] Bonds issued by the U.S. government: [A] are considered to be default-free.

[B] are exempt from interest rate risk.

[27] Multiple classes of stock are primarily created to: [A] allow certain shareholders to retain control of a firm.

[B] replace cash dividends with share repurchases.

[28] A _____ is a form of equity security that has a stated liquidating value. [A] debenture

[B] bond

[C] preferred stock

[29] The voting procedure where you must own 50 percent plus one of the outstanding shares of stock to guarantee that you will win a seat on the board of directors is called straight voting. [A] True

[B] False

[30] The market in which new securities are originally sold to investors is called the _____ market. [A] secondary

[B] primary

[31] Preferred stock always has the right to vote.

[A] True

[B] False

[32] A market participant who buys and sells securities from inventory is called a dealer. [A] True

[B] False

[33] A stock that pays a constant annual dividend will have a market price that: [A] increases when the market rate of return increases.

[B] decreases when the market rate of return increases.

[34] Corporate dividends: [A] are always source of tax-free income for individual investors.

[B] are taxed at the personal level even though they are paid from aftertax income.

[35] The owner of preferred stock: [A] is entitled to a distribution of income prior to the common shareholders.

[B] is always guaranteed voting rights similar to a common shareholder.