Determining the best way to raise money to fund a firms long-term investments is called:

a. the capital budgeting decision

b. the money flow processing decision

c. the portfolio decision

d. the capital structure decision

Which of the following is NOT true regarding mortgaged-backed securities (MBS)?

a. Securitization provides liquidity to the mortgage market and makes it possible for banks to loan more money to home buyers.

b. MBS are sold to investors who can hold them as an investment or resell them to other investors.

c. The MBS process allows the mortgage bank or other financial institution that made the original mortgage loan to get its money back out of the loan and lend it to someone else.

d. All of the above.

An investor is considering two equally risky investments. Investment A is expected to return $1,000 per year for the next 5 years. Investment B is expected to return $6,000 at the end of 5 years. Which of the following statements is MOST correct if both investments A and B have the same cost?

a. A risk averse investor will select investment A because it provides cash earlier than investment B.

b. A risk averse investor will select investment B because it is expected to provide the most cash ($6,000 > $5,000).

c. The investor will select investment A only if the cost is less than $1,000.

d. The investor may select investment A or investment B depending on the opportunity cost of money.

Assume that you won the Lotta Dough Lotto jackpot for $20 million. Further assume that you were offered a choice to receive the $20 million today, or receive it in equal installments of $1 million per year for 20 years. According to one of the principles of finance, which would you take?

a. You would be indifferent as to when you would receive the $20 million since the total number of dollars received is the same either way.

b. You would take the $20 million in equal installments of $1 million per year for 20 years because it would be worth more than if you would receive it today.

c. You would take the $20 million in equal installments of $1 million per year for 20 years because you would be afraid of spending it all right away.

d. You would take the $20 million today because it would be worth more than if you would receive it in equal installments of $1 million per year for 20 years.

Maximization of shareholder wealth:

a. is achieved only if cash flows exceed accounting profits

b. represents a zero sum game in which one corporation gains at the expense of others

c. is not a practical goal since it cannot be measured effectively

d. provides benefits to society as scarce resources are directed to their most productive use

Which of the following securities will likely have the highest liquidity premium?

a. U.S. Treasury Bond maturing in 2027

b. U.S. Treasury Bill

c. AAA-rated corporate bond maturing in 2015 not actively traded

d. BBB-rated corporate bond maturing in 2020 actively traded on a major exchange

Private placements usually have several advantages associated with them, but also tend to suffer from specific disadvantages. Which of the following is a disadvantage of a private placement when compared to other methods of selling new securities?

a. higher interest costs

b. reduced flotation costs

c. avoidance of registration with the SEC

d. strictly standardized features/terms

Common examples of financial intermediaries include all of the following EXCEPT:

a. life insurance companies

b. venture capital firms

c. pension funds

d. mutual funds

A life insurance company purchases $1 billion of corporate bonds from premiums collected on its life insurance policies. Therefore:

a. the corporate bonds are direct securities and the life insurance policies are direct securities

b. the corporate bonds are indirect securities and the life insurance policies are indirect securities

c. the corporate bonds are indirect securities and the life insurance policies are direct securities.

d. the corporate bonds are direct securities and the life insurance policies are indirect securities.

Which of the following represents an attempt to measure the net results of the firms operations (revenues versus expenses) over a given time period?

a. statement of cash flows

b. sources and uses of funds statement

c. balance sheet

d. income statement

Gross profit is equal to:

a. revenues minus expenses

b. profits plus depreciation

c. sales minus cost of goods sold

d. earnings before taxes minus taxes payable

An income statement may be represented as follows:

a. Sales - Expenses = Retained Earnings

b. Sales - Expenses = Profits

c. Revenues - Liabilities = Net Income

d. Sales - Liabilities = Profits

Which of the following ratios would be the poorest indicator of how rapidly the firms credit accounts are being collected?

a. average collection period

b. cash conversion cycle

c. times interest earned

d. accounts receivable turnover ratio

An analyst is evaluating two companies, A and B. Company A has a debt ratio of 50% and Company B has a debt ratio of 25%. In his report, the analyst is concerned about Company Bs debt level, but not about Company As debt level. Which of the following would best explain this position?

a. Company A has a lower times interest earned ratio and thus the analyst is not worried about the amount of debt.

b. Company B has much higher operating income than Company A.

c. Company B has a higher operating return on assets than Company A, but Company A has a higher return on equity than Company B.

d. Company B has more total assets than Company A.

As of today, the most severe economic crisis to afflict the United States economy is considered to be:

a. the Great Depression of the 1930s

b. the Reagan Tax Law Changes of 1985

c. the Great Recession of 2007-2009

d. the Savings and Loan Crisis of 1978 -1982

A corporate treasurer is typically responsible for each of the following duties EXCEPT:

a. credit management

b. capital expenditures

c. cash management

d. cost accounting

A wealthy private investor providing a direct transfer of funds is called:

a. a financial intermediary

b. an angel investor

c. an investment banker

d. a venture capitalist

. Septon Inc. has an average collection period of 74 days. What is the accounts receivable turnover ratio for Septon Inc.?

a. 2.66

b. 1.74

c. 4.93

d. 2.47

Which form of organization is free of initial legal requirements?

a. sole proprietorship

b. general partnership

c. corporation

d. both a and b

Which of the following is NOT a benefit provided by the existence of organized security exchanges?

a. standardization of all debt agreements

b. helping businesses raise new capital

c. providing a continuous market

d. establishing and publicizing fair security prices

California Retailing Inc. has sales of $4,000,000; the firms cost of goods sold is $2,500,000; and its total operating expenses are $600,000. The firms interest expense is $250,000, and the corporate tax rate is 40%. What is California Retailings net income?

a. $288,000

b. $377,000

c. $350,000

d. $390,000

Company A and Company B have the same gross profit margin and the same total asset turnover, but company A has a higher return on equity. This may result from:

a. Company B has more common stock.

b. Company A has lower selling and administrative expenses, resulting in a higher net profit margin.

c. Company A has lower cost of goods sold, resulting in a higher net profit margin.

d. Company A has a lower debt ratio.