• MCQ

01."Shareholder wealth" in a firm is represented by:

a. the number of people employed in the firm.

b. the book value of the firm's assets less the book value of its liabilities.

c. the amount of salary paid to its employees.

d. the market price per share of the firm's common stock.

02. A(n) .................would be an example of a principal, while a(n)...........would be an

example of an agent.

a. shareholder; manager

b. manager; owner

c. accountant; bondholder

d. shareholder; bondholder

03 The decision function of financial management can be broken down into the ...........decisions.

a. financing and investment

b. investment, financing, and asset management

c. financing and dividend

d. capital budgeting, cash management, and credit management

04 How are funds allocated efficiently in a market economy?

a. The most powerful economic unit receives the funds.

b. The economic unit that is willing to pay the highest expected return

receives the funds.

c. the economic unit that considers itself most in need of funds

receives them.

d. Receipt of the funds is rotated so that each economic unit can receive

them in turn.

05 A major advantage of the corporate form of organization is:

a. reduction of double taxation.

b. limited owner liability.

c. legal restrictions.

d. ease of organization.

06. The purpose of financial markets is to:

a. increase the price of common stocks.

b. lower the yield on bonds.

c. allocate savings efficiently.

d. control inflation.

07. With monthly compounding at 10 percent for 30 years, the future value

of an initial investment of $2,000 is closest to

a. 40000.00

b. 39674.79

c. 37358.37

d. 34898.80

08. You want to buy an ordinary annuity that will pay you $4,000 a year for the

next 20 years. You expect annual interest rates will be 8 percent over that time period.

The maximum price you would be willing to pay for the annuity is closest to

a. 32000

b. 39272

c. 40000

d. 80000

09. Determine a firm's total asset turnover (TAT) if its net profit margin (NPM) is 4 percent, total assets are $10 million,

and ROI is 10 percent.

a. 1.60

b. 1.87

c. 2.50

d. 4.00

10. Which of the following statements (in general) is correct?

a. A low receivables turnover is desirable.

b. The lower the total debt-to-equity ratio, the lower the financial risk for a firm.

c. An increase in net profit margin with no change in sales or assets means a poor ROI.

d. The higher the tax rate for a firm, the lower the interest coverage ratio.